<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER __, 1997
REGISTRATION STATEMENT NO.__
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
PAMARCO TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 3577, 3355 22-3322829
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
MURRAY HILL OFFICENTER
571 CENTRAL AVENUE, UNIT 119
NEW PROVIDENCE, NJ 07974
(908) 665-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-----------------------
MAURICE A. BUCKLEY
CHIEF EXECUTIVE OFFICER AND PRESIDENT
PAMARCO TECHNOLOGIES, INC.
MURRAY HILL OFFICENTER
571 CENTRAL AVENUE, UNIT 119
NEW PROVIDENCE, NJ 07974
(908)665-8500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
-----------------------
COPIES TO:
THOMAS J. SHARBAUGH, ESQ. DAVID S. INGLIS, ESQ.
MORGAN, LEWIS & BOCKIUS LP BENESCH, FRIEDLANDER, COPLAN & ARONOFF LP
2000 ONE LOGAN SQUARE 200 PUBLIC SQUARE
PHILADELPHIA, PA 19103 2300 BP AMERICA BUILDING
(215) 963-5000 CLEVELAND, OH 44114
(216) 363-4500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE AND DISTRIBUTION TO
THE PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
---------------------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ---------------------------
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] -----------------------
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ---------------------------------------
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [X]
CALCULATION OF REGISTRATION FEE
===============================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------
Common Stock, $.01 par value..... $45,080,000 $13,661
===============================================================================
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL
THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
===============================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Issued October __, 1997
PROSPECTUS (Subject to Completion)
2,800,000 Shares
[LOGO]
Pamarco Technologies, Inc.
Common Stock
---------------------------
Of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering"), 1,600,000 shares will be sold by
Pamarco Technologies, Inc. (the "Company") and 1,200,000 shares will be sold by
certain non-management stockholders of the Company (the "Selling Stockholders").
The Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders.
Prior to this Offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $_____ and $_____ per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. Application has been made for quotation of the Common Stock on
the Nasdaq National Market under the symbol "[PTII]."
---------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY
INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
Underwriting Proceeds
Price to Discounts and Proceeds to to Selling
Public Commissions (1) Company (2) Stockholders (2)
- -------------------------------------------------------------------------------
Per Share...... $ $ $ $
- -------------------------------------------------------------------------------
Total(3)....... $ $ $ $
===============================================================================
(1) See "Underwriting" for a description of indemnification arrangements
with the several Underwriters.
(2) Before deducting estimated aggregate expenses for this Offering of $
payable by the Company.
(3) Certain of the Selling Stockholders have granted to the Underwriters an
option, exercisable for 45 days from the date of the initial public
offering of the Common Stock, to purchase up to an additional 420,000
shares of Common Stock for the purposes of covering over-allotments, if
any. If such option is exercised in full, the total price to public,
underwriting discounts and commissions and proceeds to selling
stockholders will be $___________, $______________ and $_____________,
respectively. See "Underwriting."
-------------------------------
The shares of Common Stock offered by the Underwriters are subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of such shares of Common Stock will be
made by EVEREN Clearing Corp. through the facilities of the Depository Trust
Company, New York, New York, on or about _____, 1997.
-------------------------------
EVEREN SECURITIES, INC. JANNEY MONTGOMERY SCOTT INC.
The date of this Prospectus is , 1997
<PAGE> 3
[ARTWORK APPEARS HERE]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK, SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH
THE OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and the consolidated
financial statements and the notes thereto included elsewhere in this
Prospectus. Unless otherwise indicated, all information presented in this
Prospectus (i) assumes no exercise of the over-allotment option granted by
certain Selling Stockholders to the Underwriters, (ii) reflects the conversion
of the Company's Class A Common Stock, Class B Common Stock and Class C Common
Stock into Common Stock and (iii) reflects a 2.35-for-1.0 split of the Common
Stock. Unless the context otherwise indicates, Pamarco Technologies, Inc. and
its subsidiaries collectively are referred to herein as the "Company" and all
references to the terms "Pamarco," "Dauphin," "Qualtech," "Armotek" and
"Diamond" refer to the Company's subsidiaries and not to that of any other
organization.
THE COMPANY
The Company is a leading manufacturer, remanufacturer and provider of a
wide range of products and services for graphic arts systems. The Company's
primary products include: a variety of replaceable steel-based rolls that are
used to transfer ink, carry paper, print images or emboss patterns; printing
presses used to print newspapers, inserts, magazines and other written or
graphic materials; and related parts and accessories. Depending upon the rate of
use and the application, these rolls and parts can require refurbishing or
replacement up to several times per year at a cost ranging from $100 to $50,000.
These products are sold to more than 5,000 active customers. The Company's
targeted markets include: original equipment manufacturers of graphic arts
systems ("OEMs"); flexible and carton packaging companies; corrugated container
companies; decorative product manufacturers; paper manufacturers; newspaper
publishers; and commercial printers. The Company has maintained long standing
relationships with its customers as a result of its excellent technical
capabilities, commitment to outstanding product quality and customer service,
and long operating history. The name "Pamarco" is well respected in the
industry. For the six month period ended June 30, 1997, approximately 65% of the
Company's net sales were generated from replacement product sales and services
such as the re-engraving of rolls, remanufacturing of printing presses and the
refurbishment of narrow-width rubber rolls. For the same period, a majority of
the Company's sales were to existing customers or new customers that had
purchased graphic arts systems manufactured by the Company's OEM customers. In
addition to existing applications of the Company's products, computerized
graphic technologies are generating new applications for graphic arts equipment
ranging from special run newspapers and inserts, to the development of enhanced
consumer packaging, to the greater proliferation of advertising and promotional
materials.
The Company believes that it is currently one of the top suppliers
across most of its principal product offerings within the markets it serves. The
Company's operations are conducted through its five operating subsidiaries from
13 facilities located in 10 states in the U.S. and three facilities located in
the United Kingdom. Through these facilities, the Company has established a
strong presence throughout the United States and Europe. For the six month
period ended June 30, 1997, the Company generated approximately 27.2% of its net
sales from markets outside the United States and the Company believes that
there is a significant opportunity to continue increasing its international
sales. The Company has experienced significant growth, with net sales
increasing 20.7% from $44.5 million for the fiscal year ended December 31, 1995
to $53.7 million for the fiscal year ended December 31, 1996 and 74.4% from
$26.1 million for the six months ended June 30, 1996, to $45.5 million for the
six months ended June 30, 1997. Excluding the effect of business acquisitions,
the Company's net sales increased 10.8% and 28.4%, respectively, over the same
periods.
The Company was formed in July 1994 by an investment group led by
Bradford Venture Partners, L.P. ("Bradford") and senior management to purchase
all of the outstanding capital stock of Pamarco, Incorporated ("Pamarco") from
a subsidiary of Smurfit International, B.V. Pamarco was primarily engaged in
the engraving, re-engraving and manufacturing of anilox and embossing rolls. In
acquiring Pamarco, Bradford and management sought to use the Company as a
platform to consolidate the highly fragmented and large supplier
base to graphic arts systems operators and manufacturers by capitalizing on
Pamarco's industry reputation, management experience and distribution
capabilities. According to the U.S. Department of Commerce, shipments of
equipment manufactured in the United States used in the printing trades for
foreign and domestic uses was approximately $3.2 billion in 1996. In addition
to the significant growth potential as an industry consolidator, the Company
believes that it will benefit from the significant trends currently affecting
its markets, including the increasing preference of its customers to do
business with a smaller number of better capitalized, more sophisticated
suppliers who can offer a wider variety of products and services. Since its
acquisition of Pamarco, the Company has completed the acquisitions of four
additional businesses which offer products and services that complement those
of Pamarco and enhance its ability to serve its targeted markets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisition Transactions," "Business--Acquisition History" and
"Certain Transactions."
The following table sets forth certain information concerning these
acquired businesses:
3
<PAGE> 5
<TABLE>
<CAPTION>
Primary
Acquired Business Acquisition Date Year Founded Principal Products Geographic Territory
- ----------------------- ----------------- ---------------- ------------------------------------- --------------------------
<S> <C> <C> <C> <C>
Pamarco July 1994 1946 Engraver, re-engraver and North America and
manufacturer of anilox rolls Western Europe.
for flexographic uses and
manufacturer of embossing rolls for
the converting industry.
Dauphin January 1995 1974 Manufacturer and remanufacturer of U.S. and Western Europe.
single-width offset printing presses
and folders and supplier of
related parts and services.
Qualtech* June 1995 1992 Supplier of printing supplies and Western Europe.
plates, primarily for flexographic
uses.
Armotek April 1996 1946 Engraver, re-engraver and Mid-Atlantic States.
manufacturer of gravure, anilox and
embossing rolls primarily for gravure
and flexographic uses.
Diamond January 1997 1970 Manufacturer and remanufacturer U.S.
of rubber rolls primarily for offset
uses and manufacturer of envelope
printing presses and dampening units.
<FN>
- ---------------------------------
* Subsequently merged with the European subsidiary of Pamarco.
</TABLE>
BUSINESS STRATEGY
The Company's objective is to expand its position as a leading provider
of a wide range of products and services for graphic arts systems. The
Company has developed a strategy to become a world-wide, single source provider
of products and services under the Pamarco name. The Company believes this
strategy provides it with a competitive advantage in serving the needs of its
targeted markets, including the trend toward supplier consolidation. Key
elements of this strategy include:
Developing New Products. The Company intends to continue to develop new
products that complement its existing product offerings and position it among
the technological leaders in its industry. The Company believes that its
manufacturing capabilities, distribution resources, industry experience and
commitment to quality and technical innovation provide it with the capability to
develop new products, offer its customers more complete product offerings and
enter new markets.
Growth through Acquisitions. The Company is actively pursuing
acquisitions of manufacturers and providers of complementary products and
services in the graphic arts industry, particularly where the Company can
capitalize on its well respected name, management expertise and distribution
capability. The Company believes that the highly fragmented industry, the
growing customer preference for fewer suppliers, and its financial condition,
industry relationships, acquisition record and management depth will allow it to
achieve its objective of being the leading consolidator of suppliers to the
graphic arts industry.
Capitalize on Synergies from Acquired Businesses. The Company intends
to capitalize on synergies among its acquired businesses to maximize its
potential for cost reduction and operating efficiency.
4
<PAGE> 6
Continuously Improve Operating Processes. The Company intends to
continue to improve its operating processes by identifying and developing new
manufacturing technologies and processes and, if appropriate, identifying new
third-party material and component sources. In addition, the Company intends to
derive additional cost improvements and capacity enhancements from operational
efficiencies within its acquired businesses by utilizing proven processes,
systems and know-how across all of its operations.
International Expansion. Utilizing the strength of Pamarco's well
respected name, the Company seeks to increase its international sales through
the development of strategic joint ventures and alliances, the expansion of
international sales agents and foreign offices and the completion of additional
acquisitions. The Company believes that its European operations provide a strong
platform to increase its sales of domestically produced products in its existing
international markets, and is capitalizing on its name and the experience of its
management to expand its presence in emerging foreign markets such as Latin
America and Asia which have a growing demand for the Company's products and
services.
The Company's executive offices are located at the Murray Hill
Officenter, 571 Central Avenue, Unit 119, New Providence, New Jersey 07974, and
its telephone number is (908) 665-8500.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock offered hereby:
By the Company....................................... 1,600,000 shares
By the Selling Stockholders........................... 1,200,000 shares
Common Stock to be outstanding after this Offering (1)........ 6,599,703 shares
Use of proceeds by the Company................................ To repay approximately $15.0 million
of bank debt and the balance for
working capital and other general
corporate purposes. A portion of the
proceeds from this Offering may be
used for acquisitions of other
businesses. See "Use of
Proceeds" and "Management's
Discussion and Analysis of Financial
Condition and Results of
Operations--Liquidity and Capital
Resources."
Proposed Nasdaq National Market symbol........................ "[PTII]"
<FN>
- -----------
(1) Excludes 399,911 shares of Common Stock issuable upon the exercise of
options outstanding as of October 1, 1997 under the Company's Amended
and Restated 1995 Stock Option Plan (the "Stock Option Plan") at a
weighted average exercise price of $4.39 per share and 305,089 shares
reserved for future grants under the Stock Option Plan. Upon the
completion of this Offering, options to purchase a total of 222,047
shares of Common Stock will be immediately exercisable. See
"Description of Capital Stock" and "Management--Stock Option Plan."
</TABLE>
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE INFORMATION)
The following table presents summary consolidated financial data for
the Company and, prior to its acquisition by the Company, Pamarco, Incorporated
(the "Predecessor.") The income statement data for the Predecessor for the
period from January 1, 1994 to July 24, 1994 and for the Company and its
subsidiaries for the period from July 25, 1994 to December 31, 1994 and for the
years ended December 31, 1995 and 1996 have been derived from the audited
Consolidated Financial Statements included elsewhere in this Prospectus. The
Income Statement Data for the Predecessor for the years ended December 31, 1992
and 1993 were derived from audited financial statements not included in this
Prospectus. The summary consolidated financial data set forth below should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements
included elsewhere in this Prospectus.
The summary consolidated financial data for the six months ended June
30, 1996 and 1997 have been derived from the Company's unaudited financial
statements. In the opinion of management, the unaudited financial statements
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position, results of operations and
cash flows as of, and for the six months ended June 30, 1996 and 1997. The
results of operations for the six months ended June 30, 1997 are not necessarily
indicative of the results of operations that may be realized for the entire
year.
<TABLE>
<CAPTION>
Predecessor (1) The Company
---------------------------- ----------------------------------------------------------------------
Jan. 1 July 25
Year Ended through through Year Ended Six Months Ended
December 31, July 24, Dec. 31, December 31, June 30,
----------------- --------- ---------- -------------------- --------------------------
Combined
1992 1993 1994 1994 1994 (2) 1995 1996 1996 1997
-------- -------- --------- ---------- ---------- ---------- --------- ----------- --------------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.....................$ 24,492 $ 25,671 $ 14,518 $ 13,299 $ 27,817 $ 44,492 $ 53,708 $ 26,059 $ 45,454
Gross profit.................. 7,485 7,715 4,486 4,254 8,740 12,815 15,769 7,710 14,862
Income from operations
before gain on fire (3) .... 1,826 1,120 232 1,315 1,547 3,546 4,124 2,173 4,247
Gain on fire (3).............. -- -- -- -- -- 1,300 3,321 2,604 255
Income from operations........ 1,826 1,120 232 1,315 1,547 4,846 7,445 4,778 4,502
Income before taxes........... 1,523 744 (25) 960 935 3,867 6,345 4,211 3,696
Net income (loss).............$ 901 $ 290 $ (15) $ 608 $ 593 $ 2,321 $ 3,744 $ 2,577 $ 2,248
======== ======== ========= ========== ========== ========== ========= =========== ==============
Net income (loss) before
gain on fire (3), (4).......$ 901 $ 290 $ (15) $ 608 $ 593 $ 1,541 $ 1,784 $ 989 $ 2,095
-------- -------- --------- ---------- ---------- ---------- --------- ----------- --------------
Net income per common share
before gain on fire (3), (4). .27 .41 .40 .23 .41
Net income per common share... .27 .61 .85 .61 .44
Shares used in computation of net
income per common share..... 2,260,655 3,800,610 4,427,775 4,214,120 5,062,234
Supplemental earnings per share (5) .78 .55 .42
Supplemental shares issued in
calculating supplemental earnings
per share..................... 5,281,017 5,067,362 5,915,976
OTHER DATA:
Capital expenditures.......... $ 1,300 $ 1,275 $ 880 $ 941 $ 1,821 $ 4,504 $ 7,095 $ 2,305 $ 3,273
Depreciation and amortization. 962 1,054 700 397 1,097 1,365 1,835 874 1,476
EBITDA before gain on
fire (3),(6)................ 2,788 2,174 932 1,712 2,644 4,912 5,959 3,048 5,723
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1996 JUNE 30, 1997
---------- -------------------------------
BALANCE SHEET DATA: ACTUAL AS
ADJUSTED(7)
<S> <C> <C>
Cash.................................... $ 562 $2,419
Working capital......................... 6,451 13,535
Total assets............................ 46,031 80,205
Total long-term debt.................... 10,122 21,620
Total debt.............................. 13,603 25,873
Total liabilities....................... 24,975 49,435
Total stockholders' equity.............. 21,056 30,771
<FN>
- -----------------
(1) On July 25, 1994, the Company acquired the Predecessor. Accordingly certain
information provided for the years ended December 31, 1992 and 1993 and the
period ended July 24, 1994, is not comparable to the Income Statement Data
of the Company due to the effects of certain purchase accounting
</TABLE>
6
<PAGE> 8
adjustments affecting post-acquisition periods. Predecessor information is
based on the Predecessor's historical costs, whereas the Company's
information is based on a new cost based on its purchase price of the
Predecessor.
(2) Financial Data for the Predecessor for the period from January 1, 1994 to
July 24, 1994 have been combined for presentation purposes with the
Financial Data of the Company for the period from July 25, 1994 to
December 31, 1994 without giving effect to the purchase accounting
adjustments discussed in Note (1) and therefore is not presented in
accordance with Generally Accepted Accounting Principles ("GAAP").
(3) During 1995 the Company's facility in Roselle, New Jersey sustained major
damage from a fire. Insurance proceeds received in excess of the carrying
value of the destroyed facility and machinery and equipment and related
expenses, as well as business interruption coverage, were recognized in
income for the third quarter of 1995, through the first quarter of 1997, as
these amounts were settled with the Company's insurance carrier.
(4) Represents net income less any gain on fire including an estimated tax
effect using the Company's effective tax rate for the respective periods
and therefore is not presented in accordance with GAAP.
(5) Adjusted to give effect as of January 1, 1996 to the sale of 1,600,000
shares of Common Stock offered by the Company hereby and the anticipated
use of net proceeds therefrom as set forth under "Use of Proceeds."
(6) "EBITDA before gain on fire" is defined by the Company as income from
operations before gain on fire plus amortization and depreciation. EBITDA
does not present and should not be considered an alternative to net income
or cash flow from operations as determined by GAAP and the Company's
calculation thereof may not be comparable to that reported by other
companies. The Company believes that it is widely accepted that EBITDA
provides useful information regarding a company's ability to service
and/or incur indebtedness.
(7) Adjusted to give effect to the sale of 1,600,000 shares of Common Stock
offered by the Company hereby and the anticipated use of net proceeds
therefrom. See "Use of Proceeds".
7
<PAGE> 9
RISK FACTORS
Prior to making an investment decision, prospective purchasers of the
Common Stock offered hereby should consider carefully all of the information set
forth in this Prospectus and, in particular, should evaluate the following risk
factors.
ABILITY TO SUSTAIN AND MANAGE GROWTH
The Company's future growth is dependent upon a number of factors,
including the successful expansion into new markets, the recruitment and
retention of skilled employees, development of complementary products and
services and execution of its acquisition strategy. The Company's growth and
expansion has placed and will likely continue to place a significant strain on
the Company's resources, and the failure to manage growth effectively would have
a material adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business - Business Strategy" and
"Management."
RELIANCE ON ACQUISITIONS FOR GROWTH; RISKS ASSOCIATED WITH ACQUISITIONS;
FINANCING OF ACQUISITIONS
A primary element of the Company's growth strategy is to continue to
pursue strategic acquisitions that expand and complement the Company's business.
The Company regularly reviews strategic acquisition opportunities and
periodically engages in discussions regarding possible transactions. Currently,
the Company has no commitments with respect to any acquisition; however, as the
result of the Company's process of regularly reviewing acquisition prospects,
discussions regarding potential transactions may arise from time to time. The
Company may not be able to identify qualified acquisition candidates, negotiate
terms favorable to the Company or close any such transactions, and therefore,
the Company may not be able to achieve its acquisition objectives. A failure of
the Company to continue its acquisition strategy would likely hinder the
Company's growth. In addition, increased competition for acquisitions could have
the effect of increasing the cost to the Company of pursuing this growth
strategy and may reduce the number of qualified acquisition candidates. See
"Business--Business Strategy."
Acquisitions involve a number of risks inherent in assessing the
values, strengths, weaknesses and profitability of acquisition candidates
including: adverse short-term effects on the Company's operating results;
diversion of management's attention; dependence on retaining key personnel;
amortization of acquired intangible assets; and risks associated with
unanticipated problems and latent liabilities or contingencies. In addition,
the success of the Company will depend, in part, on the Company's ability to
integrate the operations of these businesses and other companies it acquires,
including capitalizing on synergies to achieve cost savings and developing
programs and processes that will promote cooperation and the sharing of
opportunities and resources among its businesses.
The Company currently intends to continue to use a combination of
Common Stock, cash, debt obligations, and contingent payments based on future
performance to finance its acquisitions. The extent to which the Company will be
able or willing to use Common Stock for this purpose will depend from time to
time on the market price of the Common Stock and the willingness of others to
accept Common Stock as full or partial consideration. In the event that the
Common Stock does not maintain sufficient value or potential acquisition
candidates are unwilling to accept Common Stock as consideration for the sale of
their businesses, the Company may have to limit or curtail pursuing its
acquisition strategy and may be required to utilize more of its cash resources,
if available, in order to continue its acquisition strategy. The Company's
current line of credit does not permit the Company to use proceeds available
under such line to make acquisitions and the Company may not be able to obtain
the capital it would need to finance a successful acquisition program and its
other cash needs. The Company is presently negotiating the terms of an expanded
credit facility. In addition, if the Company uses its capital stock for all or a
portion of the consideration to be paid for future acquisitions, dilution may be
experienced by existing stockholders, including the purchasers of Common Stock
in this Offering. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
8
<PAGE> 10
PRODUCT DEVELOPMENT
The successful development and introduction of new product offerings is
important to the Company's internal growth objectives and the failure of the
Company to successfully introduce such offerings could hinder the Company's
growth.
RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS ACTIVITIES
For the six month period ended June 30, 1997 and the years ended
December 31, 1996 and 1995, the Company generated approximately 27.2%, 24.7% and
22.4% of its net sales, respectively, from international markets. The Company's
international business activities are subject to a variety of potential risks
resulting from certain political, economic and other uncertainties. Certain
aspects of the Company's operations are subject to governmental regulations in
the countries in which the Company operates, including those relating to
currency conversion and repatriation, taxation of its earnings and earnings of
its personnel, and its use of local employees and suppliers. The Company's
operations are also subject to the risk of changes in laws and policies in the
various jurisdictions in which the Company operates which may impose
restrictions on the Company. The Company cannot determine to what extent future
operations and earnings of the Company may be affected by new laws, new
regulations, changes in or new interpretations of existing laws or regulations
or other consequences of doing business outside the U.S. The Company's
activities outside the U.S. are sometimes subject to additional risks associated
with fluctuating currency values and exchange rates, hard currency shortages and
controls on currency exchange. In addition, in conducting activities outside the
U.S., the Company's financial reporting is subject to the impact of foreign
currency fluctuations and exchange rate charges. Since the Company's financial
statements are prepared utilizing U.S. dollars as the basis for presentation,
results from any operations outside the U.S. reported in the financial
statements must be restated into dollars utilizing the appropriate foreign
currency exchange rate, and thereby subjecting such results to the impact of
currency and exchange rate fluctuations. See "Business."
COMPETITORS
The markets in which the Company competes are intensely competitive.
Competitors vary in size and in the scope and breadth of offered products and
services. The Company encounters competition from a number of organizations
which offer products and services to the graphic arts industry. Some of the
Company's current and potential competitors have longer operating histories,
better name recognition, and significantly greater financial, sales, marketing,
technical and other resources than the Company. As a result, they may be able to
adapt more quickly than the Company to changes in customer preferences or to
devote greater resources than the Company to the development, promotion and sale
of products.
VARIABILITY OF QUARTERLY RESULTS
The Company's quarterly results have fluctuated in the past, and may
fluctuate in the future, primarily as a result of the timing of the Company's
acquisitions and the Company's shipments or installations of its products and
the corresponding recognition by the Company of revenues and profits generated
therefrom. Additional factors affecting quarterly results are changes in the mix
of products sold; possible disruptions of operations caused by expanding
existing facilities or moving into new facilities, or by extraordinary weather
conditions which could hamper production and shipments; political and economic
instability in foreign markets; seasonal patterns of spending; manufacturing
inefficiencies associated with the development and start up of new products; and
various competitive factors including price-based competition and competition
from vendors employing other technologies. In addition, the Company is subject
to fluctuations in the annual business cycles of its OEM customers. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Unaudited Quarterly Results."
9
<PAGE> 11
EFFECT OF GOVERNMENTAL REGULATION; ENVIRONMENTAL MATTERS
Manufacturers such as the Company are subject to stringent foreign,
federal, state and local laws and regulations relating to the generation,
handling, storage, and use of hazardous substances and wastes and the emission
and discharge of such materials into the environment. The Company has expended,
and may be required to expend in the future, substantial funds for compliance
with such laws and regulations. The risk of environmental liability is inherent
in the nature of the Company's business, and there can be no assurance that
additional material environmental costs will not arise as a result of future
legislation or other future developments. The Company does not currently
anticipate any material adverse effect on its operations, financial condition or
competitive position as a result of compliance with environmental requirements
or as a result of the impact of environmental considerations on the
marketability of its products. To the extent that the cost of compliance
increases and the Company cannot pass on future increases to its customers, such
increases may have an adverse impact on the Company's profitability. In
addition, there can be no assurance that the Company will not incur material
liability in connection with future actions of governmental agencies and/or
private parties relating to past or future practices of the Company with respect
to the generation, handling, storage or disposition of hazardous wastes or other
materials.
The U.S. Environmental Protection Agency ("EPA") has notified the
Company that it is a potentially responsible party ("PRP") and requested that
the Company provide information with respect to past disposal of wastes, at a
landfill site located at Jersey City, New Jersey. The Company believes that the
previous owners of the site, waste haulers and 56 other generators of hazardous
waste are responsible for over 99% of the costs associated with this site and
that any material amounts paid by the Company will be recovered from its
insurance carriers. While the Company does not believe that the Company's
exposure in this matter will have a material adverse effect on the business,
operating results or financial condition of the Company, there can be no
assurance that the Company will not incur significant liabilities in connection
with this matter or that such liabilities will not have such a material adverse
effect. See "Business--Environmental."
The operation of the Company's business will require the continued
availability of certain governmental permits secured by the Company and the
issuance of additional permits. The Company has applied for certain required
permits, which it expects will be approved. There can be no assurance that the
Company will be able to maintain the permits it currently has, or obtain any
additional permits that may be required. The inability of the Company to obtain
or maintain any required permits could have a material adverse effect on the
Company's business, operating results and financial condition.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS; POTENTIAL ADVERSE IMPACT
ON MARKET PRICE FROM SALES OF SHARES
A substantial number of outstanding shares of Common Stock and shares
of Common Stock issuable upon exercise of outstanding stock options will become
eligible for future sale in the public market at various times. In addition to
the factors affecting the stock market in general and the market for the Common
Stock discussed below, sales of substantial amounts of Common Stock in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock. Upon completion of this Offering,
the Company will have 6,599,703 shares of Common Stock outstanding, excluding
399,911 shares of Common Stock subject to stock options outstanding as of
September 30, 1997, and any stock options granted by the Company after September
30, 1997. Of these shares, the Common Stock sold by the Company and the Selling
Stockholders in this Offering, except for certain shares described below, will
be freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Act"). The remaining 3,799,703 shares
of Common Stock (the "Restricted Shares") were sold by the Company in reliance
on exemptions from the registration requirements of the Act and are "restricted
securities" as defined in Rule 144 under the Act ("Rule 144") and may not be
sold in the absence of registration under the Act unless an exemption is
available, including an exemption afforded by Rule 144. Without considering the
contractual restrictions described below, following this Offering (i) 682,873
Restricted Shares will be immediately eligible for future sale, subject to all
of the resale conditions imposed by Rule 144 other than the holding period
requirement, (ii) 1,887,473 Restricted Shares will be immediately eligible for
future sale, without regard to the volume or notice requirements
10
<PAGE> 12
imposed by Rule 144, and (iii) 1,229,357 Restricted Shares will be eligible
for future sale subject to the holding period and all other conditions imposed
by Rule 144.
After this Offering, certain holders of 3,799,703 shares of Common
Stock are entitled to certain rights with respect to the registration of such
shares for resale under the Act. If such holders, by exercising their
registration rights, cause a large number of shares to be registered and sold in
the public market, such sales could have an adverse effect on the market price
of the Common Stock. These rights may not be exercised prior to the expiration
of 180 days from the date of this Prospectus.
The Company and each Selling Stockholder have agreed with the
Underwriters not to offer for sale, sell or otherwise dispose of (directly or
indirectly) any shares of Common Stock for a period of 180 days from the date of
this Prospectus without the prior written consent of EVEREN Securities, Inc.
provided, however, that Company may, subject to certain limitation issue and
sell shares of Common Stock in connection with acquisitions. In addition,
stockholders of the Company who are also directors or employees have agreed to
the same restrictions for a period of 90 days from the date of this
Prospectus. See "Management--Stock Option Plan," "Description of Capital
Stock--Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
CONCENTRATION OF OWNERSHIP OF THE COMMON STOCK BY EXISTING STOCKHOLDERS
Upon completion of this Offering, the Company's existing stockholders
collectively will own beneficially 57.7% of the outstanding Common Stock (51.2%
if the Underwriters' over-allotment option is exercised in full). The Company's
four largest stockholders, Bradford, Bradford Investors, L.P. ("Bradford
Investors"), Overseas Equity Investors Partners, L.P. ("Overseas Equity
Investors") and Greenbay Ltd. ("Greenbay") (collectively, the "Principal
Stockholders"), will beneficially own in the aggregate 41.5% of the outstanding
Common Stock after completion of this Offering (35.1% if the Underwriters'
over-allotment option is exercised in full). Accordingly, should they decide to
act in concert with each other, the Principal Stockholders will continue to have
a substantial influence over the affairs of the Company, including the election
of the Company's directors, any amendment of the Company's Restated Certificate
of Incorporation and Restated Bylaws and any fundamental corporate transactions
involving the Company. The stockholders of Greenbay are trusts established for
the benefit of the immediate family of Maurice Buckley, the Chief Executive
Officer, President and a director of the Company. See "Principal and Selling
Stockholders" and "Description of Capital Stock."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock and the Company is not certain that an active public market for the Common
Stock will develop or be sustained after this Offering. Since the initial public
offering price has been determined by negotiations among the Company, the
Selling Stockholders and the Underwriters, it is not necessarily indicative of
the market price at which the Common Stock will trade after this Offering. See
"Underwriting."
Certain events, such as announcements by the Company, or its
competitors or suppliers, or unexpected variances in the Company's financial
results, could cause the market price of the Common Stock to fluctuate
substantially. The realization of any of the risks described herein could also
have a dramatic and adverse impact on the market price. Broad market
fluctuations or perceptions regarding the Company's industry, as well as general
economic or political conditions, may also adversely affect the market price of
the Common Stock. In addition, the market prices for securities of newly issued
companies generally have been more volatile than the overall market and the
overall market has experienced significant price and volume fluctuations that
are often unrelated to the operating performance of particular companies. See
"Underwriting."
DILUTION
Purchasers of shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
investment from the initial public offering price. All stockholders of the
Company will experience additional dilution upon the exercise of outstanding
options to purchase Common Stock. See "Dilution."
11
<PAGE> 13
ABSENCE OF DIVIDENDS
The Company has never declared or paid cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain future earnings, if any, to fund
the development and growth of its business. Any future determination to pay cash
dividends will be at the discretion of the Board of Directors and will be
dependent upon the Company's financial condition, operating results, capital
requirements, applicable contractual restrictions and such other factors as the
Board of Directors may deem relevant. See "Dividend Policy."
POSSIBLE ISSUANCE OF PREFERRED STOCK
Shares of preferred stock may be issued by the Company in the future
without stockholder approval and, subject to certain limitations imposed by
applicable law, upon such terms as the Board of Directors may determine. The
rights of the holders of the Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that may
be issued in the future. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, a majority of the
outstanding stock of the Company and potentially prevent the payment of a
premium to stockholders in an acquisition transaction. There are no shares of
preferred stock outstanding and the Company has no present plans to issue any
shares of preferred stock. See "Description of Capital Stock--Preferred Stock."
FORWARD-LOOKING STATEMENTS
With the exception of historical information, the matters discussed in
this Prospectus may include forward- looking statements that involve risks and
uncertainties. While forward-looking statements are sometimes presented with
numerical specificity, they are based on a variety of assumptions made by
management regarding future circumstances over which the Company may have little
or no control. A number of important factors, including those identified in this
section as well as factors discussed elsewhere in this Prospectus, could cause
the Company's actual results to differ materially from those in the
forward-looking statements. Actual results may differ from forward-looking
results for a number of reasons, including the following: (i) changes in world
economic conditions generally, (ii) changes in customer demand as they affect
net sales and product mix, (iii) competitive factors, (iv) changes in operating
costs, (v) the effects of unplanned work stoppages, (vi) changes in cost of
labor and benefits, (vii) the successful execution of the Company's strategy,
and (viii) unanticipated litigation, claims or assessments.
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,600,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$_________ per share are estimated to be $_____ million after deducting
underwriting discounts and commissions and estimated Offering expenses.
The Company intends to use the net proceeds from this Offering to
repay the entire outstanding balance under its revolving line of credit
(approximately $5.0 million as of September 30, 1997) and prepay an
aggregate of $10.0 million of term debt. The Company is permitted to borrow
up to $10.5 million under its revolving line of credit with its primary
lender and amounts outstanding under such facility bear interest, generally
at the Company's option, at the lender's prime rate or other short term
rates (6.5% as of September 30, 1997). The expiration date of this revolving
line of credit is September 19, 1999. As of September 30, 1997 the Company
had an aggregate of $16.9 million in outstanding term debt, with its primary
lender with maturities ranging from September 2003 to January 2004. The
Company has recently begun negotiations regarding an expanded credit facility.
The remainder of the proceeds from this Offering will be used for
working capital and other general corporate purposes, including possible
acquisitions. The Company has no present commitments with respect to any
acquisition. The amounts and the timing of any such use may vary significantly
depending upon a number of factors, including the Company's sales growth,
asset growth, cash flow and acquisition activities. Pending such uses, the net
proceeds of this Offering which are not used to repay bank debt will be invested
in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain future earnings, if any, to
fund the development and growth of its business. Any future determination to
pay cash dividends will be at the discretion of the Board of Directors and will
be dependent upon the Company's financial condition, operating results, capital
requirements, applicable contractual restrictions and such other factors as the
Board of Directors deems relevant. The Company's current credit facility
contains certain limitations on the payment of dividends.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the cash and total capitalization of the
Company as of June 30, 1997, and as adjusted to reflect the issuance and sale of
the 1,600,000 shares of Common Stock offered by the Company hereby (at an
assumed initial public offering price of $_____ per share) and the anticipated
use of the net proceeds therefrom. This table should be read in conjunction with
the Consolidated Financial Statements of the Company and the Notes thereto and
other financial information included elsewhere in this Prospectus. See "Use of
Proceeds."
<TABLE>
<CAPTION>
As of June 30, 1997
-------------------------------
Actual As Adjusted (1)
--------------- --------------
(In Thousands)
<S> <C> <C>
Cash..........................................................................$ 2,419 $
-----
Long-term debt (2)............................................................$ 25,873 $ 10,873
--------------- -----------
Stockholders' equity:
Preferred Stock, $.01 par value; 10,000,000 shares authorized, no
shares issued and outstanding........................................ -- --
Common Stock, $.01 par value; 40,000,000 shares authorized,
4,703,704 shares issued and outstanding; 6,599,703 shares issued and
outstanding, as adjusted (3).......................................... 47 66
Additional paid-in capital........................................... 22,939
Loans to stockholders...................................................... (1,014) (1,014)
Foreign currency translation adjustment.................................... (108) (108)
Retained earnings.......................................................... 8,922 8,922
Treasury stock............................................................. (15) (15)
--------------- -----------
Total stockholders' equity ................................................ 30,771
--------------- -----------
Total capitalization..................................................$ 56,644
=============== ===========
<FN>
- ----------------
(1) Adjusted to reflect the sale by the Company of 1,600,000 shares of Common
Stock (at an assumed initial public offering price of $____ per share) and
the anticipated use of the net proceeds therefrom. See "Use of Proceeds."
