<PAGE> 1
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LAMINATING TECHNOLOGIES, 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.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l)
and 0-11.
(1) Title of each class of securities to which transaction
applies: NOT APPLICABLE
(2) Aggregate number of securities to which transaction applies:
NOT APPLICABLE
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: NOT APPLICABLE
(4) Proposed maximum aggregate value of transaction:
$500,000.00
(5) Total fee paid: $100.00
[X] Fee paid previously with preliminary materials: $100.00
[ ] Check the box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date of
its filing.
(1) Amount previously paid: _____________________________
(2) Form, Schedule or Registration Statement No.: _______________
(3) Filing Party: _____________________________
(4) Date Filed: ______________________________
<PAGE> 2
LAMINATING TECHNOLOGIES, INC.
1160 HIGHTOWER TRAIL
ATLANTA, GEORGIA 30350-2910
MAY 27, 1999
---------------------
SPECIAL MEETING OF STOCKHOLDERS
YOUR VOTE IS VERY IMPORTANT
---------------------
On behalf of the Board of Directors of Laminating Technologies, Inc., a
Delaware corporation ("LTI" or the "Company"), I cordially invite you to attend
a Special Meeting of the stockholders of LTI, to be held at 11:00 a.m. (Eastern
time) on Friday, June 25, 1999 at the Company's offices, 1160 Hightower Trail,
Atlanta, Georgia 30350-2910. As previously announced, LTI has entered into an
agreement (the "Asset Purchase Agreement") to sell substantially all of its
operating assets to Packaging Atlanta Corporation, a Georgia corporation
("PAC"). The terms of the proposed sale are described more fully in the enclosed
Proxy Statement, and a copy of the Asset Purchase Agreement is attached as Annex
A to the Proxy Statement.
LTI entered into this Asset Purchase Agreement, and the Board of Directors
is recommending that the Company's stockholders approve the proposed sale,
because the Board is of the view that LTI will not be able to generate
sufficient revenues and resulting gross profits to cover its fixed costs in
order to continue its operations in the future. The Board believes that this
reason, coupled with LTI's continued negative cash flow and the general decline
of its financial condition, suggest that the interests of LTI stockholders would
be better served if LTI pursues the sale of substantially all of its operating
assets to PAC. The sale of substantially all of LTI's operating assets, if
approved by the stockholders, will help LTI minimize its negative cash flow and
allow it to focus its efforts on its search for a suitable merger candidate
while it continues to exist as a public "shell" corporation. If approved by the
stockholders, the sale will take place on a date mutually agreed upon by LTI and
PAC, but in no event later than June 30, 1999, unless extended by the parties.
LTI expects to use the sale proceeds and a portion of its remaining cash to
pay the costs, fees and expenses associated with the sale and to pay the
outstanding liabilities of LTI. The Company expects to use a portion of its
remaining cash assets to cover administrative and other expenses during the
period in which LTI searches for a suitable merger candidate. Consequently,
LTI's stockholders will not receive any dividend or other form of payment or
distribution as a result of the completion of the sale of the operating assets
to PAC. The ownership of LTI's Common Stock by the stockholders will not be
affected by the sale, and LTI will continue to be subject to the reporting
requirements of the Securities Exchange Act of 1934. LTI expects that its Common
Stock will continue to trade on the OTC Bulletin Board. However, LTI will not
have any control over whether, or to what extent, a trading market will exist
following completion of the sale to PAC.
If the proposed sale to PAC is not approved by LTI stockholders, the
Company anticipates that its negative cash flow will continue indefinitely and
that it will likely be unable to continue as a going concern. As such, if the
proposed sale to PAC is not approved by LTI stockholders, the Company intends to
continue its search for another purchaser of substantially all of its operating
assets in the short term and a suitable merger candidate in the long term, or a
similar transaction involving the merger of the Company with or into another
entity.
We cannot complete the sale to PAC without the approval of LTI's
stockholders. We have therefore scheduled a Special Meeting of LTI's
stockholders to consider and vote upon the proposed sale of LTI's operating
assets to PAC. A majority of the issued and outstanding shares of LTI's Common
Stock must vote in favor of the proposal for the sale to PAC to be completed.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED, AND RECOMMENDS THAT YOU
VOTE "FOR," THE PROPOSED SALE OF SUBSTANTIALLY ALL OF LTI'S OPERATING ASSETS TO
PAC. In arriving at its recommendation, the Board of Directors has given careful
consideration to a number of factors which are described in the enclosed Proxy
Statement, including an
<PAGE> 3
opinion of Marshall & Stevens Incorporated, the Company's financial advisor,
that the consideration PAC will pay to LTI for the operating assets in the
proposed transaction is fair to LTI from a financial point of view.
Whether or not you plan to attend the Special Meeting, please take the time
to vote by completing and mailing the enclosed proxy card to us. Sending in your
proxy will not prevent you from voting in person at the Special Meeting, but
will assure that your vote is counted if you are unable to attend the Special
Meeting. If you sign, date and mail your proxy card to us without indicating how
you wish to vote on the proposed sale to PAC, your proxy will be counted as a
vote in favor of the adoption of the Asset Purchase Agreement and approval of
the proposed sale. If you fail to return your proxy card, the effect will be the
same as a vote against the adoption of the Asset Purchase Agreement and against
the approval of the proposed sale.
The enclosed Proxy Statement provides you with detailed information about
the proposed sale to PAC and LTI's plans following the completion of the sale.
We encourage you to read the entire Proxy Statement, including the Annexes, and
consider the information carefully prior to casting your vote.
/s/ MICHAEL E. NOONAN
Michael E. Noonan
Chairman of the Board, President
and Chief Executive Officer
2
<PAGE> 4
LAMINATING TECHNOLOGIES, INC.
1160 HIGHTOWER TRAIL
ATLANTA, GEORGIA 30350-2910
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FRIDAY, JUNE 25, 1999
---------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of LAMINATING
TECHNOLOGIES, INC. ("LTI" or the "Company") will be held on Friday, June 25,
1999, at 11:00 a.m., Eastern time, at the Company's offices, 1160 Hightower
Trail, Atlanta, Georgia 30350-2910, for the following purposes:
1. To consider and vote upon a proposal to approve the sale of
substantially all of the operating assets of LTI to Packaging Atlanta
Corporation, a Georgia corporation ("PAC"), as described in that certain
Asset Purchase Agreement, dated as of April 26, 1999, by and between PAC
and LTI and, in connection with such sale, to change the name of the
Company to "LTI Holdings, Inc.," to become effective at the time of the
completion of the sale of the operating assets to PAC.
2. To transact such other business as may properly come before the
Special Meeting and any adjournment or postponement thereof.
A copy of the Asset Purchase Agreement is attached as Annex A to the
accompanying Proxy Statement.
The Board of Directors of LTI has fixed the close of business on May 24,
1999 as the record date for the determination of LTI stockholders entitled to
notice of, and to vote at, the Special Meeting and any adjournment thereof. The
affirmative vote of a majority of the issued and outstanding shares of LTI
Common Stock is required for the adoption of the Asset Purchase Agreement and
approval of the sale of the operating assets to PAC.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" ADOPTION
OF THE ASSET PURCHASE AGREEMENT AND APPROVAL OF THE SALE OF THE OPERATING ASSETS
TO PAC.
YOUR VOTE IS IMPORTANT. THE BOARD OF DIRECTORS URGES YOU TO SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE, EVEN IF YOU ARE CURRENTLY
PLANNING TO ATTEND THE SPECIAL MEETING. NO POSTAGE IS NECESSARY IF THE PROXY IS
MAILED IN THE UNITED STATES. SENDING IN YOUR PROXY WILL NOT PREVENT YOU FROM
VOTING IN PERSON AT THE SPECIAL MEETING, BUT WILL ASSURE THAT YOUR VOTE IS
COUNTED IF YOU ARE UNABLE TO ATTEND. IF YOU DO ATTEND THE SPECIAL MEETING AND
WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE AT THE SPECIAL
MEETING. PROPERLY-EXECUTED PROXIES WILL BE VOTED IN THE MANNER YOU DIRECT. IF NO
DIRECTION IS SPECIFIED, PROPERLY-EXECUTED PROXIES WILL BE VOTED "FOR" ADOPTION
OF THE ASSET PURCHASE AGREEMENT AND APPROVAL OF THE SALE OF THE OPERATING ASSETS
TO PAC.
By Order of the Board of Directors
/s/ ROBERT L. DOVER
Robert L. Dover
Secretary
Atlanta, Georgia
May 27, 1999
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Note Regarding Forward-Looking Statements................... ii
Introduction................................................ 1
Voting Securities of the Company............................ 2
Record Date; Quorum; Vote Required........................ 2
Proxies; Revocation....................................... 2
Expenses of Solicitation.................................. 3
No Appraisal Rights....................................... 3
The Proposed Sale........................................... 4
Laminating Technologies, Inc.............................. 4
Packaging Atlanta Corporation............................. 4
Background of the Proposed Sale........................... 4
LTI's Reasons for the Proposed Sale; Recommendation of the
Board of Directors..................................... 6
Use of Estimated Net Proceeds; Operation of LTI after the
Proposed Sale.......................................... 7
Opinion of LTI's Financial Advisor........................ 9
Interests of Certain Persons in the Proposed Sale......... 11
Changes in Stockholder Rights after the Proposed Sale..... 11
Accounting Treatment; Material Federal Income Tax
Consequences........................................... 11
Regulatory Approvals...................................... 12
Expenses and Other Fees................................... 12
The Asset Purchase Agreement................................ 13
Operating Assets Being Sold and Liabilities and
Obligations Assumed.................................... 13
Purchase Price; Earnest Money Deposit..................... 13
Closing................................................... 14
Conditions to Closing..................................... 14
Representations and Warranties............................ 15
Covenants................................................. 16
Indemnification........................................... 16
Security Ownership of Certain Beneficial Owners and
Management................................................ 18
Selected Financial Data..................................... 20
Pro Forma Financial Data.................................... 21
Market for Common Equity and Related LTI Stockholder
Matters................................................... 23
Holders................................................... 24
Dividends................................................. 24
LTI Warrants.............................................. 24
Escrow Shares............................................. 25
Information Regarding the Company........................... 26
Business.................................................... 26
Preliminary Note.......................................... 26
Overview.................................................. 26
Products.................................................. 26
Operating Strategy........................................ 27
Strategy Following Completion of the Proposed Sale........ 27
Industry Background....................................... 27
Product Background........................................ 28
LTI Processed............................................. 28
Product Development....................................... 29
Sales and Marketing....................................... 30
Manufacturing............................................. 30
Competition............................................... 30
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Patents and Proprietary Rights............................ 31
Suppliers................................................. 31
Government Regulation..................................... 32
Employees................................................. 32
Properties.................................................. 32
Legal Proceedings........................................... 32
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 33
General................................................... 33
Results of Operations..................................... 33
Liquidity and Capital Resources........................... 33
Inflation................................................. 34
Year 2000................................................. 35
Independent Auditors........................................ 35
Other Business.............................................. 35
Stockholder Proposals....................................... 35
Stockholder List............................................ 35
Index to Financial Statements............................... F-2
Annex A -- Asset Purchase Agreement......................... A-1
Annex B -- Valuation and Financial Consultants.............. B-1
</TABLE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains or incorporates by reference statements that
constitute forward-looking information within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements regarding the Company's
future financial condition, results of operations, cash flows, financing plans,
business strategy, projected costs and capital expenditures, operations after
the proposed sale of substantially all of the Company's operating assets and
words such as "anticipate," "estimate," "expect," "project," "intend," and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks, uncertainties and assumptions. All of
these forward-looking statements are based on estimates and assumptions made by
the Company's management which, although believed by the Company's management to
be reasonable, are inherently uncertain. Stockholders are cautioned that such
forward-looking statements are not guarantees of future performance or results
and involve risks and uncertainties and that actual results or developments may
differ materially from the forward-looking statements as a result of various
considerations, including the considerations described in this Proxy Statement.
ii
<PAGE> 7
LAMINATING TECHNOLOGIES, INC.
1160 HIGHTOWER TRAIL
ATLANTA, GEORGIA 30350-2910
---------------------
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 25, 1999
---------------------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Laminating Technologies, Inc. ("LTI" or the
"Company") for use at the Special Meeting of Stockholders of the Company (the
"Special Meeting") to be held on Friday, June 25, 1999, at 11:00 a.m., Eastern
time, at the Company's offices, 1160 Hightower Trail, Atlanta, Georgia
30350-2910, and at any adjournment or postponement thereof, for the purposes
stated in the attached Notice of Special Meeting of Stockholders. This Proxy
Statement, the Notice of Special Meeting of Stockholders and the accompanying
form of Proxy are first being mailed to stockholders on or about May 28, 1999.
The matters to be considered and voted upon at the Special Meeting will be:
1. A proposal to approve the sale of substantially all of the
operating assets of LTI to Packaging Atlanta Corporation, a Georgia
corporation ("PAC"), as described in that certain Asset Purchase Agreement,
dated as of April 26, 1999, by and between PAC and LTI and, in connection
with such sale, to change the name of the Company to "LTI Holdings, Inc.,"
to become effective at the time of the completion of the sale of the
operating assets to PAC.
2. Such other business as may properly come before the Special Meeting
and any adjournment or postponement thereof.
A copy of the Asset Purchase Agreement is attached as Annex A to this Proxy
Statement.
The description of the proposal set forth above is intended only as a
summary and is qualified in its entirety by the more detailed information
contained elsewhere in this Proxy Statement.
<PAGE> 8
VOTING SECURITIES OF THE COMPANY
RECORD DATE; QUORUM; VOTE REQUIRED
The Board of Directors has fixed the close of business on May 24, 1999 as
the record date for determining the LTI stockholders entitled to notice of, and
to vote at, the Special Meeting or at any and all adjournments or postponements
of the Special Meeting. Only holders of record of LTI common stock at the close
of business on the record date will be entitled to notice of, and to vote at,
the Special Meeting. At the close of business on May 24, 1999, 3,185,100 shares
of LTI common stock, $0.01 par value (the "Common Stock"), were issued and
outstanding and were held by approximately 46 holders of record. The Common
Stock constitutes the only outstanding class of voting securities of LTI. Each
holder of record of shares of the Common Stock on the record date is entitled to
one vote per share on each matter to be acted upon or which may come before the
Special Meeting. Votes may be cast at the Special Meeting in person or by proxy.
The presence at the Special Meeting, either in person or by proxy, of the
holders of at least a majority of the issued and outstanding shares of the
Common Stock entitled to vote is necessary to constitute a quorum to transact
business at the Special Meeting. In the event that a quorum is not present at
the Special Meeting, the meeting may be adjourned or postponed in order to
solicit additional proxies.
The adoption of the Asset Purchase Agreement and approval of the proposed
sale of substantially all of the operating assets to PAC (referred to
hereinafter as the "Proposed Sale"), will require the affirmative vote of
holders of a majority of the issued and outstanding shares of the Common Stock.
Abstentions and "broker non-votes" (that is, shares of the Common Stock which
are not voted because the broker or other nominee lacks authority to vote such
shares in the absence of instructions from the beneficial owners of the shares)
with respect to any particular matter presented at the Special Meeting will be
considered shares not present and entitled to vote with respect to that
particular matter, although the shares may be considered present and entitled to
vote for other purposes and will be counted for purposes of determining the
presence of a quorum at the Special Meeting. Because approval of the Proposed
Sale requires a vote based upon the total number of shares of Common Stock that
are outstanding, any abstentions and broker non-voted shares will have the same
effect as a vote against the Proposed Sale. Accordingly, the Board of Directors
urges each LTI stockholder to vote and urges LTI stockholders whose shares of
Common Stock are held in the name of their broker, bank or nominee to instruct
such person to vote their LTI shares. Your bank, broker or nominee will not be
able to vote your shares of LTI Common Stock without your instructions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" ADOPTION
OF THE ASSET PURCHASE AGREEMENT AND APPROVAL OF THE SALE OF THE OPERATING ASSETS
TO PAC. In arriving at its recommendation, the Board of Directors has given
careful consideration to a number of factors which are described in greater
detail herein, including an opinion of Marshall & Stevens Incorporated, the
Company's financial advisor, that the consideration PAC will pay to LTI for the
operating assets in the Proposed Sale is fair to LTI from a financial point of
view. A copy of Marshall & Stevens Incorporated's opinion is attached as Annex B
to this Proxy Statement.
PROXIES; REVOCATION
Shares of LTI's Common Stock represented by properly-executed proxies which
have been received in time for the Special Meeting will be voted in the manner
specified on such proxies. Proxies which are properly executed and delivered but
which do not contain voting instructions will be voted "FOR" approval of the
Proposed Sale. It is not expected that any matters other than those contemplated
in this Proxy Statement will be brought before the Special Meeting; however, if
other matters are properly presented, the persons named in the enclosed form of
proxy will have the authority to vote in accordance with their judgment on any
other such matter, including, without limitation, any proposal to adjourn or
postpone the Special Meeting or otherwise concerning the conduct of the Special
Meeting.
2
<PAGE> 9
Proxy cards for use in connection with the Special Meeting accompany this
Proxy Statement. The grant of a proxy on the enclosed proxy card does not
preclude an LTI stockholder from voting in person at the Special Meeting or
revoking a proxy. A stockholder may revoke a proxy at any time before it is
exercised by:
- delivering to the Secretary of LTI, prior to the Special Meeting, a
written notice of revocation bearing a later date than the date of the
proxy;
- delivering to the Secretary of LTI, prior to the Special Meeting, a duly
executed proxy relating to the same shares of Common Stock bearing a
later date than the revoked proxy; or
- attending the Special Meeting and electing to vote in person. Attendance
at the Special Meeting will not, by itself, revoke a proxy.
If you choose either of the first two methods to revoke your proxy, you
must submit your notice of revocation or your new proxy card to the Secretary of
LTI at the address as follows:
LAMINATING TECHNOLOGIES, INC.
1160 Hightower Trail
Atlanta, Georgia 30350-2910
Attention: Robert L. Dover, Secretary
EXPENSES OF SOLICITATION
LTI will bear the cost of the solicitation of proxies in connection with
the Special Meeting. Arrangements will also be made by LTI with banks, brokerage
houses and other custodians, nominees and fiduciaries for the forwarding of
proxy solicitation materials to the beneficial owners of shares of Common Stock
held of record by such persons, and LTI will reimburse such banks, brokerage
houses, custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses in connection with the forwarding of these proxy solicitation
materials. In addition to solicitation by mail, directors, officers and
employees of LTI may solicit proxies from LTI stockholders personally or by
telephone, telecopy or telegram or other forms of communication. Such directors,
officers and employees will not receive additional compensation for such
solicitation but may be reimbursed for their out-of-pocket expenses in
connection therewith.
In addition, LTI has retained Georgeson & Company Inc. to assist LTI in the
solicitation of proxies from LTI stockholders in connection with the Special
Meeting. Georgeson & Company Inc. will receive a fee of $7,500.00 as
compensation for its services and a fee of $6.00 per non-objecting beneficial
owner and holder of unvoted shares, and will be reimbursed for its out-of-pocket
expenses in connection with its services.
NO APPRAISAL RIGHTS
Under the laws of the State of Delaware, LTI stockholders who object to the
Proposed Sale will not be entitled to appraisal rights.
3
<PAGE> 10
THE PROPOSED SALE
LAMINATING TECHNOLOGIES, INC.
New Cooler Corp. was incorporated in Georgia, in March 1993, and
subsequently changed its name to Laminating Technologies, Inc. In April 1996,
that company was merged into Laminating Merger Corporation, a Delaware
corporation, which changed its name to Laminating Technologies, Inc.
LTI is a development stage company which has been organized to research,
develop, design and market value-added packaging and specialty display products
which are manufactured using LTI's proprietary processing method, known as LTI
Processed(R). LTI Processed(R) is a patented process to laminate polyester film
onto single thickness paper (linerboard), to corrugate the laminated paper and
film, and to pre-print or post-print using multiple colors. The result is a
packaging material that will not delaminate over time and can withstand baking
and freezing.
PACKAGING ATLANTA CORPORATION
PAC is a Georgia corporation located in Canton, Georgia. PAC's primary
business operations involve the production of corrugated containers from
corrugated sheets that it acquires from third-party suppliers.
BACKGROUND OF THE PROPOSED SALE
LTI's relationship with PAC dates back to 1996, prior to LTI's initial
public offering of Common Stock. At that time, LTI was seeking a manufacturing
partner that would help LTI convert its laminated materials into finished
products for the baking, catering and medical distribution industries. LTI
approached PAC because the company fit LTI's general criteria for a potential
manufacturing partner, including that PAC was privately-owned, was based in the
Atlanta, Georgia area, and owned the specialized rotary die cutting and modern
printing equipment that LTI required for the manufacturing of its products.
LTI's discussions with PAC initially focused on the manufacturing needs of LTI,
but PAC subsequently expressed interest in manufacturing and selling LTI's
laminate products under PAC's own name. On December 20, 1996, LTI and PAC
executed an agreement pursuant to which PAC would manufacture LTI's laminate
materials into finished products and would provide storage for LTI's inventory,
work-in-progress and finished goods in a warehouse leased by LTI but located
adjacent to PAC's facilities. The manufacturing agreement between LTI and PAC
continues to remain in force, and the parties have been operating under that
agreement since its original date of execution.
At its July 1998 meeting, LTI's Board of Directors discussed recent events
that had affected the Company's prospective business operations. These events
included the departure of LTI's primary market maker from the retail securities
business, the material decrease in the trading price of LTI's Common Stock, and
Nasdaq's notification to LTI that the Common Stock was subject to delisting. The
Board also discussed the difficulties LTI could expect to face in raising
much-needed additional capital in 1999 and 2000 as a result of these and other
events, and, in view of these factors, instructed LTI's management to develop
and adopt a business strategy which would continue the Company's existing
business operations while simultaneously (i) seeking to minimize its expenses,
(ii) ceasing its new market development and focusing its efforts on servicing
existing markets, and (iii) considering and pursuing all potential merger,
acquisition, sales, joint-venture and other combination options. Michael Noonan,
LTI's President and Chief Executive Officer, was instructed to provide the Board
with periodic status reports on LTI's progress on these initiatives.
In late July 1998, LTI's management met with Frank W. Burke, who was a
principal of Brown Burke Capital Partners, Inc. ("Brown Burke"). Mr. Burke
expressed an interest in acquiring LTI's operating assets, but did not seek to
acquire LTI as an ongoing public entity. To accomplish this goal, Mr. Burke
suggested that Brown Burke provide the capital necessary to acquire LTI's
operating assets and that it enter into a joint-venture or similar relationship
with another manufacturer and LTI's management to create a new privately-held
corporation that would operate the acquired assets. Due to LTI's existing
manufacturing relationship with PAC, LTI's management began discussing Mr.
Burke's proposal with PAC, but PAC was not interested in the joint-venture
proposal. Throughout its discussions with LTI, however, PAC expressed a strong
interest in
4
<PAGE> 11
acquiring LTI's operating assets, along with hiring key members of LTI's
management, in order to expand LTI's laminate product operations and sell these
products to PAC's growing customer base.
LTI's discussions with Brown Burke were discontinued when Brown Burke
determined not to proceed with its joint-venture proposal. Shortly thereafter,
on July 29, 1998, two of LTI's primary stockholders arranged for a meeting
between Mr. Noonan, and Paul Mannion, a Senior Vice President of J.W. Charles
Securities, Inc.'s Specialty Finance Group in Atlanta, Georgia. Following that
meeting, LTI retained J.W. Charles Securities as its mergers and acquisitions
advisor to assist in the identification of potential third-party merger,
acquisition, sale or combination candidates. Mr. Noonan subsequently conducted
several meetings with Mr. Mannion and other J.W. Charles Securities
representatives, which led to the introduction of several potential candidates,
followed by meetings between Mr. Noonan and officers of the respective
candidates.
The meetings between Mr. Noonan and potential candidates did not evolve
into any agreements until, in late August 1998, J. W. Charles introduced LTI to
Pen Interconnect, Inc. ("Pen"). Pen, a public company whose common stock was
listed on Nasdaq at the time the parties began discussions, develops and
produces on a turnkey basis, interconnection and contract manufacturing
solutions for OEMs in the computer, computer peripheral, telecommunications,
instrumentation, medical and testing equipment industries. The discussions
between LTI's and Pen's representatives resulted in the negotiation of a
non-binding letter of intent, which was executed by the parties on September 28,
1998. The letter of intent provided for a merger of LTI and Pen through which
LTI stockholders would receive shares of Pen's common stock based on a
negotiated exchange ratio, and holders of options and warrants to purchase LTI
Common Stock would receive options and warrants to purchase Pen common stock on
substantially the same terms and based on this exchange ratio. The parties
anticipated that the merger would be consummated by the end of January 1999.