(2) Long term debt includes current and long term portions of bank debt,
capitalized lease obligations, and subordinated notes payable issued in
connection with acquisitions.
(3) Excludes 399,911 shares of Common Stock issuable upon the exercise of
options outstanding as of September 30, 1997 under the Stock Option Plan at a
weighted average exercise price of $4.39 per share and 305,089 shares
reserved for future grants under the Stock Option Plan. Upon the completion
of this Offering, options to purchase a total of 222,047 shares of Common
Stock will be immediately exercisable. See "Management-Stock Option Plan."
</TABLE>
14
<PAGE> 16
DILUTION
As of June 30, 1997, the Company had a net tangible book value of
approximately $21.6 million or $4.60 per share of Common Stock. Net tangible
book value per share of Common Stock represents the amount of the Company's
total assets less deferred financing costs and the excess of cost over fair
value of net assets acquired and its total liabilities, divided by the total
number of shares of Common Stock outstanding. Without taking into account any
changes in net tangible book value after June 30, 1997, other than to give
effect to the items described in Note 1 appearing immediately below the
following table, the pro forma net tangible book value of the Company as of June
30, 1997 after giving effect to this Offering, would have been approximately
$____ million or $____ per share. This represents an immediate increase in such
pro forma net tangible book value of $____ per share to existing stockholders
and an immediate dilution of $____ per share to investors purchasing Common
Stock at the initial offering price in this Offering. The following table
illustrates this per share dilution in net tangible book value:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share (1)........... $
Net tangible book value per share before Offering.......... $ 4.60
Increase per share attributable to new investors...........
--------
Pro forma net tangible book value per share after Offering.... -----
Per share dilution to new investors........................... $
=====
<FN>
- -------------
(1) Before deduction of underwriting discounts and commissions and other
Offering expenses to be paid by the Company.
</TABLE>
The following table sets forth, on an adjusted basis as of June 30, 1997, the
number of shares of Common Stock issued by the Company, the total consideration
paid and the average price per share paid upon original issuance to stockholders
prior to this Offering and by new investors in this Offering before deduction
of underwriting discounts and commissions and other Offering expenses:
<TABLE>
<CAPTION>
Shares Purchased (1) Total Consideration (2) Average Price
-------------------- ----------------------- -------------
Number Percentage Amount Percentage Per Share(3)
------ ---------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Existing stockholders (4)... 4,701,347 74.6% $ % $
New stockholders............ 1,600,000 25.4% %
------------- -----
Totals 6,301,347 100%
<FN>
- ---------------
(1) Sales by the existing stockholders in this Offering will reduce the number
of shares they hold at June 30, 1997 to 3,501,347, or approximately 55.6%
of the outstanding shares of Common Stock, and will increase the number of
shares held by new stockholders to 2,800,000, or approximately 44.4% of the
outstanding shares of Common Stock.
(2) Before deduction of underwriting discounts and commissions and other
Offering expenses to be paid by the Company.
(3) The foregoing tables exclude 399,911 shares of Common Stock issuable upon
the exercise of options outstanding as of September 30, 1997 under the
Stock Option Plan at a weighted average exercise price of $4.39 per share
and 305,089 shares reserved for future grants under the Stock Option Plan.
See "Management--Stock Option Plan." Upon the completion of this Offering,
options to purchase a total of 222,047 shares of Common Stock will be
immediately exercisable. To the extent that these and other options are
exercised, there will be further dilution to new investors.
</TABLE>
15
<PAGE> 17
(4) Subsequent to June 30, 1997, the Company issued 298,356 shares of Common
Stock to certain existing stockholders. At September 30, 1997, existing
stockholders held 4,999,703 shares of Common Stock for total consideration
of ______ which represents ___% of the total consideration. Sales by the
existing stockholders in this Offering will reduce the number of shares
held at September 30, 1997 to 3,799,703, or approximately 57.6% of the
outstanding shares of Common Stock, and will increase the number of shares
held by new stockholders to 2,800,000, or approximately 42.4% of the
outstanding shares of Common Stock.
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE INFORMATION)
The following table presents selected consolidated financial data for the
Company and the Predecessor. The income statement data for the Predecessor
for the period from January 1, 1994 to July 24, 1994 and for the Company and
its subsidiaries for the period from July 25, 1994 to December 31, 1994 and for
the years ended December 31, 1995 and 1996 have been derived from the audited
Consolidated Financial Statements included elsewhere in this Prospectus. The
Income Statement Data for the Predecessor for the years ended December 31, 1992
and 1993 were derived from audited financial statements not included in this
Prospectus. The selected consolidated financial data set forth below should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements
included elsewhere in this Prospectus.
The selected consolidated financial data for the six months ended June
30, 1996 and 1997 have been derived from the Company's unaudited financial
statements. In the opinion of management, the unaudited financial statements
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position, results of operations and
cash flows as of and for the six months ended June 30, 1996 and 1997. The
results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results of operations that may be realized for
the entire year.
<TABLE>
<CAPTION>
Predecessor (1) The Company
---------------------------- -----------------------------------------------------------------------
Jan. 1 July 25
Year Ended Through Through Year Ended Six Months Ended
December 31, July 24, Dec. 31, December 31, June 30,
----------------- --------- ----------- -------------------- --------------------------
Combined
1992 1993 1994 1994 1994 (2) 1995 1996 1996 1997
-------- -------- --------- ----------- ---------- ---------- --------- ----------- --------------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.....................$ 24,492 $ 25,671 $ 14,518 $ 13,299 $ 27,817 $ 44,492 $ 53,708 $ 26,059 $ 45,454
Cost of sales................. 17,007 17,956 10,032 9,045 19,077 31,677 37,939 18,349 30,592
Gross profit.................. 7,485 7,715 4,486 4,254 8,740 12,815 15,769 7,710 14,862
Selling, general and
administrative expenses..... 5,659 6,595 4,254 2,939 7,193 9,269 11,645 5,537 10,615
Income from operations
before gain on fire (3)..... 1,826 1,120 232 1,315 1,547 3,546 4,124 2,173 4,247
Gain on fire (3).............. -- -- -- -- -- 1,300 3,321 2,604 255
Income from operations........ 1,826 1,120 232 1,315 1,547 4,846 7,445 4,778 4,502
Interest income (expense) net (303) (376) (257) (355) (612) (979) (1,100) (566) (806)
-------- -------- --------- ----------- ---------- ---------- --------- ----------- --------------
Income before taxes........... 1,523 744 (25) 960 935 3,867 6,345 4,211 3,696
Income taxes.................. 622 454 (10) 352 342 1,546 2,601 1,634 1,448
-------- -------- --------- ----------- ---------- ---------- --------- ----------- --------------
Net income (loss).............$ 901 $ 290 $ (15) $ 608 $ 593 $ 2,321 $ 3,744 $ 2,577 $ 2,248
======== ======== ========= =========== ========== ========== ========= =========== ==============
Net income (loss) before
gain on fire (3),(4)........ 901 290 $ (15) $ 608 $ 593 $ 1,541 $ 1,784 $ 989 $ 2,095
-------- -------- --------- ----------- ---------- ---------- --------- ----------- --------------
Net income per common share
before gain on fire (3),(4). .27 .41 .40 .23 .41
Net income per common share... .27 .61 .85 .61 .44
Shares used in computation of
net income per common share. 2,260,655 3,800,610 4,427,775 4,214,120 5,062,234
Supplemental earnings per share (5) .78 .55 .42
Shares used in calculating
supplemental earnings per share 5,281,017 5,067,362 5,915,476
OTHER DATA:
Capital expenditures.......... $1,300 $ 1,275 $ 880 $ 941 $ 1,821 $ 4,504 $ 7,095 $ 2,305 $ 3,273
Depreciation and amortization. 962 1,054 700 397 1,097 1,365 1,835 874 1,476
EBITDA before gain on
fire (3),(6)................ 2,788 2,174 932 1,712 2,644 4,912 5,959 3,048 5,723
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
June 30, June 30,
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ----------- ------------- ---------- ---------- -----
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash....................................$ 120 $ 46 $ 120 $ 260 $ 1,485 $ 562 $ 2,419
Working capital......................... 121 1,082 1,806 5,605 10,324 6,451 13,535
Total assets............................ 13,423 14,683 23,248 38,394 54,227 46,031 80,205
Total long-term debt.................... 919 2,260 8,706 10,420 15,014 10,122 21,620
Total debt.............................. 3,101 4,723 9,517 13,602 17,249 13,603 25,873
Total liabilities....................... 8,605 9,590 16,191 23,391 31,376 24,975 49,435
Total stockholders' equity.............. 4,818 5,093 7,057 15,003 22,851 21,056 30,771
<FN>
- -----------------
(1) On July 25, 1994, the Company acquired the Predecessor. Accordingly,
certain information provided for the years ended December 31, 1992 and 1993
and the period ended July 24, 1994, is not comparable to the Income
Statement and Balance Sheet Data of the Company due to the effects of
certain purchase accounting adjustments affecting post-acquisition periods.
Predecessor information is based on the Predecessor's historical costs,
whereas the Company's information is based on a new cost based on its
purchase price of the Predecessor.
(2) Financial Data for the Predecessor for the period from January 1, 1994 to
July 24, 1994 has been combined for presentation purposes with the
Financial Data of the Company for the period from July 25, 1994 to December
31, 1994 without giving effect to the purchase accounting adjustment,
discussed in Note (1) and therefore is not presented in accordance with
GAAP.
(3) During 1995, the Company's facility in Roselle, New Jersey sustained major
damage from a fire. Insurance proceeds received in excess of the carrying
value of the destroyed facility and machinery and equipment and related
expenses, as well as business interruption coverage were recognized in
income for the third quarter of 1995, through the first quarter of 1997 as
these amounts were settled with the Company's insurance carrier.
(4) Represents net income less any gain on fire including an estimated tax
effect using the Company's effective tax rate for the respective periods
and therefore is not presented in accordance with GAAP.
(5) Adjusted to give effect as of January 1, 1996 to the sale of 1,600,000
Shares of Common Stock offered by the Company hereby and the anticipated
use of net proceeds therefrom. See "Use of Proceeds."
(6) "EBITDA before gain on fire" is defined by the Company as income from
operations before gain on fire plus amortization and depreciation. EBITDA
does not represent and should not be considered an alternative to net
income or cash flow from operations as determined by GAAP and the
Company's calculation thereof may not be comparable to that reported by
other companies. The Company believes that it is widely accepted that
EBITDA provides useful information regarding a company's ability to
service and/or incur indebtedness.
</TABLE>
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in connection with the information
contained in the Consolidated Financial Statement and notes thereto appearing
elsewhere in this Prospectus. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors."
OVERVIEW
The Company is a leading manufacturer, remanufacturer and provider of a
wide range of products and services for graphic arts systems. The Company's
primary products include: a variety of replaceable steel-based rolls that are
used to transfer ink, carry paper, print images or emboss patterns; printing
presses used to print newspapers, inserts, magazines and other written or
graphic materials; and related parts and accessories. Depending upon the rate
of use and the application, these rolls and parts can require refurbishing or
replacement up to several times per year at a cost ranging from $100 to
$50,000. These products are sold to more than 5,000 active customers. The
Company's targeted markets include: OEMs; flexible and carton packaging
companies; corrugated container companies; decorative product manufacturers;
paper manufacturers; newspaper publishers; and commercial printers. The Company
has maintained long standing relationships with its customers as a result of
its excellent technical capabilities, commitment to outstanding product quality
and customer service, and long operating history. The name "Pamarco" is well
respected in the industry. For the six month period ended June 30, 1997,
approximately 65% of the Company's net sales were generated from replacement
product sales and services such as the re-engraving of rolls, remanufacturing
of printing presses and the refurbishment of narrow-width rubber rolls. For the
same period, a majority of the Company's sales were to existing customers or
new customers that had purchased graphic arts systems manufactured by the
Company's OEM customers. In addition to existing applications of the Company's
products, computerized graphic technologies are generating new applications for
graphic arts equipment ranging from special run newspapers and inserts, to the
development of enhanced consumer packaging, to the greater proliferation of
advertising and promotional materials. The Company was formed by an investment
group led by Bradford, and the senior management of Pamarco, which had revenues
of approximately $25.7 million in its fiscal year prior to the acquisition.
Since its acquisition of Pamarco, the Company has completed the acquisitions
of four additional businesses which had combined net sales of $39.3 million in
their respective last fiscal years prior to the acquisitions. Through its
acquisitions and internally generated growth, the Company's net sales and
income from operations before the gain on fire for the twelve month period
ending June 30, 1997 were $73.1 million and $6.2 million, respectively. The
Company's acquisitions have been accounted for under the purchase method of
accounting and are included in the Company's consolidated income statements for
the periods subsequent to the effective dates of the acquisitions. The Company
regularly reviews various strategic acquisition opportunities and periodically
engages in discussions regarding possible transactions.
The Company's operations have generated net sales from services provided to
engrave, plate, coat or refurbish the anilox, embossing, gravure and rubber
rolls used in graphic arts equipment. The length of time required to provide its
services range from several months to engrave large embossing rolls, several
weeks to engrave anilox rolls and several days to engrave and refurbish gravure
and rubber rolls. In providing these services, the Company coordinates with its
customers to create the tooling necessary for embossing patterns, the graphic
designs used to electronically engrave gravure rolls, the print needs to
determine the appropriate ink application rate for chrome-plated electronic,
mechanical or ceramic laser engraved anilox rolls in flexographic presses and
the size, tolerance and durability characteristics of the rubber rolls required
for offset applications. In addition, the Company's European operations
manufacture flexographic polymer plates and resells flexographic supplies. As a
result of all of its services, the Company develops an ongoing understanding of
its customers manufacturing processes and becomes a key technical participant in
their manufacturing process. The Company, however, does not assume ownership of
its customer's rolls while performing remanufacturing services.
The Company has extended its offset press remanufacturing capability to the
design and manufacture of new single-width offset presses and related folders,
and envelope presses and dampening units. Single-width offset presses typically
consist of several press units in a complete printing line, therefore, the
Company works with its customers in designing the appropriate
19
<PAGE> 21
configuration of the complete line. Complete press production can range from one
to several months. The Company manufactures its single-width presses and folder
systems to its customers' specifications and does not manufacture these systems
on a speculative basis.
As a result of the Company's acquisitions, and the effect of purchase
accounting adjustments made as a result thereof, and the effect of the timing of
the Company's shipments and installations of products with longer lead times and
the associated recognition of revenues and profits derived therefrom, the
Company believes that period-to-period comparisons of its operating results are
not necessarily comparable or indicative of operating results for current or
future periods.
ACQUISITION TRANSACTIONS
Pamarco. In July 1994, the Company acquired all of the outstanding capital
stock of Pamarco from a subsidiary of Smurfit International, B.V. for $9.4
million in cash and the right to receive additional consideration upon the
achievement of certain aggregate pre-tax earnings during the five year period
following the acquisition. Pamarco had revenues of approximately $25.7 million
in its fiscal year prior to the acquisition.
To finance the cash portion of the purchase price, the Company sold
1,635,600 shares of Common Stock to Bradford, Overseas Equity Investors, a group
of investors assembled by Bradford (Bradford, Overseas Equity Investors and such
group of investors are collectively referred to as the "Initial Stockholders")
and senior management of Pamarco and its subsidiary and borrowed $2.4 million
from a commercial bank.
Dauphin. In January 1995, the Company, through its wholly-owned subsidiary,
Dauphin Graphic Machines, Inc. ("Dauphin"), acquired substantially all of the
assets of Ashcon, Inc. ("Ashcon"), a corporation owned by Christopher J. Lunt,
now an executive officer of the Company, and his wife for $4.3 million in cash,
the assumption of $2.2 million in liabilities of Ashcon, the issuance of a $1.0
million subordinated promissory note, and the right to receive additional
consideration upon the achievement of certain aggregate pre-tax earnings during
the three year period following the acquisition. Ashcon had revenues of
approximately $8.5 million in its fiscal year prior to the acquisition. To
finance the cash portion of the purchase price and certain planned research and
development activities, the Company sold 1,275,627 shares of Common Stock to
the Initial Stockholders, Mr. Lunt and certain other managers of Ashcon.
Qualtech. In June 1995, the Company, through its European subsidiary,
acquired all of the outstanding capital stock of Qualtech Holdings Ltd.
("Qualtech") from Greenbay and Terence Ford, now an executive officer of the
Company, for $1.2 million in cash the issuance of a $289,000 subordinated
promissory note, the issuance of 176,250 shares of Common Stock to Greenbay and
Mr. Ford and the right to receive additional consideration upon the achievement
of certain aggregate pre-tax earnings during the three year period following the
acquisition. On August 31, 1996, the Company issued 51,968 shares of Common
Stock in exchange for the promissory note. Qualtech had revenues of
approximately $3.6 million in its fiscal year prior to the acquisition. To
finance the cash portion of the purchase price, the Company borrowed $1.2
million from its primary lender.
Armotek. In April 1996, the Company acquired all of the outstanding capital
stock of Armotek Industries, Inc. ("Armotek") from E. Hugh Schneider and Dennis
E. Andersen, now an executive officer of the Company, for $1.1 million in cash,
the issuance of 18,076 shares of Common Stock to Mr. Schneider and Mr. Andersen,
and the right to receive additional consideration upon the achievement of
certain aggregate pre-tax income during the 32 month period following the
acquisition. Armotek had revenues of approximately $7.3 million for the fiscal
year immediately prior to its acquisition by the Company. To finance the cash
portion of the purchase price, the Company sold 612,831 shares of Common Stock
to certain of the Initial Stockholders.
Diamond. In January 1997, the Company acquired all of the outstanding capital
stock of Diamond Holding Corporation ("Diamond") from Max Gysin, now an
executive officer of the Company, for $8.5 million in cash, the issuance of a
$1.0 million subordinated promissory note and the issuance of 78,333 shares of
Common Stock to Mr. Gysin, plus the right to receive additional consideration
upon the achievement of certain aggregate pre-tax income during the two year
period following the
20
<PAGE> 22
acquisition. Diamond had revenues of approximately $19.9 million in its fiscal
year prior to the acquisition.
To finance the cash portion of the purchase price, to repay all of Diamond's
bank debt and to fund certain capital expenditures, the Company sold 855,019
shares of Common Stock to certain of the Initial Stockholders and borrowed
approximately $7.5 million from its primary lender.
RESULTS OF OPERATIONS
Accounting Policies and Inter-Period Comparability of Results
The Company recognizes net sales upon the shipment of its products or, if
applicable, the installation of its products at the customer's facility. Cost of
sales consists of direct labor (machinists and mechanics), indirect labor
(maintenance, shipping, receiving), direct materials, and plant overhead.
Selling, general and administrative expenses include salaries of sales persons
and support staff, research and development costs, accounting and administrative
costs, commissions paid, amortization of goodwill and management fees. The
Company accrues for any contingent payment obligations relating to its
acquisitions upon determining that such payment has become probable and can be
reasonably estimated.
Since its acquisition of Pamarco, the Company has completed the acquisitions
of four additional businesses with combined net sales of approximately $39.3
million in the fiscal year prior to the acquisition by the Company. The
Company's acquisition transactions have been accounted for under the purchase
method of accounting and are included in the Company's consolidated income
statements for the periods subsequent to the effective dates of the
acquisitions.
Gain on Fire
In August 1995, the Company's facility located in Roselle, New Jersey
sustained major fire-related damage. During the remainder of 1995, the Roselle
facility remained only partially operational and the Company utilized other
Company facilities, as well as those of third parties, to supplement the
production of this fire damaged facility. Included in the Company's income
statements for the years ended December 31, 1995 and 1996 and for the six month
period ended June 30, 1996 are gains of approximately $700,000, $1.1 million and
$1.0 million, respectively, which represent aggregate insurance recoveries in
excess of the carrying values of the building and machinery and equipment
associated with the Roselle facility and in excess of the expenses incurred in
restoring the facility. In addition, included in the Company's income statements
for the years ended December 31, 1995 and 1996 and for the six month periods
ended June 30, 1996 and 1997 are gains of approximately $600,000, $2.2 million,
$1.6 million and $255,000, respectively, of business interruption insurance
recoveries. The restoration of the Roselle facility has been completed with
the installation of state-of-the-art plating equipment. The Company will not
receive any additional insurance proceeds in connection with the fire.
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<PAGE> 23
Percentage Comparison
The following table sets forth, for the periods indicated, selected income
statement data as a percentage of net sales:
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
--------------------------------- --------------------
Combined
1994(1) 1995 1996 1996 1997
----------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net sales............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.......................................... 31.4 28.8 29.4 29.6 32.7
Income from operations before gain on fire............ 5.6 8.0 7.7 8.3 9.3
Gain on fire.......................................... -- 2.9 6.2 10.0 .6
Income from operations................................ 5.6 10.9 13.9 18.3 9.9
Income before taxes................................... 3.4 8.7 11.8 16.2 8.1
Net income ........................................... 2.1 5.2 7.0 9.9 4.9
Net income before gain on fire........................ -- 3.5% 3.3% 3.8% 4.6%
======== ======== ======= ======= ========
<FN>
- ----------------------
(1) Financial Data for the Predecessor for the period from January 1, 1994 to
July 24, 1994 has been combined for presentation purposes with the
Financial Data of the Company for the period from July 25, 1994 to
December 31, 1994 without giving effect to certain post-acquisition
purchase accounting adjustments and therefore is not presented in
accordance with GAAP.
</TABLE>
Comparison of Six Months Ended June 30, 1997 to Six Months Ended June 30, 1996
NET SALES. The Company's net sales increased by $19.4 million, or 74.4%, to
$45.5 million for the six months ended June 30, 1997 compared to $26.1 million
for the same prior year period. Excluding the effects of acquisitions, which
resulted in an increase of $12.0 million in net sales during the period, the
Company's net sales increased by $7.4 million, or 28.4% from $26.1 million to
$33.5 million as a result of increased sales of new and existing products. The
Company completed its acquisition of Diamond in January 1997 and its acquisition
of Armotek in April 1996.
GROSS PROFIT. The Company's gross profit increased by $7.2 million, or 92.8%,
to $14.9 million for the six months ended June 30, 1997 compared to $7.7 million
for the same prior year period. As a percentage of net sales, gross profit
increased to 32.7% for the six months ended June 30, 1997 compared to 29.6% for
the comparable period in 1996. The Company generally attributes this improvement
in gross profit as a percentage of net sales to higher gross profits associated
with sales of its single- width presses, improved margins in overseas markets
achieved through volume increases and cost containment and the inclusion of the
higher margin Diamond business which was acquired in January 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $5.1 million, or 91.7%, to $10.6 million in
the six months ended June 30, 1997 compared to $5.5 million for the same prior
year period. The aggregate increase was primarily the result of the continued
growth in the Company's business and the inclusion of the selling, general and
administrative expenses associated with acquired businesses. As a percentage of
revenues, these expenses increased to 23.3% from 21.2% which the Company
generally attributes to the higher selling and administrative cost structure
required for Diamond to serve seven regional markets.
OPERATING PROFIT BEFORE GAIN ON FIRE. The Company's operating profit before
gain on the fire at its Roselle, New Jersey facility increased by $2.0 million,
or 95.4%, to $4.2 million in the six months ended June 30, 1997 compared to $2.2
million for the same prior year period.
22
<PAGE> 24
NET INTEREST EXPENSE AND PROVISION FOR INCOME TAXES. Net interest expense
increased by $239,000, or 42.3%, to $806,000 in the six months ended June 30,
1997 compared to $566,000 in the same prior year period, primarily due to the
acquisition financing of Diamond. The Company's effective tax rate was 39.2% for
the six months ended June 30, 1997, compared to 38.8% in the same prior year
period.
Comparison of the Year Ended December 31, 1996 to Year Ended December 31, 1995
NET SALES. The Company's net sales increased by $9.2 million, or 20.7%, to
$53.7 million for the year ended December 31, 1996 from $44.5 million for the
year ended December 31, 1995. Excluding the effects of acquisitions, which
resulted in an increase of $4.4 million during the period, the Company's net
sales increased by $4.8 million, or 10.8% from $44.5 million to $49.3 million as
a result of increased sales of new and existing products. The Company completed
its acquisition of Armotek in April 1996 and its acquisition of Qualtech in June
1995.
GROSS PROFIT. The Company's gross profit increased by $3.0 million, or 23.1%,
to $15.8 million for the year ended December 31, 1996 from $12.8 million for the
year ended December 31, 1995. As a percentage of net sales, gross profit
increased to 29.4% in 1996 compared to 28.8% in 1995. The Company generally
attributes this improvement in gross profit as a percentage of net sales to a
change in the Company's product mix, mainly from the inclusion of
higher-margined Qualtech products and from sales of the Company's newly
introduced single-width presses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $2.4 million, or 25.6%, to $11.6 million
for the year ended December 31, 1996 from $9.3 million for the year ended
December 31, 1995. The aggregate increase was primarily the result of the
continued growth of the Company's business and the inclusion of selling, general
and administrative expenses associated with acquired businesses. As a percentage
of revenues, these expenses increased to 21.7% from 20.8% which the Company
generally attributes to higher selling expenses associated with new products.
OPERATING PROFIT BEFORE GAIN ON FIRE. The Company's operating profit before
gain on the fire at its Roselle, New Jersey facility increased by $578,000, or
16.3%, to $4.1 million in the year ended December 31, 1996 compared to $3.5
million for the same prior year period.
NET INTEREST EXPENSE AND PROVISION FOR INCOME TAXES. Net interest expense
increased by $121,000, or 12.4%, to $1.1 million for the year ended December 31,
1996 from $979,000 for the year ended December 31, 1995 primarily due to the
acquisition financing of Armotek. The Company's effective tax rate was 41.0% for
the year ended December 31, 1996 compared to 40.0% for the prior year period.
This increase is primarily attributable to a higher proportion of income in 1996
in the United States, which is taxed at a higher rate than in the United
Kingdom.
Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994
(including, for periods prior to July 25, 1994, operating data of the
Predecessor.)
NET SALES. The Company's net sales increased by $16.7 million, or 59.9%, to
$44.5 million for the year ended December 31, 1995 from $27.8 million for the
year ended December 31, 1994. Excluding the effects of acquisitions, which
resulted in an increase of $14.0 million during the period, the Company's net
sales increased by $2.7 million, or 9.7% from $27.8 million to $30.5 million
primarily as a result of increased sales of existing products. The Company
completed its acquisition of Dauphin in January 1995 and its acquisition of
Qualtech in June 1995.
GROSS PROFIT. The Company's gross profit increased by $4.1 million, or 46.6%,
to $12.8 million for the year ended December 31, 1995 from $8.7 million for the
year ended December 31, 1994. As a percentage of net sales, gross profit
decreased to 28.8% in 1995 compared to 31.4% in 1994. The Company generally
attributes this decline in gross profit as a percentage of net sales to its
acquisition of Dauphin, which had lower margins in its remanufacturing business
than the Company's existing business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $2.1 million, or 28.9%, to $9.3 million for
the year ended December 31, 1995 from $7.2 million for the year ended December
31, 1994. The
23
<PAGE> 25
aggregate increase was primarily the result of the continued growth of the
Company's business and the inclusion of selling, general and administrative
expenses associated with acquired businesses. As a percentage of revenues, these
expenses decreased to 20.8% from 25.9% which the Company generally attributes to
Dauphin's lower selling, general and administrative cost structure.
OPERATING PROFIT BEFORE GAIN ON FIRE. The Company's operating profit before
gain on the fire at its Roselle, New Jersey facility increased by $2.0 million,
or 129.2%, to $3.5 million in the year ended December 31, 1995 compared to $1.5
million for the same prior year period.
NET INTEREST EXPENSE AND PROVISION FOR INCOME TAXES. Net interest expense
increased by $367,000, or 60.0%, to $979,000 for the year ended December 31,
1995 from $612,000 for the year ended December 31, 1994 primarily due to
theacquisition of Pamarco in July 1994. The Company's effective tax rate was
40.0% for the year ended December 31, 1995 compared to 37.0% in the prior year
period. This increase is primarily attributable to a higher proportion of
income in 1995 in the United States, which is taxed at a higher rate than
in the United Kingdom.
24
<PAGE> 26
UNAUDITED QUARTERLY RESULTS
Set forth below are selected unaudited financial statements of operations
data for the last ten fiscal quarters of the Company. In Management's opinion,
the results below have been prepared on the same basis as the audited financial
statements contained herein and include all material adjustments, consisting of
only normal recurring adjustments necessary for a fair presentation of the
information for the periods when read in conjunction with the Consolidated
Financial Statements of the Company and Notes thereto contained elsewhere in
this Prospectus.
Quarterly results are affected by timing of acquisitions and the shipment or
installation of single-width presses and may also be affected by fourth quarter
holiday-related plant closings. Accordingly, the Company believes that
quarter-to-quarter comparison of its operating results are not necessarily
compatible or indicative of operating results for current or future quarters.
QUARTERLY INCOME STATEMENT DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------------------------
Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30
1995(1) 1995(2) 1995 1995 1996 1996(3) 1996 1996 1997(4) 1997
--------- -------- --------- ---------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................... $9,960 $10,463 $11,274 $12,795 $11,797 $14,262 $14,014 $13,635 $22,990 $22,464
Cost of sales............... 6,978 7,363 8,266 9,070 8,221 10,128 9,982 9,608 15,608 14,984
--------- -------- --------- -------- -------- ------ -------- --------- -------- ------
Gross profit................ 2,982 3,100 3,008 3,725 3,576 4,134 4,032 4,027 7,382 7,480
Selling, general and
administrative........... 1,940 2,110 2,437 2,782 2,754 2,783 2,870 3,238 5,041 5,574
----- -------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income before
gain on fire............. 1,042 990 571 943 822 1,351 1,162 789 2,341 1,906
Gain on fire............. -- -- 296 1,004 800 1,804 487 230 255 --
---------- --------- --------- ------ ------- ------ --------- -------- -------- --------
Operating income............ 1,042 990 867 1,947 1,622 3,155 1,648 1,019 2,596 1,906
Interest expense - net...... (217) (221) (268) (273) (283) (283) (270) (264) (405) (401)
---------- --------- --------- --------- --------- -------- --------- --------- --------- --------
Income before taxes......... 825 769 599 1,674 1,339 2,872 1,379 755 2,191 1,505
Income taxes................ 439 410 352 345 553 1,081 610 357 868 580
---------- --------- --------- --------- ---------- ------- --------- --------- --------- --------
Net income.................. $ 386 $ 359 $ 247 $ 1,329 $ 786 $ 1,791 $ 769 $ 398 $ 1,323 $ 925
========= ========= ========= ========= ========= ========= ========= ========= ======== ========
Net income before gain on
fire....................... $ 386 $ 359 $ 70 $ 726 $ 298 $ 691 $ 515 $ 280 $ 1,170 $ 925
========= ======== ========= ========= ========= ========== ========= ========= ========= ========
AS A PERCENTAGE OF NET SALES:
Net sales................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............... 70.0 70.4 73.3 70.9 69.7 71.0 71.2 70.5 67.9 66.7
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit................ 30.0 29.6 26.7 29.1 30.3 29.0 28.8 29.5 32.1 33.3
Selling, general and
administrative........... 19.5 20.2 21.6 21.7 23.3 19.5 20.5 23.8 21.9 24.8
---- ------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income before gain
on fire.................. 10.5 9.4 5.1 7.4 7.0 9.5 8.3 5.7 10.2 8.5
Gain on fire.............. -- -- 2.6 7.8 6.8 12.6 3.5 1.7 1.1 --
------- ------- ------ ------ ------- ------ ------ ------ ------- --------
Operating income............ 10.5 9.4 7.7 15.2 13.8 22.1 11.8 7.4 11.3 8.5
Interest (expense) - net... (2.2) (2.1) (2.4) (2.1) (2.4) (2.0) (1.9) (1.9) (1.8) (1.8)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before taxes......... 8.3 7.3 5.3 13.1 11.4 20.1 9.9 5.5 9.5 6.7
Income taxes................ 4.4 3.9 3.1 2.7 4.7 7.5 4.4 2.6 3.8 2.6
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net income.................. 3.9 3.4 2.2 10.4 6.7 12.6 5.5 2.9 5.7 4.1
=== === === ==== === ==== === === === ===
Net income before gain on
fire...................... 3.9 3.4 0.6 5.7 2.5 4.9 3.7 2.1 5.1 4.1
=== === ==== === === === === === === ===
<FN>
- --------------------------
(1) Reflects the acquisition of Dauphin in January 1995.
(2) Reflects the acquisition of Qualtech in June 1995.
(3) Reflects the acquisition of Armotek in April 1996.
(4) Reflects the acquisition of Diamond in January 1997.
</TABLE>
25
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
Cash was $2.4 million at June 30, 1997. Cash flow generated by operations
was $2.4 million in 1995, $5.0 million in 1996 and $4.5 million in the six
months ended June 30, 1997. The Company's primary uses of cash in investing
activities were for the acquisitions of businesses and amounted to $5.4 million
in 1995, $1.1 million in 1996 and $5.5 million for the six months ended June
30, 1997. The Company primarily funded its uses of cash in 1995, 1996 and 1997
from proceeds received from the issuance of $4.3 million of Common Stock in
January 1995, $3.4 million of Common Stock in April 1996 and $5.5 million of
Common Stock in January 1997 and from borrowings under the Company's
credit facility. See "Certain Transactions."
The Company's business is capital intensive and capital expenditures in any
given year can be significant. Capital expenditures amounted to $4.5 million in
1995, $7.1 million in 1996, and $3.3 million for the six months ended June 30,
1997. Capital expenditures in the first six months of 1997 included expenditures
of $0.6 million associated with the finalization of the reconstruction of the
Roselle, NJ facility and the installation of state-of-the-art plating equipment.
In addition, the cost to replace other plant and equipment damaged or destroyed
in the fire totaled $1.2 million in 1995 and $2.8 million in 1996.
The Company currently has a $10.5 million line of credit with its primary
lender, of which $4.2 million was outstanding at June 30, 1997. Borrowing base
certificates are not required until line utilization reaches $7.0 million
outstanding, at which time the advances are limited to 80% of eligible
receivables and 35% of eligible inventory. The Company is required to comply
with certain financial and other covenants under that facility. The Company
intends to repay the outstanding amount under this facility with a portion of
the proceeds of this Offering and is presently negotiating an expanded credit
facility. See "Use of Proceeds." In addition, the Company has two $2.0 million
equipment lines available of which a total of $2.4 million was outstanding at
June 30, 1997.
The Company may be required to make additional purchase consideration
payments of up to $5.5 million through the year 2001 contingent upon the
achievement of certain operating results through fiscal 1999. The maximum
payments that may be required in fiscal 1998, 1999, 2000 and 2001 are $300,000,
$1.7 million, $2.2 million and $1.3 million, respectively. Based on the
operating results of Dauphin through June 30, 1997, it is probable that Dauphin
will meet the contingent payment targets. Therefore, the Company has recorded a
liability and a corresponding increase to goodwill in the amount of $1.0
million, the contingent purchase price. Such amounts are reflected in the June
30, 1997 balance sheet as current and long term liabilities. See Note 1
to the Consolidated Financial Statements.
In the absence of any significant acquisitions, the Company currently
anticipates that the net proceeds received by the Company from this Offering
together with amounts expected to be available under lines of credit, cash
generated from operations and existing cash balances will be sufficient to
satisfy its operating cash needs through at least December 31, 1998. The Company
believes that additional bank credit would be available to fund such operating
and capital requirements if its cash needs expand more rapidly than expected. In
addition, the Company could consider seeking additional equity financing to fund
future growth opportunities. No assurance can be given, however, that such bank
credit or debt or equity financing will be available to the Company on terms and
conditions acceptable to the Company, if at all.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share," which is effective for financial statement periods
beginning after December 15, 1997. This statement simplifies the standards for
computing earnings per share ("EPS") and makes them comparable to International
EPS standards. SFAS No. 128 replaces the standards for computing and presenting
EPS found in Accounting Principles Board Opinion No. 15 "Earnings per Share"
("APB 15"). SFAS 128 requires dual presentation of Basic (which replaces the APB
15's primary EPS) and diluted EPS on the face of the income statement for all
entities with complex capital structures. The Company believes that the
Standard, when adopted, will not materially affect results differently than
currently reported.