Following the execution of the letter of intent, LTI and Pen commenced the
negotiation of a definitive merger agreement, and each conducted its due
diligence investigation of the other's operations and financial condition. On
October 21, 1998, LTI retained Marshall & Stevens Incorporated to provide the
Company with advice as to the fairness, from a financial point of view, to the
holders of the Common Stock and LTI warrants of the merger consideration to be
received by such holders from Pen in the merger. Negotiations between the
parties continued throughout the three months following the execution of the
letter of intent, and the parties signed a definitive merger agreement on
December 29, 1998.
During the merger negotiations between LTI and Pen, Pen expressed to LTI's
management its intention to sell LTI's operating assets subsequent to the
merger. As a result, Pen indicated that it would not object to a sale of LTI's
operating assets prior to the consummation of the LTI-Pen merger. This prompted
LTI to re-initiate discussions with PAC concerning a potential sale of LTI's
operating assets to PAC, which resulted in negotiations of the Asset Purchase
Agreement beginning in February 1999.
As LTI and Pen continued their due diligence in connection with the
proposed merger, the market value of Pen's common stock began to decrease. In
addition, LTI's management was aware that The Nasdaq Stock Market was
considering delisting Pen's common stock from trading on the Nasdaq National
Market. On March 30, 1999, Pen announced that Nasdaq had delisted the Pen common
stock from the Nasdaq National Market. It is the Company's understanding that
the Pen common stock was delisted because Pen failed to meet certain
requirements necessary for continued listing. As a result of the delisting,
Pen's common stock would thereafter be traded on the OTC Bulletin Board. In
addition, in view of the delisting and other changes in Pen's financial
condition, Marshall & Stevens Incorporated indicated to LTI that it no longer
considered the merger consideration to be received by the holders of the Common
Stock and LTI warrants to be fair, from a financial point of view, to such
holders.
One of the conditions to LTI's performance under the merger agreement was
that LTI's stockholders, in exchange for their LTI Common Stock, receive common
stock of Pen that is listed on Nasdaq's National Market. Due to the delisting of
Pen's common stock from the Nasdaq National Market, the change in the opinion of
LTI's financial advisor, and the understanding that the merger could not
reasonably be consummated prior to the closing date deadline contained in the
merger agreement, LTI and Pen determined
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that the conditions necessary for the consummation of the merger could not be
met and, as a result, mutually agreed to terminate the merger agreement. The
merger agreement was terminated as of April 2, 1999.
Despite the termination of the merger agreement between LTI and Pen, LTI
decided to continue its negotiations with PAC to sell LTI's operating assets.
The LTI Board of Directors, in a special meeting of the Board held on April 23,
1999, decided to continue the course of the strategy it had originally discussed
in its July 1998 meeting by selling LTI's operating assets to PAC, discontinuing
LTI's business operations, and continuing the existence of LTI as a public
"shell" corporation as LTI's management pursued a search for suitable merger or
combination candidates. At the special meeting, the Board of Directors approved
the execution and delivery of the Asset Purchase Agreement and recommended the
sale of substantially all of LTI's operating assets to PAC. In addition, the
Board directed that the Proposed Sale be submitted to LTI's stockholders for
their approval and stated the Board's recommendation that stockholders approve
the Proposed Sale. The Asset Purchase Agreement was executed by LTI and PAC as
of April 26, 1999.
Other than as discussed above with respect to the negotiations regarding
the manufacturing agreement and the Asset Purchase Agreement, there have been no
material contracts, arrangements, understandings, relationships, negotiations or
transactions between PAC and LTI in the last two fiscal years or in 1999.
LTI'S REASONS FOR THE PROPOSED SALE; RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF LTI HAS UNANIMOUSLY APPROVED THE PROPOSED SALE
AND RECOMMENDS APPROVAL OF THE PROPOSED SALE BY LTI STOCKHOLDERS.
As discussed above under "Background of Proposed Sale," in response to
certain events that had affected the Company's prospective business operations,
the Board of Directors had instructed LTI's management to develop and adopt a
business strategy which would continue the Company's existing business
operations while simultaneously (i) seeking to minimize its expenses, (ii)
ceasing its new market development and focusing its efforts on servicing
existing markets, and (iii) considering and pursuing all potential merger,
acquisition, sales, joint-venture and other combination options. LTI's
management, directed by Michael Noonan, the Chief Executive Officer and
President, implemented this strategy and sought out appropriate potential merger
and acquisition candidates.
As described above under "Background of the Proposed Sale," the decision of
LTI's Board of Directors to approve the Proposed Sale and recommend that LTI
stockholders vote in favor of the Proposed Sale followed many months of
analyzing the Company's future prospects, discussing the advantages and
disadvantages of merging or disposing of LTI's assets, exploring merger and sale
alternatives, and even abandoning the proposed merger with Pen when it appeared
to the Board that the transaction was no longer in the best interests of the
Company and its stockholders. When PAC expressed renewed interest in acquiring
substantially all of LTI's operating assets, the Board considered whether or not
the interests of the LTI stockholders would be better served if LTI's operating
assets would be retained and (i) LTI would instead be dissolved, or (ii) LTI
would continue its business operations. The Board concluded that LTI's prospects
for future success have continued to diminish because LTI has not been able to
achieve a self-sustaining level of recurring sales. The Board determined that
LTI's failure to generate sufficient revenues to warrant its operations in the
future, coupled with LTI's continued negative cash flow and the general decline
of its financial condition, suggest that the interests of the LTI stockholders
would be better served if LTI did not continue its business operations. In
making its recommendation of the Proposed Sale to LTI's stockholders, the Board
considered a number of factors, including those summarized below:
- the likelihood of the Company achieving sustained profitability from its
current and planned operations in view of the limited financial resources
available to it;
- the price and terms of the Asset Purchase Agreement, including the fact
that the purchase price is payable in cash and PAC's ability to close the
transaction without a financing contingency;
- the fact that no firm offers have been received by the Company involving
cash consideration exceeding that to be paid by PAC, although various
indications of interest have been expressed by other potential buyers;
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- the opinion of Marshall & Stevens Incorporated stating that, subject to
the matters and limitations set forth therein, the consideration to be
received by LTI in the Proposed Sale is fair, from a financial point of
view; and
- the advantages of preserving the Company's cash resources and the
potential opportunity to acquire or be acquired by another business in an
unrelated industry which may have greater potential for generating a
return to LTI stockholders than its current business.
The Board of Directors also expressed its belief that if LTI were to merge
or enter into a combination with another entity, such a merger or combination
might provide greater value to the LTI stockholders than would the dissolution
of the Company. The Board determined that the search for a potential merger or
combination candidate, and the ultimate merger of LTI with another entity, may
take a significant amount of time and that during this time period LTI would
continue to suffer negative cash flow and a decline of its financial condition
if it were to continue its business operations. Therefore, the Board further
concluded that the sale of substantially all of LTI's operating assets to PAC
would help minimize these adverse financial conditions, and would therefore
serve the interests of the LTI stockholders.
The terms of the Proposed Sale were the result of arm's length negotiations
between the Company, PAC and their respective representatives.
In the event that the Proposed Sale is not approved by LTI stockholders or
not completed for any other reason, LTI will attempt to find another buyer for
the operating assets, seek a merger or similar combination transaction or find
additional sources of financing to allow it to continue operations. The Company
believes that, if its operating assets are not sold and it continues in its
current business, its negative cash flow will continue indefinitely and it is
likely that LTI will be unable to continue as a going concern. There can be no
assurance that any of these alternatives would be available to the Company on
desirable terms, if at all.
When the planned merger with Pen did not proceed, but a determination was
made to continue to pursue the Proposed Sale to PAC, the Board considered the
Company's options upon the completion of the Proposed Sale. The Board felt that
there were two courses of action that the Company could take. The first possible
course of action was to effect a distribution of LTI's assets after the
completion of the Proposed Sale through a plan of liquidation, special dividend,
stock repurchase or similar transaction. The second possible course of action
was to complete the Proposed Sale, discontinue LTI's business operations and
continue LTI's existence as a public "shell" corporation which would search for
a suitable merger or combination partner. After considering the advantages and
disadvantages of each, the Board has determined to proceed with the second
course. After the completion of the Proposed Sale, the Company's management and
Board of Directors intend to concentrate their efforts on exploring
opportunities to effect an acquisition of the Company, whether by merger,
exchange or issuance of securities, or similar business combination (a "Business
Combination"), with a business which management and the Board believe may have
significant growth potential. The Board believes that a Business Combination
with a business that has growth potential may create a greater return for LTI
stockholders than a distribution of the Company's remaining cash assets.
The foregoing discussion of the information and factors considered by the
Board of Directors is not intended to be exhaustive, but includes a summary of
all of the material factors that the Board took into account in making its
recommendation. The Board considered these factors in light of its knowledge of
the business, the industry in general, and information provided by LTI's
management and Marshall & Stevens Incorporated, the Company's financial advisor.
The Board did not attempt to quantify or assign relative weights to the specific
factors, nor did it determine that any factor or factors was or were of
particular importance. The Board viewed its determination as being based on the
totality of the information presented to and considered by the Board, and did
not believe it to be practical to assign weights to the various factors.
USE OF ESTIMATED NET PROCEEDS; OPERATION OF LTI AFTER THE PROPOSED SALE
After the completion of the Proposed Sale, the Company will have no further
operating business and LTI's management and Board of Directors intend to
concentrate their efforts on exploring Business Combination opportunities. As
discussed above under "LTI's Reasons for the Proposed Sale; Recommenda-
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tion of the Board of Directors," the Board of Directors has determined at this
time not to liquidate the Company or otherwise distribute any of its remaining
assets, including any of the proceeds of the Proposed Sale, to LTI stockholders
through a liquidation, special dividend, stock repurchase or similar device.
Rather than dissolve the Company, the Board has determined to maintain the
Company as a public "shell" corporation which will seek suitable Business
Combination opportunities. The Board believes that a Business Combination with
an operating company has the potential to create a greater value for LTI
stockholders than a liquidation or similar distribution. Accordingly, a vote in
favor of the Proposed Sale will effectively constitute a vote in favor of
changing the nature of the Company's business. In addition, LTI stockholders
should be aware that, depending on the structure of a future Business
Combination, they may not have an opportunity to vote on the transaction
effecting such Business Combination. If a suitable Business Combination
candidate is not identified within a time period that the Board believes is
reasonable following the completion of the Proposed Sale, the Board would
consider a liquidation or similar distribution. As of the date of this Proxy
Statement, the Company has no agreements, commitments or understandings with any
Business Combination candidates.
The Company anticipates that the proceeds of the Proposed Sale and a
portion of its remaining cash will be used to repay substantially all of LTI's
indebtedness and satisfy its other obligations. On a going-forward basis, LTI
plans to use its cash to pay ongoing general and administrative expenses, which
are expected to be significantly reduced from their current levels, and to seek
suitable Business Combination candidates. LTI's operating expenses after the
Proposed Sale may involve the leasing of office space sufficient to support
three or more employees, the employment of individuals necessary for the
negotiation and implementation of a Business Combination, and the retention of
legal, financial and other counsel and advisors to assist the Company in its
negotiations with Business Combination candidates and with regulatory compliance
matters. The Company expects that its monthly operating expenses following
completion of the Proposed Sale will be reduced to $25,000, without taking into
account possible fees and expenses of legal, financial and other counsel and
advisors.
Pending a Business Combination, the Company's cash assets will be invested
as the Company believes appropriate under the circumstances, which may include,
certificates of deposit, money-market accounts, United States Government
securities or other short-term instruments. LTI will attempt to make such
investments in a manner that will not cause it to be considered an investment
company subject to regulation under the Investment Company Act of 1940.
The Company may use its cash assets, securities or a combination thereof in
effecting a Business Combination. Alternatively, in the event that LTI is the
party being acquired in a Business Combination, the consideration paid to the
Company and/or LTI stockholders may consist of cash, securities of the acquiring
company or another entity, or a combination of cash and securities. In the case
of a Business Combination involving the exchange of common stock or similar
securities between LTI and the other party, it is likely that current LTI
stockholders would end up owning a minority interest in the company that is the
surviving entity in the Business Combination. Although LTI believes that there
will be a number of possible Business Combination alternatives available to it
in the future, there can be no assurance that a Business Combination which is
considered by the Board of Directors to be fair and in the best interests of LTI
and its stockholders will be completed.
It is currently anticipated that three of the Company's current employees
will remain with LTI following the completion of the Proposed Sale, including
Michael Noonan (President and Chief Executive Officer), Don Aldridge (Chief
Financial Officer) and Shirley Pigg (Controller). They will be responsible for
the administrative functions associated with running the corporation and assist
in the Company's efforts to identify and negotiate with suitable Business
Combination candidates, and are expected to continue with the Company until such
time as LTI finds a suitable Business Combination partner or is liquidated. It
is the Company's understanding that PAC has begun discussions with four members
of LTI's management to employ such individuals subsequent to the completion of
the Proposed Sale. These four individuals are Bob Dover (Secretary and Vice
President), Tim Titus (Marketing Director), Jim Scherer (National Accounts
Manager) and Kerry Clemmons (Administrative Manager). The employment of these
individuals is not a condition
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<PAGE> 15
precedent to the consummation of the Proposed Sale and LTI is not involved in
the negotiations between these employees and PAC.
Although the Board believes that the Proposed Sale and the strategy of
seeking a Business Combination transaction is in the best interests of the LTI
stockholders, there are risks inherent in this strategy that should be
considered by LTI stockholders in connection with their voting decision. These
risks include, but are not limited to, the following:
- the success of the Company following completion of the Proposed Sale will
depend on its ability to identify attractive Business Combination
candidates and complete a Business Combination with one or more such
candidates on terms that are fair and in the best interests of LTI and
its stockholders. The Company expects that it will experience significant
competition in its search for attractive Business Combination candidates,
including competition from other businesses, venture capital firms,
buyout funds, and other entities and groups which may have significantly
greater financial resources and merger and acquisition experience than
LTI. There can be no assurance, therefore, that such a Business
Combination will be completed on such terms, if at all.
- assuming that a Business Combination is effected, the success of the
company that survives as the operating entity after the Business
Combination will depend to a significant extent on the operations,
financial condition, management and business prospects of that company.
Because LTI currently has no agreement, commitment or understanding with
a particular Business Combination candidate at this time, the specific
risks associated with such a business cannot be known or assessed.
- approximately 8,025,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock have not yet been issued or reserved for issuance, and,
therefore are available for issuance in connection with any Business
Combination. Depending on the structure of a Business Combination, it may
be possible for the Company to issue a substantial number of shares of
its Common Stock or Preferred Stock without seeking the approval of LTI
stockholders. As LTI stockholders do not have preemptive rights with
respect to the issuance of shares of LTI Common Stock, any additional
issuances of shares, in connection with a Business Combination or
otherwise, would have the effect of reducing the percentage ownership of
current LTI stockholders and could result in a change in control of the
Company.
OPINION OF LTI'S FINANCIAL ADVISOR
THE FULL TEXT OF THE MARSHALL & STEVENS INCORPORATED OPINION, WHICH SETS
FORTH CERTAIN ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED,
LIMITATIONS ON, AND SCOPE OF ITS REVIEW IN RENDERING THE OPINION, IS ATTACHED TO
THIS PROXY STATEMENT AS ANNEX B AND IS INCORPORATED BY REFERENCE HEREIN. THE
OPINION IS ADDRESSED TO THE LTI BOARD OF DIRECTORS AND ADDRESSES THE FAIRNESS OF
THE SALE PRICE OF THE OPERATING ASSETS FROM A FINANCIAL POINT OF VIEW AND DOES
NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED SALE OR ASSET PURCHASE AGREEMENT,
NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF LTI COMMON STOCK AS TO
HOW TO VOTE AT THE SPECIAL MEETING. THE SUMMARY OF THE OPINION IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. LTI STOCKHOLDERS ARE
URGED TO CAREFULLY READ THE OPINION IN ITS ENTIRETY.
LTI retained Marshall & Stevens Incorporated ("Marshall & Stevens") to
render an opinion as to whether or not the consideration to be received by the
Company for certain operating assets, as described in this Proxy Statement, is
fair, from a financial point of view to the Company. Marshall & Stevens did not,
and was not requested by LTI to, make any recommendations as to the form or
amount of consideration to be received by the Company, or to solicit third party
indications of interest in acquiring all or part of LTI.
Marshall & Stevens delivered its oral opinion to the Board of Directors
during a special meeting of the Board held by conference call on April 23, 1999.
The opinion was confirmed in writing as of that date to the effect that as of
such date and based upon its review and assumptions and subject to the
limitations included in
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the opinion, the consideration offered for the sale of the assets is fair to the
Company from a financial point of view. The opinion was directed to the
Company's Board of Directors and does not constitute a recommendation to holders
of LTI Common Stock as to how any holder should vote with respect to the
Proposed Sale.
In arriving at its opinion, Marshall & Stevens, among other things: (i)
reviewed drafts of the Asset Purchase Agreement; (ii) reviewed the Annual
Reports to shareholders and Forms 10-KSB for the years 1997 and 1998, the Forms
10-QSB for June, September and December, 1998 and the preliminary annual results
for March 31, 1999, which were provided to Marshall & Stevens by the Company;
(iii) discussed the future prospects, including financing needs of the Company
with the management of LTI; (iv) reviewed the asset listing provided to Marshall
& Stevens by LTI; (v) performed a hypothetical valuation study of the business
operations of LTI; and (vi) performed such other analyses and reviews as
Marshall & Stevens deemed necessary and appropriate.
In preparing its opinion, Marshall & Stevens relied on the accuracy and
completeness of all information that was publicly available, supplied or
communicated to Marshall & Stevens by or on behalf of the Company and Marshall &
Stevens has not assumed any responsibility to independently verify the same.
Marshall & Stevens assumed that the financial forecasts provided to it were
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of the management of the Company as to the future
performance of LTI. Marshall & Stevens' opinion is based on the basis of a cash
transaction. The opinion does not address the relative merits of the proposed
transaction and any other transactions or strategies which may have been
discussed as alternatives to the Proposed Sale. The Company did not place any
limitations on Marshall & Stevens with respect to the procedures followed or
factors considered in rendering the opinion.
The following paragraphs summarize the analyses performed by Marshall &
Stevens in arriving at the opinion.
Marshall & Stevens reviewed the asset listing of LTI to determine the
approximate purchase price of the assets based on the formula included in the
Asset Purchase Agreement. It was determined that the assets being sold included
all the operating assets of the Company. In its analysis, Marshall & Stevens has
assumed that the highest and best use of the assets is in their continued use in
a business enterprise. The liquid assets, cash and investments were not included
in the transaction.
Marshall & Stevens reviewed the intangible assets included in the sale and
determined that their value was totally within the context of the continued
operation of LTI, that is that they had little or no value when considered
outside the business of providing specialty packaging using the LTI processes
and trademarks.
Marshall & Stevens performed a hypothetical valuation of the business
operations of LTI, as if the Company would continue in operation, under two
scenarios. Each scenario reflected the elimination of the liquid assets of the
Company. One scenario included continued research and development expenses while
the other reflected a reduced level of expenditures more consistent with
industry averages. Neither scenario included the significant future investment
required to develop the Company into a successful standalone entity. The
hypothetical cash flow analyses were discounted at a risk adjusted 20% based on
the weighted average cost of capital of a hypothetical buyer of the business
operations of LTI.
The Proposed Sale is a cash sale and therefore requires no estimate of
future value of the consideration.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analysis and
the application of those methods to the particular circumstances and, therefore,
is not readily susceptible to partial analysis or summary description.
Accordingly, Marshall & Stevens believes that its analysis must be considered in
its entirety, and to do otherwise could create a misleading or incomplete view
if the process underlying the opinion. In its analysis, Marshall & Stevens made
numerous assumptions regarding the performance of the Company, the industry and
the economy, many of which are beyond the control of the Company. The estimates
used in the analysis are not necessarily indicative of actual values or
predictive of future values which may vary significantly from those set forth
herein. In addition, analyses relating to the value of the businesses do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Accordingly, such analyses and estimates are
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inherently subject to substantial uncertainty and neither the Company nor
Marshall & Stevens assumes responsibility for the accuracy of such analyses and
estimates.
In connection with rendering its opinion, Marshall & Stevens will be paid a
fee of $43,000, which includes a fee of $28,000 that is attributable to the
services Marshall & Stevens rendered in connection with the proposed Pen-LTI
merger and $15,000 attributable to the opinion Marshall & Stevens has rendered
in connection with the proposed sale of operating assets to PAC. LTI has also
agreed to reimburse Marshall & Stevens for its reasonable out-of-pocket
expenses. No portion of Marshall & Stevens' fee is contingent upon the
successful completion of the Proposed Sale. In addition, the Company has agreed
to indemnify Marshall & Stevens and its employees, directors, officers, control
persons, affiliates and agents against certain liabilities incurred in
connection with its services, including liabilities under federal securities
laws.
INTERESTS OF CERTAIN PERSONS IN THE PROPOSED SALE
As discussed above under "Use of Estimated Net Proceeds; Operation of LTI
after the Proposed Sale," it is the Company's understanding that PAC has begun
discussions with members of LTI's management, including Messrs. Dover, Titus and
Scherer and Ms. Clemmons concerning their possible employment with PAC after the
Proposed Sale is completed. If the Proposed Sale is completed, these individuals
may become employees of or consultants to PAC and may therefore receive
compensation for their services to PAC. The Company has received no information
about the terms of any potential employment or consulting agreements between
these individuals and PAC. Additionally, the Board of Directors of LTI has
decided to grant to these individuals a retention bonus in an amount equal to
two months of each such individuals' respective salary to compensate for the
work these employees have performed during a time when LTI's future operations
have been uncertain. The Board also determined to grant severance payments of
six month's salary to Shirley Pigg, LTI's Controller and Scott Stewart, LTI's
Senior Vice President -- Marketing and Sales, as well as retention bonuses of
various amounts to certain non-management employees of LTI. Pursuant to
contractual obligations to Michael Noonan, LTI's Chief Executive Officer, LTI is
required to pay an amount equal to one-year's compensation to Michael Noonan in
consideration of a non-competition agreement executed by Mr. Noonan in favor of
LTI. Additionally, pursuant to contractual obligations to Don Aldridge, LTI's
Chief Financial Officer, LTI is required to pay a three-months severance payment
to Mr. Aldridge. The Company estimates that the aggregate amount of the
severance payments, non-competition consideration and retention bonuses
described in this Proxy Statement will equal approximately $290,000; however, if
Ms. Pigg, Mr. Aldridge and Mr. Noonan are retained as employees of LTI
subsequent to the sale of the operating assets, their severance payments may not
be paid until the termination of their respective employment with the Company.
CHANGES IN STOCKHOLDER RIGHTS AFTER THE PROPOSED SALE
Following the completion of the Proposed Sale, LTI's stockholders will
retain their equity interests in the Company. The completion of the Proposed
Sale will not result in any changes in the rights of LTI's stockholders. As
discussed above, LTI does not intend to distribute any of the proceeds derived
from the sale to LTI stockholders through a special dividend, liquidation, share
repurchase or similar device.
ACCOUNTING TREATMENT; MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The Proposed Sale will be accounted for as a sale, and the Company will
recognize gain or loss on the sale of its operating assets to the extent the
portion of the purchase price allocated to such operating assets exceeds or is
less than the Company's basis therein. In view of the fact that the Company is
selling its operating assets for less than book value, management does not
expect the Company will be liable for any state or federal income tax as a
result of the sale. Any gain will be offset by the Company's operating loss
carry-forward and any loss will add to the Company's loss carry-forwards.
For federal income tax purposes, when a trade or business is sold, each
asset is treated as sold separately in determining the seller's income, gain or
loss. The purchase price is allocated among the assets sold using a residual
value method in the case of a sale of assets to which goodwill could be
attached. The characterization of income or loss on property used in trader
business is generally governed by Section 1231 of the Internal
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Revenue Code. If the Section 1231 gains exceed the losses, each gain or loss is
a long term capital gain or loss derived from the sale of a capital asset to the
extent the asset has been held for twelve months or more. If the losses exceed
the gains, all gains and losses are treated as ordinary gains or losses. Any
gain attributable to the sale of inventory, any amount allocated to a covenant
not to compete, and any depreciation recapture, will produce ordinary income.
Capital gains of a corporation can be used to offset capital losses only,
with no offset against ordinary income. A three year carry-back and five year
carry-forward is available.
As discussed elsewhere in this Proxy under "Management Discussion and
Analysis of Financial Condition and Results of Operations", the Company has
incurred net operating losses which may be carried forward, although a change of
ownership occurring in 1996 may limit the utilization of losses incurred prior
to October 1996. In addition, depending on the future business combination
recommended by management as discussed elsewhere herein, the use of the
Company's operating losses may be limited or prohibited entirely depending on
the business combination opportunities implemented, and whether there is a
continuation of the Company's historic business.