26
<PAGE> 28
BUSINESS
OVERVIEW
The Company is a leading manufacturer, remanufacturer and provider of a
wide range of products and services for graphic arts systems. The Company's
primary products include: a variety of replaceable steel-based rolls that are
used to transfer ink, carry paper, print images or emboss patterns; printing
presses used to print newspapers, inserts, magazines and other written or
graphic materials; and related parts and accessories. Depending upon the rate of
use and the application, these rolls and parts can require refurbishing or
replacement up to several times per year at a cost ranging from $100 to
$50,000. These products are sold to more than 5,000 active customers. The
Company's targeted markets include: OEMs; flexible and carton packaging
companies; corrugated container companies; decorative product manufacturers;
paper manufacturers; newspaper publishers; and commercial printers. The Company
has maintained long standing relationships with its customers as a result of
its excellent technical capabilities, commitment to outstanding product quality
and customer service, and long operating history. The name "Pamarco" is well
respected in the industry. For the six month period ended June 30, 1997,
approximately 65% of the Company's net sales were generated from replacement
product sales and services such as the re-engraving of rolls, remanufacturing
of printing presses and the refurbishment of narrow-width rubber rolls. For the
same period, a majority of the Company's sales were to existing customers or
new customers that had purchased graphic arts systems manufactured by the
Company's OEM customers. In addition to existing applications of the Company's
products, computerized graphic technologies are generating new applications for
graphic arts equipment ranging from special run newspapers and inserts, to the
development of enhanced consumer packaging, to the greater proliferation of
advertising and promotional materials.
The Company believes that it is currently one of the top suppliers
across most of its principal product offerings within the markets it serves. The
Company's operations are conducted through its five operating subsidiaries from
13 facilities located in 10 states in the U.S. and three facilities located in
the United Kingdom. Through these facilities, the Company has established a
strong presence throughout the United States and Europe. For the six month
period ended June 30, 1997, the Company generated approximately 27.2% of its net
sales from markets outside the United States and the Company believes that
there is a significant opportunity to continue increasing its international
sales. The Company has experienced significant growth, with net sales
increasing 20.7% from $44.5 million for the fiscal year ended December 31, 1995
to $53.7 million for the fiscal year ended December 31, 1996 and 74.4% from
$26.1 million for the six months ended June 30, 1996, to $45.5 million for the
six months ended June 30, 1997. Excluding the effect of business acquisitions,
the Company's net sales increased 10.8% and 28.4%, respectively, over the same
periods.
The Company was formed in July 1994 by an investment group led by
Bradford and senior management to purchase all of the outstanding capital stock
of Pamarco, from a subsidiary of Smurfit International, B.V. Pamarco was
primarily engaged in the engraving, re-engraving and manufacturing of anilox
and embossing rolls. In acquiring Pamarco, Bradford and management sought to
use the Company as a platform to consolidate the highly fragmented and large
supplier base to graphic arts systems operators and manufacturers by
capitalizing on Pamarco's industry reputation, management experience and
distribution capabilities. According to the U.S. Department of Commerce,
shipments of equipment manufactured in the United States used in the printing
trades for foreign and domestic uses was approximately $3.2 billion in 1996.
In addition to the significant growth potential as an industry consolidator,
the Company believes that it will benefit from the significant trends currently
affecting its markets, including the increasing preference of its customers to
do business with a smaller number of better capitalized, more sophisticated
suppliers who can offer a wider variety of products and services. Since its
acquisition of Pamarco, the Company has completed the acquisitions of four
additional businesses which offer products and services that complement those
of Pamarco and enhance its ability to serve its targeted markets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisition Transactions," "--Acquisition History" and
"Certain Transactions."
GRAPHIC ARTS INDUSTRY
Graphic arts systems are utilized in a number of industrial end-uses on a
worldwide basis, such as packaging, paper, furniture, building products and
commercial printing of newspapers, magazines, catalogs and advertisements.
Virtually every form of packaging from corrugated boxes and carton containers to
plastic and foil packages are produced with gravure or flexographic systems. In
addition, tissues, napkins, diapers, floor, wall and ceiling tiles, wallpaper,
interior wood and exterior aluminum sidings, medical blood bags, desks and
tables, refrigerator doors and lighting fixtures are all texturized or printed
with
27
<PAGE> 29
graphic arts systems. The commercial printing industry utilizes gravure,
flexographic and offset (single-width and double- width) equipment to produce
newspapers, magazines, catalogs, advertisements and other printed materials.
The decision to use a gravure, flexographic or offset printing method in a
particular application depends upon print quality, detail, volume, time and cost
considerations. For example, postage stamps, medicine tablets and certain
consumer packaging cartons are most often produced by gravure equipment due to
its high quality, detail and long production run capability. Alternatively, the
production of tabs, labels and food packaging typically utilizes flexographic
equipment due to its combination of quality, variable volume capacity and lower
set-up time and cost relative to the gravure method. In other applications which
require large production quantities with rapid production turnaround at a very
low cost structure, such as newspaper and magazines, offset equipment is
primarily used. Due to the wide variety of applications and service requirements
for graphic arts systems and components, the industry to supply and service
these products is highly fragmented both geographically and by the specific
application being served.
According to the U.S. Department of Commerce, product shipments of equipment
manufactured in the U.S. and used in the printing trades for domestic and
foreign uses was approximately $3.2 billion in 1996. Within the Company's
current markets, the Company believes that the total addressable market for
equipment, products and services is approximately $750 million per year on a
world-wide basis. On the same basis, the Company believes that the overall
growth rate within is approximately 5 - 10% per year. The Company believes that
the growth rate and the competitive dynamics within the graphic arts equipment
market are currently being affected by the following two trends:
- - computerized graphic technologies are generating new applications for graphic
arts systems ranging from special run newspapers and inserts to the
development of enhanced consumer packaging to the proliferation of
advertising and promotional materials, and
- - large companies are attempting to reduce their number of suppliers to reduce
costs through volume purchasing and increase the quality and reliability
among more sophisticated, well-capitalized suppliers in both the North
American and international markets.
BUSINESS STRATEGY
The Company's objective is to expand its position as a leading provider of a
wide range of products and services for graphic arts systems. The Company has
developed a strategy to become a world-wide, single source provider of products
and services under the Pamarco name. The Company believes this strategy
provides it with a competitive advantage in serving the needs of its targeted
markets, including the trend toward supplier consolidation. Key elements of this
strategy include:
Developing New Products. The Company intends to continue to develop new
products that complement its existing product offerings and position it among
the technological leaders in its industry. The Company believes that its
manufacturing capabilities, distribution resources, industry experience and
commitment to quality and technical innovation provide it with the capability to
develop new products, offer its customers more complete product offerings and
enter new markets. The following are examples of new products that the Company
has developed or is in the process of developing and testing:
- SINGLE-WIDTH PRINTING PRESSES. After its acquisition of Dauphin, the
Company utilized Dauphin's knowledge and expertise in remanufacturing
single-width printing presses to begin manufacturing its own high
quality single-width printing presses and related folders. The Company
is experiencing significant market acceptance of these systems.
- FYBERLITE(TM). Recently, the Company developed a lightweight, ceramic
coated, laser engraved roll, trademarked "Fyberlite," which
significantly reduces the wear of certain parts within a printing press
and decreases the time and cost it takes to replace an anilox roll,
thereby increasing productivity and efficiency. The Company has tested
this product with certain of its OEM customers over the last two years
and recently began commercial production and marketing of this product.
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<PAGE> 30
- DISPOSABLE SLEEVES. The Company is currently testing a disposable
engraved "sleeve" product that can be placed over certain anilox and
gravure rolls. This lightweight, disposable sleeve can be conveniently
shipped by overnight delivery directly to the customer and easily
replaced when it becomes worn or damaged. As a result, the customer can
reduce inventory levels of replacement rolls and avoid the time and
expense associated with returning worn or damaged rolls for
re-engraving. This product is currently being tested by the Company
with certain of its customers. The Company has not yet begun
commercial production. Although the Company is encouraged by its test
results, it can not be certain that this product will achieve
widespread market acceptance.
Growth through Acquisitions. The Company is actively pursuing acquisitions of
manufacturers and providers of complementary products and services in the
graphic arts industry, particularly where the Company can capitalize on its well
respected name, management expertise and distribution capability. The Company
believes that the highly fragmented industry, the growing customer preference
for fewer suppliers, and its financial condition, industry relationships,
acquisition record and management depth will allow it to achieve its objective
of being the leading consolidator of suppliers to the graphic arts industry.
Capitalize on Synergies from Acquired Businesses. The Company intends to
capitalize on synergies among its acquired businesses to maximize its potential
for cost reduction and operating efficiency. The following are representative
examples of how the Company has leveraged its synergies:
- The Company has utilized the capabilities of Dauphin to manufacture the
base cylinders for many of the anilox rolls which are subsequently
coated and engraved by Pamarco. By utilizing these capabilities, the
Company has improved its operating efficiency and reduced its material
and component costs.
- The Company's acquisition of Diamond has provided the Company the
ability to manufacture narrow-width rubber rolls used in Dauphin's
single-width printing presses. By utilizing these capabilities, the
Company has improved product quality and reduced its material and
component costs.
- The Company has begun to leverage its increasing purchasing power by
negotiating national contracts with some of its product and service
vendors to lower its material and component costs.
Continuously Improve Operating Processes. The Company intends to continue to
improve its operating processes by identifying and developing new manufacturing
technologies and processes and, if appropriate, identifying new third-party
material and component sources. In addition, the Company intends to derive
additional cost improvements and capacity enhancements from operational
efficiencies within its acquired businesses by utilizing proven processes,
systems and know-how across all of its operations.
International Expansion. Utilizing the strength of Pamarco's well respected
name, the Company seeks to increase its international sales through the
development of strategic joint ventures and alliances, the expansion of
international sales agents and foreign offices and the completion of additional
acquisitions. The Company believes that its European operations provide a strong
platform to increase its sales of domestically produced products in its existing
international markets and is capitalizing on its name and the experience of its
management to expand its presence in emerging foreign markets such as Latin
America and Asia which have a growing demand for the Company's products and
services.
ACQUISITION HISTORY
The Company was formed in July 1994 to consolidate the highly fragmented
graphic arts industry by capitalizing on Pamarco's well respected name,
management experience and distribution capabilities. Due to the mature and
highly fragmented nature of this industry, the Company believes that the
acquisition of businesses often represents the most time and cost effective
method of entering new markets and adding complementary products and service
capabilities. Including the initial acquisition of Pamarco, the Company has
completed the acquisition of five businesses since its inception in July, 1994.
In each acquisition, the Company has sought to have the principal managers of
the acquired businesses retain a significant interest in the future success of
the consolidated Company by encouraging them to invest in the Common Stock and
by linking a portion of the purchase price to the future profitability of the
acquired business. The following table sets forth certain information concerning
these acquired businesses:
29
<PAGE> 31
<TABLE>
<CAPTION>
Primary
Acquired Business Acquisition Date Year Founded Principal Products Geographic Territory
- ----------------------- ----------------- ---------------- ------------------------------------- --------------------------
<S> <C> <C> <C> <C>
Pamarco July 1994 1946 Engraver, re-engraver and North America and
manufacturer of anilox rolls Western Europe.
for flexographic uses and
manufacturer of embossing rolls
for the converting industry.
Dauphin January 1995 1974 Manufacturer and remanufacturer of U.S. and Western Europe.
single-width offset printing presses
and folders and supplier of
related parts and services.
Qualtech* June 1995 1992 Supplier of printing supplies and Western Europe.
plates, primarily for flexographic
uses.
Armotek April 1996 1946 Engraver, re-engraver and Mid-Atlantic States.
manufacturer of gravure, anilox and
embossing rolls primarily for gravure
and flexographic uses.
Diamond January 1997 1970 Manufacturer and remanufacturer U.S.
of rubber rolls primarily for offset
uses and manufacturer of envelope
printing presses and dampening units.
<FN>
- ---------------------------------
* Subsequently merged with the European subsidiary of Pamarco.
</TABLE>
PAMARCO. Pamarco was purchased in July 1994 as the Company's platform to
become a leading world-wide, single source provider of products and services to
the graphic arts industry. The Pamarco acquisition provided the Company: (i) a
name which is well respected in its industry, (ii) high quality products and
excellent service capabilities, and (iii) an experienced management team. Based
in Roselle, New Jersey, Pamarco manufactures and remanufactures chrome plated
and ceramic coated anilox rolls used in flexographic printing applications and
embossing rolls used in consumer packaging and numerous and diverse industrial
applications. At the time of the acquisition, Pamarco also had a well
established presence internationally through its European subsidiary. Pamarco
had revenues of approximately $25.7 million for the fiscal year prior to the
acquisition.
DAUPHIN. The Company acquired Dauphin in January 1995 to diversify its
business beyond flexographic printing and into the larger offset printing
market. At the time of this acquisition, Dauphin was primarily a remanufacturer
of single-width offset presses and provider of related parts and services.
Through the addition of capital and management resources, Dauphin has since
become a manufacturer of its own line of single-width printing presses and
folder systems which have gained significant market acceptance. In addition, the
Company has been able to lower its overall costs and increase its operating
efficiency by having Dauphin manufacture the base cylinders for its own use and
for the anilox rolls coated and engraved by Pamarco. Dauphin had sales of
approximately $8.5 million for the fiscal year prior to the acquisition.
QUALTECH. The Company acquired Qualtech in June 1995 as a strategic tuck-in
acquisition with its European operations. At the time of the acquisition,
Qualtech was a supplier of flexographic printing supplies including: photo
polymer printing plates, films, rubber stamps and computer plate design. As a
result, the Company has been able to expand its international presence and widen
its product and service offerings to existing customers. Qualtech had sales of
approximately $3.6 million for the fiscal year prior to the acquisition and
subsequently was merged into the Company's European subsidiary.
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<PAGE> 32
ARMOTEK. The Company acquired Armotek in April 1996 as a means of entering
the gravure printing market. Upon completion of the Armotek acquisition, the
Company was able to service the three main forms of printing - flexographic
(Pamarco), offset (Dauphin), and gravure (Armotek). Armotek's main business
lines are electronic engraving on print rolls, encoding engraving, such as that
used on commemorative postal stamps, specialty/commemorative engraving on
numerous substrates, and promotional engraving of rolls for gravure printing
applications. In addition to applications such as the printing of postage
stamps, Armotek's products are sold to manufacturers of floor covering, consumer
packaging and paper products. The market for engraving and re-engraving services
provided by Armotek is extremely service oriented and highly fragmented
geographically. Armotek had sales of approximately $7.3 million for the fiscal
year prior to the acquisition.
DIAMOND. The Company acquired Diamond in January 1997 to further expand its
presence in the commercial offset printing market. Diamond is a leading
remanufacturer of narrow-width rubber rolls for the offset printing
after-market. It also manufactures envelope printing presses and related
dampening units. Since the completion of this acquisition, Diamond has begun to
manufacture the rubber rolls that are used in Dauphin's single-width printing
presses. Diamond serves a variety of customers, including industrial printers,
newspaper printers, commercial printers and regional print shops. Diamond had
sales of approximately $19.9 million for the fiscal year prior to the
acquisition.
Integration of Acquired Businesses. The Company's practice of integrating its
acquired businesses has been to adopt a "partnership" style approach by
retaining the principal managers of these businesses. The Company believes this
practice enables it to capitalize on the invaluable understanding that these
organizations have with respect to their markets, customers and business
processes. The Company's management team and the principal operating managers of
the acquired businesses jointly formulate business plans and seek to identify
synergistic and growth opportunities for these businesses. The Company also
generally seeks to co-brand the product and service offerings of the acquired
business so that it may both retain the established market recognition of the
acquired business and capitalize on the Company's reputation for quality
throughout the industry. The Company believes that its partnership approach,
together with its access to capital and industry-wide reputation for quality,
will continue to attract qualified acquisition candidates to the Company.
SALES AND MARKETING
The Company markets is products to more than 5,000 active customers. The
Company's targeted markets include: original equipment manufacturers of graphic
arts systems; flexible and carton packaging companies; corrugated container
companies; decorative product manufacturers; paper manufacturers; newspaper
publishers; and commercial printers through its direct sales force and network
of sales agents. As of September 30, 1997, the sales force consisted of
108 sales people located throughout the U.S. and England and 12 sales agents.
Each of the Company's operating subsidiaries maintains independent sales and
marketing efforts in order to address the unique needs and service requirements
of customers. The Company believes that it can significantly increase sales
growth through integration of certain internal customer support functions,
cross-selling of products by the Company's existing sales forces, and entering
new geographic markets. Current sales methods employed by the Company include:
<TABLE>
<CAPTION>
Operating Subsidiary Sales Channel Geographic Coverage
- --------------------- ------------------------------------- ---------------------------------------
<S> <C> <C>
Pamarco Direct Sales, Exclusive Sales Agents North America and Western Europe
Dauphin Direct Sales, Exclusive Sales Agents United States and Western Europe
Armotek Direct Sales Mid-Atlantic States
Diamond Direct Sales United States
England
</TABLE>
The Company's direct sales force is compensated through a combination of base
salary and commissions. The Company's exclusive sales agents receive
commissions. The Company also receives royalties from third-party licensees such
as those utilized by Pamarco in Asia.
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<PAGE> 33
PRODUCT OFFERINGS AND MANUFACTURING PROCESSES
The Company provides a wide range of products and services to its customers,
including the following:
Anilox Rolls. An anilox roll is a chrome plated or ceramic coated roll that
is used primarily to meter ink onto a printing plate in a flexographic press.
The term anilox is derived from the type of water-based ink originally used in
the flexographic process. The flexographic process has enjoyed increasing usage
as it is considered to be more environmentally friendly than other printing
processes since there is much less effluent from water-based inks than
solvent-based inks. Because printing presses come in a variety of sizes, anilox
rolls vary in size from four inches to 230 inches in length and from a diameter
of two inches to 24 inches and may range in price from $400 to $10,000 to
re-engrave an anilox roll and from $400 to $50,000 for a new anilox roll,
depending on the size of the roll and the process used to manufacture the roll.
The Company sells these products to a wide range of OEMs of graphic arts
systems and industrial companies for applications within the flexographic
industry, which include a variety of corrugated and packaging applications. End
products which are produced utilizing anilox rolls in flexographic presses
include tags, labels, coupons, plastic and paper cups, milk cartons, bread
wraps, bottle wraps and appliance boxes. Since the flexographic presses that
produce these end products tend to have long useful lives, approximately 75% of
the Company's net sales of anilox rolls represents either replacement or
re-engraved rolls.
The Company's anilox rolls are primarily manufactured from its
state-of-the-art facility located in Roselle, New Jersey, although the Company
also utilizes its Palmyra, New Jersey, Batavia, Illinois, Atlanta, Georgia,
Anaheim, California and Warrington, England facilities. The manufacturing of
anilox rolls is an intricate process and, because the roll within a printing
press is generally driven by a gear, the roll diameter is critical and normally
has tolerances measured in thousandths of an inch. The coating and engraving of
these rolls is the most time intensive and value-added portion of the process.
The Company engraves its anilox rolls to customer specifications, utilizing
either mechanical, electronic or laser engraving methods depending on the
proposed application and type of coating.
Embossing Rolls. An embossing roll is engraved with a decorative or specialty
pattern that is designed to impress characteristics on materials such as paper,
plastic film, foil, steel or plastic. The two major categories of embossing
rolls are (i) single emboss, which is used to emboss items such as napkins,
plastic film, and wallcoverings, and (ii) matched emboss, which is used to
emboss heavier gauge materials such as garage doors, medical blood bags,
wallpaper, refrigerator doors and vinyl siding. The size of the rolls vary
widely depending on the material to be embossed. Because of the high cost of
tooling, roll construction and the intricacies of the patterns, the average
industry price of an embossing roll ranges from $2,000 to $50,000 for a
re-engraved embossing roll and from $10,000 to $100,000 for a new embossing
roll and can take up to several months to produce.
The Company's embossing rolls are manufactured in its facilities located in
Roselle and Palmyra, New Jersey, and in most cases, the Company maintains the
ownership of the proprietary tooling used to emboss specific patterns for its
customers, giving it a significant advantage in obtaining repeat business. The
Company also maintains an extensive library of standard patterns which it uses
regularly with its customer base. Embossing rolls are generally constructed with
an inner and outer shell to allow the passage of water in order to impart
heating or cooling properties to the material to be embossed. The roll is then
copper plated or engraved directly into the raw steel with specialty tooling.
Gravure Rolls. A gravure roll is a copper-plated steel roll that is used
primarily for printing specialty products such as commemorative postage stamps,
high-end consumer packaging, shrink wrapping, floor covering and other products
that require a high degree of print detail. The gravure rolls manufactured or
re-engraved by the Company range in size from one inch to 20 feet in length and
from four inches to 30 inches in diameter and can weigh as much as 16 tons. The
Company sells these products to a wide range of customers in the floor
covering, packaging and paper products industries. The average industry price
of a gravure roll ranges from $500 to $10,000 for a re-engraved gravure roll
and can take up to two weeks to produce.
The Company coats and engraves its gravure rolls in its Palmyra, New Jersey
facility. Gravure rolls are produced by the Company on a customized basis and
are generally known for their high print quality. The manufacturing process
requires the machining and grinding of new or used rolls. The rolls are then
copper plated and re-machined and polished to exacting tolerances. The image to
be placed on the roll is often digitized using sophisticated computer systems
and software. The gravure roll is next engraved electronically with a diamond
stylus that screens the image up to 90,000 cells per square inch. Once
engraved, the roll is chrome plated, polished and shipped to the end user.
Rubber Rolls. Rubber rolls are used in offset printing presses to transmit
ink to printing plates. Since the single-width presses which utilize the
Company's narrow-width rubber rolls tend to have long useful lives, the vast
majority of these rolls are sold as replacement rolls and are normally
refurbished many times each year. The business is very service and quality
oriented and, accordingly, customers of the Company's rubber rolls tend to be
commercial and newspaper printers that are located nearby Company facilities.
Offset printing accounts for nearly 50% of all printing done in the U.S. and
includes such end products as magazines, newspaper inserts, coupons, catalogs,
brochures and greeting cards. Rubber rolls vary in size depending on the
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<PAGE> 34
printing press into which they are placed. The Company manufactures rubber rolls
ranging in length from two inches to 100 inches and from a diameter of one-half
inch to 12 inches. The industry price of a rubber roll generally ranges from
$140 to $180, depending on the size of the roll and the type of press into which
it is to be placed.
The Company manufactures and refurbishes rubber rolls at seven plants in the
U.S. In making these rolls, the Company machines the core of the rolls and
creates the elastomer surface used to coat the core. The elastomer is bonded to
the roll core to meet the exacting design and performance characteristics. The
Company also manufactures its own elastomer coating at its Marietta, Georgia
facility and then supplies its other facilities with this elastomer, which
provide for consistent quality across its facilities resulting in a competitive
advantage in this market.
Single-Width Printing Presses and Folders. The Company manufactures two
single-width presses: one with a maximum printing speed of 30,000 copies per
hour and the other with a maximum printing speed of 50,000 copies per hour. The
Company also currently manufacturers a single type of folder which is capable of
folding 30,000 copies per hour and expects to introduce in 1998 a new folder
with increased folding capacity. The average industry price for a single-width
printing press system ranges from $210,000 to several million dollars depending
primarily on the number of individual press units included in a system. These
machines are primarily sold to small and mid-sized daily and weekly newspaper
printers with circulations below 75,000 and similar operations within larger
newspaper publishing organizations. Since a printing press is often a newspaper
publisher's most significant expenditure, the purchasing decision involves
extensive capital planning and budgeting. Accordingly, lead times for deliveries
typically range from two to eight months. The Company also remanufactures
printing presses and supplies over 3,000 parts used in printing presses,
including plate cylinders, copper rolls, bearings, electrical components and
transmissions.
With the exception of certain components, the Company manufactures and
assembles all of its presses and folders in Elizabethville, Pennsylvania. In
general, the Company's service technicians install or manage the installation of
these systems at the customer's facility and provide start-up and training
assistance services.
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<PAGE> 35
The Company actively participates in industry trade shows to further increase
product exposure, gain exposure to new customers on a national and international
basis, and stay abreast of new technology and competitors in the market. These
trade shows are important venues for the introduction of new products for the
Company. In addition, the Company has retained an advertising agency to market
products under the Pamarco name in industry trade magazines and other
publications.
SUPPLIERS
The principal raw materials and components used in the manufacturing of the
Company's products include rubber, steel, copper, nickel, ceramic powder, wire,
gears, cylinders, bearings and other materials and machine parts. While the
Company maintains several key vendors that supply the critical parts and
materials for each product manufactured by the Company, the Company believes
that there are numerous alternative suppliers of these parts and materials. In
addition, through the acquisition of its operating subsidiaries, the Company has
begun to internally manufacture more of the components used in its products,
thereby reducing dependency on outside suppliers and lowering cost.
COMPETITION
The market for the Company's products and services is highly
competitive and characterized by a number of industry niches in which a few
large manufacturers are the leaders among a highly fragmented supply base.
Among the industry niches, the industry is also highly competitive and
fragmented on a geographical basis. The Company's competitors vary in size and
resources; most are smaller privately held independent companies or
subsidiaries of larger companies, some of which are much larger and have
greater resources than the Company. The Company's principal competitors include
Praxair in the anilox roll market, Rohlen in the embossing roll market, Southern
Gravure in the gravure roll market, Bottcher America Corporation in the rubber
roll market and Goss Graphic Systems, Inc. in the offset press market. None of
the Company's principal competitors compete with the Company in all of its
product and service lines. The Company believes that the principal competitive
factors in the market in which the Company competes are product quality,
breadth of product line, on-time delivery, customer service, reliability, price
and technology. The Company believes that its long-standing customer
relationships reflect its ability to compete favorably with respect to each of
those factors.
FACILITIES
The Company's headquarters and principal administrative functions are located
in leased office space in New Providence, New Jersey. The Company conducts its
operations from 13 facilities located in ten states in the U.S. and from
three facilities located at the same site in the United Kingdom. The Company
believes that these facilities contain the requisite
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<PAGE> 36
capacity necessary to accommodate the Company's anticipated needs. The following
table lists certain items regarding these facilities:
<TABLE>
<CAPTION>
Square Type of
Location Footage Possession(1) Principal Products/Functions
- -------- ------- ------------- ----------------------------
<S> <C> <C> <C>
Elizabethville, PA 60,000 Owned Single-width printing presses and folders
35,000 Leased(2)
Palmyra, NJ 75,000 Owned Gravure rolls
Roselle, NJ 42,200 Owned Flexographic anilox rolls and embossing rolls
28,500 Leased Administrative and storage
Marietta, GA 70,000 Leased(3) Rubber rolls, envelope presses
Atlanta, GA 30,000 Leased Anilox rolls
Warrington, England 10,000 Owned Flexographic plates
26,000 Leased(4) Anilox rolls
4,200 Leased(5) Supplies and parts
Batavia, IL 19,800 Leased Anilox rolls
Baltimore, MD 18,000 Leased(3) Rubber rolls
Elk Grove, IL 16,000 Leased(3) Rubber rolls
Windsor, CT 16,000 Leased(3) Rubber rolls
Anaheim, CA 16,000 Leased Anilox rolls
Phoenix, AR 12,000 Leased(3) Rubber rolls
Cleveland, OH 10,000 Owned Rubber rolls
Pompano, FL 10,000 Leased(3) Rubber rolls
<FN>
- -------------------
(1) Other than the leases for the Anaheim facility which expires in January
1998 and the Warrington, England facility which expires in June 2000
none of these leases expires before January 2002.
(2) Leased from Frederick and Patricia Lunt, the parents of Christopher J.
Lunt, an executive officer of the Company. See "Certain Transactions."
(3) Leased from Max Gysin, an executive officer of the Company. See "Certain
Transactions."
(4) Leased from Raye Investments Limited, which is 50% owned by Terence W.
Ford, an executive officer of the Company. See "Certain Transactions."
(5) Leased from Earthgrade Ltd., which is 50% owned by Terence W. Ford, an
executive officer of the Company, and 50% owned by Greenbay, a stockholder
of the Company. See "Certain Transactions."
</TABLE>
EMPLOYEES
As of September 30, 1997 the Company employed approximately 630 full time
persons. Approximately 450, 110 and 70 of these employees are employed in
manufacturing, sales and marketing and administrative capacities, respectively.
Thirty-two of the Company's employees are represented by the Graphic
Communications International Union, Local 14-M under a collective bargaining
agreement that expires in May 2000. Two of the Company's employees are
represented by the Machinery, Scrap Iron, Metal and Steel Chauffeurs,
Warehousemen, Handlers, Helpers, Alloy Fabricators, Theatrical, Exposition,
Convention and Trade Show Employees Union, Local 714 (the "Machinery
Union") under a collective bargaining agreement that expires in June 1998,
although the agreement automatically continues for an additional one-year period
if notice is not given by either party prior to 60 days before the scheduled
date of expiration. The Company believes that its relationship with each union
is good and it has no reason to believe that it will not reach a satisfactory
new agreement with the Machinery Union upon the expiration of the current
agreement. The Company believes that its relationship with its employees is
good.
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<PAGE> 37
ENVIRONMENTAL
The Company is subject to numerous federal, state, local and foreign laws and
regulations that impose limitations on the discharge of pollutants into the
environment and establish standards for the treatment, storage and disposal of
toxic and hazardous wastes. The Company is also subject to the federal
Occupational Safety and Health Act and similar state statutes. The Company
believes it is in material compliance with all applicable environmental laws and
regulations. The Company does not expect any material impact on future recurring
operating costs of compliance with currently enacted environmental regulations.
However, if such laws or regulations should change to impose greater obligations
on the Company, this could have an adverse effect on the Company's business,
operating results and financial condition.
The Company periodically monitors its facilities and properties to identify
and resolve potential environmental matters and to monitor compliance with
environmental laws and regulations. In addition, the Company conducts
environmental assessments consistent with recognized standards of due diligence
on properties and businesses which it acquires. There can be no assurance that
environmental assessments have identified, or will in the future identify, all
material liabilities relating to the Company's properties and business. Such
liabilities, as well as possible changes in existing laws, could lead to
material costs of environmental compliance and cleanup by the Company.
LEGAL PROCEEDINGS
The Company believes that there are no claims or actions pending or
threatened against the Company the ultimate disposition of which would have a
material adverse effect on the Company's results of operations or consolidated
financial position.
36
<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME Age Position
- ------------------------------------ ---- --------------------------------------------------------
<S> <C> <C>
Thomas L. Ferguson (1)(2)(3) 38 Chairman of the Board of Directors
Maurice Buckley (1) 57 Chief Executive Officer, President and Director
Harry M. Cook 68 Vice President, Chief Operating Officer and Director;
President of Pamarco
Larry A. Handeli 42 Vice President, Chief Financial Officer and Secretary
Max Gysin 56 President of Diamond
Terence W. Ford 51 Managing Director of Pamarco's European subsidiary
Dennis E. Andersen 58 President and Chief Executive Officer of Armotek
Christopher J. Lunt 34 President of Dauphin and Director
Robert J. Simon (1)(2) 38 Director
Brian Kelly(2)(3) 54 Director
Harvey Share 66 Director
<FN>
- ----------
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
</TABLE>
Thomas L. Ferguson has been a member of the Board of Directors of the
Company since July 1994 and has served as Chairman of the Board since July 1997.
Mr. Ferguson is a managing director of BVL, a private investment firm that he
joined in June 1993. From 1987 to June 1993, Mr. Ferguson was employed with TCW
Capital, an $800 million fund that is an affiliate of Trust Company of the West
and is engaged in making equity investments in middle market companies. Mr.
Ferguson also serves as a director of U.S. Precision Glass Company.
Maurice A. Buckley has been the Chief Executive Officer, President and a
director of the Company since July 1994. From 1984 to July 1997, Mr. Buckley
served as the President and Chief Executive Officer of Pamarco. Mr. Buckley
has over 35 years of experience in the graphic arts industry.
Harry M. Cook has been the Vice President and Chief Operating Officer of the
Company since July 1997 and a member of the Board of Directors since April 1997.
From February 1997 to July 1997, Mr. Cook served as a consultant to Pamarco.
From May 1989 to January 1997, Mr. Cook analyzed potential acquisitions for TCW
Capital. From May 1989 to October 1991, Mr. Cook also served as President of
Adams Rite and from October 1991 to June 1993, Mr. Cook acted as a consultant
to Certified Holdings, each of which was a subsidiary of TCW. From June 1994 to
1997, Mr. Cook also served as Executive Vice-President and a member of the
Board of Directors of Superior Fireplace, a manufacturer of specialty
fireplaces.
Larry A. Handeli has served as the Vice President, Chief Financial Officer
and Secretary of the Company since July 1994 and has served as the Vice
President and Secretary of Pamarco since January 1991. Mr. Handeli also served
as the Controller of Pamarco from 1987 to January 1991. Previously,
Mr. Handeli, a certified public accountant, was an auditor with Arthur
Andersen LLP.
Max Gysin was the founder of Diamond in 1970 and has served as the
President of this subsidiary since such date. From 1966 to 1970, Mr. Gysin
served as the President of G&S Corp., a printing press service and repair
company co-founded by Mr. Gysin. Prior to this, Mr. Gysin was an engineer for
Color Metal in Zurich, Switzerland.
Terence W. Ford has been Managing Director of Pamarco's European subsidiary
since April 1992. From 1983 to 1992, Mr. Ford served as Managing Director of
FSL, a former subsidiary of Qualtech founded by Mr. Ford.
37
<PAGE> 39
Dennis E. Andersen has been the President and Chief Executive Officer
of Armotek since 1984. From 1980 to 1984, Mr. Andersen served as the President
of the Engraving and PrePress Division of Armotek. Mr. Andersen has served on
the Board of Directors of the Scitex Graphic Arts User Association since
September 1987.
Christopher J. Lunt has been a director of the Company and the President of
Dauphin since January 1995. Prior to such time, Mr. Lunt was the President of
the predecessor of Dauphin from 1984. Mr. Lunt has served on the regional Board
of Directors for Community Bank, N.A. since 1990.
Robert J. Simon has been a member of the Board of Directors of the Company
since July 1994 and served as Chairman of the Board from July 1994 to July 1997.
Having joined the firm in 1984, Mr. Simon has been a Senior Managing Director of
BVL, a private investment firm, since 1992, and a General Partner of Bradford
Associates since 1989. Mr. Simon is Chairman of the Board of Tufco Technologies,
Inc. and HoloPak Technologies, Inc, each of which is publicly-held, and is the
former Chairman of the Board of Adco Technologies, Inc. Mr. Simon is the
Chairman of the Board of Paramount Cards, Inc., Ampco Metal, Inc., Overseas
Equity Investors Ltd., Overseas Private Investors Ltd. and several other
privately-held companies.
Brian Kelly has been a director of the Company since July 1994. Mr. Kelly
has been the President and CEO of Delafoil, Inc, a company engaged in the
business of electronic component manufacturing, since March 1995. From March
1994 to February 1995, Mr. Kelly was the President of Waverly Partners, Inc., a
company engaged in the business of acquiring manufacturing companies. From
August 1989 to February 1994, Mr. Kelly was the President and Chief Executive
Officer of Firchburg Coated Products Company, a division of Technographics,
Inc., a manufacturer of paper and paper coatings and provider of printing
services. Mr. Kelly, who is also a certified public accountant, has more than 18
years of experience in the paper and printing industries.
Harvey Share has been a director of the Company since January 1995. From
1978 until his retirement in December 1996, Mr. Share was the President of the
Bobst Group USA ("Bobst"), a U.S. subsidiary of Bobst S.A., a Swiss corporation
Bobst is a manufacturer and distributor of folding carton equipment, corrugated
equipment, flexible packaging equipment and related replacement parts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1996, the members of the Compensation Committee were Thomas L. Ferguson
and Robert J. Simon. Mr. Ferguson is a managing director of BVL and Mr. Simon
is the Senior Managing Director of BVL, a company which earned in excess of
$60,000 in fees from the Company in 1996 for certain management services. See
"Certain Transactions." There are currently no compensation committee
interlocks with other entities or insider participation on the Compensation
Committee.
DIRECTOR COMPENSATION
Directors who are not currently receiving compensation as officers or
employees of the Company are entitled to receive fees of $3,500 for each meeting
of the Board of Directors that they attend in person or by telephone. All
directors are reimbursed for out of pocket expenses incurred in attending
meetings of the Board of Directors or Committees of the Board and for all other
expenses incurred in their capacity as directors. In addition, upon the
consummation of this Offering, the Board of Directors has determined to grant
non-qualified stock options exercisable for 23,500 shares of Common Stock with
an exercise price equal to the initial public offering price to each
non-employee member of the Board of Directors. The Board of Directors has also
adopted a policy whereby each non-employee director, will be granted, annually,
a non-qualified stock option exercisable for 7,500 shares of Common Stock with
an exercise price equal to the fair market value of the Common Stock on the date
of grant. The Board of Directors may cancel or amend this policy at any time.
38
<PAGE> 40
EXECUTIVE COMPENSATION
The following table provides information concerning compensation paid or
accrued in fiscal 1996 with respect to the Company's Chief Executive Officer and
the four other most highly compensated executive officers for the year ended
December 31, 1996 (the "Named Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION (1)
-----------------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($)(2) COMPENSATION ($)(3)
------------------ ----------- ---------- -------------------- -------------------
<S> <C> <C> <C> <C>
Maurice A. Buckley...................... $200,000 $120,000(4) $20,845 $7,843
Chief Executive Officer and President
Larry A. Handeli........................ 118,000 33,907 12,415 2,600
Vice President, Chief Financial Officer
and Secretary
Christopher J. Lunt..................... 110,613 34,500 11,288 2,033
President of Dauphin
Dennis E. Andersen...................... 120,000 -- 7,500 --
President of Armotek
Terence W. Ford......................... 88,000 25,864 18,744 672
Managing Director of Pamarco's
European subsidiary
<FN>
- ----------------
(1) The annual compensation described in this table reflects actual salary
and bonus paid by the Company to such executive officers in 1996. The
table does not include medical, group life insurance or other benefits
received by the Named Officers which are available generally to all
salaried employees of the Company and certain perquisites and other
personal benefits or property received by the Named Officers which do
not exceed the lesser of $50,000 or 10% of the aggregate of any such
Named Officer's salary and bonus. The table does not include
compensation received by any officer from predecessor companies.
(2) Represents reimbursed personal automobile expenses.
(3) Includes: (i) premiums paid by the Company in the amount of $1,767,
$536, $2,033 and $672 for life insurance on behalf of Messrs. Buckley,
Handeli, Lunt and Ford, respectively, and (ii) premiums paid by the
Company in the amount of $6,077 and $2,064 for disability insurance on
behalf of Messrs. Buckley and Handeli, respectively.
(4) Mr. Buckley's employment agreement provides that his annual bonus is
not to exceed 50% of his base salary. Nothwithstanding this, the
Compensation Committee declared and paid a bonus to Mr. Buckley in 1996
in excess of 50% of his base salary based on Mr. Buckley's and the
Company's performance during said year. See "Employment Agreements."
</TABLE>
39
<PAGE> 41
STOCK OPTION INFORMATION
The Company did not grant any options to, and no options were exercised by,
any Named Officer in 1996. The following table sets forth certain information
concerning options exercised during 1996 and the number and the hypothetical
value of certain unexercised options of the Company held by the Named Officers
as of December 31, 1996. This table is presented solely for purposes of
complying with the Commission rules and does not necessarily reflect the
amounts the optionees will actually receive upon any sale of the shares
acquired upon exercise of the options.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES AND LAST FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Value of Unexercised In-The-
Unexercised Options at Money Options at
December 31, 1996 December 31, 1996 (1)
-------------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Maurice A. Buckley 47,940 191,760 $97,308 $389,273
Larry A. Handeli 2,350 9,400 2,186 8,742
Christopher J. Lunt -- 58,750 -- 64,038
Dennis E. Andersen -- -- -- --
Terence W. Ford -- -- -- --
<FN>
- -------------------
(1) Assumes, for presentation purposes only, a per share fair market value of
$______.
</TABLE>
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Buckley on August
1, 1994, which, as amended on April 1, 1997, provides for the payment of an
annual base salary of $178,500, subject to annual increases as determined by the
Board of Directors and annual incentive bonuses of up to 50% of his base salary.
This agreement provides for a five year term and thereafter automatically
continues for successive one year terms unless written notice is provided at
least 90 days prior to the applicable expiration date.
The Company entered into an employment agreement with Mr. Handeli on January
1, 1995, which, as amended on April 1, 1997, provides for the payment of an
annual base salary of $96,305, subject to annual upward adjustment by the Board,
and incentive bonuses of up to 35% of his base salary. This agreement
automatically continues for successive one year terms unless written notice is
provided at least 90 days prior to the applicable expiration date.
The Company entered into a two-year employment agreement with Mr. Cook on
July 1, 1997, which provides for an annual base salary of $200,000, subject to
annual upward adjustment by the Board, and incentive bonuses of up to $50,600.
This agreement expires on June 30, 1999.
The Company entered into an employment agreement with Mr. Lunt on January 23,
1995, which provides for the payment of an annual base salary of $100,000,
subject to annual increases as determined by the Board of Directors, and annual
bonuses as determined by the Board of Directors. This agreement provides for a
three year term and automatically continues for successive one year terms unless
written notice is provided at least 90 days prior to the applicable expiration
date.
The Company entered into an employment agreement with Mr. Ford on June 22,
1995, which provides for the payment of an annual base salary as determined by
the Board of Directors, and incentive bonuses of up to 35% of his base salary
as determined by the Board of Directors, and incentive bonuses of up to 35% of
his base salary. This agreement automatically continues for successive one year
terms unless written notice is provided at least 90 days prior to the
applicable expiration date.
40
<PAGE> 42
The Company entered into an employment agreement with Mr. Andersen on April
15, 1996, which provides for the payment of an annual base salary of $120,000,
subject to annual upward adjustment by the Board of Directors. This agreement
provides for a two year term and automatically continues for successive one year
terms unless written notice is provided at least 45 days prior to the applicable
expiration date.
The Company entered into an employment agreement with Mr. Gysin on January
10, 1997, which provides for the payment of an annual base salary of $150,000,
subject to annual upward adjustment by the Board of Directors, and incentive
bonuses of up to 35% of his base salary. This agreement automatically continues
for successive one year terms unless written notice is provided at least 90 days
prior to the applicable expiration date.
Pursuant to the agreements, the Company may terminate the employment of each
of Mr. Handeli and Mr. Buckley without cause as of the end of the initial term
or any renewal term by giving 90 days prior written notice. In such event, the
Company would be required to continue to pay their base salary and provide
benefits for 24 months (18 months with respect to Mr. Handeli) after the
termination date and a proportionate bonus for the calendar year in which the
termination occurs. The Company may terminate the employment of Mr. Cook at any
time, by giving 30 days prior notice, provided that it continues to pay his base
salary and provide benefits for the remainder of his two year term, and a
proportionate bonus for the calendar year in which the termination occurs. The
Company may terminate the employment of Mr. Lunt without cause as of the end of
the initial term or any renewal term by giving 90 days prior written notice with
no further liability, or at any time by giving 30 days notice, provided that it
continues to pay Mr. Lunt's base salary for 12 months after the termination
date. The Company may terminate the employment of Mr. Ford without cause as of
the end of the initial term or any renewal term by giving 90 days prior written
notice or at any time by giving 30 days written notice, provided that it
continues to pay his base salary and provide benefits for 12 months after the
termination date and a proportionate bonus for the calendar year in which the
termination occurs. The Company may terminate the employment of Mr. Andersen as
of the end of the initial term or any renewal term by giving 45 days prior
written notice, provided it pays any unpaid salary and fringe benefits that have
accrued through the date the termination occurs. The Company may terminate the
employment of Mr. Gysin as of the end of the initial term or any renewal term by
giving 90 days prior written notice, provided it pays any unpaid salary and a
proportionate bonus for the calendar year in which the termination occurs.
Messrs. Buckley, Handeli, Anderson and Cook are subject to certain
restrictions on their ability to compete with the Company during the term of
their employment and for a period ending one year after the termination of
employment. Mr. Lunt is generally restricted from competing with the Company
during the longer of the term of his employment agreement, the period ending two
years after any resignation by Mr. Lunt or one year after any termination of Mr.
Lunt's employment by the Company.
STOCK OPTION PLAN
The Company has adopted the Stock Option Plan pursuant to which it has
awarded and may in the future award stock options awards to its employees,
officers, non-employee directors and certain independent contractors.
The Stock Option Plan provides for the issuance to employees, non-employee
directors and eligible independent contractors of up to 705,000 shares of Common
Stock pursuant to the grant of incentive stock options ("ISOs") and
non-qualified stock options ("NQSOs"). The Stock Option Plan is administered by
a Committee of directors appointed by the Board of Directors (the "Committee").
Upon the completion of this Offering, the Committee will consist of two or more
"outside directors" as defined under section 162(m) of the Code and two or more
"non-employee directors" as defined under Rule 16(b)(3) of the Exchange Act.
Subject to the provisions of the Stock Option Plan, the Committee has the
authority to determine to whom stock options will be granted and the terms of
any such award, including the number of shares subject to, and the vesting
provisions of, the award. Subject to the terms of the Stock Option Plan, the
Committee may also amend the terms of any outstanding award.
As of October 1, 1997, options to purchase a total of 399,911 shares of
Common Stock at a weighted average exercise price per share of $4.39 were
outstanding. Of these options, options to purchase 60,278 shares of Common Stock
were fully vested and exercisable as of October 1, 1997. As of October 1, 1997,
the Company had an additional 305,089 shares of Common Stock available for
future grants under the Stock Option Plan.
41
<PAGE> 43
The option price per share of Common Stock under the Stock Option Plan is
determined by the Committee at the time of each grant, provided, however, that
the option price per share for any ISO shall not be less than 100% of the fair
market value of the Common Stock at the time of the grant. If a person who owns
ten percent or more of the Company's Common Stock (a "10% Stockholder") is
granted an ISO, the exercise price shall not be less than 110% of the fair
market value on the date of grant. The term of each stock option may not exceed
ten years and in the case of a 10% stockholder, the term may not exceed five
years. Stock options shall be exercisable at such time or times as shall be
determined by the Committee. Payment for the exercise of an option shall be made
by cash, check or other instrument as the Committee may accept, including, in
the discretion of the Committee, unrestricted Common Stock of the Company. The
Committee may also allow an option holder to elect to cash out the excess of the
fair market value over the option price of all or a portion of a stock option.
The Committee may also grant, in its sole discretion, a "cashless exercise"
feature for the exercise of stock options. For any one individual, the aggregate
fair market value of the Common Stock at the time of grant, with respect to
which ISOs are first exercisable in the same calendar year, shall not exceed
$100,000.
The Board of Directors may amend the terms of the Stock Option Plan, subject
to the requirement to obtain shareholder approval of certain amendments. Unless
sooner terminated, the Stock Option Plan will terminate in January 2005.
Under Section 162(m) of the Code, the Company may be precluded from claiming
a federal income tax deduction for total remuneration in excess of $1.0 million
paid to the Chief Executive Officer or to any of the other four most highly
compensated officers in any one year. Total remuneration would include amounts
received upon the exercise of stock options granted under the Stock Option Plan.
An exception does exist, however, for "performance-based compensation,"
including amounts received upon the exercise of stock options pursuant to a plan
approved by stockholders that meets certain requirements. The Stock Option Plan
is intended to meet the requirements of Treasury Regulation section 1.162-27(f),
and the options and other awards granted under the Stock Option Plan are
intended to meet the requirements of "performance-based compensation."
42
<PAGE> 44
CERTAIN TRANSACTIONS
On July 25, 1994 and January 23, 1995, the Company entered into consulting
agreements with BVL. Under these agreements, BVL provides financial,
acquisition, operational, organizational and management services to the
Company. The term of each consulting agreement is 10 years, but shall
automatically renew for successive one-year terms unless terminated by any of
the parties. BVL is compensated at an initial annual aggregate fee of $190,000,
which will increase annually by 5%. Robert J. Simon, a director of the Company,
is a director of BVL.
The Company has entered into numerous agreements with, and has sold a
substantial number of shares of Common Stock to, its executive officers in
connection with its past acquisitions. The Company has sold 1,570,979 shares,
891,179 shares, 783,333 shares and 521,561 shares of Common Stock to Bradford,
Overseas Equity Investors, Bradford Investors and Greenbay, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisition Transactions." In connection with the purchase of
shares, all of the Company's stockholders were granted certain registration
rights. See "Description of Capital Stock--Registration Rights."
In April 1990, Dauphin entered into a lease with Frederick and Patricia Lunt,
the parents of Christopher J. Lunt, an executive officer of the Company. The
lease, which was entered into in connection with the acquisition of Dauphin,
expires March 31, 2010 and requires the Company to make aggregate annual rent
payments of $130,000, subject to annual adjustment for inflation. See
"Business--Facilities."
In December 1993 and June 1995, Pamarco's European subsidiary entered into
leases with Raye Investments Limited and Earthgrade Ltd., respectively in
connection with the acquisitions of Pamarco and Qualtech, respectively. Raye
Investments Limited is 50% owned by Terence W. Ford, an executive officer of the
Company. Earthgrade Ltd. is 50% owned by Terence W. Ford and 50% owned by
Greenbay, a stockholder of the Company. The initial term of each lease is ten
years and requires the Company to make aggregate annual payments of
approximately $114,000.
In January 1997, the Company entered into leases with Max Gysin, an executive
officer of the Company, pursuant to which the Company leases six properties from
Mr. Gysin. The leases, which were entered into in connection with the
acquisition of Diamond, each have an initial term that expires on January 31,
2002. The leases require the Company to make aggregate annual lease payments of
$693,000. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Acquisition Transactions" and "Business--Facilities."
In each of July 1994 and January 1995, the Company loaned $340,000 to
Greenbay, a stockholder of the Company, in connection with Greenbay's purchase
of shares of Common Stock. In connection with each such loan, Greenbay executed
a note in favor of the Company. Each note accrues interest at 5% per annum and
is payable in full on or before the fifth anniversary of the note. Maurice A.
Buckley, an executive officer of the Company, has executed guaranties of these
notes in favor of the Company. The stockholders of Greenbay are trusts
established for the benefit of Mr. Buckley's immediate family. As of October 1,
1997, the aggregate principal balance outstanding under these notes was
$680,000.
The Company believes that each of the management agreements and leases
referred to above contain terms comparable to those that could have been
obtained in arm-length transactions with unaffiliated third parties.
43
<PAGE> 45
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 1, 1997, and as adjusted to reflect
the sale of 1,600,000 shares of Common Stock offered hereby (1) by each
executive officer and director of the Company, (2) by each person known by the
Company to own beneficially 5% or more of the outstanding Common Stock, (3) by
all executive officers and directors as a group, and (4) by the Selling
Stockholders. Percentages of less than one percent have been designated by an
asterisk. Each of such stockholders has sole voting and investment power as to
shares shown unless otherwise noted.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
------------------------ ----------------------------
NO. OF NO. OF SHARES
SHARES PERCENT BEING SOLD (1) NO. OF SHARES PERCENT
---------- ---------- -------------- ------------- -----------
DIRECTORS AND EXECUTIVE OFFICERS(2)
<S> <C> <C> <C> <C> <C>
Maurice A. Buckley (3)......................... 701,101 13.57 % 701,101 10.36%
Christopher J. Lunt............................ 311,375 6.23% 311,375 4.72%
Terence W. Ford(4)............................. 143,483 2.75% 143,483 2.09%
Max Gysin...................................... 78,332 1.57% 78,332 1.19%
Robert J. Simon(5)(6)(7)....................... 27,410 * 27,410 *
Larry A. Handeli(4)........................... 34,133 * 34,133 *
Harry M. Cook(4)............................... 19,397 * 19,397 *
Thomas L. Ferguson............................. 15,091 * 15,091 *
Dennis Andersen................................ 9,557 * 9,557 *
Harvey Share................................... 4,700 * 4,700 *
Brian Kelly.................................... 2,491 * 2,491 *
All Executive Officers and Directors as a Group
(11 persons) 1,347,070 25.98% 1,347,070 19.85%
5% STOCKHOLDERS
Bradford Venture Partners, L.P.(5)............. 1,570,979 31.42% 526,666 1,044,313 15.82%
(Other Beneficial Owners: Robert J. Simon
and Barbara M. Henagan)
Bradford Investors, L.P. (6)................... 923,157 18.46% 309,485 613,672 9.30%
Overseas Equity Investors Partners, L.P.(7).... 891,178 17.82% 298,765 592,413 8.98%
(Other Beneficial Owners: Robert J. Simon and
Barbara M. Henagan)
OTHER SELLING STOCKHOLDERS(8)
Bradford Venture Partners Special Situations, L.P.. 25,812 * 8,653 17,159 *
Barbara M. Henagan............................. 22,733 * 7,621 15,112 *
Bradford Mills Revocable Trust No. 1 U/D/T 12/3/91 18,287 * 6,131 12,156 *
Bradford Mills Revocable Trust No. 2 U/D/T 12/3/91 18,287 * 6,131 12,156 *
Ward Woods 13,693 * 4,591 9,102 *
Charles L. Jaffin.............................. 11,712 * 3,926 7,786 *
David W. Jaffin................................ 11,214 * 3,759 7,455 *
Thomas J. Sharbaugh, Trustee U/A/D 3/17/69..... 10,638 * 3,566 7,072 *
Bradford Alan Mills............................ 9,776 * 3,277 6,499 *
Belisarius Corporation (Robert D. Lindsay)..... 8,847 * 2,966 5,881 *
Richard R. Davis............................... 8,720 * 2,923 5,797 *
Elizabeth M. Hardie............................ 6,643 * 2,227 4,416 *
Bradford Alan Mills, trustee U/A/D 11/4/78 F/B/O
Ross D. Mills.................................. 4,695 * 1,574 3,121 *
Barbara L. Mills, Trustee U/A/D 12/26/84 F/B/O
Frances Lee Hardie............................. 4,486 * 1,504 2,982 *
Barbara L. Mills, Trustee U/A/D 2/26/88 F/B/O
Kenneth Ian Hardie............................. 3,987 * 1,337 2,650 *
Adam P. Godfrey................................ 3,811 * 1,278 2,533 *
Rodney A. Cohen................................ 3,219 * 1,079 2,140 *
Neil H. Brownstein............................. 2,350 * 788 1,562 *
Cheryl A. Mills U/A/D 3/28/89 F/B/O Bradford
Taybrook Mills................................. 1,938 * 650 1,288 *
Thomas F. Ruhm................................. 1,410 * 473 937 *
Erwin Hosono................................... 1,175 * 394 781 *
David Cowan.................................... 705 * 236 469 *
</TABLE>
44
<PAGE> 46
- ---------------
(1) Bradford, Bradford Investors and Overseas Equity Investors have granted
the Underwriters an over-allotment option to purchase up to an additional
420,000 shares of Common Stock. To the extent that the over-allotment
option is exercised, these stockholders will sell various amounts of
Common Stock in addition to the amounts shown in the above table. See
"Underwriting."
(2) The address of these stockholders is 571 Central Avenue, Unit 119, New
Providence, New Jersey 07974.
(3) Includes 167,790 shares of Common Stock issuable pursuant to stock options
exercisable upon the completion of this Offering and 533,311 shares of
Common Stock owned by Greenbay, an Isle of Man corporation, the shares of
which are beneficially owned by members of Mr. Buckley's immediate family.
The address of Greenbay is Ragnall House, Peel Road, Douglas, Isle of Man.
(4) Includes (i) 5,875, (ii) 8,225 and (iii) 3,732 shares of Common Stock
issuable pursuant to stock options exercisable by Mr. Ford, Mr. Handeli
and Mr. Cook, respectively, upon completion of this Offering.
(5) The address of this stockholder is 44 Nassau Street, Suite 365, Princeton,
New Jersey 08542. Bradford is a limited partnership. Robert J. Simon, a
director of the Company, and Barbara M. Henagan are the general partners
of Bradford Associates, which is the sole general partner of Bradford and
holds a 1% interest in the partnership (which may increase upon the
satisfaction of certain contingencies related to the overall performance
of the investment portfolio of Bradford).
(6) The address of this stockholder is 1212 Avenue of Americas, New York, New
York 10036. Bradford Investors is a limited partnership. Robert J. Simon
and Thomas L. Ferguson, directors of the Company are two of the four
members of Bradford Management LLC, which is the sole general partner of
Bradford Investors.
(7) The address of this stockholder is Clarendon House, Church Street,
Hamilton 5-31, Bermuda. Overseas Equity Investor is a general partnership
with two partners, Overseas Equity Investors Ltd., which is the managing
corporate partner and holds a 99% interest in the partnership, and
Bradford Associates, which holds a 1% interest in the partnership (which
may increase upon the satisfaction of certain contingencies related to
the overall performance of the investment portfolio of Overseas Equity
Investor). Overseas Equity Investors Ltd. is a foreign corporation with
numerous foreign stockholders. Robert J. Simon, a director of the
Company, and Barbara M. Henagan are the general partners of Bradford
Associates, and Mr. Simon and Ms. Henagan serve as co-chairs of the board
of directors of Overseas Equity Investors Ltd., BVL, an affiliate of
Bradford Associates, also acts as an investment advisor for Overseas
Equity Investor.
(8) The address of these stockholders is c/o Bradford Venture Partners, L.P.,
1212 Avenue of the Americas, Suite 1802, New York, New York 10036.
45
<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of this Offering, the authorized capital stock of
the Company will consist of 40,000,000 shares of Common Stock, par value $.01
per share (the "Common Stock"), and 10,000,000 shares of Preferred Stock, par
value $.01 per share (the "Preferred Stock"). Immediately after the sale of the
1,600,000 shares of Common Stock sold by the Company in this Offering, there
will be 6,599,703 shares of Common Stock and no shares of Preferred Stock
outstanding. The following summary is qualified in its entirety by reference to
the Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation") and Restated Bylaws (the "Bylaws"), which are included as
exhibits to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. The election of directors is determined by a plurality
of the votes cast. Accordingly, holders of a majority of the shares of Common
Stock entitled to vote in the election of directors may elect all of the
directors standing for election and may exert considerable influence over the
management and policies of the Company. Except as otherwise required by law, all
matters other than the election of directors are determined by a majority of the
votes cast. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor, subject to any preferential dividend rights of any
outstanding shares of Preferred Stock. Upon the liquidation, dissolution or
winding up of the Company, subject to any preferential liquidation rights of any
outstanding shares of Preferred Stock, the holders of Common Stock are entitled
to receive ratably the net assets of the Company available after the payment of
all debts and other liabilities. Holders of the Common Stock have no preemptive,
subscription, redemption or conversion rights. All shares of Common Stock
outstanding are, and the shares offered by the Company in this Offering will be,
when issued and paid for, fully paid and nonassessable. The rights, preferences
and privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future.
PREFERRED STOCK
The Certificate of Incorporation also authorizes the issuance of
10,000,000 shares of Preferred Stock, all of which are available for future
issuance. Shares of Preferred Stock may be issued from time to time in one or
more series, and the Board of Directors, without further approval of the
stockholders, is authorized to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
sinking funds and any other rights, preferences, privileges and restrictions
applicable to each such series of Preferred Stock. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, adversely affect the voting
power of the holders of the Common Stock and, under certain circumstances, make
it more difficult for a third party to gain control of the Company, discourage
bids for the Common Stock at a premium, or otherwise adversely affect the market
price of the Common Stock. As of the date of this Prospectus, the Company has no
plans, agreements or understandings for the issuance of any shares of Preferred
Stock.
LIMITATION OF LIABILITY
The Certificate of Incorporation and Bylaws provide that a director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for a breach of fiduciary duty as a director, except for
liability (i) for any breach of such person's duty of loyalty, (ii) for acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, (iii) for the payment of unlawful dividends and certain other
actions prohibited by Delaware corporate law and (iv) for any transaction
resulting in receipt by such person of an improper personal benefit.
The Company maintains directors' and officers' liability insurance to
provide directors and officers with insurance coverage for losses arising from
claims based on breaches of duty, negligence, error and other wrongful acts. At
present, there is no pending litigation or proceeding, and the Company is not
aware of any threatened litigation or proceeding, involving any
46
<PAGE> 48
director, officer, employee or agent where indemnification will be required or
permitted under the Certificate of Incorporation or Bylaws.
CERTAIN ANTI-TAKEOVER PROVISIONS
Section 203 of the Delaware General Corporation Law prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who, together with any affiliates or associates of
such person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting shares of a Delaware corporation. This provision prohibits
certain business combinations (defined broadly to include mergers,
consolidations, sales or other dispositions of assets having an aggregate value
in excess of 10% of the consolidated assets of the corporation, and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation) between an interested stockholder and a
corporation. The prohibition is for a period of three years commencing on the
date the interested stockholder becomes an interested stockholder, unless (i)
the business combination is approved by the corporation's board of directors
prior to the date the interested stockholder becomes an interested stockholder;
(ii) the interested stockholder acquired at least 85% of the voting stock of the
corporation (other than stock held by directors who are also officers or by
certain employee stock plans) in the transaction in which it becomes an
interested stockholder; or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
REGISTRATION RIGHTS
The Company has granted certain registration rights to all of its
stockholders that existed prior to this Offering (the "PreExisting
Stockholders"). In particular, under certain circumstances and subject to
certain limitations, Bradford, Overseas Equity Investors or Bradford Investors
can require the Company to register under the Act such number of shares of
Common Stock held by them having a market value of at least $5.0 million,
provided that the Company is not required to effect more than one such
registration. Additionally, once the Company is eligible to register its
securities on Form S-3, the Pre-Existing Stockholders can require the Company
to register such number of shares of Common Stock having a market value of at
least $500,000 provided that each such holder shall be entitled to only two
such registrations during any 12 month period. The Pre-Existing Stockholders
were also granted certain "piggy-back" registration rights whereby under
certain circumstances and subject to certain conditions, they may include their
shares of Common Stock in any registration of shares of Common Stock under the
Act.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is StockTrans, Inc.,
Ardmore, Pennsylvania.
47
<PAGE> 49
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market
following this Offering could adversely affect the market price of the Common
Stock and adversely affect the Company's ability to raise capital at times and
on terms favorable to the Company.
Upon completion of this Offering, the Company will have 6,599,703 shares
of Common Stock outstanding, excluding 399,911 shares of Common Stock subject to
stock options outstanding as of October 1, 1997, and any stock options granted
by the Company after October 1, 1997. Of these shares, the Common Stock sold by
the Company and the Selling Stockholders in this Offering, except for certain
shares described below, will be freely tradeable without restriction or further
registration under the Act. The Restricted Shares were sold by the Company in
reliance on exemptions from the registration requirements of the Act and are
"restricted securities" as defined in Rule 144 and may not be sold in the
absence of registration under the Act unless an exemption is available,
including an exemption afforded by Rule 144. Without considering the
contractual restrictions described below, following this Offering (i) 682,873
Restricted Shares will be immediately eligible for future sale, subject to all
of the resale conditions imposed by Rule 144 other than the holding period
requirement, (ii) 1,887,473 Restricted Shares will be immediately eligible for
future sale, without regard to the volume or notice requirements imposed by
Rule 144, and (iii) 1,229,357 Restricted Shares will be immediately eligible
for future sale subject to the holding period and all other conditions imposed
by Rule 144. For purposes of Rule 144, an "affiliate" of an issuer is a person
that, directly or indirectly through one or more intermediaries, controls, or
is controlled by or is under common control with, such issuer. In general,
under Rule 144 as presently in effect, a person who has beneficially owned
shares for at least one year, including an "affiliate," will be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of one percent of the then outstanding shares of Common Stock
(approximately 65,382 shares after giving effect to this Offering), or the
average weekly trading volume during the four calendar weeks preceding filing
of notice of such sale. Sales under Rule 144 also are subject to certain manner
of sale provisions, notice requirements and the availability of current public
information about the Company. A person who is not an affiliate at any time
during the 90 days preceding a sale, and who has beneficially owned shares for
at least two years, will be entitled to sell such shares under Rule 144(k)
without regard to the volume limitations, manner of sale provisions or public
information requirements. Of the 3,799,703 Restricted Shares, ________ shares
of Common Stock will be held by "affiliates" of the Company, as defined in Rule
144(a).
All existing holders of the Common Stock prior to this Offering are
entitled to certain registration rights with respect to such shares for resale
under the Securities Act. If such holders, by exercising their registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have an adverse effect on the market price for the
Common Stock. Such rights may not be exercised prior to the expiration of 180
days from the date of this Prospectus. See "Description of Capital
Stock--Registration Rights. "
The Company and each Selling Stockholder have agreed with the
Underwriters not to offer for sale, sell or otherwise dispose of (directly or
indirectly) any shares of Common Stock for a period of 180 days from the date
of this Prospectus without the prior written consent of EVEREN Securities,
Inc., provided, however, that the Company may, subject to certain limitations,
issue and sell shares of Common Stock in connection with acquisitions. In
addition, stockholders of the Company who are also directors or employees have
agreed to the same restrictions for a period of 90 days from the date of this
Prospectus. See "Management--Stock Option Plan," "Description of
Capital Stock--Registration Rights," and "Underwriting."
48
<PAGE> 50
UNDERWRITING
Subject to the terms and certain conditions of the Underwriting Agreement
(the "Underwriting Agreement"), the syndicate of underwriters named below (the
"Underwriters"), for whom EVEREN Securities, Inc. and Janney Montgomery Scott
Inc. are acting as representatives (the "Representatives"), have severally
agreed to purchase an aggregate of 2,800,000 shares of Common Stock from the
Company and the Selling Stockholders. The number of shares of Common Stock that
each Underwriter has agreed to purchase is set forth opposite its name below.
<TABLE>
<CAPTION>
Underwriter Number of Shares
- ----------- ----------------
<S> <C>
EVEREN Securities, Inc........................
Janney Montgomery Scott Inc...................
Total...................................
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters who are parties thereunder are subject to certain conditions. If
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all such shares of Common Stock (other than the
shares of Common Stock covered by the over-allotment option described below)
must be so purchased.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the Common Stock to the
public initially at the price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not to exceed $__ per share.
The Underwriters may allow, and such dealers may re-allow, discounts not to
exceed $__ per share to certain other dealers. After the initial public offering
of the shares of Common Stock, the initial public offering price and the other
selling terms may be changed by the Representatives.
Certain of the Selling Stockholders have granted to the Underwriters an
option to purchase up to an aggregate of 420,000 additional shares of Common
Stock at the price to the public set forth on the cover page of this Prospectus,
less underwriting discounts and commissions, solely to cover over-allotments, if
any. Such option may be exercised at any time until 45 days after the date of
this Prospectus. To the extent that the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase a number of option shares proportionate to such Underwriter's initial
commitment as indicated in the preceding table.
In the Underwriting Agreement, the Company, the Selling Stockholders and
the Underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Act.
Prior to this Offering there has been no public market for the Common
Stock. The initial public offering price for the Common Stock set forth on the
cover page of this Prospectus was determined by negotiations among the Company,
the Selling Stockholders and the Representatives. Among the factors considered
in determining the initial public offering price were the future prospects of
the Company and its industry in general, revenues, earnings and certain other
financial and operating information of the Company in recent periods and the
price-book ratios, price-earnings ratio, market prices of securities and certain
financial and operating information of companies engaged in activities similar
to those of the Company.
The Company and each Selling Stockholder have agreed with the
Underwriters not to offer for sale, sell or otherwise dispose of (directly or
indirectly) any shares of Common Stock for a period of 180 days from the date
of this Prospectus without the prior written consent of EVEREN Securities,
Inc., provided, however, that the Company may, subject to certain limitations,
issue and sell shares of Common Stock in connection with acquisitions. In
addition, stockholders of the Company who are also directors or employees have
agreed to the same restrictions for a period of 90 days from the date of this
Prospectus. See "Management--Stock Option Plan," "Description of Capital
Stock--Registration Rights" and "Shares Eligible for Future Sale".
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions
49
<PAGE> 51
may include stabilization transactions effected in accordance with the
Securities Exchange Act of 1934 pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with this Offering than
they are committed to purchase from the Company and the Selling Stockholders,
and in such case may purchase Common Stock in the open market following
completion of this Offering to cover all or a portion of such shares of Common
Stock or may exercise the Underwriters' over-allotment option referred to
above. Any of the transactions described in this paragraph may result in the
maintenance of the price of the Common Stock at a level above that which might
otherwise prevail in the open market. None of the transactions described in
this paragraph are required, and, if they are undertaken, they may be
discontinued at any time.
50
<PAGE> 52
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Certain
legal matters in connection with this Offering will be passed upon for the
Underwriters by Benesch, Friedlander, Coplan & Aronoff LLP, Cleveland, Ohio.
Thomas J. Sharbaugh, a partner in Morgan, Lewis & Bockius LLP, is the trustee
of a trust which is a stockholder of the Company and a Selling Stockholder in
this Offering.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1995 and
1996 and the related consolidated statements of income, stockholders' equity
and cash flows for the years then ended and for the period from July 25, 1994
to December 31, 1994 and the period from January 1, 1994 to July 24, 1994
of the Predecessor included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein,
and have been so included in reliance upon the reports of such firm, given upon
their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-1 under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are summaries of the material provisions thereof. For
further information with respect to the Company and the Common Stock, reference
is made to the Registration Statement and the exhibits and schedules filed as a
part thereof. Copies of certain contracts or documents referred to herein are
filed as exhibits to the Registration Statement. Copies of the Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the Commission's principal office in Washington, D.C. or obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, NW, Washington, D.C. 20549. Such material also may be accessed
electronically by means of the Commission's home page on the Internet
(http://www.sec.gov).
The financial statements of the Predecessor for each of the two years
in the period ended December 31, 1993 were audited by the Predecessor's
independent accounting firm (the "former auditor") and such financial
statements did not include a company under common control, the business and
certain assets of which were combined with the Company on January 1, 1993. The
Company retained its current auditor when it was formed in July 1994. The
former auditor did not audit the financial data or financial statements
included in this Prospectus and as such, their reports on the Company's
financial statements for each of the two years in the period ended December 31,
1993 do not cover the financial statements of the Predecessor included herein.
Such reports did not contain an adverse opinion or disclaimer of opinion and
were not qualified as to uncertainty, audit scope or accounting principles.
There were no disagreements with the former auditor, and the former auditor was
not replaced due to any disagreement, on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure at any
time during their engagement by the Company, which, if not resolved to the
former auditor's satisfaction, would have caused it to make reference to the
subject matter of the disagreement in connection with its report.
REPORTS TO SECURITY HOLDERS
The Company intends to distribute to its stockholders annual reports
containing audited consolidated financial statements and will make available
copies of quarterly reports for the first three quarters of each fiscal year
containing unaudited interim consolidated financial information.