THIS FOREGOING IS A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE PROPOSED SALE. THE COMPANY WILL NOT SEEK AN OPINION OF COUNSEL OR A
RULING FROM THE INTERNAL REVENUE SERVICE WITH RESPECT TO THE ANTICIPATED TAX
CONSEQUENCES TO THE COMPANY OR STOCKHOLDERS OF THE PROPOSED SALE. THE SUMMARY
DOES NOT CONSTITUTE LEGAL ADVICE TO ANY LTI STOCKHOLDER AND DOES NOT PURPORT TO
ADDRESS ANY STATE OR LOCAL TAX CONSEQUENCES. THE COMPANY URGES STOCKHOLDERS TO
CONSULT THEIR PERSONAL TAX ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM OF
THE PROPOSED SALE.
REGULATORY APPROVALS
To the Company's knowledge, completion of the Proposed Sale does not
require any regulatory approvals other than the filings in connection with this
Proxy Statement required under Federal securities laws.
EXPENSES AND OTHER FEES
The estimated costs to LTI for the Proposed Sale are anticipated to be
approximately $132,100, which amount includes $50,000 in legal expenses, $43,000
in financial advisory services, $27,000 in accounting services (this amount
includes fees and expenses the Company has incurred in connection with the
preparation of its March 31, 1999 Form 10-KSB), $12,000 in printing expenses,
and $100.00 in filing fees with the Securities and Exchange Commission.
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THE ASSET PURCHASE AGREEMENT
The following is a brief summary of certain material provisions of the
Asset Purchase Agreement. The Asset Purchase Agreement contemplates the sale of
substantially all of LTI's operating assets to PAC. THE DESCRIPTION OF THE ASSET
PURCHASE AGREEMENT SET FORTH HEREIN DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE ASSET
PURCHASE AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX A TO THIS PROXY
STATEMENT AND IS INCORPORATED INTO THIS PROXY STATEMENT BY REFERENCE. YOU ARE
URGED TO READ CAREFULLY THE ASSET PURCHASE AGREEMENT IN ITS ENTIRETY.
OPERATING ASSETS BEING SOLD AND LIABILITIES AND OBLIGATIONS ASSUMED
LTI has agreed to sell to PAC the following operating assets, properties
and rights of LTI relating to LTI's business operations:
- all uncompleted customer contracts with LTI;
- all tangible personal property (including computer software and
documentation) owned by LTI and used in LTI's business operations and all
right, title and interest of LTI in the inventory and supplies of LTI
used in its business operations;
- all leases, contracts or agreements relating to the operating assets
being sold or attributable to LTI's business operations;
- all operating data and records of LTI relating to the operating assets
being sold and relating to LTI's customers and LTI's suppliers;
- all accounts and notes receivable and revenues and other receipts and
collections of LTI existing as of the closing date of the asset sale
transaction;
- all right, title and interest of LTI in and to inventions, discoveries,
improvements, designs, patterns, processes, formulae, trade secrets,
proprietary rights and data, whether or not registered, and the
assignable licenses and permits, in each case used in LTI's business
operations; and
- all of LTI's right, title and interest in and to the name "Laminating
Technologies" and any reasonable derivation thereof.
In addition, PAC has agreed to assume or observe, subsequent to the closing
date of the Proposed Sale, LTI's obligations pursuant to the contracts that are
assigned by LTI to PAC in connection with the sale of operating assets, but will
not assume any other obligations or liabilities of LTI.
PURCHASE PRICE; EARNEST MONEY DEPOSIT
The purchase price (the "Purchase Price") for the assets being sold (the
"Assets") will be the sum of (i) fifty percent (50%) of the net book value of
inventory and property, plant and equipment of LTI as of the asset sale closing
date, as reflected on LTI's books and records as of the closing date and (ii)
eighty percent (80%) of the accounts receivable net of any reserves for bad debt
("Net Account Receivables"), as reflected on LTI's books and records as of the
closing date, to the extent that the total of Net Accounts Receivables is less
than or equal to $160,000. To the extent that the total of Net Accounts
Receivable exceeds $160,000, this excess will be treated as inventory and the
purchase price will be equal to fifty percent (50%) of the net book value of the
excess Net Accounts Receivable as reflected on LTI's books and records as of the
closing date. On or prior to the closing, LTI must pay all liabilities related
to the Assets ("Trade Payables"). If LTI fails to pay such Trade Payables in the
manner required, the Purchase Price will be adjusted to provide PAC with a
credit equal to the amount of the unpaid Trade Payables, and the portion of the
Purchase Price due at the closing will be reduced to reflect this credit. As of
the date of this Proxy Statement, the Company anticipates that the Purchase
Price will be approximately $500,000. As discussed above, this price is subject
to adjustment
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<PAGE> 20
and will be calculated as of the closing date; therefore, the Company is
currently unable to provide a definitive Purchase Price.
Upon execution and delivery of the Asset Purchase Agreement, PAC deposited
with LTI the sum of $50,000 as earnest money. The earnest money will be applied
to the Purchase Price due on the closing date of the Proposed Sale. If the
closing does not occur solely because of PAC's default under the Asset Purchase
Agreement, PAC will forfeit the earnest money and it shall become the sole
property of LTI. Conversely, if the closing does not occur for any reason other
than PAC's breach of the Asset Purchase Agreement, LTI must return the earnest
money to PAC.
CLOSING
The closing of the Proposed Sale will take place on the date that is
mutually agreed in writing between LTI and PAC; provided, however, that the
closing must in all events occur on or before June 30, 1999, unless this
deadline is extended by the mutual agreement of the parties.
CONDITIONS TO CLOSING
The obligation of PAC to consummate the Proposed Sale is subject to the
satisfaction (or waiver) of the following conditions:
- the Asset Purchase Agreement shall have been approved and adopted by the
requisite vote of the LTI stockholders. LTI must communicate the approval
of its stockholders to PAC on the date of the approval and in no case
later than five days prior to expiration of the closing deadline of June
30, 1999;
- all documents relating to the assignment or transfer of right, title and
interest in any intellectual property listed in the Asset Purchase
Agreement shall have been executed and delivered to PAC;
- each of the representations and warranties of LTI contained in the Asset
Purchase Agreement shall be true and correct in all respects, and shall
not have been violated in any respect, as of the closing date as though
made on and as of the closing date, and LTI shall have performed all of
its obligations under the Asset Purchase Agreement which by the terms
hereof are to be performed on or before the closing. Additionally, PAC
shall have received a certificate of the appropriate officer of LTI,
dated as of the closing date, confirming the satisfaction of these
conditions; and
- all consents, approvals or authorizations from third parties or
government agencies required to consummate the transactions contemplated
hereby, which in PAC's reasonable opinion may be needed, shall have been
obtained.
The obligation of LTI to consummate the Proposed Sale is subject to the
satisfaction (or waiver) of the following conditions:
- the Asset Purchase Agreement shall have been approved and adopted by the
requisite vote of the LTI stockholders; and
- each of the representations and warranties of PAC contained in the Asset
Purchase Agreement shall be true and correct in all respects, and shall
not have been violated in any respect, as of the closing date as though
made on and as of the closing date, and PAC shall have performed all of
its obligations under Asset Purchase Agreement which by the terms hereof
are to be performed on or before the closing. Additionally, LTI shall
have received a certificate of the appropriate officer of PAC, dated as
of the closing date, confirming the satisfaction of these conditions.
14
<PAGE> 21
REPRESENTATIONS AND WARRANTIES
The Asset Purchase Agreement contains various representations and
warranties customary for transactions of this type, including representations
and warranties of LTI relating to, among other things:
- due organization, valid existence and good standing of LTI and certain
similar corporate matters;
- the authorization, execution, delivery and enforceability of the Asset
Purchase Agreement, the consummation of the transaction contemplated by
the Asset Purchase Agreement and related matters;
- conflicts under any charters or bylaws, required consents or approvals
and violations of any instruments or law;
- PAC's waiver of compliance by LTI with the provisions of the Bulk Sales
Act of the State of Georgia, and LTI's covenant to pay and discharge any
claims of creditors which could be asserted against PAC by reason of such
non-compliance to the extent that such liabilities are not specifically
assumed by PAC under the Asset Purchase Agreement. Additionally, LTI will
indemnify and hold PAC harmless from, against and in respect of any loss,
liability, cost or expense suffered or incurred by PAC by reason of any
failure of LTI to pay or discharge these claims;
- title to the Assets;
- collectibility and status of LTI's accounts receivable;
- location of the personal property and inventories of LTI that are used in
LTI's business operations;
- LTI's compliance with laws and receipt of required government licenses,
permits, certificates and rights;
- litigation involving LTI;
- LTI tax, environmental, labor and employee benefit matters;
- intellectual property of LTI;
- the validity and enforceability of any contracts and agreements,
including customer contracts, being assigned by LTI to PAC in connection
with the sale of Assets;
- product warranties made by LTI;
- the condition of the Assets;
- the accuracy of information contained in LTI's financial statements;
- the absence of certain material changes or events;
- the absence of any undisclosed liabilities;
- the absence of any bankruptcy proceedings;
- the absence of any brokers' or finders' fees; and
- the absence of any known material inaccuracies or omissions contained in
any documents delivered or made available to PAC by LTI in connection
with the sale of the Assets and the absence of any known undisclosed
material issue, fact or circumstance with respect to the sale of the
Assets.
In addition, the Asset Purchase Agreement contains the representations and
warranties of PAC with respect to the following:
- due organization, valid existence and good standing of PAC and certain
similar corporate matters;
- the authorization, execution and delivery of the Asset Purchase
Agreement, the consummation of the transaction contemplated by the Asset
Purchase Agreement and related matters; and
- the absence of any brokers' or finders' fees.
15
<PAGE> 22
COVENANTS
In the Asset Purchase Agreement, LTI has agreed to the following covenants:
- for a period of five (5) years from the closing date, LTI will refrain
from, directly or indirectly, manufacturing, selling or marketing and
distributing (or assisting other parties in so doing) within the United
States any products or services competitive with the manufacture, sale,
marketing and distribution of specialized laminated cardboard, packaging
and containers;
- LTI will be responsible for the payment of all accrued compensation and
benefits for the its employees up to and including the closing date
(including payment to PAC of the cost incurred by PAC if PAC is required
by law to maintain or extend any employee benefit plan for any LTI
employee). LTI must also provide notice to its employees of the
availability of continuing health insurance coverage as may be required
under Federal or state law;
- after the closing LTI must pay in the normal course any and all valid
debts, liabilities and obligations of LTI arising from, out of or in
connection with the conduct of its business operations that are related
to the Assets or the ownership of the Assets prior to the closing date,
other than the liabilities that have been assumed by PAC;
- on or immediately following the closing date, LTI must change its
corporate name and terminate all rights and interest in the name
"Laminating Technologies, Inc.," in a manner necessary to make that name
available for the sole and exclusive use of PAC. At closing, LTI must
present to PAC evidence satisfactory to PAC that the name change has been
made or will be made; and
- between the date of the Asset Purchase Agreement and the closing date,
and except to the extent that PAC otherwise consents to in writing, LTI
must operate its business related to the Assets as presently operated and
only in the ordinary course, and use its best efforts to preserve intact
its good will, reputation and present business organization and to
preserve its relationships with persons having business dealings with it.
LTI must notify PAC prior to entering into any purchase, sale, or other
transaction which would negatively impact the value of the Assets.
INDEMNIFICATION
The representations, warranties, covenants, agreements and obligations
contained in the Asset Purchase Agreement, or in any document or instrument
executed and delivered in connection with that agreement, will survive the
closing of the Asset sale for a period of two years. In addition, the Asset
Purchase Agreement requires LTI to indemnify and hold harmless PAC, its
successors and assigns from, for and against any loss, damage, liability, injury
or deficiency which results from the inaccuracy of any representation or the
breach of any warranty made by LTI in that agreement or the failure of LTI duly
to perform or observe any term, provision, covenant, agreement or condition of
the Asset Purchase Agreement relating to the period prior to the closing date
(other than with respect to the liabilities that PAC will assume). In addition,
the Asset Purchase Agreement requires LTI to indemnify and hold harmless PAC,
its successors and assigns from, for and against any loss damage, liability,
injury or deficiency that results from the transport or arranged transport or
disposal of any hazardous materials to any location which is listed or proposed
for listing on any federal or state list of sites requiring investigation or
remediation.
The Asset Purchase Agreement also requires PAC to indemnify and hold
harmless LTI, its successors and assigns from, for and against any loss, damage,
liability or deficiency which results from the inaccuracy of any representation
or the breach of any warranty made by PAC or any failure of PAC duly to perform
or observe any term, provision, covenant, agreement or condition of the
agreement. The liability of either LTI or PAC to indemnify the other is limited
to the Purchase Price, and no damage can be recovered unless the
16
<PAGE> 23
aggregate amount of damages exceeds $10,000, provided, however, that once such
threshold is met, the full amount of damages, from the first dollar, can be
recovered.
The Asset Purchase Agreement imposes specific procedures, terms and
conditions on any party seeking indemnification under the agreement, including,
without limitation, notice requirements, defense of claim procedures and
settlement conditions.
17
<PAGE> 24
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 24, 1999, the number and
percentage of shares of Common Stock which, according to information available
to the Company, are beneficially owned by: (i) each person known by LTI to own
beneficially more than five percent of the outstanding Common Stock of LTI; (ii)
each director and named executive officer of LTI; and (iii) all executive
officers and directors of LTI as a group. Under rules adopted by the Securities
and Exchange Commission, a person is deemed to be a beneficial owner of common
stock with respect to which he has or shares voting power (which includes the
power to vote or to direct the voting of the security), or investment power
(which includes the power to dispose of, or to direct the disposition of, the
security). A person is also deemed to be the beneficial owner of shares with
respect to which he could obtain voting or investment power within 60 days of
May 24, 1999, such as upon the exercise of options or warrants.
<TABLE>
<CAPTION>
NAME AND ADDRESS(1) NO. OF SHARES(1) PERCENTAGE
- ------------------- ---------------- ----------
<S> <C> <C>
Michael E. Noonan........................................... 116,271(2) 3.6%
Robert L. Dover............................................. 50,666(3) 1.6
J. Scott Stewart............................................ 50,666(3) 1.6
Ronald L. Christiansen...................................... 8,000(4) *
Jerome I. Gellman........................................... 8,000(4) *
William J. Warren........................................... 8,000(4) *
J. Morton Davis............................................. 319,465(5) 9.7
Donald B. Sallee............................................ 318,614(6) 10.0
Steve Gorlin................................................ 302,000(7) 9.2
Westlake Acquisition Corporation............................ 290,100(8) 9.1
Ruki Renov.................................................. 277,440(9) 8.0
Esther Stahler.............................................. 277,440(10) 8.0
All executive officers and directors as a group (6
persons).................................................. 241,603(11) 7.1
</TABLE>
- ---------------
* Less than 1 percent
(1) Except as otherwise indicated, each of the parties listed above has sole
voting and investment power over the shares owned. Except as otherwise
indicated, the address of each stockholder is c/o Laminating Technologies,
Inc., 1160 Hightower Trail, Atlanta, Georgia 30350-2910.
(2) Includes 91,319 shares issuable upon exercise of immediately exercisable
options granted to Mr. Noonan by Steve Gorlin.
(3) Represents 50,666 immediately exercisable options to purchase Common Stock.
Does not include 5,334 shares issuable upon exercise of options that are
not exercisable within sixty days.
(4) As to each Director, includes 8,000 immediately exercisable options to
purchase Common Stock. Does not include 3,000 shares (per Director)
issuable upon exercise of options that are not exercisable within sixty
days.
(5) Represents 52,360 shares underlying a Unit Purchase Option ("UPO") to
purchase 13,090 Units owned by Mr. Davis, 52,360 shares underlying a UPO to
purchase 13,090 Units owned by D. H. Blair Investment Banking Corp. and
214,745 shares owned by D. H. Blair Capital Corp. Mr. Davis is the Chairman
of the Board and sole stockholder of D. H. Blair Capital Corp. and D. H.
Blair Investment Banking Corporation. Mr. Davis has sole power to vote or
direct the vote, to dispose of or to direct the disposition of the shares
owned by D. H. Blair Capital Corp. and D. H. Blair Investment Banking Corp.
The address of Mr. Davis is 44 Wall Street, New York, New York 10005.
(6) Also includes 42,038 shares that are held in escrow. See "Market for Common
Equity and Related Stockholder Matters -- Escrow Shares." The address of
Mr. Sallee is 980 South Powers Court, N.W., Atlanta, Georgia 30327.
(7) Includes 91,319 shares subject to options granted by Mr. Gorlin to Michael
E. Noonan. Also includes 67,338 shares that are held in escrow. See "Market
for Common Equity and Related Stockholder Matters -- Escrow Shares." The
address of Mr. Gorlin is 150 Gulf Shore Drive, Unit 601, Destin,
18
<PAGE> 25
Florida 32541. Mr. Gorlin may be deemed a "founder" of the Company, as such
term is defined in the Securities Act of 1933.
(8) The address of Westlake Acquisition Corporation is #205-15225 Thrift
Avenue, White Rock, BC, Canada V4B 2K9.
(9) Includes 209,440 shares underlying a UPO to purchase 52,360 Units owned
directly by Mrs. Renov and 68,000 shares underlying a UPO to purchase
17,000 Units owned by D.H. Blair & Co., Inc. ("Blair & Co."). Each Unit
consists of one share of LTI Common Stock, one Class A Common Stock
Purchase Warrant ("Class A Warrant") and one Class B Common Stock Purchase
Warrant ("Class B Warrant"). See "Market for Common Equity and Related LTI
Stockholder Matters -- LTI Warrants." Mrs. Renov has sole voting power of
and dispositive control over shares owned by her and shares voting power of
and dispositive control over shares owned by Blair & Co. Mr. and Mrs.
Renov, collectively, are principal shareholders of Blair & Co. The address
of Mrs. Renov is 172 Broadway, Lawrence, New York 11559.
(10) Includes 209,440 shares underlying a UPO to purchase 52,360 Units owned
directly by Mrs. Stahler and 68,000 shares underlying a UPO to purchase
17,000 Units owned by Blair & Co. Mrs. Stahler has sole voting power of and
dispositive control over shares owned by her and shares voting power of and
dispositive control over shares owned by Blair & Co. Mr. and Mrs. Stahler,
collectively, are principal shareholders of Blair & Co. The address of Mrs.
Stahler is 10 Lakeside Drive, Lawrence, New York 11559.
(11) Includes 216,651 shares issuable upon exercise of options that are
immediately exercisable. Does not include 19,668 shares issuable upon
exercise of options that are not exercisable within sixty days.
19
<PAGE> 26
SELECTED FINANCIAL DATA
The selected historical financial data presented below for the years ended
March 31, 1999 and March 31, 1998 are derived from the financial statements of
the Company, which statements have been audited by Grant Thornton LLP,
independent certified public accountants. The selected historical financial data
presented below for the years ended March 31, 1997, March 31, 1996 and March 31,
1995 are derived from the financial statements of the Company, which were
audited by Richard A. Eisner & Company, LLP. The financial data set forth below
should be read in conjunction with the Company's financial statements and notes
thereto included elsewhere in this Proxy Statement and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues, net.................... $1,877,703 $ 519,069 $ 23,918 $ 119,412 $ 86,486
Gross profit (loss).............. $ 594,061 $ 117,950 $ 7,167 $ (158,042) $ (213,591)
Net loss......................... $ (967,176) $(1,352,072) $(2,408,710) $(1,228,745) $(1,580,061)
Net loss per common share........ $ (0.35) $ (0.49) (1.47) (2.02) (2.70)
Weighted average common shares
outstanding.................... 2,775,100 2,775,095 1,667,821 632,719 586,269
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------------------
1999 1998 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Working capital (deficiency)................ $ 2,350,563 $ 3,463,556 $ 4,746,548 $(2,089,725)
Total assets................................ $ 2,801,865 $ 3,999,390 $ 5,303,006 $ 20,529
Total liabilities........................... $ 190,068 $ 395,040 $ 347,234 $ 2,536,739
Deficit accumulated during the development
stage..................................... $(9,103,931) $(8,136,755) $(6,784,683) $(4,375,973)
Total stockholder's equity.................. $ 2,611,797 $ 3,604,350 $ 4,955,772 $(2,516,210)
</TABLE>
20
<PAGE> 27
PRO FORMA FINANCIAL DATA
The unaudited pro forma financial data gives effect to the Proposed Sale,
assuming that the Proposed Sale had been effective for all periods presented.
The unaudited pro forma financial statements and accompanying notes should be
read in conjunction with the Company's historical financial statements and the
notes thereto included elsewhere in this Proxy Statement. The unaudited Pro
Forma Consolidated Financial Statements are presented for informational purposes
only and do not purport to represent what the Company's financial position or
results of operations would actually have been if the consummation of the
Proposed Sale had occurred on the dates set forth therein, or to project the
Company's financial position or results of operations at any future date or for
any future period. However, the unaudited pro forma financial statements
contain, in the opinion of management, all adjustments necessary for a fair
presentation.
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
AS OF MARCH 31, 1999 AND FOR THE YEAR THEN ENDED
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 REF. 1999
(AUDITED) FOOTNOTE ADJUSTMENTS PRO FORMA
---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET:
Assets:
Consolidated balance sheet:
Cash............................................ $1,880,570 (1) $477,890 $ 2,358,460
Accounts receivable............................. 197,733 (2) (197,733) --
Inventory....................................... 400,812 (3) (400,812) --
Property and equipment, net..................... 261,234 (4) (261,234) --
Other assets.................................... 61,516 -- 61,516
---------- -----------
Total assets............................ $2,801,865 -- $ 2,419,976
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Accounts payable and accrued expenses........... $ 150,228 -- $ 150,228
Note payable.................................... 39,840 -- 39,840
---------- -----------
Total liabilities....................... 190,068 -- 190,068
Stockholders' equity:
Preferred stock................................. -- -- --
Common stock.................................... 31,851 -- 31,851
Additional paid-in capital...................... 11,709,254 -- 11,709,254
Accumulated deficit............................. (9,129,308) (5) (381,889) (9,511,197)
---------- -----------
Total stockholders' equity.............. 2,611,797 -- 2,229,908
---------- -------- -----------
Total liabilities and stockholders'
equity................................ $2,801,865 -- $ 2,419,976
========== ===========
Consolidated statement of operations:
Net sales....................................... $1,877,703 -- $ 1,877,703
Cost of goods sold.............................. (1,283,642) -- (1,283,642)
Operating expenses.............................. (1,798,044) -- (1,798,044)
Other income (expenses), net.................... 236,807 (6) (381,889) (145,082)
---------- -----------
Net loss..................................... $ (967,176) -- $(1,349,065)
========== ===========
</TABLE>
21
<PAGE> 28
Footnote references:
(1) Cash has been adjusted to reflect the proceeds of the sale as follows:
<TABLE>
<S> <C>
Accounts receivable......................................... $146,867
Inventory................................................... 200,406
Property and Equipment, net................................. 130,617
--------
$477,890
========
</TABLE>
(2) Accounts receivable has been adjusted to reflect the removal of the assets
sold.
(3) Inventory has been adjusted to reflect the removal of the assets sold.
(4) Fixed assets have been adjusted to reflect the removal of assets sold.
(5) Accumulated deficit has been adjusted to reflect the additional loss
attributable to the sale.
(6) Other income (expense) has been adjusted to reflect the recording of the
loss on sales of the operating assets.
22
<PAGE> 29
MARKET FOR COMMON EQUITY AND
RELATED LTI STOCKHOLDER MATTERS
LTI's Common Stock, Class A Warrants and Class B Warrants are traded on the
OTC Bulletin Board under the symbols "LAMT," "LAMTW" and "LAMTZ," respectively.
The Company's securities were previously traded on the Nasdaq SmallCap Market
under the same symbols prior to their delisting due to a failure to meet certain
Nasdaq listing requirements. The Company's securities were delisted on the
following dates: Common Stock -- December 17, 1998; Class A Warrants -- December
17, 1998; and Class B Warrants -- August 12, 1998. LTI decided to delist its
Units, which were reported under the symbol "LAMTU" on the Nasdaq SmallCap
Market, on February 18, 1998.
The following table sets forth the range of high and low bid quotations or
high and low sales prices for the Company's securities for each of the periods
indicated as reported by the OTC Bulletin Board and Nasdaq SmallCap Market, as
applicable. Bid quotations reflect interdealer prices without retail markup,
markdown or commission and may not necessarily represent actual transactions.
The Company's securities commenced public trading on October 9, 1996.