51
<PAGE> 53
PAMARCO TECHNOLOGIES, INC. (THE "COMPANY")
PAMARCO INCORPORATED (THE "PREDECESSOR")
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE COMPANY
Independent Auditors' Report...................................................................... F-2
Consolidated Balance Sheets at December 31, 1995 and 1996
and (unaudited) at June 30, 1997............................................................... F-3
Consolidated Statements of Income for the period from July 25, 1994
to December 31, 1994 and for the years ended December 31, 1995 and
1996 and (unaudited) for the six months ended June 30, 1996 and 1997........................... F-5
Consolidated Statements of Stockholders' Equity for the period from
July 25, 1994 to December 31, 1994 and for the years ended
December 31, 1995 and 1996 and (Unaudited) for the six months ended June 30, 1997.............. F-6
Consolidated Statements of Cash Flows for the period from July 25, 1994 to
December 31, 1994 and for the years ended December 31, 1995 and 1996
and (unaudited) for the six months ended June 30, 1996 and 1997................................ F-7
Notes to the Consolidated Financial Statements.................................................... F-9
THE PREDECESSOR
Independent Auditors' Report...................................................................... F-28
Consolidated Statement of Operations and Retained Earnings for the
Period from January 1, 1994 to July 24, 1994................................................... F-29
Consolidated Statement of Cash Flows for the period from January 1, 1994
to July 24, 1994............................................................................... F-30
Notes to the Consolidated Financial Statements.................................................... F-31
[DESCRIPTIONS TO BE ADDED FOR EDGAR FILING]
</TABLE>
F-1
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Pamarco Technologies Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Pamarco
Technologies Inc. and subsidiaries (the "Company") as of December 31, 1995 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for the years then ended and for the period from July 25, 1994 to
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Pamarco Technologies, Inc. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for the years then ended and for the period from
July 25, 1994 to December 31, 1994 in conformity with generally accepted
accounting principles.
April 16, 1997
(October 22, 1997 as to the first two paragraphs of Note 6)
F-2
<PAGE> 55
<TABLE>
<CAPTION>
PAMARCO TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
- ------------------------------------------------------------------------------------------------------------------------------
JUNE 30,
1997
ASSETS 1995 1996 (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 260,478 $ 1,485,221 $ 2,419,231
Cash held in escrow 109,358 - -
Accounts receivable, less allowance for doubtful accounts
of $105,271, $158,629, and $237,730, respectively 6,866,795 8,852,537 11,860,984
Inventories 4,966,307 9,308,105 16,471,420
Prepaid expenses 466,069 658,360 1,695,732
Deferred income taxes 451,541 419,980 989,337
Due from insurance company 1,088,394 603,266 -
Other current assets 1,201,091 990,944 877,130
----------- ----------- -----------
Total current assets 15,410,033 22,318,413 34,313,834
PROPERTY, PLANT AND EQUIPMENT - Net 19,627,810 28,400,178 35,986,723
DEFERRED FINANCING COSTS -
Less accumulated amortization
of $60,046, $3,360, and $19,565, respectively 156,240 89,991 121,337
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED - Less accumulated amortization of
$107,876, $230,058, and $417,332, respectively 2,811,010 2,796,268 9,033,011
OTHER ASSETS 389,101 622,242 750,499
----------- ----------- -----------
TOTAL ASSETS $38,394,194 $54,227,092 $80,205,404
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 56
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30,
1997
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996 (UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,316,549 $ 759,307 $ 1,843,108
Current portion of capitalized lease obligation 117,383 130,578 132,493
Accounts payable 5,635,644 5,074,871 7,577,514
Income taxes payable 323,088 199,963 1,697,991
Accrued vacation 434,153 683,248 871,417
Customer advances 545,187 3,408,160 5,392,977
Current portion of contingent purchase price payable - - 250,000
Other accrued liabilities 1,432,988 1,738,358 3,013,039
----------- ----------- -----------
Total current liabilities 9,804,992 11,994,485 20,778,539
----------- ----------- -----------
LONG-TERM LIABILITIES:
Long-term debt, less current portion 10,420,297 15,014,106 21,619,870
Subordinated notes payable issued in connection
with acquisitions 1,287,500 1,000,000 2,000,000
Capitalized lease obligations 460,357 345,416 277,321
Contingent purchase price payable - - 750,000
Deferred income taxes 361,159 1,824,413 2,766,950
Postretirement benefits 974,798 1,028,798 1,052,798
Other 82,317 168,365 189,052
----------- ----------- -----------
Total long-term liabilities 13,586,428 19,381,098 28,655,991
----------- ----------- -----------
Total liabilities 23,391,420 31,375,583 49,434,530
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 1, 10 and 14)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - 10,000,000 shares
authorized; none issued - - -
Common stock, $.01 par value - 40,000,000 shares
authorized; 3,087,477 shares, 3,770,352 shares
and 4,703,704 shares issued and outstanding at
December 31, 1995, 1996 and June 30, 1997,
respectively 30,875 37,704 47,037
Additional paid-in capital 13,219,825 16,990,605 22,938,842
Retained earnings 2,929,567 6,673,326 8,921,738
Loans to stockholders (1,038,000) (1,014,260) (1,014,260)
Foreign currency translation adjustment (139,493) 164,134 (107,483)
Less treasury stock, at cost - 2,350 shares - - (15,000)
----------- ----------- -----------
Total stockholders' equity 15,002,774 22,851,509 30,770,874
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $38,394,194 $54,227,092 $80,205,404
=========== =========== ===========
</TABLE>
F-4
<PAGE> 57
PAMARCO TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIOD FROM JULY 25, 1994 TO DECEMBER 31, 1994,
THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
Period ---------------------------
July 25, 1994 to Years ended December 31, June 30, June 30,
December 31, ------------------------------ ------- --------
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES $ 13,299,402 $ 44,492,012 $ 53,708,447 $ 26,059,021 $45,453,899
------------ ------------ ------------ ------------ -----------
COSTS AND EXPENSES:
Cost of sales 9,045,536 31,676,547 37,939,367 18,348,508 30,591,562
Selling expenses 1,658,743 4,519,832 5,837,574 2,961,952 5,780,502
General and administrative expenses 1,280,542 4,507,964 5,807,459 2,574,950 4,834,761
Plant closure costs - 241,177 - - -
Gain on fire - (1,299,785) (3,321,315) (2,604,174) (255,000)
------------ ------------ ------------ ------------ ------------
Total costs and expenses 11,984,821 39,645,735 46,263,085 21,281,236 40,951,825
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,314,581 4,846,277 7,445,362 4,777,785 4,502,074
OTHER INCOME (EXPENSE):
Interest and other income 23,357 115,019 83,487 41,951 63,641
Interest expense (377,970) (1,094,174) (1,183,550) (608,387) (869,403)
------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 959,968 3,867,122 6,345,299 4,211,349 3,696,312
PROVISION FOR INCOME TAXES 351,489 1,546,034 2,601,540 1,634,047 1,447,900
------------ ------------ ------------ ------------ ------------
NET INCOME $ 608,479 $ 2,321,088 $ 3,743,759 $ 2,577,302 $ 2,248,412
========= =========== =========== =========== ===========
EARNINGS PER SHARE .27 .61 .85 .61 .44
=== === === === ===
WEIGHTED AVERAGE SHARES 2,260,655 3,800,610 4,427,775 4,214,120 5,062,234
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 58
PAMARCO TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 25, 1994 TO DECEMBER 31, 1994,
THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Capital Stock Additional Loans
------------------------- Paid-in Retained to
Preferred Common Capital Earnings Stockholders
<S> <C> <C> <C> <C> <C>
Proceeds from sale of stock $-- $ 16,356 $ 6,943,644 $ -- $ --
Issuance of stockholder loans -- -- -- -- (530,000)
Net income -- -- -- 608,479 --
Translation adjustment -- -- -- -- --
--- ------------ ------------ ------------- -------------
BALANCE, DECEMBER 31, 1994 -- 16,356 6,943,644 608,479 (530,000)
Net income -- -- -- 2,321,088 --
Proceeds from sale of stock -- 12,756 5,415,444 -- (1,083,000)
Stock issued for business acquired -- 1,763 860,737 -- --
Repayment of stockholder loans -- -- -- -- 575,000
Translation adjustment -- -- -- -- --
--- ------------ ------------ ------------ -------------
BALANCE, DECEMBER 31, 1995 -- 30,875 13,219,825 2,929,567 (1,038,000)
Net income -- -- -- 3,743,759 --
Proceeds from sale of stock -- 6,129 3,384,002 -- --
Stock issued for business acquired -- 181 99,815 -- --
Stock issued for conversion of debt -- 519 286,963 -- --
Repayment of stockholder loans -- -- -- -- 23,740
Translation adjustment -- -- -- -- --
--- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1996
(Unaudited) -- 37,704 16,990,605 6,673,326 (1,014,260)
Net income -- -- -- 2,248,412 --
Proceeds from sale of stock -- 8,550 5,449,020 -- --
Stock issued for business acquired -- 783 499,217 -- --
Purchase of stock for treasury -- -- -- -- --
Translation adjustment -- -- -- -- --
--- ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1997 $-- $ 47,037 $ 22,938,842 $ 8,921,738 $ (1,014,260)
=== ============ ============ ============ ============
<CAPTION>
Foreign
Currency Total
Treasury Translation Stockholders'
Stock Adjustment Equity
<S> <C> <C> <C>
Proceeds from sale of stock $ -- $ -- $ 6,960,000
Issuance of stockholder loans -- -- (530,000)
Net income -- -- 608,479
Translation adjustment -- 18,075 18,075
------------ ------------ ------------
BALANCE, DECEMBER 31, 1994 -- 18,075 7,056,554
Net income -- -- 2,321,088
Proceeds from sale of stock -- -- 4,345,200
Stock issued for business acquired -- -- 862,500
Repayment of stockholder loans -- -- 575,000
Translation adjustment -- (157,568) (157,568)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1995 -- (139,493) 15,002,774
Net income -- -- 3,743,759
Proceeds from sale of stock -- -- 3,390,131
Stock issued for business acquired -- -- 99,996
Stock issued for conversion of debt -- -- 287,482
Repayment of stockholder loans -- -- 23,740
Translation adjustment -- 303,627 303,627
------------ ------------ ------------
BALANCE, DECEMBER 31, 1996
(Unaudited) -- 164,134 22,851,509
Net income -- -- 2,248,412
Proceeds from sale of stock -- -- 5,457,570
Stock issued for business acquired -- -- 500,000
Purchase of stock for treasury (15,000) -- (15,000)
Translation adjustment -- (271,617) (271,617)
------------ ------------ ------------
BALANCE, JUNE 30, 1997 $ (15,000) $ (107,483) $ 30,770,874
============ ============ ============
</TABLE>
F-6
<PAGE> 59
PAMARCO TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JULY 25, 1994 TO DECEMBER 31, 1994,
THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from Six Months Ended
July 25, 1994 to Years Ended -----------------------------
December 31, December 31, June 30, June 30,
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 608,479 $ 2,321,088 $ 3,743,759 $ 2,577,302 $ 2,248,412
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 397,021 1,365,109 1,835,459 874,045 1,476,140
Loss on disposal of property, net of related
proceeds 16,400 384,943 7,935 3,750 (19,274)
Deferred income taxes 50,911 986,967 1,494,815 723,010 639,074
Interest income on cash held in escrow -- (14,032) -- -- --
Adjustments to intangible assets -- (54,097) -- -- --
Write-off of deferred financing costs -- -- 133,913 -- --
Changes in assets and liabilities:
Escrow account -- -- -- 109,358 --
Accounts receivable (881,716) (851,712) (933,047) (921,858) (1,487,310)
Due from insurance company -- (1,088,394) 485,128 770,113 603,266
Inventories 328,837 (178,791) (4,109,557) (1,086,354) (3,280,274)
Prepaid expenses (178,992) 77,188 (106,140) (746,834) (1,019,445)
Other assets - current (149,522) (903,284) 516,847 405,131 113,814
Other assets - noncurrent (71,555) (140,320) (288,676) (895,118) (1,087,762)
Accounts payable 438,481 1,635,069 (1,173,753) (577,169) 1,634,436
Accrued expenses (218,504) (1,168,919) 3,308,228 899,665 3,650,804
Other liabilities 21,873 (14,306) 71,240 807,167 7,086
Contingent purchase price payable -- -- -- -- 1,000,000
Other -- -- -- (3,330) --
------------ ----------- ----------- ----------- ------------
Net cash provided by operating activities 361,713 2,356,509 4,986,151 2,938,878 4,478,967
------------ ----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of $110,220, $189,027,
$22,887 and $920,820 cash acquired in 1994, 1995,
1996 and June 30, 1997, respectively (14,911,247) (5,422,706) (1,088,549) (1,088,549) (5,536,749)
Purchases of property, plant and equipment (941,270) (4,504,408) (7,095,382) (2,304,738) (3,273,169)
Proceeds from sale - leaseback -- 500,000 -- -- --
Proceeds from sale of property, plant and equipment -- 13,960 24,486 2,000 28,763
Equipment deposits (194,814) 191,684 -- -- --
------------ ----------- ----------- ----------- ------------
Net cash used in investing activities (16,047,331) (9,221,470) (8,159,445) (3,391,287) (8,781,155)
============ =========== =========== =========== ============
</TABLE>
(Continued)
F-7
<PAGE> 60
PAMARCO TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JULY 25, 1994 TO DECEMBER 31, 1994,
THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from Six Months Ended
July 25, 1994 to Years Ended -----------------------
December 31, December 31, June 30, June 30,
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt $ 9,400,000 $ -- $ -- $ -- $ --
Borrowing under term loans -- 2,050,000 1,951,321 -- --
Repayments of term loans (250,000) (1,059,671) (2,975,970) (1,623,483) (232,963)
Borrowings under revolving lines of credit 239,236 1,187,300 739,196 (947,793) (641,605)
Common stock issued 6,960,000 4,345,200 3,390,127 3,390,127 5,457,570
Acquisition of treasury shares -- -- -- -- (15,000)
Stockholder loan (issuance) repayments (530,000) 575,000 23,740 -- --
Borrowing under equipment line of credit -- -- 1,346,050 -- 1,009,822
Principal payments under capital lease obligations (7,734) (49,862) (101,746) (50,405) (66,180)
Payments of deferred financing costs -- (36,200) (93,351) -- (3,829)
------------ ----------- ----------- ----------- -----------
Net cash provided by financing activities 15,811,502 7,011,767 4,279,367 768,446 5,507,815
------------ ----------- ----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (5,419) (6,793) 118,670 (14,226) (271,617)
------------ ----------- ----------- ----------- -----------
NET INCREASE IN CASH 120,465 140,013 1,224,743 301,811 934,010
CASH, BEGINNING OF YEAR -- 120,465 260,478 260,478 1,485,221
------------ ----------- ----------- ----------- -----------
CASH, END OF YEAR $ 120,465 $ 260,478 $ 1,485,221 $ 562,289 $ 2,419,231
============ =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
(Concluded)
F-8
<PAGE> 61
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JULY 25, 1994 TO DECEMBER 31, 1994,
THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(Information as of and for the six months ended June 30, 1996 and 1997 is
unaudited)
- -------------------------------------------------------------------------------
1. ORGANIZATION
Pamarco Technologies, Inc. (the "Company"), a Delaware Corporation, was
incorporated on July 20, 1994. The Company first issued common stock on
July 25, 1994 in connection with the acquisition of Pamarco, Incorporated
by its wholly-owned subsidiary, Pamarco Acquisition Co. The Company sold
1,635,600 shares of common stock, to various investors, including
affiliates of Bradford Ventures Ltd. ("BVL") and certain members of
management of Pamarco, Incorporated.
Pursuant to the Stock Purchase Agreement dated July 25, 1994 (the "Stock
Purchase Agreement"), Pamarco Acquisition Co. acquired (the "Acquisition")
all of the outstanding capital stock of Pamarco Incorporated, a
wholly-owned subsidiary of Amir Investments Corp. (the "Seller"). Pamarco
Acquisition Co. was merged with and into Pamarco, Incorporated. The
purchase price consisted of cash consideration of approximately $9.4
million, including related transaction costs. The Company may also be
required to pay an additional contingent purchase price of up to $875,000
based on cumulative pre-tax income for the period January 1, 1995 through
December 31, 1999, as defined in the Stock Purchase Agreement. The Seller
may elect to receive the contingent purchase price in the form of either
cash or shares of common stock of the Company.
The Acquisition has been accounted for by the purchase method of
accounting and, accordingly, the accompanying consolidated balance sheet
has been prepared based on an allocation of the purchase price to the
estimated fair values of the assets acquired and the liabilities assumed
at the date of Acquisition.
In January 1995, the Company issued additional shares of common stock for
approximately $4,345,000 in cash, net of certain loans. Effective January
23, 1995, the Company acquired substantially all of the assets and
liabilities of Dauphin Graphic Machines, Inc. ("Dauphin"). The purchase
price consisted of approximately $4.4 million, including related
transaction costs, and a $1,000,000 subordinated note payable to the
seller. The Company may also be required to pay an additional contingent
purchase price of up to $1,000,000 and the seller has an option to
purchase 58,750 shares of common stock of the Company at an exercise price
of $4.26 per share, based on cumulative pre-tax earnings for the period
January 1, 1995 through December 31, 1997. The purchase price was
allocated to the assets acquired and the liabilities assumed based on
their fair values at the date of the acquisition. Based on the operating
results of Dauphin through June 30, 1997, it would appear probable that
Dauphin will meet the earnout target.
Therefore, the Company has recorded a liability and a corresponding
increase to goodwill in the amount of $1,000,000. This amount will be
paid in four equal annual installments.
Effective June 22, 1995, Pamarco Europe Ltd. ("Pamarco Europe"), the
Company's wholly-owned U.K. subsidiary, acquired all of the outstanding
common shares of Qualtech Holdings Ltd. ("Qualtech") for approximately
$2,399,230 including related transaction costs. The Company may also be
required to pay an additional contingent purchase price of up to $300,000
based on the cumulative pre-tax earnings of Pamarco Europe and Qualtech
for the period January 1, 1996 through December 31, 1998. The purchase
price consisted of $1,156,100 in cash, a $289,000 convertible subordinated
note payable to the
F-9
<PAGE> 62
seller and 176,250 shares of the Company's common stock at a share price
of $4.89. The purchase price was allocated to the assets acquired and the
liabilities assumed based on their fair values at the date of the
acquisition. Effective January 1, 1996, Qualtech was merged with and into
Pamarco Europe.
In April 1996, the Company issued 612,831 additional shares for
approximately $3,390,000 in cash. Effective April 19, 1996, the Company
acquired substantially all of the outstanding common shares of Armotek
Industries, Inc. ("Armotek"). The purchase price was approximately
$1,200,000, including related transaction costs. The purchase price
consisted of $1,100,000 in cash and 18,076 shares of the Company's common
stock, at a share price of $5.53. The Company may also be required to pay
a contingent purchase price of up to $800,000 based on the cumulative
pre-tax earnings of Armotek for the period April 19, 1996 through December
31, 1998. The purchase price was allocated to the assets acquired and the
liabilities assumed based on their fair values at the date of acquisition.
On January 10, 1997, the Company issued 855,019 additional shares of
common stock for approximately $5,458,000 in cash. Effective January 10,
1997, the Company acquired all of the outstanding common stock of Diamond
Holding Corporation ("Diamond"). The purchase price was approximately
$10.0 million, including related transaction costs. The purchase price
consisted of $8,500,000 in cash, a $1,000,000 subordinated note payable to
the seller, and 78,333 shares of the Company's common stock at a share
price of $6.38. The Company may also be required to pay a contingent
purchase price of up to $2.5 million based on the cumulative pre-tax
earnings of Diamond for the period January 1, 1997 through December 31,
1998.
The following unaudited pro forma results of operations assume the
acquisitions of Dauphin and Qualtech which occurred as of January 1 and
July 25, respectively of the following periods:
<TABLE>
<CAPTION>
Period July 25,
Year Ended 1994 to
December 31, December 31,
1995 1994
<S> <C> <C>
Net sales $46,166,343 $18,275,907
Net income 2,377,315 784,386
Earnings per common share .63 .35
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisitions been
consummated as of January 1 and July 25, respectively, nor are they
necessarily indicative of future operating results.
The following unaudited pro forma results of operations assume the
acquisition of Armotek occurred as of January 1 of the following years:
<TABLE>
<CAPTION>
Years Ended
December 31,
1995 1996
<S> <C> <C>
Net sales $ 51,786,734 $ 55,588,294
Net income 2,400,295 3,581,071
Earnings per common share .63 .81
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisition been
consummated as of January 1, nor are they necessarily indicative of
future operating results.
F-10
<PAGE> 63
The following unaudited pro forma results of operations assume the
acquisition of Diamond occurred as of January 1 of the following year:
<TABLE>
<CAPTION>
Year Ended
December 31,
1996
<S> <C>
Net sales $ 73,572,541
Net income 3,970,650
Earnings per common share .90
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisition been
consummated as of January 1, nor are they necessarily indicative of future
operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
INVENTORIES - Inventories are stated at the lower of cost, determined on a
first-in, first-out (FIFO) basis, or market.
PROPERTY, PLANT AND EQUIPMENT - Depreciation is recorded over the
estimated useful lives of the assets using the straight-line method.
Significant additions or improvements extending asset lives are
capitalized at cost; normal maintenance and repair costs are expensed as
incurred. Leasehold improvements are amortized over the shorter of the
estimated useful life of the property or the term of the lease.
The estimated useful lives for financial reporting purposes are as
follows:
ASSETS LIFE
Buildings and improvements 40 years
Leasehold improvements Leasehold term
Machinery and equipment 5-20 years
Furniture and fixtures 10 years
Tooling 5 years
Vehicles 5 years
DEFERRED FINANCING COSTS - Deferred financing costs are amortized over the
terms of the related obligations using the interest method.
CONTINGENT PURCHASE PRICE - When it is determined that the contingent
purchase price payments related to any of its acquisitions are resolved,
the Company records such amounts as increased goodwill associated with the
transaction.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED - The excess of
purchase price over the estimated fair value of the net assets acquired,
including any contingent purchase price paid where applicable, is being
amortized on a straight-line basis over periods ranging from twenty to
thirty years.
F-11
<PAGE> 64
LONG-LIVED ASSETS - The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of ("SFAS 121"), which the Company adopted in 1996. SFAS No. 121 requires
that impairments, measured using fair value, are recognized whenever
events or changes in circumstances indicate that the carrying amount of
long-lived assets may not be recoverable and the future undiscounted cash
flows attributed to the assets are less than their carrying values. The
adoption of SFAS 121 had no effect on the Company's results of operations
or financial condition.
FOREIGN CURRENCY TRANSLATION - The accounts of the Company's wholly-owned
U.K. subsidiary are translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign
Currency Translation." Net assets of the subsidiary whose functional
currency is other than the U.S. dollar are translated at a current rate of
exchange. Results of operations are translated using the average exchange
rate prevailing throughout the period.
EARNINGS PER SHARE - Earnings per share has been computed by dividing net
income for the periods presented by the weighted average number of common
stock and equivalent common shares, if any, outstanding in each period.
Equivalent common shares includes net shares issuable upon the assumed
exercise of options using the treasury stock method.
CUSTOMER ADVANCES - Customer advances are collected and recorded on
certain sales. Such amounts are used to offset future billings.
REVENUE RECOGNITION - The Company generally recognizes revenue upon the
shipment, or if applicable, the installation of its products, or when a
service is completed.
INCOME TAXES - Deferred income taxes are determined based on the tax
effect of the differences between the financial statement and tax bases of
assets and liabilities. Deferred tax assets and liabilities are classified
as either current or noncurrent based generally on the classification of
the related asset or liability.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are
charged to expense as incurred. Research and development costs for the
year ended December 31, 1995 and 1996 and the six months ended June 30,
1997 were approximately $208,000, $23,000 and $8,900, respectively.
CREDIT RISK - Financial instruments which potentially subject the Company
to credit risk consist principally of accounts receivable. The Company's
trade accounts receivable are primarily from companies located throughout
the United States and Great Britain in the printing, packaging and
converting industries.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts in the
financial statements for accounts receivable, accounts payable, accrued
liabilities, accrued income taxes and customer advances approximate fair
value due to the short-term nature of these instruments. The carrying
value of long-term debt, including the current portion, approximated fair
value as of December 31, 1995, 1996 and June 30, 1997, due to the variable
interest rate features of this debt. The carrying value of loans to
stockholders approximated fair value as of December 31, 1995, 1996 and
June 30, 1997, based upon the discounted value of the future cash flows
expected to be received from the loans. The Company does not hold or issue
financial instruments for trading purposes. Amounts to be paid or received
under interest rate cap agreements are recognized as increases or
reductions in interest expense in the periods in which they accrue.
USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the 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.
F-12
<PAGE> 65
RECENTLY ISSUED ACCOUNTING STANDARDS - In February 1997, the Financial
Accounting Standards Board issued SFAS No. 128 "Earnings Per Share," which
is effective for financial statement periods beginning after December 15,
1997. This statement simplifies the standards for computing earnings per
share (EPS) and makes them comparable to International EPS standards. SFAS
No. 128 replaces the standards for computing and presenting EPS found in
Accounting Principles Board Opinion No. 15 "Earnings per Share" (APB 15).
SFAS 128 requires dual presentation of Basic (which replaces APB 15's
Primary EPS) and diluted EPS on the face of the income statement for all
entities with complex capital structures. The Company believes that this
standard, when adopted, will not materially effect earnings per share
amounts.
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996 1997
(Unaudited)
<S> <C> <C> <C>
Work in process $ 1,914,261 $ 2,695,385 $ 6,636,139
Raw materials 2,813,992 4,976,602 7,404,858
Finished goods 238,054 1,636,118 2,430,423
----------- ----------- ------------
Total $ 4,966,307 $ 9,308,105 $ 16,471,420
=========== =========== ============
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996 1997
(Unaudited)
<S> <C> <C> <C>
Land $ 565,616 $ 636,402 $ 656,202
Buildings and improvements 3,009,755 5,356,659 6,372,902
Leasehold improvements 1,138,291 1,455,112 1,542,310
Machinery and equipment 15,263,927 22,296,824 28,704,781
Furniture and fixtures 83,029 391,957 760,281
Tooling 1,876,126 2,343,119 2,592,070
Construction in progess - - 626,702
------------ ------------ ------------
Total 21,936,744 32,480,073 41,255,248
Less accumulated depreciation
and amortization (2,308,934) (4,079,895) (5,268,525)
------------ ------------ ------------
Net $ 19,627,810 $ 28,400,178 $ 35,986,723
============ ============ ============
</TABLE>
F-13
<PAGE> 66
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996 1997
(Unaudited)
<S> <C> <C> <C>
U.S. term loan payable in variable monthly
installments maturing on September 30, 2003 $ -- $ 9,650,867 $16,870,610
U.S. revolving loan payable on September 19,
1999 -- 4,776,496 4,236,496
U.S. equipment line of credit, interest only
payments until term loan conversion is elected -- 1,346,050 2,355,872
U.S. term loan payable in variable monthly
installments, maturing on July 1, 2001 6,066,666 -- --
U.S. Dauphin term loan payable in equal
monthly installments of $8,333 maturing on
February 1, 2000 416,670 -- --
U.K. term loan payable in equal quarterly
installments of approximately (pound)40,000
maturing on June 22, 2000 1,135,276 -- --
U.S. revolving loans payable on July 1, 1997 4,037,300 -- --
U.K. overdraft loan payable on July 1, 1997 -- -- --
Equipment note payable in monthly
installments through September 1996,
with interest at 5.5% 80,934 -- --
----------- ----------- -----------
Total 11,736,846 15,773,413 23,462,978
Less current maturities 1,316,549 759,307 1,843,108
----------- ----------- -----------
Total long-term debt $10,420,297 $15,014,106 $21,619,870
=========== =========== ===========
</TABLE>
Long-term debt payments due in years subsequent to December 31, 1996 are
as follows:
1997 $ 759,307
1998 1,187,800
1999 6,082,002
2000 1,633,225
2001 1,672,461
Thereafter 4,438,618
-----------
Total $15,773,413
===========
On September 19, 1996, the Company entered into a Loan and Security
Agreement (the "Loan Agreement") with a lending institution. The Loan
Agreement provides the Company with a credit facility consisting of a $8.5
million revolver loan, $2.0 million equipment line of credit and a $9.5
million term loan. Proceeds of the Loan Agreement were used to refinance
the long-term debt obligations that existed at December 31, 1995.
F-14
<PAGE> 67
The Loan Agreement provides the Company with several interest rate options
that may be elected. The Company has elected a London Interbank Offered
Rate ("LIBOR") plus 1.25% for its term and revolving debt. In conjunction
with the LIBOR election, the Company has purchased a fifteen month
interest rate cap on a notional amount of $3,750,000. The cap limits the
LIBOR rate to 6.50% in 90 day intervals. At December 31, 1996 the interest
rate based on LIBOR for the term and revolver loans was 6.7813%. The
Company can extend the LIBOR based interest option or convert the debt to
a prime interest based rate.
The Company's equipment line of credit bears interest at the daily prime
rate minus 0.50%. At December 31, 1996, the interest rate was 7.75%. The
Company can elect to convert this debt to a term loan while choosing from
varying maturity dates of five to seven years. Upon conversion to a term
loan the Company can also select an interest rate base.
The Company pays the bank a facility fee equal to 0.25% (on an annual
basis) of the average daily unused portion of the balance committed by the
bank.
As a result of the acquisition of Diamond in January of 1997, the Company
negotiated an increase in its Loan Agreement. The term loan was increased
by $7.5 million with monthly maturities to January 2004. The revolver loan
was increased by $2.0 million. The equipment line of credit was increased
by $2.0 million. These increases will result in additional debt payments
of $288,462 in 1997, 903,846 in 1998, $923,077 in 1999, $1,240,384 in
2000, $259,231 in 2001, and $2,875,000 thereafter.
All of the property, assets and rights of the Company and its subsidiaries
have been pledged as security for the term loan. The revolver loan is
unsecured. The Loan Agreement contains certain affirmative and negative
covenants which, among other matters: (a) restrict (i) the purchase and
disposition of assets; (ii) additional indebtedness; (iii) the declaration
or payment of dividends (only to the extent the Company is in default of
any other covenant of the Loan Agreement or that the declaration of
dividends would place them in default); (iv) investments; (v) capital
expenditures; and (b) require the maintenance of certain financial amounts
and ratios. At December 31, 1996, the Company was in violation of the
capital expenditures financial covenant under the Loan Agreement. On April
16, 1997, the Company received a waiver of the violation from the lender.
Under the U.S. term loan agreement outstanding at December 31, 1995,
Pamarco, Incorporated had the option to fix the interest rate on $1
million increments of principal at any time. As of December 31, 1995,
$1,733,333 of principal was locked in at a fixed rate of 8.04%, $888,095
of principal was locked in at a fixed rate of 8.65%. The remaining
$3,445,238 of principal at December 31, 1995, bore interest at the bank's
base rate plus a variable margin, as defined by the loan agreement. The
weighted average interest rate for the year ended December 31, 1995 was
8.92%.
The Dauphin term loan expiring on February 1, 2000 bore interest at the
bank's base rate plus a variable margin, as defined by the loan agreement.
The weighted average interest rate for the period from January 23, 1995 to
December 31, 1995 was 8.86%.
The U.K. term loan agreement bore interest at the bank's sterling base
rate plus 2.0%.
Both Pamarco, Incorporated and Dauphin maintained U.S. revolving loans
which provided for borrowings to maximums of $4.5 million and $2.5 million
and which bore interest at the bank's base rate plus the variable margins
in effect. The unused portions of Pamarco, Incorporated's and Dauphin's
U.S. revolving loans at December 31, 1995 were $0.6 million and $2.4
million, respectively.
Pamarco, Incorporated's loan agreement also provided for an overdraft loan
to Pamarco Europe Ltd. of up to(pound)470,000, or approximately $750,000.
Borrowings under this loan were due on July 1, 1997 and were payable in
pounds sterling. Interest accrued at the bank's sterling base rate plus
2.0%.
F-15
<PAGE> 68
6. STOCKHOLDERS' EQUITY
On October 22, 1997, the Board of Directors authorized an initial public
offering ("Offering") of the Company's common stock. The proceeds from the
sale of such stock, after deducting offering expenses, would be used to
repay certain loans and to provide working capital for expanding the
Company's operations and for general corporate purposes.
In addition, on October 22, 1997, the Board of Directors approved the
conversion of all Class A, Class B and Class C common shares of stock into
one class of common stock, a 2.35 for one stock split, and an increase in
the number of authorized preferred and commons shares to 10,000,000 and
40,000,000, respectively. All previously reported share and per share
information has been retroactively restated to give effect to such stock
split.
Weighted average shares was calculated utilizing the treasury stock
method, assuming that all shares issued within one year prior to the
initial filing of the Registration Statement were outstanding for all
periods presented.
The Company's capital stock consists of common stock and preferred stock.
All shares of stock of the Company have a par value of $.01 per share.
Holders of common stock have one vote per share on any matter on which the
stockholders of the Company are entitled to vote.
The Company maintains a 1995 Stock Option Plan (the "Plan") in which a
maximum of 705,000 shares of common stock have been authorized for
issuance. Pursuant to the Plan, the Company entered into Option Agreements
(the "Option Agreements") with certain members of management. Such Option
Agreements grant these employees the option to purchase shares of common
stock of the Company at purchase prices equal to the estimated fair market
value of the shares as determined by the Board of Directors as of the date
of the grant. The options granted by the Option Agreements are
nonqualified stock options. All of the options will vest and become
exercisable on the tenth anniversary of the Option Agreements to the
extent that they have not vested and become exercisable earlier under the
terms of the Option Agreements. Upon completion of a public offering,
options to purchase a total of 161,769 shares of common stock will become
immediately exercisable.
F-16
<PAGE> 69
The activity in the Plan is presented below:
<TABLE>
<CAPTION>
Shares Under Weighted-Average
Option Exercise Price
<S> <C> <C>
Outstanding, December 31, 1994 - $ -
Granted 374,825 4.26
------- ------
Outstanding, December 31, 1995 374,825 4.26
Granted 5,875 5.53
------- ------
Outstanding, December 31, 1996 380,700 4.28
Granted 11,750 6.38
------- ------
Outstanding, June 30, 1997 392,450 $ 4.34
======= ======
Exercisable at December 31, 1995 29,845
======
Exercisable at December 31, 1996 60,278
======
Exercisable at June 30, 1997 60,278
======
</TABLE>
The Company applies Accounting Principles Board (APB) Opinion 25 and
related interpretations in accounting for the Plan. Accordingly, no
compensation cost has been recognized for the Plan. Had compensation cost
for the Plan been determined consistent with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123), the Company's pro forma net income would have been $2,288,626
and $3,704,335, for the years ended 1995 and 1996, respectively. Proforma
net income would have been $2,235,812 for the six months ended June 30,
1997.
The weighted average fair value of the stock options granted during 1995,
1996, and the period ended June 30, 1997 was $3.92, $2.37 and $2.52,
respectively. The fair value of each stock option grant is estimated on
the date of the grant using the minimum value option pricing model with
the following weighted average assumptions utilized for grants in 1995,
1996, and the period ending June 30, 1997, respectively; risk-free
interest rate of 6.04% to 6.49%, expected life of 2.83 to 8.04 years, and
no expected dividend yield. Stock options generally expire ten years from
the grant date.
F-17
<PAGE> 70
7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Period
July 25,
1994 to Years Ended Six Months Ended
December 31, December 31, June 30, June 30,
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income taxes paid $360,730 $ 927,778 $ 706,330 $ -- $751,767
Interest paid 294,357 1,019,114 1,253,630 -- 824,838
Noncash investing and
financing activities:
Issuances of securities
in connection
with purchases
of businesses:
Common stock in
connection with
purchase of business -- 862,500 99,996 99,996 500,000
Subordinated notes
payable -- 1,289,000 -- -- --
Capital lease obligation -- 500,000 -- -- --
Common stock issued
in conversion of
subordinated note
payable -- -- 287,482 -- --
</TABLE>
8. MAJOR DAMAGE TO FACILITY
On August 7, 1995, Pamarco, Incorporated's main facility in Roselle, New
Jersey sustained major damage from a fire. The facility remained partially
operational; however, during the remainder of 1995, Pamarco, Incorporated
utilized its other facilities, as well as outside vendors, to supplement
production. Pamarco, Incorporated maintains insurance for both property
damage (replacement value) and business interruption applicable to this
facility. The policy providing the coverage for property insurance is
subject to a deductible of $5,000 and there is no deductible for the
business interruption insurance.
At the time of the fire, the amount of insurance recoveries was not
determinable. Accordingly, the Company has recorded insurance recoveries
over a period of time from the third quarter of 1995 through the first
quarter of 1997 as these amounts were settled with the Company's insurance
carrier.
Insurance recoveries for the years ended December 31, 1995 and 1996 and
the periods ended June 30, 1996 and 1997 totaled $2.3 million, $4.6
million, $3.0 million and $0.9 million, respectively. Receipt of these
proceeds represents the settlement of amounts due to the Company from the
insurance carrier.
The Company has recognized in its statements of income for the years ended
December 31, 1995, 1996 and the six month period ended June 30, 1996
gains of approximately $700,000, $1.1 million and $1.0 million,
respectively, representing insurance recoveries received in excess of the
carrying value of the facility and machinery and equipment and related
expenses incurred. Also included in its statements of income for the
years ended December 31, 1995, 1996 and the six month periods ended June
30, 1996 and June 30, 1997 was approximately $600,000, $2.2 million, $1.6
million and $255,000, respectively, related to business interruption
coverage.
F-18
<PAGE> 71
9. PLANT CLOSURE
During 1995, the Company discontinued production at its Dallas, Texas
facility and relocated a portion of the production equipment to its other
facilities within the United States. As a result, the Company recorded
costs of $241,177 primarily relating to severance, waste disposal and the
write-off of certain assets. The plan was completed in 1995 and management
believes that there are no remaining liabilities associated with the
closure of this facility.
10. LEASES
In September 1995, Pamarco, Incorporated sold machinery and equipment with
a net book value of $500,000 to a bank and simultaneously entered into a
capital lease agreement over a five-year period. In accordance with the
terms of the capital lease agreement, ownership of the machinery and
equipment is transferred back to the Company at the end of the lease term.
The capital lease agreement contains affirmative and negative covenants
which among other matters: (a) restrict (i) the purchase and disposition
of assets; (ii) additional indebtedness; (iii) the declaration or payment
of dividends; (iv) investments; (v) capital expenditures; and (b) require
the maintenance of certain financial amounts and ratios.
At December 31, 1996, the Company was not in compliance with the capital
expenditure covenant. However, the Company is continuing to repay the
lease in accordance with the repayment terms. Were the bank to call the
lease the Company has sufficient availability on its term and revolving
credit loans to repay the remaining amount due under this capital lease
which approximated $400,000 and $410,000 at December 31, 1996 and June 30,
1997, respectively.
F-19
<PAGE> 72
In addition, Pamarco Europe is obligated under a capital lease relating to
equipment. The Company was also obligated under various operating leases
in both the United States and the United Kingdom, principally for
buildings and equipment, including leases with former owners of businesses
acquired, which expire at various dates through 2010. Future minimum lease
payments for the capital and operating leases with initial or remaining
terms in excess of one year as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
<S> <C> <C>
1997 $ 160,196 $ 878,958
1998 160,196 852,580
1999 120,086 787,626
2000 100,071 708,936
2001 -- 573,061
Thereafter -- 1,551,443
---------- ----------
540,549 $5,352,604
==========
Amount representing interest
(ranging from 5.15% to 7.38%) 64,555
----------
Present value of minimum lease
payments $ 475,994
==========
Current capital lease payable $ 130,578
==========
Noncurrent capital lease payable $ 345,416
==========
</TABLE>
Rental expense for the period ended December 31, 1994 and the years ended
December 31, 1995 and 1996 were $390,724, $1,005,718 and $870,209,
respectively, which included amounts paid to related parties of $39,470,
$227,846 and $252,991, respectively. Rental expense for the six months
ended June 30, 1996 and 1997 were $756,274 and $1,125,552, respectively,
which included amounts paid to related parties of $129,996 and $479,952,
respectively.
11. INCOME TAXES
The components of income before income taxes and the provision for income
taxes are as follows:
<TABLE>
<CAPTION>
Period
July 25,
1994 to Years Ended
December 31, December 31,
1994 1995 1996
<S> <C> <C> <C>
Income before
income taxes:
Domestic $ 672,262 $ 3,053,250 $ 4,815,593
Foreign 287,706 813,872 1,529,706
--------- ----------- -----------
Total income before income taxes $ 959,968 $ 3,867,122 $ 6,345,299
========= =========== ===========
</TABLE>
F-20
<PAGE> 73
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
July 25,
1994 to Years Ended
December 31, December 31,
1994 1995 1996
<S> <C> <C> <C>
Current:
Federal $ 200,698 $ 137,001 $ 484,499
Foreign 41,613 190,610 479,850
State 58,267 132,530 142,376
--------- ----------- -----------
Total current
provision 300,578 460,141 1,106,725
--------- ----------- -----------
Deferred:
Federal 28,638 798,451 1,105,335
Foreign 17,219 82,005 55,945
State 5,054 205,437 333,535
--------- ----------- -----------
Total deferred
provision 50,911 1,085,893 1,494,815
--------- ----------- -----------
Total provision
for income taxes $ 351,489 $ 1,546,034 $ 2,601,540
========= =========== ===========
</TABLE>
Included in other current assets as of December 31, 1995 and 1996 are Federal
and state income tax receivables of approximately $395,000 and $195,000,
respectively, arising from overpayments of federal and state taxes paid during
the year.
F-21
<PAGE> 74
Deferred income tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1996
Deferred Deferred Deferred Deferred
Tax Assets Tax Liabilities Tax Assets Tax Liabilities
Current:
<S> <C> <C> <C> <C>
Accounts receivable $ 37,322 $ -- $ 24,442 $ --
Prepaid insurance -- 13,506 -- 23,858
Accrued environmental
liabilities 35,458 -- -- --
Other accrued expenses 193,393 -- 211,837 --
Accrued vacation 198,874 -- 207,559 --
---------- ---------- -------- ----------
Total current $ 465,047 $ 13,506 $443,838 $ 23,858
========== ========== ======== ==========
Noncurrent:
Property, plant and equipment $ -- $ 700,994 $ -- $1,585,278
Deferred gain on damage to
facility -- 519,914 -- 979,233
Other long-term liabilities 82,113 -- 126,883 --
Postretirement benefits 346,079 -- 367,679 --
Goodwill 250,539 -- 208,861 --
Cash surrender value -- 26,545 -- 41,269
Operating loss carryforwards 202,934 -- 45,347 --
Foreign tax credit carryforward -- -- 30,836 --
AMT credit carryforward 125,631 -- 178,708 --
Deferred foreign taxes -- 121,002 -- 176,947
---------- ---------- -------- ----------
Total noncurrent $1,007,296 $1,368,455 $958,314 $2,782,727
========== ========== ======== ==========
</TABLE>
As a result of temporary differences, the Company generated in 1995, net
operating loss carryforwards for Federal and state income tax purposes of
approximately $300,000 and $1.4 million, respectively. At December 31,
1996, the entire Federal net operating loss was utilized and approximately
$750,000 of state net operating loss carryforward remains available. The
state net operating loss carryforward expires in the year 2002.
F-22
<PAGE> 75
The following is a reconciliation of the expected provision for income
taxes determined at the statutory rates and the actual provision for income:
<TABLE>
<CAPTION>
Period
July 25,
1994 to
Dcember 31, December 31,
1994 1995 1996
<S> <C> <C> <C>
Income before
income taxes $ 959,968 $ 3,867,122 $6,345,299
Statutory federal
income tax rate 34% 34% 34%
--------- ----------- ----------
Expected income
tax provision 326,389 1,314,821 2,157,402
Income of foreign
subsidiary taxed at
different rate (38,071) (4,102) 15,297
State taxes, net
of Federal benefit 41,792 190,738 314,100
Nondeductible items 21,379 44,577 106,338
Other -- -- 8,403
--------- ----------- ----------
Provision for
income taxes $ 351,489 $ 1,546,034 $2,601,540
========= =========== ==========
</TABLE>
12. RELATED PARTY TRANSACTIONS
In conjunction with the Acquisition, the Company loaned $530,000,
evidenced by notes receivable, to certain members of management to fund a
portion of their capital contributions to the Company. Such notes bear
interest at 5%, payable annually, and the principal is due in full on July
25, 1999. During 1995, $60,000 of these loans were repaid.
In connection with the purchase of Dauphin (as discussed in Note 1), the
Company sold 542,820 newly-issued shares of its common stock to certain
members of management of the Company, Dauphin and Pamarco Europe to fund a
portion of the Company's capital contributions to Dauphin. The Company
loaned $1,083,000, evidenced by notes receivable to such members of
management to serve as partial consideration for the shares purchased.
During the course of 1995 and 1996, approximately $515,000 and $24,000
respectively, of these loans were repaid. Such notes bear interest at 5%,
payable annually, and the principal is due in full on January 23, 2000.
Pamarco, Incorporated and Dauphin have consulting agreements with BVL
effective August 1, 1994 and January 23, 1995, respectively. The
agreements state that BVL will provide financial, acquisition,
operational, organizational and management services to the Company and
Dauphin for fees of $125,000 and $65,000, respectively, for the first
year. Such fees shall increase by 5% for each year thereafter, and are
payable in equal monthly installments. The terms of such agreements are 10
years, but shall automatically renew for successive one-year terms unless
terminated by any of the parties.
On January 23, 1995, Dauphin issued a subordinated note payable to the
Seller in the principal amount of $1,000,000 originally bearing interest
at 6%, payable annually. The note was amended on July 19, 1995 to bear
interest at 8%, payable annually. The principal is payable in four equal
annual installments commencing on January 23, 2002.
F-23
<PAGE> 76
In connection with the purchase of Qualtech (as discussed in Note 1), the
Company issued 176,250 shares of its common stock to the former owners of
Qualtech as partial consideration for the purchase. Prior to the Company's
acquisition of Qualtech, the managing director of Pamarco Europe and
another related party had each been fifty-percent owners of Qualtech and
certain members of management of Pamarco Europe and the Company had served
as directors of Qualtech.
During August 1996, the managing director of Pamarco Europe and another
related party converted approximately $289,000 of subordinated notes
payable, issued in connection with the purchase of Qualtech, for 51,968
shares of the Company's common stock at a share price of $5.53.
13. EMPLOYEE BENEFIT PLANS
Pamarco, Incorporated has a salary reduction 401(k) plan for its U.S.
employees. Employees are eligible to participate in the 401(k) plan upon
attainment of 21 years of age and upon completion of one-half year of
service. Pamarco, Incorporated provides matching amounts contributed by
employees up to 3% of the employee's gross salary. The Company's matching
contributions for this plan were approximately $77,400, $199,000 and
$223,000 for the period July 25, 1994 to December 31, 1994 and for the
years ended December 31, 1995 and 1996, respectively.
Pamarco Europe, Ltd. has a defined contribution pension plan covering
substantially all of its employees, and contributes 2.7% of the employees'
gross salary. Contributions to this plan were approximately $8,700,
$42,800 and $35,700 for the period July 25, 1994 to December 31, 1994 and
for the years ended December 31, 1995 and 1996, respectively.
Dauphin has a salary reduction profit-sharing 401(k) plan covering
substantially all employees (approximately 20 participants). The 401(k)
plan provides for elective deferrals by employees of up to 10% of base
compensation and a discretionary profit-sharing contribution by Dauphin of
6% of total wages. Employees are eligible to participate in the 401(k)
plan upon attainment of 18 years of age and completion of one year of
service. Dauphin provides the discretionary profit-sharing contribution to
participants after completing two years of service. Contributions to this
plan were approximately $78,700 for the period from January 23, 1995
to December 31 1995 and $103,000 for 1996.
Armotek has a defined benefit pension plan which covers nonunion
employees. Effective April 19, 1996, the plan has been frozen and is in
the process of termination. Upon Internal Revenue Service termination
approval, the plan assets will be distributed to the participants. Plan
assets approximate plan liabilities as of December 31, 1996 using a 4.5%
interest rate which is the rate to be used to pay lump sum benefits to
participants or to purchase annuities under the plan.
14. CONTINGENCIES
In accordance with the provision of the Industrial Site Recovery Act
(ISRA), the Company is working with the State of New Jersey Department of
Environmental Protection and Energy to remove soil contamination and
perform other remedial activities at its operating facilities in Roselle,
New Jersey. The estimated cost includes engineering fees, legal fees and
the purchase of materials, equipment, and other services. In accordance
with the Stock Purchase Agreement, the Company is responsible for
two-thirds of the first $750,000 of certain environmental costs, which the
Company funded by depositing $500,000 into an escrow account as of July
25, 1994. The Seller has agreed to indemnify the Company for one-third of
the first $750,000 of certain environmental costs and up to $2 million of
any additional future costs, which is partially funded by a $1.5 million
irrevocable letter of credit. The Company is responsible for any further
environmental liabilities in excess of such amounts. At December 31, 1995
and 1996, the Company had receivables of approximately $464,000 and
$285,000, respectively, from
F-24
<PAGE> 77
the Seller for such environmental costs which are included in other
current assets in the accompanying Balance Sheets. Additionally, Pamarco,
Incorporated has been notified by the New Jersey Department of
Environmental Protection ("DEP") that it is a potentially responsible
party ("PRP") with respect to environmental impacts identified at a site
in Jersey City, New Jersey.
At December 31, 1996, the nature and amount of these and any additional
environmental costs are uncertain; however, management believes that
environmental matters will be resolved without any material adverse effect
on the Company's financial position.
15. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Pamarco, Incorporated provides for postretirement health care and life
insurance benefits covering certain U.S. employees and former employees
whose age and length of service years total 85. The postretirement health
care plan is noncontributory for participants retiring before January 1,
1993. For participants retiring on or subsequent to January 1, 1993, the
Company contributes an amount up to $7 multiplied by the number of years
of service on a monthly basis for each retiree, as necessary. Health care
costs in excess of such contributions are the responsibility of the
retiree. The life insurance plan is noncontributory for all eligible
retirees.
The cost of postretirement and other benefits are recorded on the accrual
basis as employees render service to earn the benefits and to record a
liability for the accumulated benefit obligation. The Company funds its
postretirement health care and life insurance costs as claims and premiums
are paid. The accrued postretirement benefit obligation and the amount
reflected in the accompanying balance sheet is equal to the actuarial
present value of benefit obligations as follows:
<TABLE>
<CAPTION>
December 31,
1995 1996
<S> <C> <C>
Actuarial present value of benefit obligations:
Retirees receiving benefits $ 491,222 $ 520,429
Active employees eligible to receive benefits 69,057 75,719
Active employees not yet eligible
to receive benefits 449,161 386,621
--------- -----------
Total 1,009,440 982,769
Unrecognized net (loss) gain (34,642) 46,029
--------- -----------
Accrued postretirement benefit obligation $ 974,798 $ 1,028,798
========= ===========
</TABLE>
F-25
<PAGE> 78
The postretirement cost consists of the following:
<TABLE>
<CAPTION>
Period Years Ended
July 25, 1994 to December 31,
December 31, 1994 1995 1996
<S> <C> <C> <C>
Service cost $ 8,625 $ 19,336 $ 24,217
Interest cost 26,425 76,493 71,882
-------- -------- --------
Total $ 35,050 $ 95,829 $ 96,099
======== ======== ========
</TABLE>
The postretirement cost for the periods ended June 30, 1996 and June 30,
1997 was $24,000 and $18,219, respectively.
The health care cost trend used in determining the accumulated
postretirement benefit obligation was 11.5% and 11.0% for the years of
1995 and 1996, respectively, decreasing 1/2% per year to an ultimate rate
of 5.5%. Increasing the assumed health care cost trend rate by 1%
increases the accumulated postretirement benefit obligation by 4.0% in
1996. The premiums paid by retirees are projected to increase at the same
rate as health care cost trend rates.
A discount rate of 7.25% was used to develop the actuarial present value
of the accumulated benefit obligations at December 31, 1995 and 1996,
respectively.
16. BUSINESS
Business - The Company operates in one industry segment, as a
manufacturer, remanufacturer and provider of a wide range of products and
services to the graphic arts industry. The Company's primary products
include a variety of metal-based rolls that are used to transfer ink,
carry paper, print images or emboss patterns; printing presses used to
print newspapers, inserts, magazines and other written or graphic
materials; and related parts and accessories. These products are sold to a
variety of major customers, including a wide ranges of original equipment
manufacturers of graphic arts systems, numerous industrial end users such
as consumer products companies; manufacturers of packaging and corrugated
container companies; newspaper publishers; and commercial printers.
F-26
<PAGE> 79
The Company's operations are conducted through its five operating subsidiaries
from thirteen facilities located across ten states in the U.S. and three
facilities located in the United Kingdom. Geographic area information is
summarized as follows (in millions):
<TABLE>
<CAPTION>
United
States(1) Foreign Eliminations Total
<S> <C> <C> <C> <C>
Net sales:
Period from July 25, 1994 to December 31, 1994 $ 11.7 $ 1.6 $ - $ 13.3
Year ended December 31, 1995 38.4 6.1 - 44.5
Year ended December 31, 1996 44.4 9.4 (0.1) 53.7
Operating profit:
Period from July 25, 1994 to December 31, 1994 $ 0.9 $ 0.4 $ - $ 1.3
Year ended December 31, 1995 3.9 0.9 - 4.8
Year ended December 31, 1996 5.8 1.6 - 7.4
Identifiable assets:
Period from July 25, 1994 to December 31, 1994 $ 22.4 $ 0.9 $ - $ 23.3
Year ended December 31, 1995 33.3 5.1 - 38.4
Year ended December 31, 1996 46.8 7.4 - 54.2
</TABLE>
(1) Includes export sales amounting to approximately $1.3 million, $3.9 million,
and $3.9 million for the period ended December 31, 1994, the years ended
December 31, 1995 and 1996, respectively.
17. OTHER INFORMATION
The consolidated financial statements and the notes thereto as of June 30,
1997 and for the six-month periods ended June 30, 1996 and 1997 are
unaudited. In the opinion of management, the unaudited consolidated
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position
of the Company at June 30, 1997 and its results of operations and cash
flows for the six months ended June 30, 1996 and 1997. The unaudited
results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the entire
year ending December 31, 1997.
******
F-27
<PAGE> 80
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Pamarco, Incorporated and Subsidiary
We have audited the accompanying consolidated statement of income and retained
earnings and of cash flows of Pamarco Incorporated and Subsidiary (the
"Company") for the period from January 1, 1994 to July 24, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of the Company's operations and their cash flows
for the period from January 1, 1994 to July 24, 1994 in conformity with
generally accepted accounting principles.
September 25, 1997
F-28
<PAGE> 81
PARMARCO, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
PERIOD FROM JANUARY 1, 1994 TO JULY 24, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NET SALES $ 14,518,046
COST OF SALES 10,031,451
-----------
GROSS PROFIT 4,486,595
SELLING EXPENSES 1,605,834
GENERAL AND ADMINISTRATIVE EXPENSES 2,648,570
-----------
INCOME FROM OPERATIONS 232,191
OTHER EXPENSE:
Interest expense (262,313)
Other income - net 5,019
-----------
LOSS BEFORE PROVISION FOR INCOME TAXES (25,103)
BENEFIT FOR INCOME TAXES (9,991)
-----------
NET INCOME (15,112)
RETAINED EARNINGS, BEGINNING OF PERIOD 4,824,722
-----------
RETAINED EARNINGS, END OF PERIOD $ 4,809,610
===========
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE> 82
PAMARCO, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1994 TO JULY 24, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss $ (15,112)
Adjustment to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 700,484
Deferred income taxes (3,406)
Changes in assets and liabilities:
Accounts receivable (404,843)
Inventories (476,998)
Prepaid expenses (88,889)
Other assets - current 419,983
Other assets - noncurrent 30,315
Accounts payable 792,393
Accrued expenses 294,108
Other liabilities (506,549)
---------
Net cash provided by operating activities 741,486
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (879,700)
---------
Net cash used in investing activities (879,700)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving lines of credit 308,289
Payments under capital lease obligation (137,455)
---------
Net cash provided by financing activities 170,834
---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 31,880
---------
NET INCREASE IN CASH 64,500
CASH, BEGINNING OF PERIOD 45,720
---------
CASH, END OF PERIOD $ 110,220
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid $ 24,320
=========
Interest paid $ 253,259
=========
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE> 83
PAMARCO, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JULY 25, 1994
- -------------------------------------------------------------------------------
1. ORGANIZATION
Pamarco, Incorporated and subsidiary (the "Company") was a wholly-owned
subsidiary of Amir Investments Corporation ("Amir" or the "Seller"). Amir
is an indirect subsidiary of Jefferson Smurfit Group plc (Dublin,
Ireland).
Pursuant to the Stock Purchase Agreement dated July 25, 1994 (the "Stock
Purchase Agreement"), Pamarco Acquisition Co. acquired (the "Acquisition")
all of the outstanding capital stock of Pamarco Incorporated, a
wholly-owned subsidiary of the Seller. Pamarco Acquisition Co. was
subsequently merged with and into Pamarco, Incorporated. The Seller may
also receive an additional contingent purchase price of up to $875,000
based on cumulative pre-tax income for the period January 1, 1995 through
December 31, 1999, as defined in the Stock Purchase Agreement. The Seller
may elect to receive the contingent purchase price in the form of either
cash or shares of Class C common stock of the Company. The Acquisition was
accounted for by the purchase method.
The accompanying financial statements are presented on the historical cost
basis of the Company prior to the Acquisition and, accordingly, do not
incorporate any purchase accounting adjustments. Consequently, they are
not comparable to any other financial statements included in the
prospectus.
The Company first issued common stock on July 25, 1994 in connection with
the acquisition of Pamarco, Incorporated by its wholly-owned subsidiary,
Pamarco Acquisition Co. The Company sold 416,775 shares and 279,225 shares
of Class A and Class B common stock, respectively, $0.01 par value, to
various investors, including affiliates of Bradford Ventures Ltd. ("BVL")
and certain members of management of Pamarco, Incorporated.
F-31
<PAGE> 84
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - The Company manufactures anilox rollers for the
printing industry, rolls for the embossing industry and precision roll
proofers in manufacturing facilities throughout the United States and the
United Kingdom. The Company operates in one industry segment. Information
with respect to the Company's geographic operations is as follows (in
millions):
<TABLE>
<CAPTION>
United
States Foreign Eliminations Total
<S> <C> <C> <C> <C>
Net revenues $ 12.8 $ 1.8 $ (0.1) $ 14.5
Operating profit $ (0.2) $ 0.3 - $ 0.1
Identifiable assets at December 31, 1994 $ 14.4 $ 1.9 - $ 16.3
</TABLE>
PRINCIPLES OF CONSOLIDATION - The consolidated balance sheet includes the
accounts of Pamarco Incorporated and its wholly-owned U.K. subsidiary,
Pamarco Europe Ltd. All significant intercompany accounts and transactions
have been eliminated in consolidation.
REVENUE RECOGNITION - The Company recognizes revenue when a product is
shipped or a service is completed.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are
charged to expense as incurred. Research and development costs for the
period from January 1, 1994 through July 24, 1994 was approximately
$52,000.
CREDIT RISK - Financial instruments which potentially subject the Company
to credit risk consist principally of accounts receivable. The Company's
trade accounts receivable are primarily from companies located throughout
the United States and Great Britain in the printing, packaging and
converting industries.
PROPERTY, PLANT AND EQUIPMENT - Depreciation is recorded over the
estimated useful lives of the assets using the straight-line method.
Significant additions or improvements extending asset lives will be
capitalized; normal maintenance and repair costs are expensed as incurred.
The estimated useful lives for financial reporting purposes are as follows:
ASSETS LIFE
Buildings and improvements 40 years
Leasehold improvements Leasehold term
Machinery and equipment 10-20 years
Furniture and fixtures 10 years
Tooling 5 years
ORGANIZATIONAL COSTS - Organizational costs are amortized over a five-year
period.
GOODWILL - The excess of purchase price over the estimated fair value of
the net assets acquired are amortized over ten years.
F-32
<PAGE> 85
INVENTORIES - Inventories are stated at the lower of cost, determined on a
first-in, first-out (FIFO) basis, or market.
CONTINGENT PURCHASE PRICE - When it is determined that the contingent
purchase price payments related to any of its acquisitions are probable,
the Company records such amounts as increased goodwill associated with the
transaction.
FOREIGN CURRENCY TRANSLATION - The accounts of Pamarco Europe, Ltd. are
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, Foreign Currency Translation. Net
assets of the subsidiary whose "functional" currency is other than the
U.S. dollar are translated at a current rate of exchange.
INCOME TAXES - The Company and its parent, Amir, file a consolidated
federal and state of Illinois income tax return. The companies have a tax
allocation agreement which provides for income taxes to be payable by
Pamarco to Amir on the same basis as if Pamarco had filed a separate
income tax return. Income taxes are provided based on the amount of taxes
due on a separate return basis plus deferred taxes computed based on the
expected future tax consequences of temporary differences between the
carrying amounts and tax bases of assets and liabilities, using enacted
tax rates.
3. OPERATING LEASES
At July 24, 1994, the Company was obligated under various operating
leases, principally for buildings and equipment, in both the United States
and the United Kingdom, which expire at various dates through 2001. Future
minimum lease payments for the operating leases with initial or remaining
terms in excess of one year as of July 24, 1994, are as follows:
<TABLE>
<CAPTION>
Operating
Leases
<S> <C> <C>
1994 $ 353,573
1995 746,315
1996 494,575
1997 274,523
1998 83,570
Thereafter 7,015
----------
$1,959,571
==========
</TABLE>
Rental expense for the period from January 1, 1994 through July 24, 1994
was approximately $547,366.
4. INCOME TAXES
The components of income before taxes and the provision for income taxes
for the period ended July 24, 1994 are as follows:
<TABLE>
<S> <C>
Income (loss) before income taxes:
Domestic $ (201,964)
Foreign 176,861
----------
Total income (loss) before income taxes $ (25,103)
==========
</TABLE>
F-33
<PAGE> 86
The provision for income taxes for the period from January 1, 1994 through July
24, 1994 consisted of the following:
Current:
Federal $ -
State 925
Foreign 61,665
--------
62,590
--------
Deferred:
Federal $ 9,081
State (81,662)
Foreign -
--------
(72,581)
--------
Total $ (9,991)
========
The following is a reconciliation of the expected provision for income
taxes determined at the statutory rates and the actual provision for
income taxes at July 24, 1994:
Income before income taxes $ (25,103)
Statutory federal income tax rate 34%
---------
Expected income tax provision (8,535)
Income of foreign subsidiary taxed at different rate (1,532)
State taxes, net of federal benefit (1,130)
Nondeductible items 1,206
--------
Provision for income taxes $ (9,991)
========
5. EMPLOYEE BENEFIT PLANS
Pamarco Incorporated has a salary reduction 401(k) plan for its U.S.
employees. Employees are eligible to participate in the 401(k) plan upon
attainment of 21 years of age and upon completion of one-half year of
service. Pamarco Incorporated provides matching amounts contributed by
employees of up to 3% of the employee's gross salary. The Company's
matching contributions for this plan were approximately $88,279 for the
period ended to July 24, 1994.
Pamarco Europe, Ltd. has a defined contribution pension plan covering
substantially all of its employees and contributes 2.7% of the employees'
gross salary. Contributions to this plan were approximately $4,802 for the
period from January 1, 1994 to July 24, 1994.
6. CONTINGENCIES
In accordance with the provision of the Industrial Site Recovery Act
("ISRA"), the Company is working with the State of New Jersey Department
of Environmental Protection and Energy to remove soil contamination and
perform other remedial activities at its operating facilities in Roselle,
New Jersey. The estimated cost includes engineering fees, legal fees and
the purchase of materials,
F-34
<PAGE> 1
Exhibit 10.1
PAMARCO TECHNOLOGIES INC.
-------------------------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS AGREEMENT is made as of the 25th day of July, 1994 by and among
Pamarco Technologies Inc., a Delaware corporation (the "Company"), and the
undersigned security holders of the Company (the "Stockholders").
BACKGROUND
----------
The Stockholders are persons and entities that are acquiring
contemporaneously with the execution of this Agreement shares of Class A Common
Stock, par value $0.01 per share, of the Company (the "Voting Common Stock") or
Class B Common Stock, par value $0.01 per share, of the Company (the "Non-Voting
Common Stock," and together with the Voting Common Stock, the "Common Stock").
The Company has agreed to provide the registration rights provided for in this
Agreement as an inducement for the Stockholders to enter into other agreements
contemporaneously with this Agreement.
WITNESSETH:
-----------
The parties hereto, each intending to be legally bound and in exchange
for the mutual covenants herein, agree as follows:
1. Demand Registrations.
---------------------
(a) REQUESTS FOR REGISTRATION. At any time, each Significant
Stockholder (defined below) may demand registration (a "Demand Registration")
under the Securities Act of 1933, as amended (the "1933 Act"), of all or any
portion of the Registrable Securities (defined below) owned by such Significant
Stockholder. In order to accomplish such demand, a Significant Stockholder shall
send written notice of the demand to the Company, and such notice shall specify
the number of Registrable Securities sought to be registered. The Significant
Stockholders each have the right to one Demand Registration; provided, however,
that the Company shall only be required to proceed with a Demand Registration
requested by a Significant Stockholder if the number of Registrable Securities
that the Stockholders (including the Significant Stockholder requesting the
Demand Registration) and the Company shall have elected to include in such
Demand Registration pursuant to this Section 1 has an aggregate fair market
value, in the opinion of an investment banker acceptable to the Significant
Stockholder requesting the Demand Registration and to the Company, in excess of
$5 million.
(b) PROCEDURE. Within 10 days after receipt of such a demand, the
Company will give written notice of such requested registration to all other
holders of Registrable Securities and will include in such registration, subject
to the allocation provisions below, all other Registrable Securities with
respect to which the Company has received written requests for inclusion within
<PAGE> 2
20 days after the Company's mailing of such notice, plus any securities of the
Company that the Company chooses to include on its own behalf.
(c) EXPENSES. In a Demand Registration, the Company will pay the
Registration Expenses (defined below), but the Underwriting Commissions (defined
below) will be shared by the Company and those holders of Registrable Securities
whose Registrable Securities are included in the Demand Registration in
proportion to any securities included on their behalf.
(d) PRIORITY ON DEMAND REGISTRATIONS. If a Demand Registration is
underwritten and the managing underwriters advise the Company in writing that in
their opinion the number of Registrable Securities requested to be included
exceeds the number that can be sold in such offering, at a price reasonably
related to fair value, the Company will include in such Demand Registration (i)
first, the Registrable Securities requested to be included in such Demand
Registration by all Stockholders, including the Significant Stockholder making
the demand, pro rata on the basis of the number of Registrable Securities owned,
and (ii) second, any securities that the Company desires to include on its own
behalf. A Demand Registration shall not be con sidered to be a Significant
Stockholder's one Demand Registration under Section 1(a), and the Company shall
pay the Registration Expenses of such Demand Registration, if (i) as a result of
the foregoing allocation, the Significant Stockholder that initiated the Demand
Registration is not able to register and sell in the Demand Registration at
least 75% of the Registrable Securities sought to be included in the Demand
Registration by such Significant Stockholder, as specified in such Stockholder's
notice by which the demand was made, (ii) the gross proceeds of the securities
included in the Demand Registration on behalf of the Company constitute at least
20% of the total gross proceeds of the Demand Registration, or (iii) the
registration statement requested by such Shareholders does not become effective
for any reason.
(e) SELECTION OF UNDERWRITERS. If any Demand Registration is
underwritten, the selection of investment banker(s) and manager(s) and the other
decisions regarding the underwriting arrangements for the offering will be made
by the Significant Stockholder initiating such registration.
(f) RESTRICTIONS ON DEMAND REGISTRATIONS. The Company will not be
obligated to effect any Demand Registration within six months after the
effective date of a previous Demand Regis tration or any registration in which
the holders of Registrable Securities were given piggyback rights pursuant to
Section 2 below.
(g) CONTEMPORANEOUS DEMAND. If any holder of the Company's securities
that is not a holder of Registrable Securities under this Agreement exercises
demand registration rights to have the Company register its securities under the
1933 Act (a "Non-Stockholder Registration") within a period of 30 days before or
after the time any Significant Stockholder shall have requested a Demand
Registration, then (i) the holders of Registrable Securities that desire to be
-2-
<PAGE> 3
included in the Non-Stockholder Registration and the holders of securities other
than Registrable Securities that have registration rights with respect to such a
registration shall be entitled to participate in the Non-Stockholder
Registration on a pro rata basis, according to the number of shares owned by the
holders seeking to have securities included in such registration, (ii) the
Company will pay all of the Registration Expenses of the Non-Stockholder
Registration, and (iii) the Non-Stockholder Registration shall not count as a
Demand Registration with respect to any Significant Stockholder that shall have
requested a Demand Registration within such time period unless the Significant
Stockholder is able to register and sell at least 75% of the Registrable
Securities sought to be registered by that Stockholder in its Demand
Registration.
2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register any
of its securities under the 1933 Act (other than a Demand Registration), and the
registration form to be used may be used for the registration of Registrable
Securities (a "Piggyback Registration"), the Company will give prompt written
notice to all holders of Registrable Securities and will include in such
Piggyback Registration, subject to the allocation provisions below, all
Registrable Securities with respect to which the Company has received written
requests for inclusion within 20 days after the Company's mailing of such
notice. The Company shall not select a form of registration statement which
imposes, for its use, limitations on the maximum value or number of securities
to be registered if these limitations would preclude registration of the
Registrable Securities that the Company has been requested to include in such
registration.
(b) PIGGYBACK EXPENSES. In all Piggyback Registrations, the Company
will pay the Registration Expenses related to the Registrable Securities of the
Selling Stockholders, but the Selling Stockholders will pay the Underwriting
Commissions related to their Registrable Securities.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in such offering, at a price reasonably related to fair value, the
Company will allocate the securities to be included as follows: first, the
securities the Company proposes to sell on its own behalf; and second,
Registrable Securities requested to be included in such registration, pro rata
on the basis of the number of Registrable Securities owned among the Selling
Stockholders (defined below).
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is
initiated as an underwritten secondary registration on behalf of holders of the
Company's securities (other than a Demand Registration pursuant to Section 1),
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such
-3-
<PAGE> 4
registration exceeds the number that can be sold in such offering, at a price
reasonably related to fair value, the Company will allocate the securities to be
included as follows: first, the securities requested to be included by the
holders initiating such registration; and second, Registrable Securities
requested to be included in such registration, pro rata on the basis of the
number of Registrable Securities owned among the Selling Stockholders.
(e) SELECTION OF UNDERWRITERS. If any Piggyback Registration is
underwritten, the selection of investment banker(s) and manager(s) and the other
decisions regarding the underwriting arrangements for the offering will be made
by the Company if the registration is under Section 2(c), or by the holders
initiating such registration, if the registration is under Section 2(d).
3. REGISTRATION ON FORM S-3.
The Company shall use its best efforts to qualify for registration on
Form S-3 or any com parable or successor form or forms; and to that end, the
Company shall register (whether or not required by law to do so) its Common
Stock under the Securities Exchange Act of 1934 in accord ance with the
provisions of that Act as soon as possible following the effective date of the
first registration of any of the Company's securities under the 1933 Act. After
the Company has so qualified, in addition to the rights contained in the
foregoing provisions of this Registration Rights Agreement, each holder of
Registrable Securities shall have the right to require registration of its
Registrable Securities on Form S-3 at the Company's expense, provided that (a)
the Registrable Securities to be registered shall have a market value of at
least $500,000 and (b) each holder shall be entitled to only two such
registrations during any 12-month period. When the Company re ceives notice of
any holder's request for a registration on Form S-3, it shall send notice of
such proposed registration to all other holders of Registrable Securities.
4. HOLDBACK AGREEMENTS.
Neither the Stockholder nor the Company shall effect any public sale or
distribution of equity securities of the Company or any securities convertible
into or exchangeable or exercisable for such securities during the seven days
prior to and the 90 days after any underwritten Demand Registration or
underwritten Piggyback Registration has become effective (except as part of such
underwritten registration).