<TABLE>
<CAPTION>
QUARTER ENDED
UNITS ("LAMTU") HIGH LOW
- --------------- -------- -------
<S> <C> <C>
Commencing October 9, 1996 and ending December 31, 1996..... $10.2500 $6.2500
March 31, 1997.............................................. 9.6250 7.7500
June 30, 1997............................................... 11.5000 7.7500
September 30, 1997.......................................... 14.0625 10.5000
December 31, 1997........................................... 13.5625 8.0000
February 18, 1998........................................... 9.2500 2.2500
COMMON STOCK ("LAMT")
Commencing October 9, 1996 and ending December 31, 1996..... $ 5.6250 $3.7500
March 31, 1997.............................................. 5.6250 4.0000
June 30, 1997............................................... 6.3750 4.7500
September 30, 1997.......................................... 7.0000 5.8750
December 31, 1997........................................... 6.6250 3.5000
March 31, 1998.............................................. 4.2500 .6880
June 30, 1998............................................... 1.0000 .2500
September 30, 1998.......................................... .6870 .1875
December 31, 1998........................................... .3437 .1875
March 31, 1999.............................................. .3125 .1875
CLASS A WARRANTS ("LAMTW")
Commencing October 9, 1996 and ending December 31, 1996..... $ 2.7500 $2.0000
March 31, 1997.............................................. 3.0000 .9375
June 30, 1997............................................... 3.0000 .9375
September 30, 1997.......................................... 3.6250 2.3750
December 31, 1997........................................... 4.1875 2.0625
March 31, 1998.............................................. 2.4380 .3440
June 30, 1998............................................... .3450 .0310
September 30, 1998.......................................... .0620 .0310
December 31, 1998........................................... .03125 .03125
March 31, 1999.............................................. .03125 .03125
</TABLE>
23
<PAGE> 30
<TABLE>
<CAPTION>
QUARTER ENDED
UNITS ("LAMTU") HIGH LOW
- --------------- -------- -------
<S> <C> <C>
CLASS B WARRANTS ("LAMTZ")
Commencing October 9, 1996 and ending December 31, 1996..... $ 2.0000 $1.5000
March 31, 1997.............................................. 1.3750 1.1250
June 30, 1997............................................... 2.3750 1.1250
September 30, 1997.......................................... 2.8125 1.8125
December 31, 1997........................................... 2.8125 1.3125
March 31, 1998.............................................. 1.4380 .1250
June 30, 1998............................................... .1250 .03125
September 30, 1998.......................................... .03125 .03125
December 31, 1998........................................... .03125 .03125
March 31, 1999.............................................. .03125 .03125
</TABLE>
On April 28, 1999, the day immediately preceding the Company's public
announcement of the Proposed Sale, the range of the bid and asked prices of the
Company's Common Stock as quoted on the OTC Bulletin Board was $0.25 (high) to
$0.25 (low). On that date, the Company's Common Stock closed at $0.25.
HOLDERS
The approximate number of record holders of shares of the Common Stock of
the Company outstanding as of May 24, 1999 was 46.
DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. As discussed above,
LTI currently intends to retain the proceeds of the Proposed Sale and will not
pay out any dividend to stockholders in connection therewith. The declaration
and payment of future dividends, if any, will be at the sole discretion of the
Board of Directors and will depend upon factors deemed relevant by the Board of
Directors.
LTI WARRANTS
As of May 24, 1999, LTI has issued and outstanding Class A Warrants to
purchase 2,952,400 shares of LTI Common Stock and Class B Warrants to purchase
4,907,500 shares of LTI Common Stock.
Each of LTI's Class A Warrants entitles the registered holder to purchase
one share of LTI Common Stock and one LTI Class B Warrant at an exercise price
of $6.50 at any time until October 8, 2001. Additionally, LTI may redeem the
Class A Warrants on 30 days' written notice at a redemption price of $.05 per
Class A Warrant if the "closing price" of LTI's Common Stock for any 30
consecutive trading days ending within 15 days of the notice of redemption
averages in excess of $9.10 per share. "Closing price" means the closing bid
price of LTI's Common Stock if listed in the over-the-counter market on Nasdaq
or otherwise or the closing sale price if listed on the Nasdaq National Market
or a national securities exchange. If LTI elects to redeem any Class A Warrants,
it must redeem all Class A Warrants; no partial redemptions of the Class A
Warrants are permitted.
Each of LTI's Class B Warrants entitles the registered holder to purchase
one share of Common Stock at an exercise price of $8.75 at any time after
issuance until October 8, 2001. Additionally, LTI may redeem the Class B
Warrants on 30 days' written notice at a redemption price of $.05 per Class B
Warrant, if the closing price (as defined above) of LTI's Common Stock for any
30 consecutive trading days ending within 15 days of the notice of redemption
averages in excess of $12.25 per share. If LTI elects to redeem any Class B
Warrants, it must redeem all Class B Warrants; no partial redemptions of the
Class B Warrants are permitted.
The Warrants provide for adjustment of the exercise price and for a change
in the number of shares of Common Stock issuable upon exercise to protect
holders against dilution in the event of a stock dividend, stock split,
combination or reclassification of the LTI Common Stock or upon issuance of
shares of LTI
24
<PAGE> 31
Common Stock at prices lower than the market price of LTI Common Stock, other
than issuances upon exercise of options granted to employees, directors and
consultants to LTI under LTI's stock option plans, other warrants that were
outstanding on the date of the initial registration of the Class A Warrants and
Class B Warrants, or with respect to LTI's Unit Purchase Options.
LTI has reserved from its authorized but unissued shares a sufficient
number of shares of Common Stock for issuance upon the exercise of the Class A
Warrants and the Class B Warrants. Class A Warrant may be exercised upon
surrender of the Warrant certificate on or prior to its expiration date (or
earlier redemption date) at the offices of the Warrant Agent, with the form of
"Election to Purchase" on the reverse side of the Warrant certificate completed
and executed as indicated, accompanied by payment of the full exercise price (by
certified or bank check payable to the order of LTI) for the number of shares
with respect to which the Warrant is being exercised. Shares issued upon
exercise of Warrants and payment in accordance with the terms of the Warrants
will be fully paid and non-assessable.
For the life of the Warrants, the holders thereof have the opportunity to
profit from a rise in the market value of the Common Stock, with a resulting
dilution in the interest of all other stockholders. So long as the Warrants are
outstanding, the terms on which LTI could obtain additional capital may be
adversely affected. The holders of the Warrants might be expected to exercise
them at a time when LTI would, in all likelihood, be able to obtain any needed
capital by a new offering of securities on terms more favorable than those
provided for by the Warrants.
The Warrants do not confer upon the holder any voting or other rights of a
stockholder of LTI. Upon notice to the holders, LTI has the right to reduce the
exercise price or extend the expiration date of the Warrants.
ESCROW SHARES
In connection with LTI's initial public offering in 1996, the
then-stockholders of LTI placed, on approximately a pro rata basis, 410,000
shares, or one-third of the outstanding shares of LTI's Common Stock before the
initial public offering, into escrow pursuant to an escrow agreement. These
escrowed shares are not transferable or assignable; however, they may be voted
by the beneficial holders thereof. The escrow shares will be released from
escrow only if certain financial conditions or market prices for the Common
Stock have been met or achieved. As of the date of this Proxy Statement, none of
the financial conditions has been satisfied, nor has the market price been
achieved; therefore, no shares have been released from escrow. Any money,
securities, rights or property distributed in respect of the escrow shares, and
including any property distributed as dividends or pursuant to any stock split,
merger, recapitalization, dissolution, or total or partial liquidation of LTI,
will be held in escrow until release of the escrow shares. If none of the
applicable financial conditions or market price levels have been met or achieved
by March 31, 2000, the escrow shares, as well as any dividends or other
distributions made with respect thereto, will be canceled and contributed to the
capital of LTI.
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INFORMATION REGARDING THE COMPANY
BUSINESS
PRELIMINARY NOTE
As discussed elsewhere in this Proxy Statement, after the completion of the
Proposed Sale, the Company will have no further operating business and LTI's
management and Board of Directors intend to concentrate their efforts on
exploring Business Combination opportunities. The description of the Company's
business set forth below provides a discussion of LTI's business to date, but is
not meant to imply that the Company will proceed with such operations and
strategy if the Proposed Sale is not approved by stockholders and completed. In
the event that the Proposed Sale is not approved by stockholders or not
completed for any other reason, LTI will attempt to find another buyer for the
operating assets, seek a merger or similar combination transaction, or find
additional sources of financing to allow it to continue operations. There can be
no assurance that any of these alternatives would be available to the Company on
desirable terms, if at all.
OVERVIEW
Laminating Technologies, Inc. was incorporated in Georgia, in March 1993,
as New Cooler Corp., and subsequently changed its name to Laminating
Technologies, Inc. In April 1996, that company was merged into Laminating Merger
Corporation, a Delaware corporation, which changed its name to Laminating
Technologies, Inc.
LTI is a development stage company which has been organized to research,
develop, design and market value-added packaging and specialty display products
which are manufactured using LTI's proprietary processing method, known as LTI
Processed(R). LTI Processed(R) is a patented process to laminate polyester film
onto single thickness paper (linerboard), to corrugate the laminated paper and
film, and to pre-print or post-print using multiple colors. The result is a
packaging material that will not delaminate over time and can withstand baking
and freezing.
The LTI Processed(R) process can be utilized to produce a wide variety of
packaging products and specialty displays. To date, LTI has produced a number of
commercial products, including bakery dessert discs, pads and trays, catering
HOT'N COOLER(R) containers, frozen food shippers, point of purchase displays,
pizza delivery boxes and medical shippers. LTI believes that these products,
together with other potential LTI Processed(R) products, are capable of
improving upon existing packaging products by reducing or eliminating certain
limitations associated with such products. For example, LTI Processed(R)products
may be leakproof, resistant to a variety of solvent and petroleum-based
chemicals, recyclable, stronger, and have higher bursting strength than
conventional corrugated products. LTI also believes that the LTI
Processed(R)method may permit higher quality printing and results in more
attractive packaging than corrugated materials printed with traditional printing
processes. Such aesthetic qualities have become more important in recent years
as retailers have significantly increased the extent to which they display and
sell products in the same packaging in which they were shipped.
In addition, while LTI Processed(R) material is more costly to produce than
traditional corrugated board, it is generally less expensive than certain other
non-corrugated packaging products, including metal and plastic. Moreover,
because LTI Processed(R) containers often can be reused and can be collapsed in
the store pending reuse (thereby requiring less storage space than containers
made from materials such as styrofoam, metal and plastic), they may be more
cost-effective than other packaging materials, including traditional corrugated
materials. Based on these potential performance advantages and cost savings, LTI
believes that LTI Processed(R) packaging materials may be preferred to many
packaging products currently marketed by others.
PRODUCTS
On April 17, 1997, LTI announced "BAKE'N SHIP(TM)", a new product line,
which is available for sale to the baking industry. BAKE'N SHIP(TM) utilizes
LTI's patented and proprietary process, resulting in a new material which is
ovenable and freezable with the strength and structure of corrugated material.
This is LTI's
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first commercial product. The new product line can streamline the process by
which bakery products are produced by allowing the baker to bake, freeze, ship
and display in one package. In addition, certain versions of the product line
provide an appealing presentation media for baked goods.
In February 1998, LTI introduced its new "HOT'N COOLER(R)" line of
water-tight containers that keep food and beverages hot or cold, depending upon
the application. Research conducted by an independent laboratory has proven that
HOT'N COOLER(R) cools down faster (cans and ice) than the traditional hard
plastic, soft bag or styrofoam coolers. Additionally, during testing, HOT'N
COOLER(R) has proven to hold heat longer for food caterers of beans, ribs,
chicken, etc. HOT'N COOLER(R) products are available through the Company's
existing master distribution network.
OPERATING STRATEGY
LTI's strategy to date has focused on: (i) designing, developing and
marketing value-added, niche LTI Processed(R) products both directly and
indirectly to focused market segments, (ii) leveraging these developed markets
to and through vertically integrated forest product companies creating strategic
alliances, and (iii) obtaining license agreements and/or royalty arrangements
favorable to LTI expanding both the uses and volume for LTI
Processed(R)products.
STRATEGY FOLLOWING THE COMPLETION OF THE PROPOSED SALE
As discussed elsewhere in this Proxy Statement, after the completion of the
Proposed Sale, the Company will have no further operating business and LTI's
management and Board of Directors intend to concentrate their efforts on
exploring Business Combination opportunities. The Board of Directors has
determined at this time not to liquidate the Company or otherwise distribute any
of its remaining assets, including any of the proceeds of the sale to PAC, to
LTI stockholders through a liquidation, special dividend, stock repurchase or
similar device. Rather than dissolve the Company, the Board has determined to
maintain the Company as a public "shell" corporation which will seek suitable
Business Combination opportunities. The Board believes that a Business
Combination with an operating company has the potential to create a greater
value for LTI stockholders than a liquidation or similar distribution.
INDUSTRY BACKGROUND
The corrugated packaging industry is divided into three basic groups:
integrated converters, non-integrated converters and sheet plants. Integrated
converters are the largest manufacturers, grow and harvest their own timber and
process it for high volume into large, pre-sized linerboard rolls in various
basic grades. Linerboard produced for in-house corrugation is then moved to
corrugating lines where it is processed, cut and printed if desired. Integrated
converters are extremely competitive and focus primarily on high speed, high
volume manufacture of commodity-type paper and packaging products with low
profit margins. Accordingly, they generally avoid production of value-added
products which typically require costlier materials, more manual labor,
interruptions in production and have shorter manufacturing runs. Integrated
converters have the advantage of being largely self-sufficient for supplies of
raw materials and can guarantee continuity of production, thus competing with
value-added products largely by providing basic corrugated packaging at low
prices.
Non-integrated corrugating converters do not produce their own linerboard
but purchase linerboard roll-stock and corrugate it into sheets from which
finished packaging and other products are produced, either by them or by sheet
plants. Non-integrated converters generally compete on a smaller scale, are
regional in scope, focus their operations on shorter runs and produce more
value-added products than integrated converters.
Sheet plants do not produce or corrugate rolls of linerboard but rather
purchase finished corrugated sheets from converters and then design, cut,
customize and process these sheets into finished packaging, displays and other
specialty items, including post-corrugation laminated products such as
point-of-purchase displays. Sheet plants generally market to local or regional
end users who require higher cost, special design or value-added packaging and
have shorter run needs.
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PRODUCT BACKGROUND
Since the late 1960s, the corrugating industry has focused its
technological research and development largely on generating faster and more
efficient production of basic corrugated products through the use of high speed
corrugation, die-cutting and processing equipment designed to reduce labor
costs. Few advances have been made in the design or construction of the actual
corrugated packaging materials. LTI believes that there is a market for products
with physical properties such as insulation, improved strength, resistance to
chafing of the package surface, reduced abrasion of packaged products,
resistance to water and other liquids and improved graphics, print resolution
and gloss finishes. However, although film-on-film and film-on-paper laminates
exist for items such as snack-food bags and specialty products, LTI believes
that there currently exists no other film laminates that can withstand the heat,
pressure and stress of corrugation.
There currently exist certain alternative methods for producing value-added
corrugated products. For example, wax and other chemical coatings allow
corrugated board to be water resistant and scuff and abrasion resistant.
However, wax and chemical coatings are often absorbed by the linerboard over
time, thereby affecting its structural integrity. Increased bursting strength
can be achieved by increasing the weight of the linerboard or through "double
wall" or "triple wall" construction in which two or three layers of corrugating
"flutes" are sandwiched between layers of linerboard, creating bulkier material
which is difficult to bend. To the extent that packaging is required which
exceeds the capabilities of traditional corrugated boards, other materials such
as styrofoam, metal and plastic can be used. However, in addition to limited
physical advantages, many currently available value-added corrugated products
are often not purchased by national end users because they are typically
manufactured by non-integrated converters whose focus is more regional.
The most advanced printing method currently available for high volume
production of corrugated material is pre-printing on linerboard before
corrugating. Pre-printed linerboard is produced in roll form and then corrugated
into sheets. This type of printing has certain problems associated with it such
as chafing of the exposed printed surface and cracking along the "score line" (a
crease placed into a product to allow easy bending). Additionally, because the
process entails printing of a porous, exposed surface, it requires more ink to
be used and thus allows somewhat limited graphics quality and gloss
capabilities. Pre-printing on linerboard also requires that higher quality, and
therefore more expensive, linerboard be used.
An alternative printing method, litho-laminating, involves the lamination
of lithographically printed paper (lithographic printing produces a higher
quality image and is commonly referred to as offset printing) onto already
corrugated rigid sheets. Both the lithographic printing and the handling of the
rigid corrugated sheets are relatively slow and labor intensive and thus more
costly, but are generally required for items which demand the most advanced
graphics available such as point-of-purchase displays. Litho-laminated products
also suffer from the problems of chafing of the printed surface and cracking
along the score lines because the printed surface is exposed.
LTI PROCESSED(R)
LTI believes that the application of the LTI Processed(R) method, which is
a patented and proprietary process involving the lamination of polyester film
onto linerboard before corrugation, results in a packaging and display material
that is physically superior, more attractive and potentially more cost-effective
than some traditional corrugated products and certain non-corrugated packaging
products, including metal and plastic. The LTI Processed(R) material is
laminated to the linerboard prior to corrugation.
The corrugating process entails using steam, heat and pressure to mold
paper into the interior flutes of the corrugated board and these flutes are then
sandwiched between two layers of linerboard using a starch bonding agent and the
further application of heat and pressure. The stress inherent in the corrugating
process can cause improperly laminated film to distort, shrink, melt, or
delaminate over time and can cause improper bonding agents to bubble or
crystallize. LTI believes that the LTI Processed(R) method avoids these problems
by utilizing a proprietary combination or combinations of film, linerboard and
polymer bonding agents and by laminating using proprietary laminating
techniques. LTI believes that independent companies possessing the proper
machinery could produce LTI Processed(R)products with little or no modification
of existing equipment and with only minor interruption in production and thus
with minimal added processing cost. The resulting
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laminate could then be corrugated using traditional methods and virtually no
modification of existing machinery, thereby permitting high volume production of
LTI Processed(R) corrugated material.
LTI believes that the LTI Processed(R) laminate provides a protective
barrier allowing corrugated board, in the right configuration, to be leakproof
and resistant to a variety of petroleum-based products and other chemicals for
extended periods of time. The laminate allows the board to have a higher
bursting strength (bursting strength refers to the ability of the board surface
to withstand pressure before tearing) than traditional corrugated board. LTI
Processed(R) materials may also be recyclable, a significant advantage over
styrofoam, which may pose certain environmental hazards and has been restricted
in certain areas.
LTI believes that the LTI Processed(R) method can also significantly
improve on the ability to print corrugated board, especially for high volume
production orders. High volume printing of LTI Processed(R) materials can be
done in one of two ways, either by reverse-printing the polyester film before
laminating and corrugating or by printing onto linerboard before laminating and
corrugating. Both of these methods afford higher quality, more durable graphics
than is possible on traditional corrugated material while maintaining economies
of scale not possible with litho-lamination.
Reverse printing the polyester film ("reverse printing") before laminating
produces the highest quality image because the smooth surface of the film allows
extremely detailed, high resolution printing using minimal quantities of ink.
Laminating polyester film onto pre-printed linerboard ("pre-printing") also
allows high quality, high resolution and more detailed images because the layer
of film protects the printed surface. Pre-printing is used when the width of the
product to be printed exceeds the width of film printers, which are generally
used for items such as snack-food bags and are generally not designed for larger
dimension printing. Both of these methods have high gloss capabilities and
eliminate the chafing and cracking problems associated with traditional printing
methods on corrugated material because the printed surface is protected by the
external layer of film. These processes may reduce the cost of high quality
printing on corrugated products by effectively integrating printing into the
corrugator's high-speed, high-volume production lines. Moreover, in either case,
there is no need for the corrugator to utilize quality linerboard as is the case
with traditional corrugated printing processes.
PRODUCT DEVELOPMENT
LTI believes that the LTI Processed(R) method can be utilized to produce a
wide variety of packaging products and specialty displays. For example, LTI
believes that LTI Processed(R) may be utilized to produce reusable containers
for the large scale delivery of cold, frozen and fresh food which is now
frequently shipped in single-use cardboard boxes, as well as for packaging of
specialty and mail-order fresh foods, replacing bulky styrofoam and plastic
containers which are expensive to produce and ship. LTI believes LTI
Processed(R) products can be used as an alternative to styrofoam coolers and it
has produced waterproof, reusable, collapsible and printable beer, wine and soft
drink coolers and containers. LTI has also produced catering and pizza delivery
boxes and believes that LTI Processed(R) can produce improved alternatives to
corrugated products currently used in these industries. LTI Processed(R)products
may also have applications for the shipment of items with delicate finishes and
where the use of styrofoam has been curtailed (for example, in the case of
products shipped to the European Union). LTI Processed(R) products may also be
employed in the medical industry for packaging difficult to handle and
contaminated items and for containers for paints, solvents and chemicals which
are currently stored in metal cans.
LTI had targeted the prepared dessert segment of the bakery industry as an
initial market and developed a line of LTI Processed(R) bakery products for
institutional baking of cakes, cheese cakes, brownies, cobblers and strudel
products, that are physically superior and more cost effective than alternative
products currently used in the industry. LTI has continued to design, develop
and test alternative packaging designs and products targeted at other
industries. Because the exact specifications of the LTI Processed(R) material
can vary significantly depending on the use to which the product is put, LTI
must continually test sample products designed for specific end use
applications.
During the last two fiscal years ending March 31, 1999 and 1998, LTI has
spent approximately $463,000 and $543,000, respectively, for research and
development expenses.
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SALES AND MARKETING
LTI's sales force currently consists of two salespersons and a national
master distributor. LTI has focused directly on large volume users with its
sales force and through brokers and distributors for products better suited to
fit these channels. LTI has also utilized the services of independent sales
representatives. The sales force is under the direction of J. Scott Stewart,
Senior Vice President of Marketing/Sales.
LTI believes that much of the corrugated packaging industry is
characterized by long-standing business relationships and single source
purchasing (bundling) between manufacturers and end users. In addition,
potential customers currently utilizing non-corrugated packaging products must
be convinced of the relative advantages of LTI Processed(R) products. As a
result, LTI may encounter significant resistance in its marketing efforts and
expects that it will be required to some extent to educate the market regarding
LTI Processed(R) products. Moreover, LTI has spent significantly on trade shows,
sample kits and prototypes which activities have had an adverse effect on LTI's
results of operations. However, LTI believes this kind of market development
activity was necessary to help educate the market and in most cases a necessity
prior to consummating a sale.
MANUFACTURING
LTI has not directly manufactured either LTI Processed(R) roll-stock or
finished products. Instead, LTI has contracted with manufacturers to produce its
products. LTI Processed(R) polyester film can be laminated either on laminating
machines which are currently used largely for film-on-film lamination, or on
coating machines which currently coat single-ply cardboard with polyethylene and
other coatings for finishes such as those on cereal boxes. LTI believes that,
with the proper direction by trained personnel, independent companies possessing
the proper laminating and coating machinery can produce LTI Processed(R)
material with little or no modification of existing equipment and with only
minor interruption in production and thus with minimal added cost. LTI believes
that there are a sufficient number of laminators and coaters both locally and
nationally to fill LTI's production needs. LTI has entered into a formal
arrangement with Ludlow Corporation, a laminator and coater, to provide its
products to Company designated corrugators and converters. LTI has out-sourced
the corrugation of LTI Processed(R) roll-stock with Jet Corr, Inc., a
corrugator, to provide for the corrugation of LTI Processed(R) roll-stock and
such production is currently commercialized. Through the use of a laminator, a
corrugator and a converter, LTI is capable of manufacturing its products for the
baking industry (BAKE'N SHIP(TM)) in commercially viable quantities.
COMPETITION
Competition in the corrugated and packaging industries is intense and based
significantly on price. Moreover, certain aspects of LTI's business, including
printing, are characterized by rapidly evolving technology that could result in
the technological obsolescence of processes utilized by LTI. LTI competes with
many corrugating firms and manufacturers of other packaging products, including
those made of styrofoam, metal and plastic. Most of LTI's competitors have
substantially greater financial, technical and human resources than LTI and may
be better equipped to develop, manufacture and market products. These companies
also compete with LTI in recruiting and retaining highly qualified personnel and
consultants.
Additionally, there are both corrugated and other packaging and display
materials available which can provide some or all of the physical
characteristics of LTI Processed(R) products as well as high quality aesthetics
and which directly compete with LTI's products. Major corrugating and integrated
converters produce large quantities of corrugated products with wax and other
coatings which are water resistant and can be used, for example, to pack wet and
frozen foods for extended periods and to reduce abrasion of items with delicate
finishes. LTI has faced intense competition from these manufacturers to the
extent that these products present viable alternatives to LTI Processed(R)
products. These products remain attractive to many end users as they can be
lower priced and end users will not have to incur the potential cost of
interrupting product lines and supply sources to accommodate different packaging
from a new company. Additionally, LTI has faced competition for non-integrated
converters who supply corrugated products that are laminated with high quality,
lithographically printed paper. While LTI believes that these products do not
have the physical
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properties of LTI Processed(R) and offer little price advantage over LTI
Processed(R), they effectively compete with LTI's products in the market for
quality printed products.