5. REGISTRATION PROCEDURES.
Whenever the holders of Registrable Securities have requested that any
Registrable Secur ities be registered pursuant to Section 1 or 2 of this
Agreement, the Company will, as expeditiously as possible:
-4-
<PAGE> 5
(a) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration
statement to become effective (provided that before filing a
registration statement or prospectus or any amendments or supple ments
thereto, the Company will furnish each Selling Stockholder with copies
of all such documents proposed to be filed);
(b) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of
not less than 120 days;
(c) furnish to each Selling Stockholder such number of copies
of such registration statement, each amendment and supplement thereto
and the prospectus included in such registration statement (including
each preliminary prospectus), and such other documents as such seller
may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of
such jurisdictions as the managing underwriter(s) may reasonably
request;
(e) notify each Selling Stockholder at any time when a
prospectus relating thereto is required to be delivered under the 1933
Act within the period that the Company is required to keep the
registration statement effective of the hap pening of any event as a
result of which the prospectus included in such registration statement
contains an untrue statement of a material fact or omits any fact
necessary to make the statement therein not misleading, and, at the
request of any such seller, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus will not
contain an untrue statement of a material fact or omit to state any
fact necessary to make the statement therein not misleading;
(f) cause all such Registrable Securities to be listed or
included on securities exchanges on which similar securities issued by
the Company are then listed or included;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement;
-5-
<PAGE> 6
(h) enter into such customary agreements (including an
underwriting agreement in customary form) and take such other customary
actions as may be reasonably necessary to expedite or facilitate the
disposition of such Registrable Securities;
(i) obtain a "comfort" letter addressed to the Company from
its independent public accountants in customary form and covering such
matters of the type customarily covered by "comfort" letters; and
(j) make available for inspection by any Selling Stockholder,
any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent
retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration
statement.
6. INDEMNIFICATION.
(a) The Company hereby indemnifies, to the extent permitted by law,
each Stockholder, its officers and directors, and each person who controls such
holder (within the meaning of the 1933 Act), against all losses, claims,
damages, liabilities and expenses arising out of or resulting from any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as the
same are caused by or contained in any information furnished in writing to the
Company by such holder expressly for use therein or by any such holder's failure
to deliver a copy of the registration statement or prospectus or any amendments
or supplements thereto after the Company has furnished such holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, the Company will indemnify the underwriters, their officers and
directors, and each person who controls such underwriters (within the meaning of
the 1933 Act) to the same extent as provided above with respect to the
indemnification of the Stockholders.
(b) In connection with any registration statement in which a Selling
Stockholder is participating, each such holder will furnish to the Company in
writing such information as is reasonably requested by the Company for use in
any such registration statement or prospectus and will indemnify, to the extent
permitted by law, the Company, its directors and officers and each person who
controls the Company (within the meaning of the 1933 Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or alleged
untrue statement
-6-
<PAGE> 7
of material fact or any omission or alleged omission of a material fact required
to be stated in the registration statement or prospectus or any amendment
thereof or supplement thereto or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in information so furnished in writing by such holder specifically for
use in preparing the registration statement. Notwithstanding the foregoing, the
liability of a Selling Stockholder under this Section 6(b) shall be limited to
an amount equal to the net proceeds actually received by the Selling Stockholder
from the sale of Registrable Securities covered by the registration statement.
(c) Any person entitled to indemnification hereunder will (i) give
prompt notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party will not
be subject to any liability for any settlement made without its consent (but
such consent will not be unreasonably withheld). An indemnifying party who is
not entitled, or elects not, to assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No Selling Stockholder may participate in any underwritten registration
hereunder unless such holder (a) agrees to sell such holder's securities on the
basis provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements under Sections 1(e) or 2(e), and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
8. DEFINITIONS.
(a) The term "Registrable Securities" means (i) the Voting Common Stock
of the Company registered in the names of the Stockholders from time to time,
(ii) the Voting Common Stock issuable upon conversion of the Non-Voting Common
Stock from time to time, and (iii) any securities issued or to be issued with
respect to the securities referred to above by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization, provided such securities have voting
rights with respect to the election of directors and other matters presented
generally to the stockholders of the Company for consideration and have
unlimited rights with respect to dividends and the proceeds of any
-7-
<PAGE> 8
liquidation of the Company. As to any particular Registrable Securities, such
securities will cease to be Registrable Securities when they have been (A)
effectively registered under the 1933 Act and disposed of in accordance with the
registration statement covering them, or (B) transferred pursuant to Rule 144
(or any similar provision then in force).
(b) The term "Registration Expenses" means all expenses incident to the
Company's performance of or compliance with this Agreement, including all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws, printing expenses, messenger and delivery expenses, expenses and
fees for listing the securities to be registered on exchanges on which similar
securities issued by the Company are then listed, and fees and disbursements of
counsel for the Company and of all independent certified public accountants,
underwriters (other than Underwriting Commissions) and other persons retained by
the Company.
(c) The term "Selling Stockholders" means registered holders of
Registrable Securities who request inclusion of all or a portion of their shares
of Registrable Securities in a Demand Registration pursuant to the Section 1(b)
or a Piggyback Registration pursuant to Section 2(a). Such term also includes
those Stockholders who demand a Demand Registration for the purposes of Sections
5, 6, and 7.
(d) The term "Significant Stockholder" means each of Bradford Venture
Partners, L.P. and Overseas Equity Investors Partners.
(e) The term "Underwriting Commissions" means all underwriting
discounts or commissions relating to the sale of securities of the Company, but
excludes any expenses reimbursed to underwriters.
9. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS.
From and after the date of this Agreement, the Company may enter into
an agreement with any holder or prospective holder of any securities of the
Company that would allow such holder or prospective holder to include such
securities in any registration filed under Sections 1 or 2 hereof or that would
add any such holder or prospective holder as a party to this Agreement. The
Company shall not enter into any such agreement, however, without the prior
written consent of the beneficial holders of a majority of the outstanding
Registrable Securities unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of its securities would not reduce the amount of
the Registrable Securities that the Stockholders would be entitled to include in
such registration.
-8-
<PAGE> 9
10. MISCELLANEOUS.
(a) NOTICES. Any notices required hereunder shall be deemed to be given
upon the earlier of the date when received at, or the seventh day after the date
when sent by certified or registered mail to, the address of the Company's
corporate headquarters in the case of any notice to the Company, and until
changed by notice to the Company, the respective addresses of the Stockholders
on file with the Company in the case of any notice to the Stockholders.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement may be
amended or terminated and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, if approved in
writing by the Stockholders that own beneficially a majority of the Registrable
Securities and or by any agreement permitted by Section 9.
(c) BINDING EFFECT. This Agreement will bind and inure to the benefit
of the respective successors (including any successor resulting from a merger or
similar reorganization), assigns, heirs, and personal representatives of the
parties hereto. Without limiting the generality of the foregoing, in addition,
if a Stockholder liquidates or reorganizes such that its assets are transferred
to its own stockholders or partners or to another entity, such stockholders,
partners or entity shall succeed to all of the rights of the Stockholder
hereunder. This Agreement shall be binding upon a party hereto upon its
execution and delivery of a copy hereof regardless of whether any of the other
persons or entities listed on the signature page hereof (other than the Company)
has not also become a party hereto, provided that any such omitted party shall
not have acquired any Common Stock on the date hereof.
(d) GOVERNING LAW. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the internal law, not
the law of conflicts, of Delaware.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be considered to be an original instrument and
to be effective as of the date
-9-
<PAGE> 10
first written above. Each such copy shall be deemed an original, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart.
(f) INTERPRETATION. Unless the context of this Agreement clearly
requires otherwise, (i) references to the plural include the singular, the
singular the plural, the part the whole, (ii) references to one gender include
all genders, (iii) "or" has the inclusive meaning frequently identified with the
phrase "and/or" and (iv) "including" has the inclusive meaning frequently
identified with the phrase "but not limited to." The section and other headings
contained in this Agreement are for reference purposes only and shall not
control or affect the construction of this Agreement or the interpretation
thereof in any respect.
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<PAGE> 11
[SIGNATURE PAGE FOR PAMARCO REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above. This Agreement shall be binding
upon any party that executes and delivers a copy hereof, irrespective of whether
any of the parties listed below (other than the Company) do not also become a
party hereto.
PAMARCO TECHNOLOGIES INC.
By:__________________________________
OVERSEAS EQUITY INVESTOR PARTNERS BRADFORD VENTURE PARTNERS, L.P.
By: Overseas Equity Investors Ltd.
General Partner By: Bradford Associates
By: By:
------------------------------ ---------------------------------
- ----------------------------------- -----------------------------------
BRADFORD MILLS REVOCABLE TRUST BRADFORD MILLS REVOCABLE TRUST NO.
NO. 1 U/D/T 12/3/91 2 U/D/T 12/3/91
- ----------------------------------- -----------------------------------
ROBERT J. SIMON BARBARA M. HENAGAN
- ----------------------------------- -----------------------------------
JAMES A. HARDIE, TRUSTEE U/A/D 11/4/78 ELIZABETH M. HARDIE
F/B/O ROSS D. MILLS
- ----------------------------------- -----------------------------------
BRADFORD ALAN MILLS JOHN R. PETTY, TRUSTEE U/A/D 3/17/69
- ----------------------------------- -----------------------------------
BARBARA L. MILLS, TRUSTEE U/A/D BARBARA L. MILLS, TRUSTEE U/A/D
2/26/88 F/B/O KENNETH IAN HARDIE 12/26/84 F/B/O FRANCES LEE HARDIE
- -----------------------------------
BARBARA L. MILLS, TRUSTEE U/A/D
3/28/89 F/B/O BRADFORD TAYBROOK
MILLS
-----------------------------------
___________________________________ THOMAS L. FERGUSON
ERWIN HOSONO
<PAGE> 12
[SIGNATURE PAGE FOR PAMARCO REGISTRATION RIGHTS AGREEMENT]
- ----------------------------------- -----------------------------------
MICHAEL BARACH NEILL BROWNSTEIN
- ----------------------------------- -----------------------------------
ROBERT BUESCHER WILLIAM BURGIN
- ----------------------------------- -----------------------------------
RODNEY A. COHEN DAVID COWAN
- ----------------------------------- -----------------------------------
RICHARD DAVIS CHRISTOPHER F.O. GABRIELI
- ----------------------------------- -----------------------------------
ADAM GODFREY FELDA HARDYMON
- ----------------------------------- -----------------------------------
ROBERT D. LINDSAY MICHAEL ROTHFELD
- ----------------------------------- -----------------------------------
THOMAS F. RUHM WARD W. WOODS
<PAGE> 1
Exhibit 10.2
STOCK PURCHASE AGREEMENT
among
PAMARCO TECHNOLOGIES INC.
(a Delaware corporation),
PAMARCO ACQUISITION CO.
(a Maryland corporation),
AMIR INVESTMENTS CORPORATION
(a Delaware corporation)
and
SMURFIT INTERNATIONAL B.V.
(a Netherlands corporation)
Section Page
------- ----
1. Definitions............................................................ 1
2. Purchase and Sale of Shares............................................ 6
3. Closing................................................................ 10
4. Representations and Warranties of the Seller........................... 10
5. Representations and Warranties of the Buying Parties................... 23
6. Conditions Precedent to Obligations of the Buying Parties.............. 25
7. Conditions Precedent to Obligations of the Selling Parties. ........... 25
8. Competition and Confidentiality by Seller.............................. 26
9. Additional Covenants................................................... 27
10. Indemnification. ...................................................... 29
11. Contents of Agreement, Amendment, Parties in Interest, Assignment, Etc. 35
12. Interpretation......................................................... 36
13. Notices................................................................ 36
14. Governing Law.......................................................... 37
15. Jurisdiction........................................................... 38
16. Counterparts........................................................... 38
<PAGE> 2
Schedules
- ---------
4.3 Required Consents
4.6 Encumbrances
4.7 Real Property
4.8 Fixed Asset Schedule
4.9 Non-Real Estate Leases
4.12 Liabilities
4.13 Taxes
4.14 Subsidiaries
4.15 Litigation; Governmental Permits
4.16 Contracts
4.17 Insurance
4.18 Patents and Other Intellectual Property
4.21 Benefit Plans
4.23 Payments to Affiliates
<PAGE> 3
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of July 25, 1994 by and among
PAMARCO TECHNOLOGIES INC., a Delaware corporation (the "Buyer"), PAMARCO
ACQUISITION CO., a Maryland corporation ("Newsub," and together with Buyer, the
"Buying Parties"), AMIR INVESTMENTS CORPORATION, a Delaware corporation (the
"Seller"), and SMURFIT INTERNATIONAL B.V., a Netherlands corporation ("SIBV,"
and together with the Seller, the "Selling Parties"). Certain terms are used
herein as defined below in Section 1 or elsewhere in this Agreement.
Background
----------
The Buyer owns all of the outstanding capital stock of Newsub. The
Seller owns all of the outstanding capital stock of Pamarco, Incorporated (the
"Company"), which consists of 16,081 shares of Class B Common Stock, par value
$10 per share (the "Shares"), and the Seller is an indirect subsidiary of SIBV.
The Buyer desires to acquire the Shares through Newsub, and the Selling Parties
desire the Buyer to acquire the Shares, in accordance with the terms of this
Agreement. The Buying Parties have advised the Selling Parties that Newsub is
being merged with and into the Company (the "Merger") upon Newsub's acquisition
of the Shares.
Witnesseth
----------
NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Definitions.
------------
For convenience, certain terms used in more than one part of this
Agreement are listed in alphabetical order and defined or referred to below
(such terms as well as any other terms defined elsewhere in this Agreement shall
be equally applicable to both the singular and plural forms of the terms
defined).
"Acquisition Debt" means the indebtedness incurred by the Buying
Parties or the Company Group on the date hereof in order to fund a portion of
the Purchase Price and to refinance a portion of the Company's indebtedness, and
any other indebtedness subsequently incurred by the Buying Parties or the
Company Group for the purpose of acquiring the stock or assets of another
business.
"Affiliates" means, with respect to a particular party, persons or
entities controlling, controlled by or under common control with that party, as
well as any officers, directors and majority-owned entities of that party and of
its other Affiliates.
"Agreement" means this Agreement and the exhibits and schedules hereto.
<PAGE> 4
"Assets" means all of the assets, properties, goodwill and rights of
every kind and description, real and personal, tangible and intangible, wherever
situated and whether or not reflected in the most recent Financial Statements,
that are owned or possessed by any Company Group Member.
"Benefit Plans" means all employee benefit plans of the Company or any
Subsidiary within the meaning of Section 3(3) of ERISA and any related or
separate Contracts, plans, trusts, programs, policies, arrangements, practices,
customs and understandings, in each case whether formal or informal, that
provide benefits of economic value to any present or former employee of the
Company or any Subsidiary, or present or former beneficiary, dependent or
assignee of any such employee or former employee.
"Business" means the entire business, operations, facilities of any
Company Group Member or of the Company Group, as specified.
"Buyer" is defined above in the preamble.
"Buying Parties" is defined above in the preamble.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Class C Common Stock" is defined in Section 2.2(e)(i).
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Closing Purchase Price" is defined in Section 2.6(a).
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Balance Sheet" is defined in Section 4.5.
"Company Balance Sheet Date" is defined in Section 4.5.
"Company Group" means the Company and the Subsidiaries.
"Company Group Member" means any of the corporations included in the
Company Group.
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<PAGE> 5
"Contingent Purchase Price" is defined in Section 2.2.
"Contract" means any written or oral contract, agreement, lease,
instrument or other commitment that is binding on any person or its property
under applicable law.
"Court Order" means any judgment, decree, injunction, order or ruling
of any federal, state, local or foreign court or governmental or regulatory body
or authority that is binding on any person or its property under applicable law.
"Default" means (a) a breach, default or violation, or (b) the
occurrence of an event that with the passage of time or the giving of notice, or
both, would constitute a breach, default or violation.
"Dispute Notice" is defined in Section 2.8(c).
"Earnings Period" is defined in Section 2.8(a).
"Employment Agreements" means the Employment Agreements being entered
into on the date hereof between the Company and each of Maurice Buckley, Michael
Baldasare and Brian Jacob.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest.
"Environmental Condition" is defined in Section 4.15(b).
"Environmental Damages" is defined in Section 10.2(a).
"Environmental Law" is defined in Section 4.15(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means First Fidelity Bank, N.A.
"Escrow Fund" means the escrow account established with the Escrow
Agent by Newsub.
"Existing Bank Debt" means the indebtedness of the Company Group that
is outstanding immediately prior to the Closing to Constellation Bank, National
Association, The National State Bank, Elizabeth, N.J. and National Westminster
Bank plc.
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<PAGE> 6
"Existing Capital Leases" means the lease obligations of the Company
Group on the date hereof that are identified as capital leases on Schedule 4.9.
"Financial Statements" is defined in Section 4.5.
"GAAP" means generally accepted accounting principles.
"Governmental Permits" is defined in Section 4.15(d).
"Hazardous Substances" means (i) any gasoline, fuel oil or any other
petroleum products, explosives, alcohols or chemical solvents or polychlorinated
biphenyls, (ii) any substance, waste, material or product defined as hazardous,
radioactive, extremely hazardous or toxic under any Environmental Law or as a
pollutant or contaminant under any Regulations, and (iii) asbestos or
asbestos-containing substances.
"Income Determination" is defined in Section 2.8(b).
"Income Notice" is defined in Section 2.8.
"ISRA" means the Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et
seq., its predecessor statute known as the New Jersey Environmental Cleanup
Responsibility Act and all related Regulations.
"Letter of Credit" means the irrevocable unconditional letter of credit
issued on the Closing Date by Allied Irish Banks, plc, New York Branch in the
amount of $1.5 million on behalf of Seller and in favor of the Buying Parties.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Main Facility" means that part of the Roselle Facility that is located
on East 11th Avenue in Roselle, New Jersey and situated on Block 78, Lots 91,
92, 93 and 94, Block 82- O, Lots 17, 18, 19, 20, 21, 22 and 23A, and Block 82-N,
Lots 126, 127, 128, 129, 130, 131, 405, 406, 407, 408, 409, 410 and 411.
"Material Adverse Effect" means a material adverse effect on the
Business, Assets, financial condition, results of operations, liquidity,
products, competitive position, customers and customer relations of any Company
Group Member.
-4-
<PAGE> 7
"Merger" is defined above in the Background section.
"Minor Contracts" is defined in Section 4.16(a).
"NJ DEPE" means the New Jersey Department of Environmental Protection
and Energy.
"Newsub" is defined above in the preamble.
"Non-Real Estate Leases" is defined in Section 4.9.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practices.
"Pamarco Europe Option" means the option held by Maurice A. Buckley to
purchase shares of capital stock of Pamarco Europe Ltd.
"Payment Election" is defined in Section 2.2.
"Pending New Jersey Proceeding" is defined in Section 10.2.
"Permitted Encumbrances" means those Encumbrances that are designated
as Permitted Encumbrances on Schedule 4.6.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Pre-Tax Income" is defined in Section 2.2(d).
"Prime Rate" means the annual prime lending rate published from time to
time by the WALL STREET JOURNAL.
"Purchase Price" is defined in Section 2.1.
"Real Property" is defined in Section 4.7.
"Regulation" means any statute, law, ordinance, regulation, order or
rule of any federal, state, local, foreign or other governmental agency or body
or of any other type of regulatory body, including those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Required Consents" is defined in Section 4.3.
-5-
<PAGE> 8
"Roselle Facility" means the facility operated by the Company in
Roselle, New Jersey.
"Second Firm" is defined in Section 2.8(c).
"Second Income Determination" is defined in Section 2.8(c).
"Second Income Notice" is defined in Section 2.8(c).
"Seller" is defined above in the preamble.
"Selling Group" means the Selling Parties and the Company Group.
"Selling Group Member's knowledge" or "knowledge of any Selling Group
Member" means information actually known and information that reasonably should
have been known by any director, officer or plant manager of any Selling Group
Member, except that for purposes of only Section 4.12, such terms also include
information known and information that reasonably should have been known by any
other employee, agent or consultant of any Selling Group Member.
"Selling Group Member" means any of the corporations included in the
Selling Group.
"Selling Parties" is defined above in the preamble.
"Series A Preferred Stock" is defined in Section 2.8.
"Shares" is defined above in the Background.
"SIBV" is defined above in the preamble.
"Subsidiaries" means Pamarco Europe, Ltd. and Pamarco Pacific, Inc.
"Transaction Documents" means this Agreement, the Letter of Credit and
the other agreements and documents contemplated thereby.
"Transactions" means the purchase and sale of the Shares and the other
transactions contemplated by the Transaction Documents.
-6-
<PAGE> 9
"TrueTone Facility" means that part of the Roselle Facility that is
located at 219 East 11th Avenue in Roselle, New Jersey.
"202 Facility" means that part of the Roselle Facility that is located
at 202 East 11th Avenue in Roselle, New Jersey.
"205 Facility" means that part of the Roselle Facility that is located
at 205 East 11th Avenue in Roselle, New Jersey.
2. Purchase and Sale of Shares.
----------------------------
2.1 TRANSFER OF SHARES. At the Closing, Newsub is buying from the
Seller, and the Seller is selling to Newsub, all of the Shares for an aggregate
purchase price of $9,375,000 (the "Closing Purchase Price") plus the right to
receive the additional amount specified in Section 2.2 (the "Contingent Purchase
Price," and together with the "Closing Purchase Price, the "Purchase Price").
2.2 CONTINGENT PURCHASE PRICE.
(a) Newsub shall pay the Seller the Contingent Purchase Price depending
on the Pre-Tax Income of the Business of the Company Group during the period
beginning on January 1, 1995 and continuing until December 31, 1999 (the
"Earnings Period"). If the Pre-Tax Income shall be at least $13.5 million, the
Contingent Purchase Price shall be equal to (i) $500,000 plus (ii) a portion of
an additional $375,000 that is proportionate to the proportionate relationship
between (A) any Pre-Tax Income in excess of $13.5 million, and (B) $1.5 million,
such that the maximum Contingent Purchase Price (i.e. the sum of the amounts in
clauses (i) and (ii)) shall be $875,000.
(b) Newsub shall cause its independent accountants to report on the
Pre-Tax Income of the Company (each an "Income Determination") within 90 days
after each of the following dates: December 31, 1995; December 31, 1996;
December 31, 1997; December 31, 1998; and December 31, 1999. Within 10 days
after completion of each Income Determination, Newsub shall give the Seller
notice (the "Income Notice") of the results of the Income Determination. If the
last Income Determination results in a Contingent Purchase Price to be paid to
the Seller, Newsub shall pay to the Seller within 30 days of the date on which
the Seller gives Newsub notice of the Payment Election an amount equal to the
Contingent Purchase Price plus interest on the Contingent Purchase Price at the
Prime Rate for the period beginning on the fifth anniversary of the Closing Date
and ending December 31, 1999.
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<PAGE> 10
(c) The Seller may dispute any Income Determination in the following
manner. Within 30 days after Newsub gives the Income Notice, the Seller shall
give Newsub notice of its disagreement with the Income Determination (the
"Dispute Notice"), and such notice shall specify in detail the nature of the
disagreement. During the 30 days after the day on which the Dispute Notice is
given, the Seller and Newsub shall attempt to resolve such dispute. If they fail
to reach a written agreement regarding the dispute, the Seller shall refer the
matter to a firm of certified independent accountants (the "Second Firm") that
is different from the firm that initially prepared the Income Determination, and
cause the Second Firm to also report on the Pre-Tax Income for the Earnings
period (the "Second Income Determination") within the 30 days after such 30-day
period. The Seller shall give Newsub prompt notice of the results of the Second
Income Determination (the "Second Income Notice"). The average of the Income
Determination reported on by the first firm of accountants and of the Income
Determination prepared by the Second Firm shall be the final and binding Income
Determination for the purposes of determining whether Newsub shall be obligated
to pay the Seller any Contingent Purchase Price. Newsub shall pay the Contingent
Purchase Price to the Seller within 30 days of the date on which the Seller
gives Newsub notice of the Payment Election. The Seller shall pay the fees and
expenses of the Second Firm with respect to the Second Income Determination.
(d) "Pre-Tax Income" means the cumulative net income or loss during the
Earnings Period determined in accordance with GAAP applied on a consistent basis
without taking into account any of the following items: (i) any interest on the
Acquisition Debt (regardless of the actual amount of interest) in excess of
$560,000; (ii) deductions or accruals for any Federal, state or local income
taxes; and (iii) income tax benefits related to net operating loss carryforwards
or carrybacks. If any Company Group Member acquires all or substantially all of
the assets or equity interests of one or more other businesses during the
Earnings Period, the calculation of the Pre-Tax Income for the purposes of this
Section 2.8 shall include the Pre-Tax Income from any such acquired businesses
for any quarterly period only to the extent that it exceeds (in the case of
income) or is less than (in the case of loss) the respective Pre-Tax Income for
such acquired businesses for the same quarter in the year immediately preceding
the acquisition. In addition, in determining the Pre-Tax Income, the following
items shall be added to the net income or loss (to the extent such items were
included in such net income or loss): (A) any compensation paid to Bradford
Ventures, Ltd. ("BVL") other than compensation paid under the Consulting
Agreement among BVL, the Company and the Buyer, as of the date hereof, and (B)
any amounts paid to BVL or its Affiliates for services or in connection with
transactions to the extent that the terms of any such services or transactions
are less favorable to the Company than the terms available from independent
third parties.
(e)(i) If the Seller shall be entitled to any Contingent Purchase
Price, the Seller may elect to receive the Contingent Purchase Price in the form
of (A) cash, payable by wire transfer of immediately available funds, or (B)
shares of Class C Common Stock of the Buyer, par value $0.01 per share (the
"Class C Common Stock"), in an amount determined
-8-
<PAGE> 11
by dividing the Contingent Purchase Price by the Fair Market Value of a Common
Share. Promptly after a determination that the Seller is entitled to receive the
Contingent Purchase Price, the Board of Directors of the Buyer shall determine
in good faith the Fair Market Value of a Common Share and give the Seller notice
of the Board's determination of such value (the "First Valuation"). Within 30
days after the Buyer gives the Seller notice of the First Valuation, the Seller
shall elect one of the following: (1) to receive cash for the Contingent
Purchase Price, (2) to receive Class C Common Stock for the Contingent Purchase
Price with the amount determined using the First Valuation, or (3) to have a
Qualified Investment Banking Firm (defined below) determine the Fair Market
Value of a Common Share (a "Second Valuation"), and shall give the Buyer notice
of such election.
(ii) If the Seller elects to have a Second Valuation, the Buyer
shall retain a Qualified Investment Banking Firm to determine the Fair Market
Value of a Common Share, and shall give the Seller notice of the results of the
Second Valuation promptly after receiving them. Within 30 days after the Buyer
gives the Seller notice of the Second Valuation, the Seller shall elect one of
the following: (1) to receive cash for the Contingent Purchase Price, (2) to
receive Class C Common Stock for the Contingent Purchase Price with the amount
determined using the Second Valuation, or (3) to have another Qualified
Investment Banking Firm determine the Fair Market Value of a Common Share (a
"Third Valuation"), and shall give the Buyer notice of such election. In
addition, if the Seller elects to receive Class C Common Stock for the
Contingent Purchase Price, the Buyer shall have the right to request a Third
Valuation.
(iii) If either the Seller or the Buyer elects to have a Third
Valuation, the Buyer shall retain a second Qualified Investment Banking Firm to
determine the Fair Market Value of a Common Share, and shall give the Seller
notice of the results of the Third Valuation promptly after receiving them.
Within 30 days after the Buyer gives the Seller notice of the Third Valuation,
the Seller shall elect one of the following: (1) to receive cash for the
Contingent Purchase Price, or (2) to receive Class C Common Stock for the
Contingent Purchase Price with the amount determined using as the Fair Market
Value per Common Share the average of the Second and Third Valuations, and shall
give the Buyer notice of such election.
(iv) "Fair Market Value per Common Share" means the fair market
value of one share of Class A Common Stock, determined as of the end of the
Earnings Period. In determining the Fair Market Value per Common Share, the
determination shall take into account, among other things deemed relevant by the
Person doing the determination, the number of shares of Common Stock of all
classes that are outstanding at that time and the number of shares of Common
Stock that may be issuable upon the exercise or conversion of any outstanding
securities or other rights.
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<PAGE> 12
(v) Notwithstanding any other provision of this Agreement,
regardless of the amount determined to be the Fair Market per Common Share under
the First Valuation, the Second Valuation or the Third Valuation, in no event
shall the Fair Market Value be less than the amount that could result in the
issuance of Class C Common Stock to the Buyer that would represent more than
five percent of the sum of (a) the total number of shares of Class C Common
Stock to be issued, plus (b) the total number of Class A Common Stock and Class
B Common Stock issued and outstanding on the Closing Date.
(vi) "Qualified Investment Banking Firm" means any firm engaged in
providing corporate finance, merger and acquisition, and business valuation
services and having a national reputation and client base.
(vii) The Buyer shall pay the fees and expenses of the Qualified
Investment Banking Firm (the "Valuation Expenses") for the Second Valuation
unless the Seller elects to receive cash for the Contingent Purchase Price after
requesting the Second Valuation. Whichever of the Buyer and the Seller shall
request a Third Valuation shall pay the Valuation Expenses for the Third
Valuation unless the Third Valuation varies from the Second Valuation by more
than 10%, in which case the Buyer shall pay such Valuation Expenses. In any case
in which the Seller is obligated to pay the Valuation Expenses and in which the
Buyer pays the Valuation Expenses, the Buyer shall deduct such Valuation
Expenses from the Contingent Purchase Price.
3. Closing.
--------
3.1 LOCATION, DATE. A closing (the "Closing") is being held on the date
hereof (the "Closing Date") at Morristown, New Jersey.
3.2 DELIVERIES. At the Closing, (a) Newsub is delivering the Closing
Purchase Price to the Seller in "same day" funds by wire transfer, and (b) the
Seller is delivering to Newsub certificates for the Shares, either duly endorsed
for transfer to Newsub or accompanied by appropriate stock powers. The parties
hereto are also delivering to each other at the Closing the agreements, legal
opinions and other documents and instruments specified in Sections 6 and 7.
4. Representations and Warranties of the Seller.
---------------------------------------------
Seller hereby represents and warrants to the Buying Parties as follows:
4.1 CORPORATE STATUS. Each Selling Group Member is a corporation duly
organized, validly existing and in good standing under the laws under which it
was incorporated. Each Company Group Member is qualified to do business as a
foreign corporation in any jurisdiction where it is required to be so qualified,
except where the failure to so qualify would not have a Material Adverse Effect.
The Charter Documents and
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<PAGE> 13
bylaws of each Company Group Member that are being delivered to Newsub at the
Closing have been duly adopted and are current, correct and complete.
4.2 AUTHORIZATION. Each Selling Party has the requisite power and
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions to be performed by it. Such execution,
delivery and performance have been duly authorized by all necessary corporate
action, and such Transaction Documents constitute valid and binding obligations
of each Selling Party that is a party thereto, enforceable against each such
party in accordance with their terms.
4.3 CONSENTS AND APPROVALS. Except for the consents specified on
SCHEDULE 4.3 (the "Required Consents"), neither the execution and delivery by
any Selling Party of the Transaction Documents to which it is a party, nor the
performance of the Transactions to be performed by any Selling Party, will
require any filing, consent or approval or constitute a Default under (a) any
Regulation or Court Order to which any Selling Group Member is subject, (b) the
Charter Documents or bylaws of any Selling Group Member or (c) any Contract,
Government Permit or other document to which any Company Group Member is a party
or by which the properties or other Assets of any Company Group Member may be
subject.
4.4 CAPITALIZATION AND STOCK OWNERSHIP. The total authorized capital
stock of the Company consists of (a) 15,000 shares of Class A Common Stock, par
value $10 per share, none of which are issued and outstanding and (b) 16,300
shares of Class B Common Stock, par value $10 per share, 16,081 shares of which
are issued and outstanding (defined above as the "Shares"). There are no
existing options, warrants, calls, commitments or other rights of any character
(including conversion or preemptive rights) relating to the acquisition of any
issued or unissued capital stock or other securities of the Company. All of the
Shares are duly and validly authorized and issued, fully paid and
non-assessable. The Seller is the record owner of all of the Shares, free and
clear of all Encumbrances. Upon completion of the Transactions at the Closing,
Newsub shall receive valid title to the Shares, free and clear of all
Encumbrances. SIBV owns all of the issued and outstanding shares of capital
stock of Smurfit Holdings B.V., which owns all of the issued and outstanding
shares of capital stock of the Seller.
4.5 FINANCIAL STATEMENTS.
(a) The Company has delivered to the Buyer correct and complete copies
of the Company's unaudited monthly consolidated financial statements consisting
of a balance sheet of the Company Group as of the end of each month from January
1994 through June 30, 1994 and the related statements of income, retained
earnings and cash flows for the periods then ended. The Company has also
delivered to the Buyer correct and complete copies of consolidated financial
statements consisting of a balance sheet of the Company Group as of December 31,
1991, 1992 and 1993 and the related statements of income,
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<PAGE> 14
retained earnings and cash flows for the years then ended, all of which have
been audited by the firm of Crowe, Chizek and Company (the "Audited Financial
Statements"). All such unaudited financial statements and the Audited Financial
Statement are referred to herein collectively as the "Financial Statements." The
Financial Statements are consistent with the books and records of the Company
Group, and there have not been any material transactions that have not been
recorded in the accounting records underlying such Financial Statements. In
addition, the Audited Financial Statements have been prepared in accordance with
GAAP consistently applied and present accurately the financial position and
assets and liabilities of the Company as of the dates thereof, and the results
of its operations for the periods then ended. The consolidated balance sheet of
the Company Group as of December 31, 1993 that is included in the Audited
Financial Statements is referred to herein as the "Company Balance Sheet," and
the date thereof is referred to as the "Company Balance Sheet Date."
(b) SIBV has delivered to the Buyer correct and complete copies of
consolidated financial statements consisting, among other things, of a balance
sheet of SIBV as of January 31, 1994 and the related statements of profit and
loss account and movements on profit and loss account for the fiscal year then
ended, all of which have been audited by the firm of Moret Ernst & Young (the
"SIBV Financial Statements"). The SIBV Financial Statements have been prepared
in accordance with accounting standards generally accepted in Ireland
consistently applied and give a fair view of the state of SIBV's affairs at
January 31, 1994 and of the profit for the fiscal year then ended.
4.6 TITLE TO ASSETS AND RELATED MATTERS. Each Company Group Member has
good and marketable title to, or valid leasehold interests in, all of its
Assets, including the Real Property (defined below), free from any Encumbrances
except those specified on SCHEDULE 4.6. The use of the Assets is not subject to
any Encumbrances (other than those specified in the preceding sentence and those
that would not have a Material Adverse Effect), and such use does not materially
encroach on the property or rights of anyone else. All Real Property and
tangible personal property of each Company Group Member are suitable for the
purposes for which they are used, in good working condition and reasonable
repair, free from any known defects, except such minor defects that would not
have a Material Adverse Effect.
4.7 REAL PROPERTY. SCHEDULE 4.7 describes all real estate used in the
operation of the Business as well as any other real estate that is in the
possession of or leased by each Company Group Member and the improvements
(including buildings and other structures) located on such real estate
(collectively, the "Real Property"), and lists any leases under which any such
Real Property is possessed (the "Real Estate Leases"). To the knowledge of any
Selling Group Member, no Company Group Member is currently in Default under any
of the Real Estate Leases, and except as described on SCHEDULE 4.7, no Selling
Group Member is aware of any Default by any of the lessors thereunder. Except as
described on SCHEDULE 4.7, no Company Group Member has an ownership interest in
any real property.
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<PAGE> 15
SCHEDULE 4.7 also describes any other real estate previously owned, leased or
otherwise operated by any Company Group Member during the 10 years immediately
preceding the Closing and the time periods of any such ownership, lease or
operation.
4.8 CERTAIN PERSONAL PROPERTY. SCHEDULE 4.8 is a complete fixed asset
schedule, describing and specifying the location of all items of tangible
personal property that were included in the Company Balance Sheet at a carrying
value of, in each case, at least $10,000. All of such personal property is in
operating condition, reasonable wear and tear excepted.