Competition also exists with respect to markets for other forms of
value-added packaging, including products such as styrofoam, metal and plastic.
The physical properties and performance of these other materials have been long
established, end users of these products are accustomed to using these
materials, and manufacturers have massive national and international production
and marketing efforts as well as sophisticated and well developed product lines.
PATENTS AND PROPRIETARY RIGHTS
LTI's control of the process will depend in part on its ability to obtain
patent protection for its products, both in the United States and abroad. On
December 9, 1988, Michael Olvey, Sr., the inventor of the LTI Processed(R)
method and a founder and former President of LTI, filed a patent application
with the U.S. Patent and Trademark Office (the "U.S. Patent Office") covering
LTI's LTI Processed(R) technology. On March 15, 1990, the U.S. Patent Office
rejected claims of LTI's patent application as being too broad in light of prior
art. On April 19, 1993, Mr. Olvey assigned the rights to this patent application
to LTI. LTI submitted further modifications of its original application and was
granted U.S. Patent No. 5,772,819 on June 30, 1998 for the LTI Processed(R)
method. Additionally, U.S. Patent No. 5,853,121 was granted to LTI on December
29, 1998 for the HOT'N COOLER(R) tent top design. LTI also submitted a patent
application for its tray erector on March 1, 1999 but has not yet received a
patent for this product.
There can be no assurance that any patent applications filed by or on
behalf of LTI will result in patents being issued, that patents issued to LTI
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide any significant competitive advantage to LTI.
Furthermore, there can be no assurance that others have not independently
developed, or will not independently develop, similar products or technologies
or will not design around any of LTI's patents.
LTI also relies on trade secret protection for its confidential and
proprietary information. However, trade secrets are difficult to protect and
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to LTI's trade secrets or disclose such technology, or that LTI can
meaningfully protect its rights to patented and unpatented trade secrets.
LTI has protected its proprietary technology through the use of
non-disclosure agreements with the laminators, corrugators, converters and
printers and will do so with any suppliers with which it may establish strategic
alliances and production relationships. LTI also requires that certain of its
employees and consultants execute a confidentiality agreement upon the
commencement of an employment or consulting relationship with LTI. The
agreements generally provide that trade secrets and all inventions conceived by
the individual and all confidential information developed or made known to the
individual during the term of the relationship shall be the exclusive property
of LTI and shall be kept confidential and not disclosed to third parties except
in specified circumstances. There can be no assurance, however, that these
agreements will provide meaningful protection for LTI's proprietary information
in the event of unauthorized use or disclosure of such information.
SUPPLIERS
LTI is dependent on the suppliers of the raw materials used to produce LTI
Processed(R) products, including polyester film and linerboard. The corrugating
industry periodically suffers shortages of linerboard. These shortages more
seriously affect non-vertically integrated corrugating converters (those who do
not own their own timber and produce their own roll-stock) by raising prices and
forcing customers of corrugated board to purchase from integrated converters. To
the extent LTI intends to utilize non-integrated converters for the production
of LTI Processed(R) packaging, a shortage-induced price increase could raise the
price of such LTI Processed(R) materials beyond the value margin, causing end
users to seek integrated suppliers which may not use LTI's products. LTI has
relied upon Ludlow Corporation as a principal supplier of linerboard.
Additionally, LTI has entered into contracts with Jet Corr, Inc. and Packaging
Atlanta Corporation to corrugate and convert, respectively, LTI's integrated
products.
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GOVERNMENT REGULATION
To the extent that LTI Processed(R) is used in the food service and
packaging industries, LTI is required to ensure that its products meet federal
Food and Drug Administration (the "FDA") regulations regarding materials used in
contact with food. Polyester film used by LTI has received FDA approval for
contact with food. LTI believes that both polyester film and the bonding agents
used in LTI Processed(R) products are in compliance with approved food additive
regulations permitting the types of food contact use contemplated by LTI.
However, there can be no assurance that LTI's use of the materials included in
its products will not require separate FDA approval. Obtaining FDA approval has
historically been a costly and time-consuming process. LTI may also need to seek
regulatory approval from foreign governments for the use of the LTI Processed(R)
products shipped to those countries. The failure to obtain any required
regulatory approvals could have a material adverse effect on LTI. To date LTI
has not incurred substantial expenses to comply with environmental laws.
EMPLOYEES
LTI currently has seven full-time employees and one part-time employee. LTI
also utilizes the services of independent sales representatives. None of LTI's
employees is represented by a labor union and LTI believes its relations with
its employees to be satisfactory. On April 1, 1997, LTI placed its employees
with Paradyme, a Professional Employer Organization. Under terms of the
arrangement with Paradyme, LTI's employees became employees of Paradyme,
entitling the employees to obtain superior benefits that LTI previously could
not offer to its employees. While LTI must pay for the payroll cost of the
employees, and a fee for this service, it avoids the overhead and additional
administrative costs typically associated with these benefits.
It is currently anticipated that three of the Company's current employees
will remain with LTI following the completion of the Proposed Sale, including
Michael Noonan (President and Chief Executive Officer), Don Aldridge (Chief
Financial Officer) and Shirley Pigg (Controller). They will be responsible for
the administrative functions associated with running the shell company and
assist in the Company's efforts to identify and negotiate with suitable Business
Combination candidates, and are expected to continue with the Company until such
time as LTI finds a suitable Business Combination partner or is liquidated. It
is the Company's understanding that PAC has begun discussions with four members
of LTI's management to employ such individuals subsequent to the completion of
the Proposed Sale. These four individuals are Bob Dover (Secretary and Vice
President), Tim Titus (Marketing Director), Jim Scherer (National Accounts
Manager) and Kerry Clemmons (Administrative Manager).
PROPERTIES
LTI currently leases approximately 5,000 square feet of office space in
Atlanta, Georgia for its executive offices pursuant to a month-to-month
agreement (which commenced as a two-year lease on January 1, 1997) which
provides for a monthly rent of $4,791.66.
LTI also currently leases approximately 28,000 square feet of warehouse
space in Canton, Georgia. This is also a month-to-month agreement (which
commenced as a one-year lease on January l, 1998) which provides for a monthly
rent of $5,250.00.
In connection with the Proposed Sale, LTI intends to relinquish the office
space and warehouse space and relocate its administrative functions to other,
smaller office space that will be adequate for its reduced staffing needs.
LEGAL PROCEEDINGS
LTI is not involved in any material legal proceedings.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a development stage company organized to develop, design and
market value-added packaging and specialty display products. Since its
inception, the Company's efforts have been principally devoted to research,
development and design of products, marketing activities and raising capital.
The Company has had only limited sales and has incurred substantial operating
losses from these activities. The Company has only recently been experiencing
repeat orders from customers. Previously, the Company believed customers were
ordering primarily to evaluate the commercial potential of the Company's
products.
As discussed elsewhere in this Proxy Statement, after the completion of the
Proposed Sale, the Company will have no further operating business and LTI's
management and Board of Directors intend to concentrate their efforts on
exploring Business Combination opportunities.
The following discussion should be read in conjunction with the LTI's
audited financial statements, including the notes thereto, included elsewhere in
this Proxy Statement.
RESULTS OF OPERATIONS
Fiscal Year Ended March 31, 1999 Compared with Fiscal Year Ended March 31,
1998
Net sales increased from approximately $519,000 in the twelve months ended
March 31, 1998 (fiscal 1998) to $1,878,000 in the twelve months ended March 31,
1999 (fiscal 1999). In addition to pursuing product sales, LTI continued to
invest its resources in developing its technology for commercialization during
fiscal 1999. Gross profit was approximately $118,000 in fiscal 1998 as compared
to a gross profit of $594,000 in fiscal 1999.
Selling, general and administrative expenses increased by 15% from
approximately $1,154,000 in fiscal 1998 to approximately $1,335,000 in fiscal
1999. The increase is primarily attributable to additional costs in fiscal 1999
related to obtaining a patent and additional legal costs attributable to the
abandoned merger with Pen Interconnect, Inc.
Research and development expense decreased by 15% from approximately
$543,000 in fiscal 1998 to approximately $463,000 in fiscal 1999. This decrease
is primarily due to much of the Company's product line moving from the research
and development stage in fiscal 1999 to the actual commercialization of the
products.
Interest expenses decreased by $1,000 from approximately $6,000 for fiscal
1998 to approximately $5,000 for fiscal 1999. The decrease is due to the
reduction in the outstanding balance of a note payable.
Investment income decreased from approximately $233,000 in fiscal 1998 to
approximately $124,000 in fiscal 1999. This decrease is primarily due to the
amount of cash available for investing being greater in fiscal 1998 than in
fiscal 1999.
Net loss decreased 28% from approximately $1,352,000, or $.49 per share, in
fiscal 1998 to approximately $967,000, or $.35 per share, in fiscal 1999, as a
result of the foregoing factors.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering, the Company funded its activities
through loans from principal stockholders and private placements of equity and
debt securities. On October 9, 1996, the Company sold 1,700,000 Units at $5 per
Unit in a public offering. Each Unit consists of one share of Common Stock, one
Class A Warrant and one Class B Warrant. On November 4, 1996 the underwriter
exercised its over-allotment option to purchase an additional 255,000 units at
$5 per Unit. The initial public offering resulted in total net proceeds to the
Company of approximately $7,988,000.
33
<PAGE> 40
The net proceeds were used to: (1) repay the bridge debt of $1,995,000 plus
accrued interest, (2) pay the $150,000 accrued dividends on preferred stock, (3)
repay other existing debt and payables of approximately $320,000, and (4)
provide working capital for operations. Additional proceeds of the offering have
been used by the Company to implement its business plan, which has included the
development and testing of products utilizing the LTI Processed method and sales
and marketing activities. At March 31, 1999, the Company had $1.9 million in
cash and liquid investments. If the Company were to continue its current
operations, it would expect to continue to incur substantial research,
development and marketing costs in the future. In addition, if the Company were
to continue its current operations, it would also expect that general and
administrative costs necessary to support manufacturing and the expansion of a
marketing and sales organization would increase in the future. Accordingly, the
Company would expect to continue to incur operating losses for the foreseeable
future if it continued its current operations.
The Company anticipates that the proceeds of the Proposed Sale and a
portion of its remaining cash will be used to repay substantially all of LTI's
indebtedness and satisfy its other obligations. On a going-forward basis, LTI
plans to use a portion of its remaining cash to pay ongoing general and
administrative expenses, which are expected to be significantly reduced from
their current levels, and to seek suitable Business Combination candidates.
LTI's operating expenses after the Proposed Sale may involve the leasing of
office space sufficient to support three or more employees, the employment of
individuals necessary for the negotiation and implementation of a Business
Combination, and the retention of legal, financial and other counsel and
advisors to assist the Company in its negotiations and with regulatory
compliance matters. The Company expects that its monthly operating expenses
following completion of the Proposed Sale will be reduced to $25,000, without
taking into account possible fees and expenses of legal, financial and other
counsel and advisors.
Pending a Business Combination, the Company's cash assets will be invested
as the Company believes appropriate under the circumstances, which may include,
certificates of deposit, money-market accounts, United States Government
securities or other short-term instruments. LTI will attempt to make such
investments in a manner that will not cause it to be considered an investment
company subject to regulation under the Investment Company Act of 1940.
Certain common stockholders have agreed to place 410,000 shares of Common
Stock of the Company into escrow ("Escrow Shares"). The Escrow Shares will be
released from escrow only if certain financial conditions or market prices for
the Common Stock have been met or achieved. As of the date of this Proxy
Statement, none of the financial conditions has been satisfied, nor has the
market price been achieved; therefore, no Escrow Shares have been released from
escrow. In the event of the release of the Escrow Shares, the Company will
recognize during the period in which the earnings thresholds are probable of
being met or such stock price levels achieved, a substantial non-cash charge to
earnings (not deductible for income tax purposes) equal to the fair market value
of such shares on the date of their release, which would have the effect of
significantly increasing the Company's loss or reducing or eliminating earnings,
if any, at such time. There can be no assurance that the Company will attain the
targets which would enable the Escrow Shares to be released from escrow. The
recognition of the potential charges to income described above may have a
depressive effect on the market price of the Company's securities.
At March 31, 1999 the Company had net operating loss carry-forwards for
Federal income tax purposes of approximately $8,353,000. The net operating loss
and credit carry-forwards expire from March, 2009 through March, 2019.
Additionally, the Company's ability to utilize its net operating loss
carry-forwards may be subject to annual limitations pursuant to Section 382 of
the Internal Revenue Code.
INFLATION
LTI's financial statements are prepared in accordance with historical
accounting systems, and therefore, do not reflect the effect of inflation. The
impact of changing prices on the financial statements is not considered
significant.
34
<PAGE> 41
YEAR 2000
The Company believes that Year 2000 issues will not have a material effect
on its business. The Company uses packaged software for its accounting and
administrative functions. LTI has contacted its software vendors and received
assurances that the software is Year 2000 compliant.
INDEPENDENT AUDITORS
The independent accounting firm of Grant Thornton LLP audited the Company's
consolidated financial statements for the years ended March 31, 1998 and March
31, 1999. A representative of Grant Thornton LLP is expected to be present at
the Special Meeting, will be available to respond to questions, and may make a
statement if the representative desires to do so.
OTHER BUSINESS
LTI does not presently know of any matters that will be presented for
action at the Special Meeting other than those set forth in this Proxy
Statement. If other matters properly come before the Special Meeting, proxies
submitted on the enclosed form will be voted by the persons named in the
enclosed form of proxy in accordance with their best judgment.
STOCKHOLDER PROPOSALS
LTI presently anticipates that its next Annual Meeting of Stockholders will
be held on or about September 8, 1999. Any proposal by a stockholder intended to
be presented at the 1999 Annual Meeting of Stockholders must be received by LTI
at its principal executive offices not later than July 23, 1999 for including in
LTI's Proxy Statement and form of Proxy relating to that Annual Meeting of
Stockholders.
STOCKHOLDER LIST
A list of stockholders entitled to vote at the Special Meeting will be
available for inspection by any stockholder for any purpose germane to the
Special Meeting during ordinary business hours of the Company for a period of 10
days prior to the Special Meeting at LTI's principal executive offices.
By Order of the Board of Directors
/s/ ROBERT L. DOVER
Robert L. Dover
Secretary
35
<PAGE> 42
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
LAMINATING TECHNOLOGIES, INC.
AND SUBSIDIARY
MARCH 31, 1999 AND 1998
F-1
<PAGE> 43
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.......... F-3
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS............................... F-4
CONSOLIDATED STATEMENTS OF OPERATIONS..................... F-5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY................................................. F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS..................... F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................ F-10
</TABLE>
F-2
<PAGE> 44
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Laminating Technologies, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of Laminating
Technologies, Inc. and subsidiary (a development stage company) as of March 31,
1999 and 1998, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended and for the period
from April 19, 1993 (inception), to March 31, 1999. 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. The cumulative statements of operations and cash
flows for the period April 19, 1993 (inception) to March 31, 1999 include
amounts for the period April 19, 1993 through March 31, 1997 which were audited
by other auditors whose report dated June 4, 1997 expressed an unqualified
opinion on those statements. Our opinion, insofar as it relates to the amounts
included for the period April 19, 1993 through March 31, 1997, is based solely
on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Laminating Technologies, Inc.
and subsidiary as of March 31, 1999 and 1998, and the consolidated results of
their operations, and their consolidated cash flows for the years then ended,
and from April 19, 1993 (inception), to March 31, 1999, in conformity with
generally accepted accounting principles.
GRANT THORNTON, LLP
Atlanta, Georgia
May 6, 1999
F-3
<PAGE> 45
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash...................................................... $ 210,271 $ 738,933
Investments (Note A-2).................................... 1,670,299 2,459,011
Accounts receivable, net of an allowance for doubtful
accounts of $33,210.................................... 197,733 68,923
Inventories (Notes A-3 and B)............................. 400,812 398,304
Prepaid expenses.......................................... 59,972 152,041
Other current assets...................................... 1,544 1,544
----------- -----------
Total current assets.............................. 2,540,631 3,818,756
Property and Equipment, Net
(Notes A-4 and C)......................................... 261,234 180,634
----------- -----------
$ 2,801,865 $ 3,999,390
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (NOTE E)
Current Liabilities
Current maturity of note payable.......................... $ 39,840 $ 44,441
Accounts payable -- trade................................. 50,148 186,559
Accrued expenses.......................................... 100,080 124,200
----------- -----------
Total current liabilities......................... 190,068 355,200
Note Payable, Net of Current Maturities..................... -- 39,840
Commitments and Other Matters (Note F)...................... -- --
Stockholders' Equity
Series A convertible preferred stock, par value $.01,
5,000,000 shares authorized, none issued............... -- --
Common stock, par value $.01, 20,000,000 shares
authorized, 3,185,100 shares issued and outstanding.... 31,851 31,851
Additional paid-in capital................................ 11,709,254 11,709,254
Deficit accumulated during the development stage.......... (9,103,931) (8,136,755)
Other comprehensive earnings (loss) (Note A-2)............ (25,377) --
----------- -----------
Total stockholders' equity........................ 2,611,797 3,604,350
----------- -----------
$ 2,801,865 $ 3,999,390
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 46
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
APRIL 19, 1993
(COMMENCEMENT
YEARS ENDED MARCH 31, OF OPERATIONS)
------------------------- THROUGH
1999 1998 MARCH 31, 1999
----------- ----------- --------------
<S> <C> <C> <C>
Net sales............................................. $ 1,877,703 $ 519,069 $ 2,762,475
Cost of goods sold.................................... 1,283,642 401,119 2,717,285
----------- ----------- -----------
Gross profit........................................ 594,061 117,950 45,190
Selling, general and administrative expenses.......... 1,334,862 1,154,309 7,178,225
Research and development expense...................... 463,182 543,220 1,399,732
----------- ----------- -----------
Operating loss...................................... (1,203,983) (1,579,579) (8,532,767)
Interest expense...................................... (5,136) (5,867) (966,786)
Investment income..................................... 124,421 232,762 466,716
Cancellation of debt.................................. 117,522 612 289,042
Loss on abandonment of fixed assets................... -- -- (104,184)
----------- ----------- -----------
Net loss............................................ $ (967,176) $(1,352,072) $(8,847,979)
=========== =========== ===========
Net loss per common share
Basic............................................... $ (0.35) $ (0.49)
=========== ===========
Diluted............................................. $ (0.35) $ (0.49)
=========== ===========
Weighted average number of common shares
outstanding......................................... 2,775,100 2,775,095
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 47
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
PREFERRED STOCK COMMON STOCK ACCUMULATED
PAR VALUE $.01 PAR VALUE $.01 STOCK ADDITIONAL DURING THE
---------------- ----------------- SUBSCRIPTION PAID-IN TREASURY DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT RECEIVABLE CAPITAL STOCK STAGE
------- ------ -------- ------ ------------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock issued in connection
with the acquisition of the assets
of Cool-R Enterprises, Inc. in
April 1993......................... -- $ -- 168,114 $1,681 $ -- $ (1,681) $ -- $ (255,952)
Common stock issued in connection
with obtaining rights to developed
technology in April 1993........... -- -- 150,126 1,501 -- (1,501) -- --
Issuance of common stock for cash and
settlement of debt in April 1993... -- -- 235,221 2,352 -- 635,148 -- --
Cash contributed by stockholder...... -- -- -- -- -- 12,500 -- --
Issuance of convertible preferred
stock for cash in September 1993... 250,000 2,500 -- -- -- 497,500 -- --
Common stock issued to an officer in
connection with the signing of an
employment agreement in October
1993............................... -- -- 46,122 461 (1,250) 124,539 -- --
Net loss for the period April 19,
1993 (commencement of operations)
through March 31, 1994............. -- -- -- -- -- -- -- (1,361,215)
------- ------ -------- ------ ------- ---------- --------- -----------
Balance, March 31, 1994.............. 250,000 2,500 599,583 5,995 (1,250) 1,266,505 -- (1,617,167)
Issuance of common stock for cash in
May 1994........................... -- -- 3,690 37 -- 19,963 -- --
Common stock issued as consideration
for compensation in August 1994.... -- -- 50,662 507 -- 136,799 -- --
Services contributed by
stockholder........................ -- -- -- -- -- 30,000 -- --
Net loss for the year ended March 31,
1995............................... -- -- -- -- -- -- -- (1,530,061)
------- ------ -------- ------ ------- ---------- --------- -----------
Balance, March 31, 1995.............. 250,000 2,500 653,935 6,539 (1,250) 1,453,267 -- (3,147,228)
Issuance of common stock as
settlement of notes payable to a
stockholder in June 1995........... -- -- 33,208 332 -- 89,668 -- --
Collection of stock subscription..... -- -- -- -- 1,250 -- -- --
Common stock purchased for
treasury........................... -- -- (126,114) -- -- -- (150,000) --
Common stock issued from treasury.... -- -- 126,114 -- -- -- 150,000 --
<CAPTION>
OTHER
COMPREHENSIVE
EARNINGS
(LOSS) TOTAL
------------- -----------
<S> <C> <C>
Common stock issued in connection
with the acquisition of the assets
of Cool-R Enterprises, Inc. in
April 1993......................... $-- $ (255,952)
Common stock issued in connection
with obtaining rights to developed
technology in April 1993........... -- --
Issuance of common stock for cash and
settlement of debt in April 1993... -- 637,500
Cash contributed by stockholder...... -- 12,500
Issuance of convertible preferred
stock for cash in September 1993... -- 500,000
Common stock issued to an officer in
connection with the signing of an
employment agreement in October
1993............................... -- 123,750
Net loss for the period April 19,
1993 (commencement of operations)
through March 31, 1994............. -- (1,361,215)
-- -----------
Balance, March 31, 1994.............. -- (343,417)
Issuance of common stock for cash in
May 1994........................... -- 20,000
Common stock issued as consideration
for compensation in August 1994.... -- 137,306
Services contributed by
stockholder........................ -- 30,000
Net loss for the year ended March 31,
1995............................... -- (1,530,061)
-- -----------
Balance, March 31, 1995.............. -- (1,686,172)
Issuance of common stock as
settlement of notes payable to a
stockholder in June 1995........... -- 90,000
Collection of stock subscription..... -- 1,250
Common stock purchased for
treasury........................... -- (150,000)
Common stock issued from treasury.... -- 150,000
</TABLE>
F-6
<PAGE> 48
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY --(CONTINUED)
<TABLE>
<CAPTION>
DEFICIT
PREFERRED STOCK COMMON STOCK ACCUMULATED
PAR VALUE $.01 PAR VALUE $.01 STOCK ADDITIONAL DURING THE
----------------- ------------------- SUBSCRIPTION PAID-IN TREASURY DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT RECEIVABLE CAPITAL STOCK STAGE
-------- ------ --------- ------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock contributed to
treasury and cancelled.......... -- -- (7,379) (74) -- 74 -- --
Contribution to capital (Note
I).............................. -- -- -- -- -- 307,457 -- --
Net loss for the year ended March
31, 1996........................ -- -- -- -- -- -- -- (1,228,745)
-------- ------ --------- ------- ------- ----------- --------- -----------
Balance, March 31, 1996........... 250,000 2,500 679,764 6,797 -- 1,850,466 -- (4,375,973)
Warrants issued in connection with
bridge notes.................... -- -- -- -- -- 665,000 -- --
Conversion of debt to common
stock........................... -- -- 361,061 3,611 -- 974,961 -- --
Common stock issued as
consideration for
compensation.................... -- -- 4,689 47 -- 12,660 -- --
Stock options issued by
stockholders to an officer as
compensation.................... -- -- -- -- -- 386,000 -- --
Payment of cumulative dividends on
Series A preferred stock........ -- -- -- -- -- (150,000) -- --
Preferred stock conversion........ (250,000) (2,500) 184,486 1,845 -- 655 -- --
Sale of 1,955,000 shares of common
stock (net of offering costs)... -- -- 1,955,000 19,550 -- 7,968,863 -- --
Net loss for the year ended March
31, 1997........................ -- -- -- -- -- -- -- (2,408,710)
-------- ------ --------- ------- ------- ----------- --------- -----------
Balance, March 31, 1997........... -- -- 3,185,000 31,850 -- 11,708,605 -- (6,784,683)
Exercise of 100 class A
warrants........................ -- -- 100 1 -- 649 -- --
Net loss for the year ended March
31, 1998........................ -- -- -- -- -- -- -- (1,352,072)
-------- ------ --------- ------- ------- ----------- --------- -----------
Balance, March 31, 1998........... -- -- 3,185,100 31,851 -- 11,709,254 -- (8,136,755)
Net loss for the year ended year
ended March 31, 1999............ -- -- -- -- -- -- -- (967,176)
Other comprehensive earnings
(loss) unrealized net losses on
marketable securities........... -- -- -- -- -- -- -- --
-------- ------ --------- ------- ------- ----------- --------- -----------
Comprehensive earnings (loss)..... -- -- -- -- -- -- -- --
Balance, March 31, 1999........... -- $ -- 3,185,100 $31,851 $ -- $11,709,254 $ -- $(9,103,931)
======== ====== ========= ======= ======= =========== ========= ===========
<CAPTION>
OTHER
COMPREHENSIVE
EARNINGS
(LOSS) TOTAL
------------- -----------
<S> <C> <C>
Common stock contributed to
treasury and cancelled.......... -- --
Contribution to capital (Note
I).............................. -- 307,457
Net loss for the year ended March
31, 1996........................ -- (1,228,745)
-------- -----------
Balance, March 31, 1996........... -- (2,516,210)
Warrants issued in connection with
bridge notes.................... -- 665,000
Conversion of debt to common
stock........................... -- 978,572
Common stock issued as
consideration for
compensation.................... -- 12,707
Stock options issued by
stockholders to an officer as
compensation.................... -- 386,000
Payment of cumulative dividends on
Series A preferred stock........ -- (150,000)
Preferred stock conversion........ -- --
Sale of 1,955,000 shares of common
stock (net of offering costs)... -- 7,988,413
Net loss for the year ended March
31, 1997........................ -- (2,408,710)
-------- -----------
Balance, March 31, 1997........... -- 4,955,772
Exercise of 100 class A
warrants........................ 650
Net loss for the year ended March
31, 1998........................ -- (1,352,072)
-------- -----------
Balance, March 31, 1998........... -- 3,604,350
Net loss for the year ended year
ended March 31, 1999............ -- (967,176)
Other comprehensive earnings
(loss) unrealized net losses on
marketable securities........... (25,377) (25,377)
-------- -----------
Comprehensive earnings (loss)..... -- (992,553)
-----------
Balance, March 31, 1999........... $(25,377) $ 2,611,797
======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE> 49
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
APRIL 19, 1993
(COMMENCEMENT
YEARS ENDED MARCH 31, OF OPERATIONS)
------------------------- THROUGH
1999 1998 MARCH 31, 1999
----------- ----------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (967,176) $(1,352,072) $(8,847,979)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for doubtful accounts............... 8,210 25,000 53,210
Depreciation and amortization................. 93,006 88,551 381,013
Compensation recorded for fair value of common
shares issued in excess of price paid by
employee.................................... -- -- 273,763
Compensation recorded for stock options issued
by stockholders to an officer............... -- -- 386,000
Services contributed by stockholder........... -- -- 30,000
Noncash finance charge........................ -- -- 684,551
Loss on disposal of fixed assets.............. -- -- 122,375
Changes in operating assets and liabilities:
Increase in accounts receivable............. (137,021) (85,151) (238,514)
Increase in inventories..................... (2,508) (294,978) (341,111)
Increase in other assets and prepaid
expenses................................. 92,069 (112,018) (45,499)
Increase in due to related party............ -- -- 790,082
Decrease in accounts payable and accrued
expenses................................. (160,531) (36,475) 21,523
----------- ----------- -----------
Net cash used in operating activities.... (1,073,951) (1,767,143) (6,730,586)
----------- ----------- -----------
Cash flows from investing activities:
Acquisitions of fixed assets..................... (173,606) (59,961) (721,546)
Sale (purchase) of investments................... 763,336 1,573,256 (1,695,675)
----------- ----------- -----------
Net cash provided by (used in) investing
activities............................. 589,730 1,513,295 (2,417,221)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds of notes payable........................ 44,441 112,000 2,625,309
Repayment of notes payable....................... -- (27,719) (2,611,676)
Proceeds of notes payable -- stockholders........ -- -- 458,700
Repayment of notes payable -- stockholders....... -- -- (49,736)
Advances from stockholders....................... -- -- 11,485
Repayment of capital leases payable.............. -- -- (41,367)
Proceeds from sale of common stock............... -- -- 8,600,913
Proceeds from sale of preferred stock............ -- -- 500,000
Proceeds from stock subscription receivable...... -- -- 1,250
Cash contributed by stockholder.................. -- -- 12,500
Proceeds from exercise of warrants............... 650 650
Payment of dividends on preferred stock.......... -- -- (150,000)
----------- ----------- -----------
Net cash provided by financing
activities............................. 44,441 84,931 9,358,078
----------- ----------- -----------
Net (decrease) increase in cash.................... $ (528,662) $ (168,917) $ 210,271
Cash at beginning of period........................ 738,933 907,850 --
----------- ----------- -----------
Cash at end of period.............................. $ 210,271 $ 738,933 $ 210,271
=========== =========== ===========
</TABLE>
F-8
<PAGE> 50
<TABLE>
<CAPTION>
APRIL 19, 1993
(COMMENCEMENT
YEARS ENDED MARCH 31, OF OPERATIONS)
------------------------- THROUGH
1999 1998 MARCH 31, 1999
----------- ----------- --------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest......... $ 5,136 $ 5,867 $ 684,776
Noncash transactions:
Common stock subscribed....................... -- -- 1,256
Common stock issued for developed
technology.................................. -- -- 406,875
Conversion of debt to equity.................. -- -- 978,572
Common stock issued as settlement of note
payable to stockholder...................... -- -- 90,000
Due to stockholder for shares purchased for
Treasury.................................... -- -- 19,551
Cancellation of debt obligation in exchange
for fixed assets............................ -- -- 54,279
Settlement of related party debt by capital
contribution................................ -- -- 307,457
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE> 51
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Laminating Technologies, Inc. and subsidiary, (the "Company"), formerly New
Cooler Corp., is a development stage company formed to research, develop, design
and market packaging and specialty display products using the Company's
proprietary processing method. Certain process development has been completed
and management believes several product lines have obtained commercial status.
The Company was incorporated on March 29, 1993 and in April 1993 acquired
substantially all of the assets and assumed substantially all of the liabilities
of Cool-R Enterprises, Inc. ("Cool-R"), obtaining the rights to developed
technology.
On December 17, 1998 the Company's stock and warrants were delisted. This
event occurred as a result of the Company's inability to maintain a certain bid
price and market capitalization requirements. The Company's stock is currently
traded on the NASD Supplemental Market under the symbol "LAMT".
1. PRINCIPLES OF CONSOLIDATION
The accompanying financial statements have been prepared on a consolidated
basis. They include the accounts of the Company and its wholly owned subsidiary,
Revenue Process Development, Inc. All intercompany transactions and balances
have been eliminated in consolidation.
2. INVESTMENTS
Investments consist primarily of commercial paper. These investments are
accounted for as available for sale securities and are stated at fair value,
which approximates cost. Unrealized gains or losses on these investments are
included in other comprehensive earnings (loss).
3. INVENTORY
Inventory is recorded at lower of cost or market, using the first-in,
first-out (FIFO) cost flow method.
4. PROPERTY AND EQUIPMENT
Machinery, furniture and equipment, including property under capital lease
arrangements, are carried at cost. Depreciation is provided using the double
declining balance method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Machinery and equipment..................................... 3-10 years
Furniture and fixtures...................................... 5 years
</TABLE>
5. ADVERTISING EXPENSE
All advertising costs are expensed in the period incurred. Advertising
expense for the years ended March 31, 1999, and March 31, 1998 was approximately
$136,000 and $130,000, respectively.
6. STOCK BASED COMPENSATION
The Company's stock option plans are accounted for under the intrinsic
value method in which compensation expense is recognized for the amount, if any,
that the fair value of the underlying common stock exceeds the exercise price at
the date of grant.
F-10
<PAGE> 52
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
7. INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates applied to taxable income. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is provided for deferred
tax assets when it is more likely than not that the asset will not be realized.
8. LOSS PER SHARE
Basic net loss per common share is based upon the weighted average number
of common shares outstanding during the period. Diluted net loss per common
share is based upon the weighted average number of common shares outstanding
less contingently returnable shares plus dilutive potential common shares,
including options and warrants outstanding during the period.
9. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments recorded on the balance sheet include
cash, investments, accounts receivable, accounts payable and debt. Because of
their short maturities, the carrying amount of cash, investments, accounts
receivable and accounts payable approximates fair market value. The fair value
of the Company's long-term debt approximates carrying value based on quoted
market prices of similar issues or on the current rates offered to the Company
for debt of similar terms.
NOTE B. INVENTORY
Inventories at March 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Raw materials............................................... $108,904 $161,522
Work-in-process............................................. 45,488 49,709
Finished goods.............................................. 246,420 187,073
-------- --------
$400,812 $398,304
======== ========
</TABLE>
F-11
<PAGE> 53
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
NOTE C. PROPERTY AND EQUIPMENT
Fixed assets at March 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Machinery and equipment..................................... $353,623 $190,734
Furniture and fixtures...................................... 118,246 107,529
Leasehold improvements...................................... -- 15,371
-------- --------
471,869 313,634
Less accumulated depreciation............................... 210,635 133,000
-------- --------
$261,234 $180,634
======== ========
</TABLE>
NOTE D. NOTE PAYABLE
During fiscal year ending March 31, 1998, the Company borrowed $112,000.
This note bears interest at 8% and is payable in equal monthly installments
through January, 2000. The amount due on this note at March 31, 1999 is $39,840.
Future maturities of the note payable as of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING:
-------------
<S> <C>
2000........................................................ $39,840
=======
</TABLE>
NOTE E. STOCKHOLDERS' EQUITY
1. COMMON STOCK
Upon incorporation, the Company authorized 10,000,000 shares of its $.01
par value common stock. The shares of common stock have unlimited voting rights.
In March 1996, the Company increased the number of authorized common shares to
20,000,000.
2. CONVERTIBLE PREFERRED STOCK
In September 1993, the Company authorized and issued 250,000 shares of its
$.01 par value Series A convertible preferred stock (the "Preferred") for
$500,000. In August 1994, the Company increased the number of authorized shares
of Preferred to 2,500,000. In March 1996, the Company increased the number of
authorized shares of the Preferred to 5,000,000.
The Preferred has no voting rights. The holders of the Preferred were
entitled to cumulative quarterly dividends of $.05 per share due upon the
redemption of the shares. The liquidation value of each share of Preferred is
equal to $2.00 plus cumulative dividends.
Concurrent with the public offering in October 1996, the entire 250,000
shares of the Preferred then outstanding were converted into 184,486 shares of
common stock.
3. INITIAL PUBLIC OFFERING
In October and November 1996, the Company completed its initial public
offering and issued 1,955,000 units at a price of $5.00 per unit. Each unit
consists of one share of common stock, one Class A warrant and one Class B
warrant. Each Class A warrant entitles the holder to purchase one share of
common stock and one
F-12
<PAGE> 54
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
Class B warrant at an exercise price of $6.50. Each Class B warrant entitles the
holder to purchase one share of common stock at an exercise price of $8.75. The
warrants are redeemable by the Company, under certain conditions, at any time
after October 9, 1997. As a result of the offering, the Company received net
proceeds of approximately $7,988,000.
In connection with the offering, the underwriter required, as a condition
of the offering, that an aggregate of 410,000 shares of the Company's common
stock be designated as forfeitable shares ("forfeitable shares") and placed in
escrow. The forfeitable shares are not assignable nor transferable until certain
earnings or market criteria have been met. If the conditions are not met by
March 31, 2000, all shares remaining in escrow will be returned to the Company
as treasury shares for cancellation thereof as a contribution to capital. The
forfeitable shares will be released, to the stockholders, in the event specified
levels of pretax income of the Company for the years ending December 31, 1997 to
December 31, 1999 are achieved or the market price of the Company's common stock
attains specified targets during the 36 month period commencing October 9, 1996.
There will be a charge to earnings for the fair value of these shares upon their
release. Such charge will not be deductible for income tax purposes.
4. BRIDGE FINANCING
In April and May 1996, the Company completed a private placement for an
aggregate of $1,500,000 (net proceeds of approximately $1,185,000) principal
amount of Bridge Notes bearing interest at an annual rate of 10% and warrants to
purchase an aggregate of 997,500 shares of common stock. The warrants
automatically converted into Class A warrants concurrent with the Company's
public offering. Additionally $495,000 of previously existing debt and $55,210
of interest accrued thereon was converted into Bridge Notes. The Company valued
the Bridge loan warrants at an aggregate of $665,000, which was accounted for as
a debt discount. The unamortized balance of the debt discount was charged to
expense upon the close of the offering.
5. STOCK OPTIONS AND WARRANTS
In connection with the Company's initial public offering, the Company
granted to the underwriter an option to purchase 170,000 units at $6.00 per unit
exercisable for a three-year period commencing October 9, 1998.
The Company has outstanding 2,952,400 Class A warrants and 1,955,100 Class
B warrants exercisable for a five year period commencing October 9, 1996.
6. SHARES RESERVED FOR ISSUANCE
The Company has 8,789,900 shares of common stock for issuance as follows:
<TABLE>
<S> <C>
Class A warrants............................................ 2,952,400
Class B warrants............................................ 4,907,500
Underwriter's Unit Purchase Option.......................... 680,000
1996 Stock Option Plan...................................... 250,000
---------
8,789,900
=========
</TABLE>
F-13
<PAGE> 55
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
NOTE F. COMMITMENTS AND OTHER MATTERS
1. EMPLOYMENT CONTRACT
Effective June 1, 1996, the Company entered into a one-year employment
agreement with the Chairman and Chief Executive Officer of the Company. The
agreement provides for an annual base salary of $144,000 per year and is
automatically renewable for successive one-year terms unless either party gives
six months notice to the other. The Company may terminate the agreement without
cause and, upon such termination, the Officer will be entitled to receive his
base salary for a period of one year (subject to a 50% offset during the second
six months for salary received from subsequent employment). In addition, if the
Company exercises its right not to renew the agreement, the Officer will be
entitled to six months of severance pay. The agreement contains confidentiality
and noncompetition provisions.
2. OPERATING LEASE
The Company entered into operating leases for its office facility and a
warehouse facility. Total rental expense under operating lease arrangements was
approximately $123,519 and $90,000 for the years ended March 31, 1999 and March
31, 1998, respectively. During the year ended March 31, 1999, the lease
terminated and the Company began leasing the facility on a month to month basis.
NOTE G. NET LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted loss
per share.
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
--------- -----------
<S> <C> <C>
Numerator for basic and diluted net loss per common
share -- loss attributable to common stockholders......... $(967,176) $(1,352,072)
========= ===========
</TABLE>
The following table sets forth the computation of basic and diluted loss
per share.
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
---------- ----------
<S> <C> <C>
Denominator for basic net loss per common share -- weighted
average shares outstanding................................ 2,775,100 2,775,095
Effect of dilutive options and warrants..................... -- --
---------- ----------
Denominator for diluted net loss per common share --adjusted
weighted average shares outstanding....................... 2,775,100 2,775,095
========== ==========
Basic net loss per share.................................... $ (.35) $ (0.49)
========== ==========
Diluted net loss per share.................................. $ (.35) $ (0.49)
========== ==========
</TABLE>
F-14
<PAGE> 56
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
NOTE H. INCOME TAXES
The Company's temporary differences result in a net deferred income tax
asset which is reduced to zero by a related valuation allowance summarized as
follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
----------- -----------
<S> <C> <C>
Deferred income tax assets
Net operating loss carryforward........................... $ 3,220,000 $ 2,850,000
Other..................................................... 20,000 124,000
Gross deferred tax assets......................... 3,240,000 2,974,000
Deferred tax asset valuation allowance...................... (3,240,000) (2,974,000)
----------- -----------
Net deferred tax asset............................ -- --
=========== ===========
</TABLE>
The net increase of the deferred tax asset valuation allowance for the year
ended March 31, 1998 and 1998 was $266,000 and $374,000, respectively.
At March 31, 1999, the Company had net operating loss carryforwards of
approximately $8,353,000 available to reduce future taxable income which expire
as follows:
<TABLE>
<CAPTION>
NET
FISCAL OPERATING
YEAR LOSS
- ------ ----------
<S> <C>
2009........................................................ $1,289,000
2010........................................................ 1,439,000
2011........................................................ 1,303,000
2012........................................................ 2,084,000
2013........................................................ 1,287,000
2019........................................................ 951,000
----------
$8,353,000
==========
</TABLE>
Under Section 382 of the Internal Revenue Code, the Company is subject to
an annual limitation of approximately $350,000 on utilization of its net
operating loss carryforwards because an ownership change of more than 50% has
occurred.
Reconciliations of statutory Federal tax rates to the effective tax rate
for the years ended March 31, 1999 and March 31, 1998 are as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
--------- ---------
<S> <C> <C>
Income tax benefit at 34%................................... (34)% (34)%
State taxes, net of Federal income tax effect............... (4) (4)
Tax benefit of losses not recognized........................ 38 38
--- ---
Effective tax rate........................................ --% --%
=== ===
</TABLE>
NOTE I. STOCK OPTION PLAN
In 1996, the Board of Directors adopted and the Company's stockholders
approved the Amended and Restated 1996 Stock Option Plan (the "Plan"). Pursuant
to the Plan, as amended, incentive stock options and
F-15
<PAGE> 57
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
nonqualified stock options may be granted to purchase up to 250,000 shares of
the Company's common stock through March 2006. Incentive stock options are to be
granted at a price not less than the fair market value of the Company's common
stock at the date of grant. If a stockholder owns 10% or more of the Company's
outstanding stock, the exercise price may not be less than 110% of the fair
market value of the Company's common stock at the date of grant and its term
must not exceeds five years. Options may be granted to employees, consultants,
and directors of the Company and must be exercised within a ten-year period
after the date granted. Nonqualified stock options are exercisable at a price to
be determined by the Board of Directors for a period of ten years after the
grant date.
Additionally, the provisions of the Plan provide for the automatic grant of
nonqualified stock options to purchase shares of common stock ("Director
Options") to directors of the Company who are not employees or principal
stockholders of the Company ("Eligible Directors"). Each of the four Eligible
Directors of the Company were granted Director Options to purchase 10,000 share
of common stock on July 15, 1996 at $5.00 per share. Future Eligible Directors
are to be granted a Director Option to purchase 10,000 shares of common stock on
the date of election or appointment. Further, commencing on the day immediately
following the date of the annual meeting of stockholders for the Company's
fiscal year ending March 31, 1997, each Eligible Director, other than directors
who received an Initial Director Option since the last annual meeting, are to be
granted a Director Option to purchase 1,000 shares of common stock ("Automatic
Grant") on the day immediately following the date of each annual meeting of
stockholders, as long as such director is a member of the Board of Directors.
The exercise price for each share subject to a Director Option shall be equal to
the fair market value of the common stock on the date of grant, except for
directors who receive incentive options and who own more than 10% of the voting
power, in which case the exercise price shall be not less than 110% of the fair
market value on the date of grant. Director Options are exercisable in four
equal annual installments, commencing six months from the date of grant.
Director Options expire the earlier of 10 years after the date of grant or 90
days after the termination of the director's service on the Board of Directors.
Stock options activity is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, 1999 MARCH 31, 1998
------------------ ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year.................... 247,000 $3.09 170,000 $4.29
Granted........................................... -- -- 87,000 .96
Exercised......................................... -- -- -- --
Forfeited......................................... -- -- 10,000 5.00
------- ----- ------- -----
Outstanding end of year........................... 247,000 3.09 247,000 3.09
======= ===== ======= =====
</TABLE>
F-16
<PAGE> 58
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
The following table summarizes information about stock options outstanding
at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
MARCH 31, CONTRACTUAL EXERCISE MARCH 31, EXERCISE
EXERCISE PRICE 1999 LIFE (YEARS) PRICE 1999 PRICE
-------------- -------------- ------------ -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$ .75........................... 84,000 8.99 $ .75 56,000 $0.75
4.00........................... 120,000 2.21 4.00 120,000 4.00
5.00........................... 40,000 6.04 5.00 32,500 5.00
6.75........................... 3,000 8.39 6.75 1,500 6.75
------- ---- ----- ------- -----
247,000 5.21 $3.09 210,000 $3.31
======= ==== ===== ======= =====
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
MARCH 31, CONTRACTUAL EXERCISE MARCH 31, EXERCISE
EXERCISE PRICE 1998 LIFE (YEARS) PRICE 1998 PRICE
-------------- -------------- ------------ -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$ .75........................... 84,000 9.99 $ .75 -- $ --
4.00........................... 120,000 3.21 4.00 80,000 4.00
5.00........................... 40,000 7.04 5.00 26,666 5.00
6.75........................... 3,000 9.39 6.75 -- --
------- ---- ----- ------- -----
247,000 6.21 $3.09 106,666 $4.25
======= ==== ===== ======= =====
</TABLE>
The Company uses the intrinsic value method in accounting for its stock
option plans. In applying this method, no compensation cost has been recognized
in the accompanying financial statements. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant dates for awards under those plans, the Company's net loss and loss per
share would have resulted in the pro forma amounts indicated below:
<TABLE>
<CAPTION>
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Net loss
As reported............................................. $ (967,176) $(1,352,072)
Pro forma............................................... (1,102,739) (1,487,635)
Basic net loss per common share
As reported............................................. $ (0.35) $ (0.49)
Pro forma............................................... (0.40) (0.54)
Diluted net loss per common share
As reported............................................. $ (0.35) $ (0.49)
Pro forma............................................... (0.40) (0.54)
</TABLE>
For purposes of the pro forma amounts above, the fair value of each option
grant was estimated on the date of grant using the Black-Scholes options-pricing
model with the following weighted-average assumptions used for grants in the
years ended March 31, 1999 and 1998; expected volatility of 90%, risk-free
interest rates of 6.7%; and expected lives of 10 years.
F-17
<PAGE> 59
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
NOTE J. SUBSEQUENT EVENT
On April 26, 1999, the Company signed an agreement to sell substantially
all of the operating assets of the Company, developed technology and the Company
name to an unrelated third party. This agreement also includes covenants not to
compete regarding certain technologies owned and developed by the Company. If
ratified by a majority of the shareholders, the proposed transaction would
result in the Company recording a loss of approximately $350,000 upon closing.
The following pro forma financial information presents the proposed transaction
as if it had occurred on March 31, 1999.
<TABLE>
<CAPTION>
REF. MARCH 31, 1999
MARCH 31, 1999 FOOTNOTE ADJUSTMENTS PRO FORMA
-------------- -------- ----------- --------------
(AUDITED)
<S> <C> <C> <C> <C>
Consolidated balance sheet:
Assets:
Cash...................................... $1,880,570 (1) $ 477,890 $2,358,460
Accounts receivable....................... 197,733 (2) (197,733) --
Inventory................................. 400,812 (3) (400,812) --
Property and equipment, net............... 261,234 (4) (261,234) --
Other assets.............................. 61,516 61,516
---------- ----------
Total assets......................... $2,801,865 $2,419,976
========== ==========
Liabilities and stockholders' equity:
Liabilities:
Accounts payable and accrued expenses..... $ 150,228 -- $ 150,228
Note payable.............................. 39,840 -- 39,840
---------- ----------
Total liabilities.................... 190,068 -- 190,068
Stockholders' equity:
Preferred stock.............................. $ -- $ -- $ --
Common stock................................. 31,851 -- 31,851
Additional paid-in capital................... 11,709,254 -- 11,709,254
Accumulated deficit.......................... (9,129,308) (5) (381,889) (9,511,197)
---------- ----------
Total stockholders' equity........... 2,611,797 2,229,908
---------- ----------
Total liabilities and stockholders'
equity............................. $2,801,865 $2,419,976
========== ==========
</TABLE>
Footnote references:
(1)Cash has been adjusted to reflect the proceeds of the sale as follows:
<TABLE>
<S> <C>
Accounts receivable......................................... $146,867
Inventory................................................... 200,406
Property and Equipment, net................................. 130,617
--------
$477,890
========
</TABLE>
(2) Accounts receivable has been adjusted to reflect the removal of the assets
sold.
(3) Inventory has been adjusted to reflect the removal of the assets sold.
(4) Fixed assets has been adjusted to reflect the removal of assets sold.
(5) Accumulated deficit has been adjusted to reflect the additional loss
attributable to the sale.
F-18
<PAGE> 60
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(CONTINUED)
NOTE K NEW ACCOUNTING PRONOUNCEMENT
The AICPA Accounting Standards Executive Committee has issued Statement of
Position (SOP) 98-1, Costs of Software for Internal Use and Related
Reengineering Costs, which is effective for fiscal years beginning after
December 15, 1998. SOP 98-1 segments an internal use software project into
stages and the accounting is based on the stage in which the cost is incurred.
The Company has not yet adopted this SOP 98-1, referred to above, and does not
expect the adoption to have a material impact on the Company's results of
operations or financial condition.
F-19
<PAGE> 61
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
LAMINATING TECHNOLOGIES, INC. ("SELLER")
AND
PACKAGING ATLANTA CORPORATION ("BUYER")
APRIL 26, 1999
A-1
<PAGE> 62
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C> <C>
1. Purchase and Sale of Assets.............................................. A-4
1.1 Assets.............................................................. A-4
1.2 Liabilities and Obligations Assumed................................. A-5
1.2.1 By Buyer.................................................... A-5
1.2.2 By Seller................................................... A-5
1.3 Transfer Documents.................................................. A-5
2. Purchase Price and Manner of Payment..................................... A-5
2.1 General............................................................. A-5
2.2 Calculation and Payment of Purchase Price........................... A-5
2.2.1 Purchase Price.............................................. A-5
2.2.2 Earnest Money............................................... A-5
2.2.3 At Closing.................................................. A-6
2.2.4 Purchase Price Adjustment................................... A-6
3. Closing.................................................................. A-6
3.1 Time and Place of Closing........................................... A-6
3.2 Seller's Performance................................................ A-6
3.2.1 Documents................................................... A-6
3.2.2 Corporate Documents......................................... A-6
3.2.3 Records..................................................... A-6
3.2.4 Assets...................................................... A-6
3.2.5 Officer's Certificate....................................... A-6
3.2.6 Other....................................................... A-6
3.3 Buyer's Performance................................................. A-7
3.3.1 Documents................................................... A-7
3.3.2 Corporate Documents......................................... A-7
3.3.3 Officer's Certificate....................................... A-7
3.3.4 Other....................................................... A-7
4. Conditions of Buyer...................................................... A-7
4.1 Approval of Transaction............................................. A-7
4.2 Intellectual Property Assignments................................... A-7
4.3 Correctness of Representations and Warranties....................... A-7
4.4 Third Party Consents................................................ A-7
5. Conditions of Seller..................................................... A-7
5.1 Approval of Transaction............................................. A-7
5.2 Correctness of Representations and Warranties....................... A-7
6. Representations and Warranties of Parties................................ A-8
6.1 Seller.............................................................. A-8
6.1.1 Corporate Status............................................ A-8
6.1.2 Authorization............................................... A-8
6.1.3 Consents.................................................... A-8
6.1.4 Bulk Sales Compliance....................................... A-8
6.1.5 Ownership of Personal Property and Inventories.............. A-8
6.1.6 Collectibility of Accounts.................................. A-8
6.1.7 Personal Property Used In Business.......................... A-8
6.1.8 Licenses and Permits; Compliance With Laws.................. A-8
6.1.9 Litigation.................................................. A-8
6.1.10 Taxes....................................................... A-8
</TABLE>
A-2
<PAGE> 63
<TABLE>
<S> <C> <C> <C> <C>
6.1.11 Assigned Contracts.......................................... A-9
6.1.12 Customer Contracts.......................................... A-9
6.1.13 Intellectual Property....................................... A-9
6.1.14 Warranties.................................................. A-9
6.1.15 Condition of Assets......................................... A-9
6.1.16 Financial Statements........................................ A-9
6.1.17 Absence of Changes.......................................... A-10
6.1.18 Absence of Undisclosed Liabilities.......................... A-10
6.1.19 Environmental Laws.......................................... A-10
6.1.20 Bankruptcy.................................................. A-11
6.1.21 Employees................................................... A-11
6.1.22 Employee Benefit Plans...................................... A-11
6.1.23 Brokers' and Finders Fees................................... A-11
6.1.24 Material Information........................................ A-11
6.2 Buyer............................................................... A-12
6.2.1 Corporate Status............................................ A-12
6.2.2 Authorization............................................... A-12
6.2.3 Brokers' and Finders' Fees.................................. A-12
7. Covenants................................................................ A-12
7.1 Covenants of Seller................................................. A-12
7.1.1 Covenant Not to Compete..................................... A-12
7.1.2 Employment Terms............................................ A-12
7.1.3 Payment of Creditors........................................ A-12
7.1.4 Change of Corporate Name.................................... A-12
7.1.5 Conduct of Business Prior to Closing........................ A-12
8. Indemnification.......................................................... A-13
8.1 Survival............................................................ A-13
8.2 Seller.............................................................. A-13
8.3 Buyer............................................................... A-13
8.4 Limitations......................................................... A-13
8.5 Rules Regarding Indemnification..................................... A-13
8.5.1 Notice...................................................... A-13
8.5.2 Defense of Claim............................................ A-13
8.5.3 Settlements................................................. A-14
9. Miscellaneous............................................................ A-14
9.1 Address............................................................. A-14
9.2 Modification or Amendments.......................................... A-14
9.3 Fees and Expenses................................................... A-14
9.4 Access to Books and Records......................................... A-14
9.5 Waiver.............................................................. A-14
9.6 Successors and Assigns.............................................. A-15
9.7 Separate Counterparts............................................... A-15
9.8 Exhibits and Schedules.............................................. A-15
9.9 Further Assurances.................................................. A-15
9.10 Applicable Law...................................................... A-15
9.11 Entire Agreement.................................................... A-15
</TABLE>
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is entered into this 26th day of April 1999
by and between LAMINATING TECHNOLOGIES, INC. ("Seller"), a Delaware corporation,
and PACKAGING ATLANTA CORPORATION ("Buyer"), a Georgia corporation.
W I T N E S S E T H:
WHEREAS, the parties desire to enter into this Agreement pursuant to which
Seller shall sell to Buyer certain of Seller's assets used in connection with
Seller's manufacture, sale, marketing and distribution of specialized laminated
cardboard, packaging and containers ("Business"); and
NOW THEREFORE, for good and valuable consideration and the mutual covenants
herein, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto do hereby agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 Assets. On the Closing Date (as hereinafter defined) and subject
to the conditions set forth in this Agreement, Seller shall sell, transfer,
assign and convey to Buyer, and Buyer shall acquire and assume from Seller,
all of the following assets, properties and rights of Seller pertaining to
the Business, free and clear of any and all liens, claims or encumbrances
of any nature whatsoever except as otherwise expressly provided herein
(collectively, "Assets"):
1.1.1 All of Seller's right, title and interest in and to the
uncompleted customer contracts with Seller, including without limitation
those described on Schedule 1.1.1 attached hereto ("Customer
Contracts");
1.1.2 All furniture, fixtures, materials, equipment, computer
equipment, vehicles, tools, spare parts, and other similar tangible
personal property (other than the Inventories as defined below) owned by
Seller and used in the Business, including without limitation the
property described on Schedule 1.1.2 attached hereto ("Personal
Property");
1.1.3 All right, title and interest of Seller in the inventory
(including, without limitation, raw materials, work in process, samples,
finished goods and products) and supplies of Seller used in the
Business, including without limitation the inventory as described in
summary format at Schedule 1.1.3 ("Inventories").
1.1.4 All leases, contracts or agreements relating to the Assets or
attributable to the Business (other than Customer Contracts) that Buyer
has elected to acquire, as described on Schedule 1.1.4 hereto
(collectively, "Assigned Contracts"), and all of Seller's rights, title,
interests, powers, remedies, benefits, options, privileges and warranty
claims therein, thereto, and thereunder, at law or in equity;
1.1.5 Originals (or, where appropriate, copies) of all operating
data and records of Seller relating to all of the Assets purchased
hereunder and relating to Seller's customers ("Customers") and Seller's
suppliers ("Suppliers"), wherever located, including without limitation
records, files and other documents pertaining to customers, including
specifications, customer lists, warranty records and claim files,
supplier lists, credit information and correspondence, agency
proceedings, licenses and permits and similar records, accounting data,
manufacturing and inventory systems data, engineering data, and
marketing materials (collectively, "Records");
1.1.6 All accounts and notes receivable and revenues and other
receipts and collections of Seller existing as of the Closing Date, as
the same is more particularly described on Schedule 1.1.6 attached
hereto ("Accounts");
1.1.7 All computer software and related documentation relating to
or used in connection with the Business, including without limitation
all accounting software;
1.1.8 All right, title and interest of Seller in and to inventions,
discoveries, improvements, designs, patterns, processes, formulae, trade
secrets, proprietary rights and data, whether or not
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registered, and the assignable licenses and permits, in each case used
in the Business, including, without limitation all trademarks, patents
and patent applications as described on Schedule 1.1.8 attached hereto
("Intellectual Property");
1.1.9 All of Seller's right, title and interest in and to the name
"Laminating Technologies" and any reasonable derivation thereof; and
1.2 Liabilities and Obligations Assumed.
1.2.1 By Buyer. Buyer shall assume or observe, commencing and
effective from and after the Closing Date, Seller's obligations pursuant
to the Assigned Contracts, and pursuant to the Customer Contracts
(collectively the "Assumed Liabilities"). Except for those obligations
which Buyer specifically agrees to assume hereunder, Buyer does not
assume any liability or obligation of Seller, whether known or unknown,
and irrespective of when arising, in each case irrespective of whether
such liability or obligation may have been disclosed to Buyer.
1.2.2 By Seller. Following the Closing Date, Seller shall make
good faith efforts to assist Buyer in taking control of the Assigned
Contracts and the Customer Contracts, and Seller shall provide Buyer
with all contracts, work papers, service records, and other documents
relating to the Assigned Contracts and Customer Contracts.
1.3 Transfer Documents. Seller's transfer and sale of the Assets
hereunder shall be effected by delivery at Closing of a Bill of Sale in the
form of EXHIBIT A attached hereto and other good and sufficient instruments
of sale, transfer, assignment and conveyance and all consents of third
parties necessary thereto, and Buyer's assumption of the Assumed
Liabilities hereunder shall be evidenced by the Assumption Agreement in the
form of EXHIBIT B attached hereto (collectively, "Transfer Documents").
2. PURCHASE PRICE AND MANNER OF PAYMENT.
2.1 General. As consideration for the sale of the Assets and subject
to the prorations, credits, and adjustments contemplated herein, Buyer
shall pay to Seller on the Closing Date the Purchase Price (as defined at
Section 2.2.1). The Purchase Price shall be allocated among the Assets in
proportion to the current value of such Assets as reflected in the balance
sheet of Seller to be delivered to Buyer at Closing. Buyer and Seller agree
that they each shall report the allocation of the Purchase Price in a
manner consistent with the foregoing sentence.
2.2 Calculation and Payment of Purchase Price. The Purchase Price
shall be calculated and paid as follows.
2.2.1 Purchase Price. The purchase price (as hereinafter
formulated, "Purchase Price") shall be the sum of (i) fifty percent
(50%) of the net book value of inventory and property plant and
equipment of Seller as of the Closing Date as reflected on Seller's
books and records as of the Date of Closing and (ii) eighty percent
(80%) of the accounts receivable net of any reserves for bad debt ("Net
Account Receivables"), as reflected on Seller's books and records as of
the Closing Date, to the extent that the total of Net Accounts
Receivables is less than or equal to $160,000. To the extent that the
total of Net Accounts Receivable exceeds $160,000 ("Additional Net
Accounts Receivable"), such Additional Net Accounts Receivable shall be
treated as inventory and the Purchase Price shall be equal to fifty
percent (50%) of the net book value of the Additional Net Accounts
Receivable as reflected on Seller's books and records as of the Closing
Date.
2.2.2 Earnest Money. The parties acknowledge that upon execution
and delivery of this Agreement, Buyer shall deposit with Seller the sum
of Fifty Thousand and No/100ths Dollars ($50,000) as earnest money
("Earnest Money"). The Earnest Money shall be applied to the Purchase
Price due on the Closing Date. If the parties fail to close this
transaction solely by reason of Buyer's default of one or more of its
obligations hereunder, the Earnest Money shall be forfeited and become
the sole property of Seller. In such event, retention of the Earnest
Money shall serve as full and complete satisfaction of any and all
claims Seller may have against Buyer arising out of breach
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of this Agreement. If the transaction is not consummated for any reason
other than breach of this Agreement by Buyer, the Earnest Money shall be
returned, in full, to Buyer. Nothing in this Section shall in any way
limit or decrease the liability of Seller pursuant to the provisions of
Section 8 hereto.
2.2.3 At Closing. The balance of the Purchase Price (less a credit
for the Earnest Money), subject to the prorations, credits, and
adjustments contemplated herein, shall be paid in cash at Closing by
Buyer to Seller.
2.2.4 Purchase Price Adjustment. On or prior to Closing, Seller
agrees to pay all liabilities related to the Assets ("Trade Payables")
as set forth on Schedule 2.2.4. To the extent that Seller fails to pay
such Trade Payables, the Purchase Price shall be adjusted to provide
Buyer with a credit in an amount equal to the amount of the unpaid Trade
Payables and the portion of the Purchase Price due at Closing shall be
reduced to reflect such credit.
3. CLOSING.
3.1 Time and Place of Closing. The closing ("Closing") of the
transactions contemplated by this Agreement shall take place on the date
that is mutually agreed in writing between Buyer and Seller ("Closing
Date") at the office of McCullough, Sherrill LLP, 1409 Peachtree Street,
N.E., Atlanta, Georgia, or such other place as Buyer and Seller shall
mutually agree; provided, however, that the Closing shall in all events
occur on or before June 30, 1999 ("Closing Deadline"), unless extended by
mutual agreement of Buyer and Seller.
3.2 Seller's Performance. At Closing, Seller shall deliver or cause
to be delivered to Buyer the following, each of which shall be a condition
to Buyer's obligation to close the transactions contemplated hereby:
3.2.1 Documents. Bill of Sale, Assignment and Assumption
Agreement, Assignments of Intellectual Property, all executed by Seller.
3.2.2 Corporate Documents. Certified copy of Seller's articles of
incorporation; original Certificate of Existence of Seller issued within
thirty days of the Closing Date; certified copy of the resolution of the
Board of Directors of Seller authorizing the transactions set forth in
this Agreement; and Seller's incumbency certificate.
3.2.3 Records. Physical possession of the Records.
3.2.4 Assets. Physical possession of the Assets.
3.2.5 Officer's Certificate. Certificate of an officer of the
Seller that the representations and warranties herein of the Seller,
including all schedules attached hereto, are true and correct on and as
of the Closing Date with the same effect as though such representations
and warranties had been made on and as of the Closing Date.
3.2.6 Other. Such other evidence of the performance of all
covenants and satisfaction of all conditions required of Seller by this
Agreement, at or prior to Closing, as Buyer or its counsel may
reasonably require.
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3.3 Buyer's Performance. At Closing, Buyer shall deliver or cause to
be delivered to Seller the following, each of which shall be a condition to
Seller's obligation to close the transactions contemplated hereby:
3.3.1 Documents. Original Assignment and Assumption Agreement
executed by Buyer.
3.3.2 Corporate Documents. Certified copy of Buyer's articles of
incorporation original Certificate of Existence of Buyer issued within
thirty days of the Closing Date; certified copy of the resolution of the
Board of Directors of Buyer authorizing the transactions set forth in
this Agreement; and Buyer's incumbency certificate.
3.3.3 Officer's Certificate. Certificate of an officer of the
Buyer that the representations and warranties herein of the Seller,
including all schedules attached hereto, are true and correct on and as
of the Closing Date with the same effect as though such representations
and warranties had been made on and as of the Closing Date.
3.3.4 Other. Such other evidence of the performance of all
covenants and satisfaction of all conditions required of Buyer by this
Agreement, at or prior to Closing, as Seller or its counsel may
reasonably require.
4. CONDITIONS OF BUYER. The obligation of the Buyer to consummate the
purchase of the Assets is subject to the fulfillment on or prior to the Closing
Date of each of the following conditions, which may be waived in whole or in
part by the Buyer to the extent permitted by applicable law, but to the extent
not so waived shall be deemed to constitute a good faith refusal by Buyer to
close:
4.1 Approval of Transaction. Approval by the shareholders of Seller
of the transaction which approval must be communicated by Seller to Buyer
on the date of such approval and in all events at least five days prior to
expiration of the Closing Deadline, failing which Buyer shall not be
obligated to close unless Buyer so elects. In the event that the
transaction is not approved by Seller's shareholders, Buyer shall be
entitled to a full refund of the Earnest Money as provided at Section
2.2.2, and no party shall have any further obligation under this Agreement.
4.2 Intellectual Property Assignments. Execution and delivery of all
documents relating to the assignment or transfer of right, title and
interest in any and all of the Intellectual Property set forth on Schedule
1.1.8 in form and substance reasonably satisfactory to Buyer.
4.3 Correctness of Representations and Warranties. Each of the
representations and warranties of Seller contained in this Agreement shall
be true and correct in all respects, and shall not have been violated in
any respect, as of the Closing Date as though made on and as of the Closing
Date and, further, Seller shall have performed all of its obligations under
this Agreement which by the terms hereof are to be performed on or before
the Closing.
4.4 Third Party Consents. All consents, approvals or authorizations
from third parties or government agencies required to consummate the
transactions contemplated hereby, which in Buyer's reasonable opinion may
be needed.
5. CONDITIONS OF SELLER. The obligation of Seller to consummate the
purchase of the Assets is subject to the fulfillment on or prior to the Closing
Date of each of the following conditions, which may be waived in whole or in
part by the Seller to the extent permitted by applicable law, but to the extent
not so waived shall be deemed to constitute a good faith refusal by Seller to
close:
5.1 Approval of Transaction. Approval by the shareholders of Seller
of the transaction.
5.2 Correctness of Representations and Warranties. Each of the
representations and warranties of Buyer contained in this Agreement shall
be true and correct in all respect, and shall not have been violated in any
respect, as of the Closing as though made on and as of the Closing Date and
the Buyer shall, on or before the Closing, have performed all of its
obligations under this Agreement which by the terms hereof are to be
performed on or before the Closing.
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6. REPRESENTATIONS AND WARRANTIES OF PARTIES.
6.1 Seller. Seller represents, warrants and agrees as follows:
6.1.1 Corporate Status. Seller is a corporation duly organized and
in existence under the laws of the State of Delaware and has full power
and authority to execute and deliver this Agreement, to sell the Assets
and to perform its obligations hereunder and is duly qualified and
licensed to carry on the Business as it is now being conducted.
6.1.2 Authorization. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby (i) are
permissible under Seller's articles of incorporation and by-laws, (ii)
as of the Closing Date have been duly and validly authorized by all
necessary action by the Seller's board of directors and shareholders and
(iii) do not and will not result in a breach of or a default under any
agreement, license or other obligation binding upon Seller.
6.1.3 Consents. Seller is not required to submit on or prior to
the Closing Date any notice, report or other filing with or to receive
any consent, approval or authorization from any governmental authority
or third party in connection with the execution or delivery of this
Agreement or the consummation of the transactions contemplated hereby.
6.1.4 Bulk Sales Compliance. Buyer hereby waives compliance by
Seller with the provisions of the Bulk Sales Act of the State of
Georgia, and Seller warrants and agrees to pay and discharge when due
all claims of creditors which could be asserted against Buyer by reason
of such non-compliance to the extent that such liabilities are not
specifically assumed by Buyer under this Agreement. Seller hereby
indemnifies and agrees to hold Buyer harmless from, against and in
respect of (and shall on demand reimburse Buyer for) any loss,
liability, cost or expense, including, without limitation, attorneys'
fees, suffered or incurred by Buyer by reason of the failure of Seller
to pay or discharge such claims.
6.1.5 Ownership of Personal Property and Inventories. Except as
set forth on Schedule 6.1.5 ("Encumbrances"), Seller has good and
marketable title to all of the Personal Property and Inventories, free
and clear of all security interests, liens, claims or encumbrances of
any nature or kind whatsoever.
6.1.6 Collectibility of Accounts. The Accounts have been generated
in the ordinary course of the Business and are collectible in accordance
with Seller's historical collection ratios as evidenced by the Records,
and such Accounts are not subject to any defense, claim or offset.
6.1.7 Personal Property used in Business. Other than as set forth
on Schedule 6.1.7 attached hereto, the Personal Property and Inventories
constitute all of the property necessary or useful to the conduct of the
Business as it is currently conducted and all such property is
physically located at Seller's principal place of business.
6.1.8 Licenses and Permits; Compliance with Laws. Seller holds all
licenses, permits, certificates and rights from all appropriate federal,
state or other public authorities necessary for the conduct of the
Business and the use of the Assets. Seller is presently conducting the
Business so as to comply with all laws, rules, regulations and orders
applicable to the Assets and the operation of the Business.
6.1.9 Litigation. Except as set forth on Schedule 6.1.9, there is
no legal proceeding, claim or investigation of any kind pending or
threatened relating to or affecting the Assets or the Business or its
prospects, and Seller knows of no basis therefor, and there are no
outstanding orders of any court, agency or tribunal relating to or
affecting the Seller, the Assets, the Business or its or their
prospects.
6.1.10 Taxes. All federal, state and local income, franchise,
property, sales and use taxes and all other public taxes, charges or
withholding obligations incurred at any time prior to the Closing Date
relating to the Assets or Business are the obligation and liability of
Seller and have been paid or
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provided for in full by Seller, and any taxes, charges or withholding
obligations not so paid will be paid by Seller no later than the date
when due.
6.1.11 Assigned Contracts. Attached at Schedule 1.1.4 are true,
correct and complete copies of the Assigned Contracts. To the best of
Seller's knowledge, all of the Assigned Contracts are in full force and
effect and constitute the legal, valid and binding obligations of Seller
and of the other parties thereto, enforceable in accordance with their
terms, and neither Seller nor any other party to any such Assigned
Contract has breached any provision of, or is in default under, the
terms thereof, and there is existing no event or condition which, with
notice or the passage of time or both, would constitute a default
thereunder.
6.1.12 Customer Contracts. Attached at Schedule 1.1.1 are true,
correct and complete copies of the Customer Contracts. To the best of
Seller's knowledge, all of the Customer Contracts constitute the legal,
valid and binding obligations of Seller and of the customer party
thereto, enforceable in accordance with their terms, and neither Seller
nor any other party to any such Customer Contract has breached any
provision of, or is in default under, the terms thereof, and there is
existing no event or condition which, with notice or the passage of time
or both, would constitute a default thereunder. Any prepayments or
deposits made by customers with respect to such Customer Contracts have
been applied by Seller to fulfillment of such Customer Contract.
6.1.13 Intellectual Property. Schedule 1.1.8 includes a true and
complete list of all Intellectual Property owned, licensed to, used by
or registered in the name of Seller in connection with the Business, as
well as all licensing or similar agreements relating to the foregoing to
which Seller is a party, either as a licensor or licensee. Seller owns
or possesses adequate and enforceable licenses or other rights to use
all Intellectual Property in the conduct of the Business being acquired
by Buyer hereunder, and Seller is not in default under any such
licensing or similar agreement, has not received any notice or other
knowledge of conflict with or infringement (or alleged infringement) of
any rights of others, and no officer, director, employee, shareholder or
former shareholder of Seller has any rights in or to any of the
Intellectual Property. Seller has no notice or knowledge that any of the
owned Intellectual Property is being infringed upon or misappropriated
by any third party. Seller owns and possesses adequate and enforceable
rights to use the Intellectual Property and to transfer all of the owned
Intellectual Property and all design drawings, trade secrets, processes,
trade names, trademarks, patents, patent applications and other
technical data used or useful in the Business, all of which are included
in the Assets. The use in the Business of any owned Intellectual
Property and other owned technical or proprietary data has not required
and does not require the payment of any royalty or similar payment to
any person, firm or corporation, and, on the Closing Date, Seller will
transfer to Buyer good and marketable title to owned Intellectual
Property, free and clear of any liens or encumbrances.
6.1.14 Warranties. Except as set forth on Schedule 6.1.14 hereof,
Seller has not made any express warranty covering the products or
services sold or distributed to customers that is inconsistent with
Seller's standard warranty described on Schedule 6.1.14 attached hereto
("Warranty").
6.1.15 Condition of Assets. The Assets are in good operating
condition and repair, subject to normal wear and use and routine
maintenance, and usable in a manner consistent with their current or
intended use.
6.1.16 Financial Statements. Attached at Schedule 6.1.16 are
balance sheets of Seller as of September 30, 1998 and the related
statements of income and retained earnings and changes in financial
position for the periods then ended and unaudited monthly financial
statements of Seller for the month ended December 31, 1998 as well as
for the period of time ending on the Closing Date and to be delivered to
Buyer pursuant to Section 2.2.1 hereof (collectively, "Financial
Statements"). The Financial Statements present fairly the financial
position of Seller as of the respective dates indicated and the results
of operations and the changes in shareholders equity and financial
position
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for the respective periods indicated in accordance with generally
accepted accounting principles applied on a consistent basis.
6.1.17 Absence of Changes. Since the most recent date reflected on
the Financial Statements and through and including the Closing Date,
Seller has not and will not without the prior written consent of Buyer
which consent shall not be unreasonably withheld (i) make any capital
expenditures in excess of $10,000 in the aggregate or commitments for
capital expenditures or the acquisition of any property, plant or
equipment in excess of such amount in the aggregate; (ii) conduct its
business in any manner materially inconsistent with its past practices,
(iii) incur any damage, destruction or similar loss in an aggregate
amount exceeding $10,000, whether or not covered by insurance; (iv)
suffer any loss, or any prospective loss, of any customers or alter any
contractual arrangement, not in the ordinary course of business or which
could have a materially adverse effect on the Business; (v) incur any
expenditure in excess of $10,000, other than such as may have been
incurred or made in the ordinary course of business and other than
capital expenditures described in clause (i) of this Subsection; (vi)
suffer any material adverse change in its business, operations,
earnings, assets or condition (financial or otherwise) and no event
which could materially and adversely affect its business, operations,
earnings, assets or condition (financial or otherwise) has occurred;
(vii) dispose of any assets other than in the ordinary course of
business; (viii) increase the rate of compensation payable or to become
payable to its officers or employees or (ix) enter into any contract or
commitment outside the ordinary course of business or inconsistent with
prior practice.
6.1.18 Absence of Undisclosed Liabilities. As of the Closing Date,
Seller does not have and will not have any indebtedness, liability or
loss of any nature, whether accrued, absolute, contingent or otherwise,
whether due or to become due, which is material to the Business and
which was not reflected on the Financial Statements or otherwise
disclosed in this Agreement.
6.1.19 Environmental Laws.
(a) Definitions. (i) "Environmental Laws" means all applicable
statutes, laws, ordinances, codes, rules, regulations, or policies
promulgated or imposed by any federal, state, county, or municipal
government or any Governmental Authority as defined herein, and all
applicable judicial, administrative, and regulatory decrees,
judgments and orders, whether voluntary or not, relating to the
protection of human health, the environment, or natural resources,
including, without limitation: the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq.
(CERCLA), as amended by the Superfund Amendments and Reauthorization
of 1986 (SARA); the Georgia Hazardous Site Response Act, O.C.G.A. ss.
12-8-90 et seq.; the Resource Conservation and Recovery Act, 42
U.S.C. ss. 6901 et seq. (RCRA), as amended by the Hazardous and Solid
Waste Amendments of 1986 (HSWA); the Georgia Comprehensive Solid
Waste Management Act, O.C.G.A. ss. 12-8-20 et seq.; the Georgia
Hazardous Waste Management Act, O.C.G.A. ss. 12-8-60 et seq.; the
Georgia Underground Storage Tank Act, O.C.G.A. ss. 12-13-1 et seq.;
the Federal Water Pollution Control Act, 33 U.S.C. ss. 1251 et seq.
(Clean Water Act); the Georgia Water Quality Control Act, O.C.G.A.
ss. 12-5-20 et seq.; the Clean Air Act, 42 U.S.C. ss. 7401 et seq.;
the Georgia Air Quality Act, O.C.G.A. 12-9-1 et seq.; the
Occupational Safety and Health Act, 29 U.S.C. ss. 651 et seq. (OSHA);
the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq. (TSCA);
the Georgia Asbestos Safety Act, O.C.G.A. ss. 12-12-1 et seq.; the
Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
ss. 11001-11050 (EPCRA), and the Spill Reporting Act, O.C.G.A. ss.
12-14-1 et seq.; (ii) "Hazardous Materials" means any hazardous or
toxic substance or waste as defined or regulated by any applicable
Environmental Laws; (iii) "Governmental Authority" or "Governmental
Authorities" means any department, body, or commission of any
federal, state, county, or municipal government or any governmental
regulatory authority having jurisdiction under any applicable
Environmental Laws over any property owned or leased by Seller in
connection with the Business.
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(b) Warranties. Seller represents and warrants that: (i) No
notice, notification, demand, request for information, citation,
summons, or order has been issued, no complaint has been filed, no
fine or penalty has been assessed, and no investigation or review is
pending or threatened by any Governmental Authority with respect to
any violations of applicable Environmental Laws affecting the
Business or the Assets; (ii) The Business has been and continues to
be operated in compliance with all applicable Environmental Laws;
(iii) Seller has not handled any Hazardous Materials in a way which
would constitute a violation of any applicable Environmental Laws;
(iv) There have been no releases by Seller of Hazardous Materials
("Releases") at, on, under, or about the Business premises of Seller
that require notification to any Governmental Authorities or that
require cleanup, removal or remediation in order to effectuate
compliance with any applicable Environmental Laws; (v) Seller has no
knowledge of any Releases of Hazardous Materials by others at, on,
under, or about the Business premises of Seller that require
notification to any Governmental Authorities or that require cleanup,
removal or remediation in order to effectuate compliance with any
applicable Environmental Laws; (vi) To the best of Seller's
knowledge, in connection with the Business, Seller has not
transported or arranged for the transport or disposal of any
Hazardous Materials to any location which is listed or proposed for
listing on the National Priorities List pursuant to CERCLA or the
Hazardous Site Inventory pursuant to the Georgia Hazardous Site
Response Act or on any other similar federal or state list of sites
requiring investigation or remediation; (vii) There are no
environmental studies, audits, tests, or other reports conducted by,
or which are in the possession of, Seller which have not been made
available to the Buyer.
6.1.20 Bankruptcy. Seller has not filed nor does Seller have the
present intention to file with any bankruptcy court of competent
jurisdiction a voluntary petition under Titles 7 or 11 of the U.S.
Bankruptcy Code, as amended, and nor is Seller the subject of any order
for relief issued under any such Title; Seller has not filed nor has the
present intention to file any petition or answer seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future federal or
state act or law relating to bankruptcy, insolvency, or other relief for
debtors.
6.1.21 Employees. Buyer shall not be required to hire any of
Seller's employees, but to the extent Buyer does hire any of Seller's
employees ("Employees"), Seller represents that none of such Employees
is represented by any labor union or collective bargaining unit and that
no Employee (other than the employees whose written employment contracts
are attached hereto at Schedule 6.1.21) is employed pursuant to a
written employment contract or on any basis other than an "at will"
basis.
6.1.22 Employee Benefit Plans. Seller has at no time established,
maintained or been obligated to contribute to any "employee pension
benefit plan," as such term is defined in Section 3(2)(A) of the
Employee Retirement Income Security Act of 1974, as amended. Schedule
6.1.22 contains a true and complete list of all other employee welfare,
health, life, disability, pension, profit sharing, deferred compensation
or other benefit plan maintained by Seller for each Employee at any time
within two years of the date hereof.
6.1.23 Brokers' and Finders Fees. Neither Seller nor any of its
officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders'
fees in connection with the transactions contemplated by this Agreement.
6.1.24 Material Information. Seller has no knowledge of any
material inaccuracies or omissions contained in the studies, reports,
exhibits, schedules, or other written information delivered or made
available to Buyer by Seller in connection with the Assets or the
Business and pursuant to the terms of this Agreement. Seller does not
know of any material issue, fact or circumstance with respect to the
Assets or the Business which it has not disclosed to Buyer in this
Agreement (including any Schedule attached hereto).
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6.2 Buyer. Buyer represents, warrants and agrees as follows:
6.2.1 Corporate Status. Buyer is a corporation duly organized and
in existence under the laws of the State of Georgia and has full power
and authority to execute and deliver this Agreement, to purchase and
acquire the Assets as herein provided and to assume the Assumed
Liabilities hereunder and is duly qualified and licensed to carry on its
business as it is now being conducted.
6.2.2 Authorization. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby (i) are
permissible under Buyer's articles of incorporation and by-laws, (ii)
have been duly and validly authorized by all necessary action by the
Buyer's board of directors and shareholders, and (iii) do not and will
not result in a breach of or a default under any agreement, license or
other obligation binding upon Buyer.
6.2.3 Brokers' and Finders' Fees. Neither Buyer nor any of its
officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders'
fees in connection with the transactions contemplated by this Agreement.
7. COVENANTS.
7.1 Covenants of Seller.
7.1.1 Covenant not to Compete. For a period of five (5) years from
the Closing Date, Seller shall refrain from, directly or indirectly,
manufacturing, selling or marketing and distributing (or assisting other
parties in so doing) within the United States any products or services
competitive with the Business.
7.1.2 Employment Terms. Seller shall be responsible for the
payment of all accrued compensation and benefits for the Employees up to
and including the Closing Date (including payment to Buyer of the cost
incurred by Buyer if Buyer is required by law to maintain or extend any
employee benefit plan described at Schedule 6.1.22 for any Employee) as
well as for the provision of notice to such Employees regarding the
availability of continuing health insurance coverage as may be required
under Federal or state law.
7.1.3 Payment of Creditors. Notwithstanding the requirement of
Seller to pay all Trade Payables on or prior to Closing or the
requirement that the Purchase Price be adjusted for any such unpaid
Trade Payables as set forth in Section 2.2.4, after the Closing Seller
shall pay in the normal course any and all valid debts, liabilities and
obligations of Seller arising from, out of or in connection with the
conduct of the Business or the ownership of the Assets prior to the
Closing Date, other than the Assumed Liabilities.
7.1.4 Change of Corporate Name. On or immediately following the
Closing Date, Seller shall change its corporate name and terminate all
rights and interest in the name Laminating Technologies, Inc., so that
such name is available for the sole and exclusive use of Buyer. At
Closing, Seller shall present to Buyer evidence satisfactory to Buyer of
the same.
7.1.5 Conduct of Business Prior to Closing. From the date hereof
to the Closing Date, and except to the extent that Buyer shall otherwise
consent in writing, Seller shall operate the Business as presently
operated and only in the ordinary course, and use its best efforts to
preserve intact its good will, reputation and present business
organization and to preserve its relationships with persons having
business dealings with it. Seller shall notify Buyer prior to entering
into any purchase, sale, or other transaction which would negatively
impact the value of the Assets.
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8. INDEMNIFICATION.
8.1 Survival. All representations, warranties, covenants, agreements
and obligations made or undertaken by Seller or Buyer in this Agreement, or
in any document or instrument executed and delivered pursuant hereto or
contemplated hereby, are material, have been relied on by Seller or Buyer
(as appropriate) and shall survive the Closing hereof for a period of two
(2) years and shall not merge in the performance of any obligation by any
party hereto. Nothing in this Section 8.1 shall in any way limit Seller's
obligations under, or the duration of, Seller's covenant not to compete as
set forth in Section 7.1.1.
8.2 Seller. Seller will indemnify and hold harmless Buyer, its
successors and assigns from, for and against any loss, damage, liability,
injury or deficiency (and any and all costs and expenses suffered or
incurred by Buyer) resulting from any inaccuracy in any representation or
the breach of any warranty made by Seller or any failure of Seller duly to
perform or observe any term, provision, covenant, agreement or condition
hereunder, including without limitation any debt, obligation or liability
which is not specifically assumed by Buyer pursuant to this Agreement and
further including without limitation any liabilities or losses resulting
from operations of the Business relating to the period prior to the Closing
Date (other than with respect to the Assumed Liabilities). Notwithstanding
anything to the contrary contained herein, Seller will indemnify and hold
harmless Buyer, its successors and assigns from, for and against any loss
damage, liability, injury or deficiency (and any and all costs and expenses
suffered or incurred by Buyer) resulting from the transport or arranged
transport or disposal of any Hazardous Materials to any location which is
listed or proposed for listing on the National Priorities List pursuant to
CERCLA or the Hazardous Site Inventory pursuant to the Georgia Hazardous
Site Response Act or on any other similar federal or state list of sites
requiring investigation or remediation.
8.3 Buyer. Buyer will indemnify and hold harmless Seller, its
successors and assigns from, for and against any loss, damage, liability or
deficiency (and any and all costs and expenses suffered or incurred by
Seller) resulting from any inaccuracy in any representation or the breach
of any warranty made by Buyer or any failure of Buyer duly to perform or
observe any term, provision, covenant, agreement or condition hereunder.
8.4 Limitations. The liability of either party to indemnify the other
party for any damages incurred in connection with any breach of any
representation, warranty or covenant made by either party in this Agreement
shall be limited to the Purchase Price under this Agreement. No damage
shall be recoverable hereunder unless the aggregate amount of damages
exceeds $10,000; provided, however, that once such threshold is met, the
full amount of damages, from the first dollar, shall be recoverable.
8.5 Rules Regarding Indemnification. The obligations and liabilities
of each indemnifying party hereunder with respect to claims resulting from
the assertion of liability by the other party or third parties shall be
subject to the following terms and conditions:
8.5.1 Notice. The indemnified party shall give prompt written
notice to the indemnifying party of any claim which might give rise to a
claim by the indemnified party against the indemnifying party based on
the indemnity agreements contained in this Section, stating the nature
and basis of said claims and the amounts thereof, to the extent known.
8.5.2 Defense of Claim. In the event any action, suit or
proceeding is brought against the indemnified party with respect to
which the indemnifying party may have liability under the indemnity
agreements contained herein, the action, suit or proceeding shall, upon
the written election by the indemnifying party, be defended (including
all proceedings on appeal or for review which counsel for the
indemnified party shall deem reasonably appropriate) by the indemnifying
party. The indemnified party shall have the right to employ its own
counsel in any such case, but the fees and expenses of such counsel
shall be at the indemnified party's own expense (and not subject to
reimbursement under this Section) unless (A) the employment of such
counsel and the payment of such fees and expenses both shall have been
specifically authorized in writing by the indemnifying party in
connection with the defense of such action, suit or proceeding, or (B)
such indemnified
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party shall have reasonably concluded upon advice of counsel and
specifically notified the indemnifying party in writing that there may
be specific defenses available to it which are different from or
additional to those available to the indemnifying party or that such
action, suit or proceeding involves or could have an effect upon matters
beyond the scope of the indemnity agreements contained herein, in any of
which event the indemnifying party, to the extent made necessary by such
defenses, shall not have the right to direct the defense of such action,
suit or proceeding on behalf of the indemnified party. In such case only
that portion of such fees and expenses reasonably related to matters
covered by the indemnity agreements contained herein shall be borne by
the indemnifying party. The indemnified party shall be kept fully
informed of such action, suit or proceeding at all stages thereof
whether or not it is so represented. The indemnifying party shall make
available to the indemnified party and its attorneys and accountants all
books and records of the indemnifying party relating to such proceedings
or litigation and the parties hereto agree to render to each other such
assistance as they may reasonably require of each other in order to
ensure the proper and adequate defense any such action, suit or
proceeding.
8.5.3 Settlements. The indemnified party shall not make any
settlement of any claims without the written consent of the indemnifying
party.
9. MISCELLANEOUS.
9.1 Address. All notices, requests, demands and other communications
required or permitted hereunder must be in writing and shall be deemed to
have been duly given when delivered (including by express mail) or upon
being mailed, if mailed by certified or registered mail with postage
prepaid, return receipt requested:
Seller: Buyer:
Laminating Technologies Inc. Packaging Atlanta Corporation
1160 Hightower Road 291 North Industrial Parkway
Atlanta, Georgia 30350 Canton, Georgia 30115
Attn: Pat Haddon
With a Copy to:
With a Copy to:
Shahram Eslami
Schnader Harrison Segal & Lewis, LLP James W. King
303 Peachtree Street, N.E. McCullough Sherrill, LLP
SunTrust Plaza, Suite 2800 1409 Peachtree Street, N.E.
Atlanta, Georgia 30308 Atlanta, Georgia 30309
Any party hereto may change its address for the purpose of receiving
notices, demands and other communications as herein provided by written
notice to the other party.
9.2 Modification or Amendments. No amendment, change or modification
of this Agreement shall be valid unless in writing and signed by the party
to be charged.
9.3 Fees and Expenses. Except as otherwise provided in this
Agreement, Seller and Buyer each shall pay their own expenses, including
the fees and expenses of the counsel and accountants retained by each,
incurred in connection with this Agreement, the obligations hereunder, or
the transactions contemplated herein.
9.4 Access to Books and Records. After the Closing Date, Buyer will
provide Seller with access to the books and records which relate to all of
the Assets purchased hereunder and which relate to the Customers and
Suppliers for periods prior to the Closing Date, as reasonably requested by
Seller in connection with any tax or other liability of Seller related to
the Business, and Seller shall provide Buyer with access to the books and
records of Seller as reasonably requested by the Buyer.
9.5 Waiver. No reliance upon or waiver of one or more provisions of
this Agreement shall constitute a waiver of any other provisions hereof.
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9.6 Successors and Assigns. All of the terms and provisions contained
herein shall inure to the benefit of and shall be binding upon the parties
hereto and their respective heirs, personal representatives, successors and
assigns. Neither Buyer or Seller shall assign this Agreement without the
prior written consent of the other party; provided, however, that Buyer may
assign this Agreement to a majority owned affiliate of Buyer without the
prior written consent of Seller.
9.7 Separate Counterparts. This Agreement may be executed in one or
more separate counterparts, each of which, when so executed, shall be
deemed to be an original. Such counterparts shall, together, constitute and
shall be one and the same instrument.
9.8 Exhibits and Schedules. Each fact or statement recited or
contained in any exhibit, schedule, certificate or other instrument
delivered by or on behalf of the parties hereto, or in connection with the
transactions contemplated hereby, shall be deemed a representation and a
warranty hereunder.
9.9 Further Assurances. Each of the parties hereto shall execute and
deliver any and all additional papers, documents, and other assurances, and
shall do any and all acts and things reasonably necessary in connection
with the performance of their obligations hereunder and to carry out the
intent of the parties hereto.
9.10 Applicable Law. This Agreement shall, in all respects, be
governed by the laws of the State of Georgia applicable to agreements
executed and to be wholly performed within the State of Georgia.
9.11 Entire Agreement. This Agreement, together with any related
documents referred to in this Agreement, constitutes the entire
understanding and agreement of the parties with respect to the subject
matter of this Agreement, and any and all prior agreements, understandings
or representations are hereby terminated and canceled in their entirety.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date indicated below.
<TABLE>
<S> <C>
Buyer: Seller:
PACKAGING ATLANTA CORPORATION LAMINATING TECHNOLOGIES, INC.
By: /s/ JAMES P. HADDON By: /s/ MICHAEL E. NOONAN
- --------------------------------------------- ---------------------------------------------
Name: James P. Haddon Name: Michael E. Noonan
Title: President Title: Chairman, President, C.E.O.
Date: April 26, 1999 Date: April 26, 1999
</TABLE>
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MARSHALL & STEVENS
[LOGO] I N C O R P O R A T E D
---------------------
VALUATION AND FINANCIAL CONSULTANTS
May 3, 1999 File Reference: 40-1285
Board of Directors
Laminating Technologies, Inc.
1160 Hightower Trail
Atlanta, GA 30350-2910
Gentlemen:
We have been asked to render an opinion (the "Opinion") with respect to the
fairness, from a financial point of view, to the shareholders (the
"Shareholders") of Laminating Technologies, Inc. (the "Company") of the proposed
sale of the operating assets of Laminating Technologies, Inc. to Packaging
Atlanta Corporation (the "Buyer"). The sales price for the assets is calculated
based on a percentage of various asset categories, as follows:
<TABLE>
<S> <C>
Accounts Receivable (up to $160,000)........................ 80%
Inventory, including excess A/R............................. 50
Property, Plant and Equipment............................... 50
</TABLE>
The calculated purchase price as of March 31, 1999 would be $477,890 or
55.6% of the asset book value. This is the basis for our fairness opinion
regarding this transaction.
The agreement provides for the purchase by the Buyer of all account
receivable, inventories, equipment and intangible assets, including customer
contracts and patents used by the Company in the conduct of its business.
In the course of our analyses for rendering this opinion, we have:
1. Reviewed the Asset Purchase Agreement dated April, 1999;
2. Reviewed Laminating Technologies annual reports to shareholders and
Annual Reports on Form 10-KSB for the fiscal years ended March 31, 1997 and
1998; its Quarterly Report Form 10-QSB for June 30, 1998; summary internal
financial reports as of September 30, 1998 and December 31, 1998;
3. Reviewed certain operating and financial information, including
financial projections, provided to us by the Company's management relating
to the Company's business and prospects;
4. Met with certain members of Laminating Technologies, Inc.'s senior
management to discuss the Company's history, financial performance and
future prospects;
5. Reviewed the asset listing provided by the Company;
6. Investigated the value of the intangible and intellectual property
owned by the Company, including its patented process.
7. Performed a valuation analysis of the Company's business
enterprise;
8. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
We have based our conclusion on a comparison of the purchase price of the
assets with a hypothetical going concern valuation of the Company. In addition
we reviewed the trading price of the stock, adjusted for the value of the liquid
assets, not included in the sale, and determined that the price offered exceeds
the standalone fair market value of the business operation.
In the course of our review, we have relied upon and assumed the accuracy
of the financial and other information provided to us. We do not assume any
responsibility for the information or projections provided to
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us. We have relied upon the assurances of the management of the "Company" that
they are unaware of any facts that would make the information provided to us
incomplete or misleading. Our opinion is necessarily based economic, market and
other conditions, and the information made available to us as of the date
hereof. This opinion does not address the "Company's" underlying decision to
effect the sale of the assets.
It is understood that this letter is intended solely for the benefit and
use of the Board of Directors of Laminating Technologies, Inc. and is subject to
the attached Assumptions and Limiting Conditions.
Based on the above referenced reviews and analyses, it is our opinion that
the sale of the assets as presented in the asset purchase agreement is fair,
from a financial point of view, to the shareholders of Laminating Technologies,
Inc.
We are independent of the management of the "Company" and have no current
or anticipated financial interest in either the "Company" or the "Buyer". Our
compensation is not contingent on the results of our analysis.
Very truly yours,
/s/ MARSHALL & STEVENS INCORPORATED
----------------------------------------
Marshall & Stevens Incorporated
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ASSUMPTIONS AND LIMITING CONDITIONS
DATE OF OPINION
We assume no responsibility for economic or physical factors occurring
subsequent to the date of value which may affect the opinions reported.
NON-APPRAISAL EXPERTISE
No opinion is intended to be expressed for matters which require legal or
specialized expertise, investigation, or knowledge, beyond that customarily
employed by us.
INFORMATION AND DATA
Information supplied by others that was considered in this analysis is from
sources believed to be reliable, and no further responsibility is assumed for
its accuracy. We reserve the right to make such adjustments to the opinion
herein reported based upon consideration of additional or more reliable data
that may become available subsequent to the issuance of this report.
MANAGEMENT
The opinions expressed herein assume the continuation of prudent management
policies over whatever period of time is deemed reasonable and necessary to
maintain the character and integrity of the subject business enterprise.
PURPOSE
All opinions are presented as Marshall & Stevens Incorporated's considered
opinion based on the facts and data obtained during the course of the
investigation. This opinion has been prepared for the sole purpose stated herein
and shall not be used for any other purpose.
UNEXPECTED CONDITIONS
We assume there are no hidden or unexpected conditions associated with the
subject property that might adversely affect our opinion. Further, we assume no
responsibility for changes in market conditions.
FEE
The fee established for the formulation and reporting of the opinions
herein had not been contingent upon the results of our analysis.
FUTURE EVENTS
The reader is advised that this opinion is heavily dependent upon future
events with respect to industry performance, economic conditions, and the
ability or lack there of for certain product lines and business divisions to
meet certain performance levels. The operating projections are deemed to be
reasonable and valid at the date of this appraisal; however, there is no
assurance or implied guarantee that the assumed facts and circumstances will
actually occur.
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PROXY LAMINATING TECHNOLOGIES, INC.
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 25, 1999
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Laminating Technologies, Inc. (the "Company")
hereby appoints Robert L. Dover and Shirley A. Pigg, or either of them with full
power of substitution, attorneys and proxies of the undersigned to vote at the
Special Meeting of Stockholders of the Company to be held on Friday, June 25,
1999 at 11:00 a.m., local time, and at any adjournment or postponement thereof,
hereby revoking any proxies heretofore given, to vote all shares of Common Stock
of the Company which the undersigned is entitled to vote, in accordance with the
following instructions.
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the Special Meeting. This Proxy, when
properly executed, will be voted in the manner directed herein. If no direction
is made, the Proxy will be voted "FOR" the Proposed Sale.
Please mark your votes as in this example: [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL:
1. Proposal to adopt and approve the Asset Purchase Agreement, dated as of
April 26, 1999, by and between Packaging Atlanta Corporation, a Georgia
corporation and the Company, and approve the sale of substantially all of
the operating assets of the Company as described therein, and in connection
with such sale to change the name of the Company to "LTI Holdings, Inc."
(the "Proposed Sale").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(To be Signed On The Reverse Side)
(Backside of Proxy Card)
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Special Meeting.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE PROPOSED SALE. THIS
PROXY WILL ALSO BE VOTED ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
SPECIAL MEETING.
PLEASE VOTE, SIGN, DATE AND RETURN
THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Date: Signature
----------- -----------
Date: Signature
----------- -----------
NOTE: Please sign exactly as name
appears hereon. Joint owners
should each sign. When signing
as attorney, executor,
administrator, trustee or
guardian, please give full
title as such.