4.9 NON-REAL ESTATE LEASES. SCHEDULE 4.9 lists all assets and property
(other than Real Property) that have been used in the operation of the Business
and that are possessed by any Company Group Member under an existing lease,
including all trucks, automobiles, forklifts, machinery, equipment, furniture
and computers. SCHEDULE 4.9 also lists the leases under which such assets and
property are possessed. All of such leases are referred to herein as the
"Non-Real Estate Leases." To the knowledge of any Selling Group Member, no
Company Group Member is currently in Default under any of the Non-Real Estate
Leases, and no Selling Group Member is aware of any Default by any of the
lessors thereunder.
4.10 ACCOUNTS RECEIVABLE. The accounts receivable of each Company Group
Member are bona fide accounts receivable created in the ordinary course of
business and are good and collectible within periods of time normally prevailing
in the industry at the aggregate recorded amounts thereof.
4.11 INVENTORY. All inventory of each Company Group Member consists of
items of quality and quantity saleable in the ordinary course of business at
regular sales prices of such Company Group Member in the ordinary course of its
business. The inventory records for each Company Group Member that have been
delivered to Buyer are accurate with respect to the data contained therein.
4.12 LIABILITIES. Except as specified on SCHEDULE 4.12, to the
knowledge of any Selling Group Member, none of the Company Group Members has any
Liabilities, and none of the Assets of any Company Group Member is subject to
any Liabilities, except (a) to the extent specifically disclosed on the Company
Balance Sheet, (b) Liabilities incurred since the date thereof that,
individually or in the aggregate, are not material to the Business or the
Assets, and (c) Liabilities under any Contracts specifically disclosed on any
Schedule to this Agreement that were not required under GAAP to have been
specifically disclosed or reserved for on the Company Balance Sheet.
4.13 TAXES. Each Company Group Member has duly filed all foreign,
federal, state, local and other tax returns that are required to be filed and
that were due prior to the Closing Date, and has paid all material taxes and
assessments that have become due
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<PAGE> 16
pursuant to such returns or pursuant to any assessment received. All taxes and
other assessments and levies that any Company Group Member has been required by
law to withhold or to collect have been duly withheld and collected and have
been paid over to the proper governmental authorities or are properly held by
such Company Group Member for such payment. Except as specified on SCHEDULE
4.13, there are no proceedings or other actions, nor to the knowledge of any
Selling Group Member is there any basis for any pro ceedings or other actions,
for the assessment and collection of material additional taxes of any kind for
any period for which returns have or should have been filed.
4.14 SUBSIDIARIES. Except as specified on SCHEDULE 4.14, no Company
Group Member owns, directly or indirectly, any interest or investment (whether
equity or debt) in any corporation, partnership, business, trust, joint venture
or other legal entity. The Company is the record owner of all of the issued and
outstanding shares of capital stock of each of the Subsidiaries. All of such
shares of each of the Subsidiaries are duly and validly authorized and issued,
fully paid and non-assessable. There are no existing options, warrants, calls,
commitments or other rights of any character (including conversion or preemptive
rights) relating to the acquisition of any issued or unissued capital stock or
other securities of any of the Subsidiaries.
4.15 LEGAL PROCEEDINGS AND COMPLIANCE WITH LAW.
(a) Except as disclosed on SCHEDULE 4.15, there is no Litigation that
is pending or, to any Selling Group Member's knowledge, threatened against or
related to any Company Group Member. Other than any Defaults under Regulations
relating to pollution or protection of the environment, which are covered by
paragraph (b) of this Section 4.15, there has been no Default under any
Regulations applicable to any Company Group Member, except for any Defaults that
would not have a Material Adverse Effect. There has been no Default with respect
to any Court Order applicable to any Company Group Member.
(b) Without limiting the generality of Section 4.15(a), except as
described on SCHEDULE 4.15, to the knowledge of any Selling Group Member, there
has not been any Environmental Condition (defined below) (i) at the premises at
which the Business of any Company Group Member has been conducted, (ii) at any
property owned, leased or operated at any time by any Company Group Member, any
Person controlled by any Affiliate of any Company Group Member or any
predecessor thereof, or (iii) at any property at which Hazardous Substances have
been deposited or disposed by or at the behest or direction of any of the
foregoing, nor has any Company Group Member received written notice of any such
Environmental Condition. "Environmental Condition" means any condition or
circumstance, including the presence of Hazardous Substances, whether created by
any Company Group Member or any third party, at or relating to any such property
or premises that would (i) require abatement or correction under an
Environmental Law (defined below), (ii) give rise to any civil or criminal
liability under an Environmental Law,
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<PAGE> 17
or (iii) create a public or private nuisance. "Environmental Law" means all
Regulations and Court Orders relating to pollution or protection of the
environment as well as any principles of common law under which a party may be
held liable for the release or discharge of any materials into the environment.
(c) The Company has made available to the Buyer correct and complete
copies of any written reports, studies or assessments in the possession or
control of any Selling Group Member that relates to any Environmental Condition.
In addition, the Company has made available to the Buyer correct and complete
copies of any such reports, studies or assessments relating to the Pending New
Jersey Proceeding, as well as of all correspondence between any Selling Group
Member and the NJ DEPE. To the knowledge of any Selling Group Member, the total
Liabilities of all Company Group Members with respect to the Pending New Jersey
Proceeding that have not been paid as of the date hereof and that will accrue as
of the date hereof will not exceed $900,000.
(d) The Company is complying or has complied with the requirements of
ISRA relating to the Main Facility, the 202 Facility, the 205 Facility and the
TrueTone Facility. All submissions to the NJ DEPE relating to the Main Facility,
the 202 Facility, the 205 Facility and the TrueTone Facility that were made in
connection with ISRA, including the General Information Submission and the Site
Evaluation Submission and all amendments thereto, are accurate, correct and
complete, and do not omit any material information necessary to make the
information contained therein not misleading. The Company has received all
necessary approvals for consummation of the Transactions in accordance with
ISRA.
(e) Except as specified on SCHEDULE 4.15 and except for such failures
that would not have a Material Adverse Effect, (i) Seller has obtained and is in
full compliance with all governmental permits, licenses, registrations,
certificates of occupancy, approvals and other authorizations (the "Governmental
Permits"), (ii) all Governmental Permits that have been obtained are listed in
SCHEDULE 4.15 along with their respective expiration dates, that are required
for the complete operation of the Business of any Company Group Member as
currently operated, (iii) all of the Governmental Permits are currently valid
and in full force, (iv) no revocation, cancellation or withdrawal thereof has
been threatened and (v) each Company Group Member has filed such timely and
complete renewal applications as may be required with respect to its
Governmental Permits.
4.16 CONTRACTS.
(a) SCHEDULE 4.16 lists each Contract of the following types to which
any Company Group Member is a party, or by which it is bound, except for any
Contract that may be terminated by such Company Group Member on not more than 30
days' notice without any Liability and any Contract under which the executory
obligation of such
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<PAGE> 18
Company Group Member involves an amount of less than $10,000 (such excepted
Contracts are referred to collectively as "Minor Contracts"):
(i) Contracts with any present or former stockholder,
director, officer, employee, partner or consultant of any
Selling Party or Affiliate thereof;
(ii) Contracts for the future purchase of, or payment
for, supplies or products, or for the lease of any Asset from
or the performance of services by a third party, in excess of
$25,000 in any individual case, or any Contracts for the sale
of inventory or products that involve an amount in excess of
$25,000 with respect to any one supplier or other party;
(iii) Contracts to sell or supply products or to
perform services that involve an amount in excess of $25,000
in any individual case;
(iv) Contracts to lease to or to operate for any
other party any Asset that involve an amount in excess of
$25,000 in any individual case;
(v) Any notes, debentures, bonds, conditional sale
agreements, equipment trust agreements, letter of credit
agreements, reimbursement agreements, loan agreements or other
Contracts for the borrowing or lending of money (including
loans to or from officers, directors, partners, stockholders
or Affiliates of any Selling Party or any members of their
immediate families), agreements or arrangements for a line of
credit or for a guarantee of, or other undertaking in
connection with, the indebtedness of any other person or
entity;
(vi) Any Contracts under which any Encumbrances exist
with respect to any Assets; and
(vii) Any other Contracts (other than Minor Contracts
and those described in any of (i) through (vi) above) not made
in the ordinary course of business.
(b) To any Seller Group Member's knowledge, none of the Company Group
Members is in Default under any Contract, which Default could result in a
Liability on the part of any Company Group Member in excess of $25,000 in any
individual case, and the aggregate Liabilities that could result from all such
Defaults do not exceed $50,000. No
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<PAGE> 19
Company Group Member has received any communication from, or given any
communication to, any other party indicating that Seller or such other party, as
the case may be, is in Default under any Contract where such Default could have
a Material Adverse Effect.
4.17 INSURANCE. SCHEDULE 4.17 lists all policies or binders of
insurance held by or on behalf of Seller or relating to the Business or any of
its Assets, specifying with respect to each policy the insurer, the amount of
the coverage, the type of insurance, the risks insured, the expiration date, the
policy number and any pending claims thereunder. To any Selling Group Member's
knowledge, there is no Default with respect to any such policy or binder, nor
has there been any failure to give any notice or present any claim under any
such policy or binder in a timely fashion or in the manner or detail required by
the policy or binder, except for any of the foregoing that would not,
individually or in the aggregate, have a Material Adverse Effect. There is no
notice of nonrenewal or cancellation with respect to, or disallowance of any
claim under, any such policy or binder that has been received by Seller, except
for any of the foregoing that would not, individually or in the aggregate, have
a Material Adverse Effect.
4.18 PATENTS AND OTHER INTELLECTUAL PROPERTY. No Company Group Member
currently uses or has used in the operation of its Business any patent,
trademark, tradename, service mark, copyright, software, trade secret or
know-how, except for those listed on SCHEDULE 4.18, all of which, as specified
on SCHEDULE 4.18, are owned or otherwise lawfully used by such Company Group
Member, and to any Selling Group Member's knowledge, no Company Group Member
infringes upon or unlawfully or wrongfully uses any patent, trademark,
tradename, service mark, copyright or trade secret owned or claimed by another
Person. No Company Group Member is in Default under, and has not received any
notice of any claim of infringement or any other claim or proceeding relating
to, any such patent, trademark, tradename, service mark, copyright or trade
secret. No current or former employee of any Company Group Member and no other
Person owns or has any proprietary, financial or other interest, direct or
indirect, in whole or in part, in any patent, trademark, tradename, service mark
or copyright, or in any application therefor, or in any trade secret or other
Confidential Information that any Company Group Member owns or has used in its
Business.
4.19 COMPUTER SOFTWARE. The computer software used by the Company Group
Members, together with all know-how and processes used in connection therewith,
functions as intended, is in machine-readable form, and includes all computer
programs, materials, tapes, know-how and procedures used by the Company Group
Members, and with respect to any computer software owned any by any Company
Group Member, such software also includes the object and source codes.
4.20 EMPLOYEE RELATIONS. None of the Company Group Members is (a) a
party to, involved in or, to any Selling Group Member's knowledge, threatened
by, any labor
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<PAGE> 20
dispute or unfair labor practice charge, or (b) currently negotiating any
collective bargaining agreement, and none of the Company Group Members has
experienced any work stoppage during the last three years. The Company has
delivered to the Buyer a complete and correct list of the names and salaries,
bonus and other cash compensation of all employees (including officers) of any
Company Group Member whose total cash compensation for 1993 exceeded, or whose
total compensation for 1994 is expected to exceed, $60,000.
4.21 ERISA.
(a) SCHEDULE 4.21 contains a complete list of all Benefit
Plans sponsored or maintained by any Company Group Member or under which any
Company Group Member may be obligated. The Company has delivered to the Buyer
(i) accurate and complete copies of all Benefit Plan documents and all other
material documents relating thereto, including all summary plan descriptions,
summary annual reports and insurance contracts, (ii) accurate and complete
detailed summaries of all unwritten Benefit Plans, (iii) accurate and complete
copies of the most recent financial statements and actuarial reports with
respect to all Benefit Plans for which financial statements or actuarial reports
are required or have been prepared and (iv) accurate and complete copies of all
annual reports for all Benefit Plans (for which annual reports are required)
prepared within the last three years. Each Benefit Plan providing benefits that
are funded through a policy of insurance is indicated by the word "insured"
placed by the listing of the Benefit Plan on SCHEDULE 4.21.
(b) All Benefit Plans conform in all material respects to, and
are being administered and operated (and have at all time been administered and
operated) in material compliance with, the requirements of ERISA, the Code and
all other applicable Regulations, including the Older Workers Benefit Protection
Act, the Age Discrimination in Employment Act, the Americans with Disability
Act, Title VII of the Civil Rights Act and the Pregnancy Discrimination Act. All
returns, reports and disclosure statements required to be made under ERISA and
the Code with respect to all Benefit Plans have been timely filed or delivered.
There have not been any "prohibited transactions," as such term is defined in
Section 4975 of the Code or Section 406 of ERISA involving any of the Benefit
Plans, that could subject any Company Group Member to any material penalty or
tax imposed under the Code or ERISA.
(c) Any Benefit Plan that is intended to be qualified under
Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code
has been determined by the Internal Revenue Service (the "IRS") to be so
qualified, and such determination remains in effect and has not been revoked.
The Company has delivered to the Buyer a copy of the most recent determination
letter received from the IRS with respect to any Benefit Plan that has been
determined to be so qualified. Nothing has occurred since the date of any such
determination that is reasonably likely to affect adversely such qualification
or exemption,
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<PAGE> 21
or result in the imposition of excise taxes or income taxes on unrelated
business income under the Code or ERISA with respect to any Benefit Plan.
(d) Except as set forth in Schedule 4.21, neither the Company
nor any of the Company Group Members has any announced plan or legally binding
commitment to create any additional Benefit Plans or to amend or modify any
existing Benefit Plan.
(e) None of the Company Group Members currently maintains a
defined benefit plan subject to Title IV of ERISA. Any defined benefit plan
within the meaning of Section 3(35) of ERISA that has been previously adopted,
maintained, sponsored or contributed to the Company or any of the Company Group
Members has been terminated in accordance with applicable requirements of ERISA,
the Code and other applicable Regulations. The Pension Benefit Guaranty
Corporation ("PBGC") has issued a Notice of Sufficiency in connection with such
termination, and the IRS has issued a determination that termination of the plan
did not adversely affect the plan's tax qualified status. Neither the Company
nor any of the Company Group Members has any liability, contingent or otherwise,
to any government agencies, including the PBGC, the IRS and the Department of
Labor (the "DOL"), to the plan or trust, or to any participant, beneficiary,
trustee or fiduciary thereof, with respect to any such terminated plan.
(f) None of the Company Group Members has a present or
contingent obligation to contribute to any multiemployer plan (as defined in
Section 3(37) of ERISA). Neither the Company nor any of the Company Group
Members is or has ever been a party to any collective bargaining agreement with
any labor union or other employee representative covering employees of the
Company or any Company Group Member nor does any collective bargaining agreement
determine the terms and conditions of employment of any employee of the Company
or any Company Group Member. Neither the Company nor any Subsidiary has any
liability with respect to any employee benefit plan (as defined in Section 3(3)
of ERISA) other than with respect to the Benefit Plans listed in SCHEDULE 4.21.
For purposes of this Section 4.21(d), the term "Company Group Member" shall
include any corporation that is a member of any controlled group of corporations
(as defined in Section 414(b) of the Code) that includes the Company, any
Subsidiary, any trade or business (whether or not incorporated) that is under
common control (as defined in Section 414(c) of the Code) with the Company or
any Subsidiary, any organization (whether or not incorporated) that is a member
of an affiliated service group (as defined in Section 414(m) of the Code) that
includes the Company or any Subsidiary and any other entity required to be
aggregated with the Company pursuant to the regulations issued under Section
414(o) of the Code.
(g) There are no pending or, to the knowledge of any Company
Group Member, threatened claims by or on behalf of any Benefit Plans, or by or
on behalf of any individual participants or beneficiaries of any Benefit Plans,
alleging any breach of fiduciary duty on the part of any Company Group Member or
any of its officers, directors or
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<PAGE> 22
employees under ERISA or any other applicable laws and rules and regulations
promulgated thereunder, or claiming benefit payments other than those made in
the ordinary operation of such plans, nor is there, to the knowledge of any
Selling Group Member, any basis for such claim. The Benefit Plans are not the
subject of any investigation, audit or action by any governmental agency,
including the IRS, the DOL, the Equal Employment Opportunity Commission or the
PBGC.
(h) Each Company Group Member has made all required
contributions under the Benefit Plans including the payment of any premiums
payable to the PBGC and other insurance premiums on a timely basis. No Benefit
Plan has incurred a funding deficiency, whether or not waived, under Section 302
of ERISA or Section 412 of the Code.
(i) With respect to any Benefit Plan that is an employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare
Plan"), (i) each Welfare Plan for which contributions are claimed as deductions
under any provision of the Code is in material compliance with all applicable
requirements pertaining to such deduction, (ii) with respect to any welfare
benefit fund (within the meaning of Section 419 of the Code) related to a
Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code, (iii) any Benefit Plan that is a group health plan (within
the meaning of Section 4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the material requirements of Section 4980B of the
Code, ERISA, Title XXII of the Public Health Service Act, the applicable
provisions of the Social Security Act, and all other applicable laws and rules
and regulations promulgated thereunder; (iv) in the case of any Welfare Plan
that is funded, the funding of each such Welfare Plan does not exceed the
limitations of Section 419(A) of the Code, and no income with respect to any
such plan is includable in the gross income of the Company and any of its
Subsidiaries; (v) none of the Welfare Plans is a nonconforming group health plan
as defined in Section 50000 of the Code, and the Company and the Subsidiaries
have materially complied with the current and former medicare secondary payer
provisions with respect to any of the Benefit Plans subject thereto: and (vi)
all Welfare Plans may be amended or terminated at any time on or after the
Closing Date.
(j) The consummation of the Transactions will not (other than
any payment made pursuant to Code Section 401(k)(10) under any 401(k) plan)
accelerate the time of payment or vesting, or increase any compensation due to
any current employee or former employee of any Company Group Member.
(k) The consummation of the Transactions will not result
(either alone or in conjunction with any other event) in the payment or series
of payments by any Company Group Members to any person of an "excess parachute
payment" within the meaning of Section 280G of the Code.
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<PAGE> 23
4.22 CORPORATE RECORDS. The minute books of each Company Group Member
contain complete, correct and current copies of its Charter Documents and bylaws
and of all minutes of meetings, resolutions and other proceedings of its Board
of Directors and stockholders. The stock record book of each Company Group
Member is complete, correct and current.
4.23 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, each
Company Group Member has conducted its Business in the ordinary course and there
has not been with respect to such Company Group Member:
(a) any material adverse change in its Business or
Liabilities;
(b) any distribution or payment declared or made in
respect of its capital stock by way of dividends, purchase or
redemption of shares or otherwise;
(c) any increase in the compensation payable or to
become payable to any director, officer, employee or agent,
except for merit and seniority increases for non-officer
employees made in the ordinary course of business, nor any
other change in any employment or consulting arrangement;
(d) any sale, assignment or transfer of Assets, or
any additions to or transactions involving any Assets, other
than those made in the ordinary course of business;
(e) other than in the ordinary course of business,
any waiver or release of any claim or right or cancellation of
any debt held; or
(f) any payments to any Affiliate of any Company
Group Member, except as specified in SCHEDULE 4.23.
4.24 PREVIOUS SALES; WARRANTIES. All goods sold or distributed by each
Company Group Member were of merchantable quality, and no Company Group Member
has breached any express or implied warranties in connection with the sale or
distribution of such goods, except for breaches that, individually and in the
aggregate, would not have a Material Adverse Effect. The Company has provided
the Buyer with true and correct copies of all warranties (a) made by all Persons
from whom any Company Group Member has obtained any goods that have been resold
or distributed by any Company Group Member, including any goods that constituted
parts included in other goods sold or distributed by any
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<PAGE> 24
Company Group Member, and (b) made by any Company Group Member with respect to
any goods that have been sold or distributed by any Company Group Member.
4.25 DISTRIBUTORS, CUSTOMERS OR SUPPLIERS. To any Selling Group
Member's knowledge, no major distributor, customer or supplier intends to cease
doing business with any Company Group Member or to alter materially the amount
of business done with any Company Group Member due to consummation of the
Transactions or any other reason. To any Selling Group Member's knowledge, the
Customer Records are accurate in all material respects.
4.26 FINDER'S FEES. No Person retained by any Selling Group Member is
or will be entitled to any commission or finder's or similar fee in connection
with the Transactions.
4.27 ACCURACY OF INFORMATION. No representation or warranty by any
Company Group Member in any Transaction Document, and no information contained
therein or otherwise delivered to Buyer or in connection with the Transactions,
including the Financial Statements and the due diligence questionnaire given to
the Company by Bradford Ventures, Ltd., contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements contained herein or therein not misleading.
4.28 REPRESENTATIONS. The representations and warranties of the Seller
contained in this Agreement, disregarding all qualifications and exceptions
herein relating to materiality or Material Adverse Effect, are true and correct
with only such exceptions as would not in the aggregate have a Material Adverse
Effect.
5. Representations and Warranties of the Buying Parties.
-----------------------------------------------------
The Buying Parties hereby jointly and severally represent and warrant
to the Seller as follows:
5.1 CORPORATE. Each Buying Party is a corporation duly organized,
validly existing and in good standing under the laws under which it was
incorporated. Each Buying Party is qualified to do business as a foreign
corporation in any jurisdiction where it is required to be so qualified, except
where the failure to so qualify would not have a material adverse effect on its
business, assets, financial condition, results of operation or liquidity. The
Charter Documents and bylaws of each Buying Party that are being delivered to
Seller at the Closing have been duly adopted and are current, correct and
complete.
5.2 AUTHORIZATION. Each Buying Party has the requisite power and
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions to be performed by it. Such execution,
delivery and performance have been duly authorized by all necessary corporate
action, and such Transaction Documents
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constitute valid and binding obligations of each Buying Party that is a party
thereto, enforceable against each such Buying Party in accordance with their
terms.
5.3 CONSENTS AND APPROVALS. Neither the execution and delivery by any
Buying Party of the Transaction Documents to which it is a party, nor the
performance of the Transactions by any Buying Party, will require any filing,
consent or approval or constitute a Default under (a) any Regulation or Court
Order to which any Buying Party is subject, (b) the Charter Documents or bylaws
of any Buying Party or (c) any Contract, Government Permit or other document to
which any Buying Party is a party or by which the properties or other assets of
any Buying Party may be subject.
5.4 OWNERSHIP OF SUBSIDIARY; MERGER. The Buyer is the record owner of
all of the issued and outstanding capital stock of Newsub. At the Closing, the
Buyer is causing Newsub and the Company to effect the Merger, and upon
effectiveness of the Merger, (a) Newsub will be merged into the Company and
cease to exist, and (b) the Company will succeed to all of the assets and
liabilities of Newsub and (c) the Buyer will own all of the issued and
outstanding capital stock of the Company.
5.5 INVESTMENT INTENT. The Buying Parties are acquiring the Shares
solely for investment purposes, with no present intention of distributing or
reselling any of the Shares or any interest therein.
5.6 LIMITATIONS ON TRANSFER. The Buying Parties acknowledge that the
Shares have not been registered under the Securities Act of 1933, as amended
(the "Act"). The Buying Parties are aware of the applicable limitations under
the Act upon the subsequent sale or other disposition of the Shares or any
interest therein. The Buying Parties further acknowledge that the Shares must be
held indefinitely unless they are subsequently registered or qualified under the
Act and applicable state securities laws or an exemption from such registration
is available, and hereby consent to the Seller's imposing a legend reciting such
restriction on the certificate representing the Shares.
5.7 NO PUBLIC MARKET. The Buying Parties realize that there is no
public market for the Shares, that no market may ever develop for them, and that
they have not been approved or disapproved by the Securities and Exchange
Commission or any similar commission or authority of any state.
5.8 EXPERIENCE. The Buying Parties have such knowledge and experience
in financial and business matters that they are capable of evaluating the merits
and risks of the acquisition of the Shares.
5.9 FINDER'S FEES. Except for David W. Jaffin, no Person retained by
any Buying Party is or will be entitled to any commission or finder's or similar
fee in connection with the Transactions.
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5.10 ACCURACY OF INFORMATION. No representation or warranty by any
Buying Party in any Transaction Document, and no information contained therein
or otherwise delivered to any Selling Party or in connection with the
Transactions, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements contained herein or
therein not misleading.
6. Conditions Precedent to Obligations of the Buying Parties.
----------------------------------------------------------
All obligations of the Buying Parties to consummate the Transactions
are subject to the fulfillment by the Closing Date of each of the following
conditions:
6.1 REQUIRED CONSENTS. The Company shall have obtained the Required
Consents without any modification that the Buyer deems unacceptable.
6.2 ENCUMBRANCES. The Encumbrances set forth on SCHEDULE 4.6 shall have
been removed except for those that are Permitted Encumbrances.
6.3 REDUCTION OF DEBT. The Seller shall have made any necessary
payments on the Existing Bank Debt so that the total amount of the Existing Bank
Debt and the Existing Capital Leases does not exceed $4,787,000 as of the
Closing.
6.4 PAMARCO EUROPE OPTION. Maurice A. Buckley shall have tendered
acceptable documentation to cancel the Pamarco Europe Option.
6.5 ANCILLARY DOCUMENTS. All parties to the following agreements, other
than the Buying Parties, shall have executed and delivered the following
documents: the Letter of Credit and the Employment Agreements.
6.6 LEGAL OPINION. The Buyer shall have received the opinion of Piper &
Marbury, counsel to the Selling Parties other than SIBV, and the opinion of
STIBBE, SIMONT, MONAHAN, DUHOT, counsel to SIBV, both in an acceptable form.
7. Conditions Precedent to Obligations of the Selling Parties.
-----------------------------------------------------------
All obligations of Seller to consummate the Transactions are subject to
the fulfillment by the Closing Date of each of the following conditions:
7.1 CLOSING PURCHASE PRICE. Newsub shall have tendered delivery of the
Closing Purchase Price.
7.2 PAYMENT TO ESCROW FUND. Newsub shall have tendered payment of
$500,000 to the Escrow Fund.
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7.3 PAYMENT OF FEE. The Buying Parties shall have tendered payment of
all compensation payable to David Jaffin in connection with the Transactions.
7.4 ANCILLARY DOCUMENTS. All parties to the following agreements, other
than the Selling Parties, shall have executed and delivered the following
agreements: the Employment Agreements.
7.5 LEGAL OPINION. Seller shall have received the opinion of Morgan,
Lewis & Bockius, counsel to the Buying Parties, in an acceptable form.
8. Competition and Confidentiality by Seller.
------------------------------------------
8.1 RESTRICTED PERIOD. Neither the Seller, SIBV nor their respective
Affiliates as provided in Section 8.3 (each a "Restricted Party") shall, at any
time within the three-year period immediately following the Closing Date (the
"Restricted Period"), directly or indirectly, engage in, or have more than a
five percent ownership interest on behalf of itself or others in any person,
firm, corporation or business (whether as an employee, officer, director, agent,
security holder, creditor, partner, joint venturer, beneficiary under a trust,
investor, consultant or otherwise) that engages within the Restricted Territory
(defined below) in the manufacture of anilox rolls or embossing rolls (the
"Restricted Business"). The "Restricted Territory" means the area comprising the
entire United States of America, Canada, Mexico and the United Kingdom.
Notwithstanding the foregoing, a Restricted Party shall not be deemed to be in
violation of this Section 8.1 if it acquires after the Closing Date an ownership
interest in any firm, corporation or business that is engaged in the Restricted
Business in the Restricted Territory so long as such acquired entity's gross
sales in the Restricted Business shall not constitute more than 10% of such
acquired entity's total sales from all of its activities.
8.2 CONFIDENTIAL INFORMATION. Prior to the Closing and indefinitely
thereafter, no Restricted Party shall divulge, communicate or use in any way,
any confidential information or trade secrets of the Business of any Company
Group Member, including personnel information, know-how and other technical
information, customer lists, customer information and supplier information
("Confidential Information"). The foregoing restriction shall not apply to any
Confidential Information that shall be required to be disclosed by a court order
or that becomes generally known to the public without any breach by a Restricted
Party of the obligations contained in this Section 8.2.
8.3 AFFILIATES. The terms of this Section 8 shall apply to the Seller,
SIBV and any Affiliate controlled by the Seller, SIBV or any subsidiary of SIBV
(a "Controlled Affiliate") to the same extent as if they were parties hereto,
and the Seller and SIBV each shall take whatever actions may be necessary to
cause its respective Controlled Affiliates to adhere to the terms of this
Section 8. Notwithstanding the foregoing, the terms of this Section 8 shall not
apply to Jefferson Smurfit Corporation, a Delaware corporation.
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8.4 INJUNCTIVE RELIEF. In the event of any breach or threatened breach
by any Restricted Party of any provision of this Section 8, the Buyer and any
Company Group Member shall be entitled to injunctive or other equitable relief,
restraining such party from using or disclosing any Confidential Information in
whole or in part, or from engaging in conduct that would constitute a breach of
the obligations of a Restricted Party under this Section 8. Such relief shall be
in addition to and not in lieu of any other remedies that may be available,
including an action for the recovery of damages. In the event of litigation
involving this Agreement, if a court of competent jurisdiction determines that
the scope of this Section 8 is too broad in any respect, then the scope shall be
deemed to be reduced or narrowed to such scope as is found lawful and reasonable
by such court. However, the Seller and SIBV each acknowledge that this Section 8
has been negotiated by the parties and that the geographical and time
limitations, as well as the limitation on activities, are reasonable in light of
the circumstances pertaining to the Business of each Company Group Member.
9. Additional Covenants.
---------------------
9.1 EXPENSES. The Buyer and the Company shall pay the expenses of the
Buying Parties, and the Seller and SIBV shall pay their respective expenses,
incurred in connection with the Transaction Documents and the Transactions.
9.2 LIQUIDATION. To the extent that the Seller shall effect any partial
or total liquidation or otherwise distribute any of its assets prior to the
expiration of all of its obligations hereunder, including its obligations under
Section 10 below, the Seller shall require as part of the plan of such
liquidation or as a condition to any distribution that the direct and indirect
recipient of any assets distributed in such liquidation or other distribution
shall be responsible for any obligations of the Seller under this Agreement to
the extent of any assets so distributed.
9.3 RESPONSIBILITY FOR THE SELLER. SIBV shall take such actions as are
necessary to cause the Seller to perform all of the Seller's covenants and other
obligations under the Transaction Documents. SIBV hereby guarantees, and shall
act as a surety with respect to, the Seller's performance of all the Seller's
covenants and other obligations under the Transaction Documents, including
Seller's indemnification obligations under Section 10.
9.4 TAX ELECTION.
(a) If the parties proceed with the election provided for
under Section 338(h)(10) of the Code under the terms of paragraph (b) below, the
Buyer and Seller shall, within the 60-day period specified in such paragraph
(b):
(i) jointly execute (i) four copies (two for Buyer and two
for Seller) of Internal Revenue Service Form 8023 in order to make the
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election provided for under Section 338(h)(10) of the Code (the "338
Forms") and (ii) four copies of the necessary forms, if any, for
corresponding elections under corresponding provisions, if any, of
state and local tax laws, with respect to the Transactions;
(ii) cooperate in the preparation and filing of any forms
required under Section 338(h)(10) of the Code (or under corresponding
state and local provisions, if any) in accordance with applicable tax
laws;
(iii) deliver to each other all other documents or forms
that are reasonably required in connection with the election under
Section 338(h)(10) of the Code and under any corresponding provisions
of state and local law and shall timely file such forms with the
appropriate governmental authorities; and
(iv) allocate the deemed Purchase Price for the Assets
among such Assets in accordance with the principles of Section
338(b)(5) of the Code and the Treasury Regulations thereunder and to
use such allocations for all federal, state and local income tax
purposes.
(b) Promptly after the Closing, the Buyer and Seller shall
provide each other with all the information required for the Section 338(h)(10)
election and any corresponding elections under corresponding provisions, if any,
of state and local tax laws. The Buyer and the Seller acknowledge that there
will be at least $1,800,000 of capital gains generated as a result of the
Section 338(h)(10) election. Should the parties not be able to mutually agree
that the amount of capital gains generated is at least $1,800,000, the Purchase
Price shall be increased by an amount equal to 60% of the difference between the
amount of capital gains and $1,800,000, and Buyer shall pay the amount of such
increase to Seller on the Seller's due date for payment of its 1994 federal
income tax. The Purchase Price shall be increased by an amount equal to 60% of
the difference between the Seller' tax basis in the Shares and the tax basis of
the Assets (the "Tax Basis Difference"), based on the Seller's determination of
the Tax Basis Difference, which the Seller has provided to Buyer and shows an
amount of $228,800 (the "Initial Basis Determination"). The Buyer shall have 60
days within which to verify the Initial Basis Determination with its accountants
and reach agreement with the Seller regarding any proposed changes to the Tax
Basis Difference. If the Buyer contests the Initial Basis Determination and the
Buyer and Seller are unable to agree upon another amount, the Initial Basis
Determination shall be used for purposes of this Section 9.4(b). If the parties
mutually agree during such 60 - day period on a Tax Basis Difference that
results in the Buyer being obligated to pay an amount to Seller that would
exceed the amount payable based on the Initial Basis Determination by more than
25%, the Buyer may elect to abandon the Section 338(h) (10) election with
respect to the Transactions and the Purchase Price adjustment shall be zero.
Unless the parties mutually agree on a Tax Basis Difference that is different
from that reflected in the
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Initial Basis Determination or unless the Buyer elects to abandon the Section
338(h) (10) election as provided above, at the end of such 60 - day period the
Seller and Buyer shall proceed with filing the 338 Forms and the other actions
contemplated by this Section 9.4, subject to Buyer making the Seller whole
regarding capital gains as aforesaid.
9.5 MERGER. Following the Merger, the Buyer shall cause the Company to
perform all of the obligations imposed upon Newsub under the Transaction
Documents.
10. INDEMNIFICATION.
10.1 BY THE SELLER. From and after the Closing Date, to the extent
provided in this Section 10, the Seller shall indemnify and hold harmless the
Buying Parties from and against any liabilities, claims, demands, judgments,
losses, costs, damages or expenses whatsoever (including reasonable attorneys',
consultants' and other professional fees and disbursements of every kind, nature
and description incurred by them in connection therewith) (collectively,
"Damages") that any Buying Party may sustain, suffer or incur and that result
from, arise out of or relate to (a) any breach of any representation, warranty,
covenant or agreement of any Selling Party contained in this Agreement; (b) any
injuries to persons, property or business by reason of defectiveness, improper
design or manufacture or malfunction, or otherwise, of any product sold by any
Company Group Member, whether known or unknown, currently asserted or arising
hereafter, if such claims are based upon or arise out of products sold prior to
or on the Closing Date; (c) any Company Group Member's being liable for any
taxes of a Person other than another Company Group Member due to its inclusion
in the Seller's consolidated tax returns; and (d) any Benefit Plans of any
Company Group Member in effect on or prior to the Closing Date. This Section
10.1 shall not apply to any Environmental Damages covered by Section 10.2 below.
The Seller's total obligations under this Section 10.1 shall not exceed $5
million, except that this limitation shall not apply to any obligations that the
Seller may have with respect to any breach of any representations or warranties
of the Seller that were untrue when made and were made with an intent to mislead
or defraud, nor shall this limitation apply to any obligations with respect to
any breach of the provisions of Section 8. For the purposes of this Agreement,
(i) the Buyer shall be deemed to have suffered any Damages that are suffered by
Newsub so that the Buyer shall be entitled to claim recovery under any part of
this Section 10 to the same extent that Newsub would be entitled to claim
recovery, and Newsub's right to claim recovery shall be reduced by the amount
for which the Buyer claims recovery in order to avoid duplication, and (ii) upon
consummation of the Merger, the Company shall succeed to all of the rights of
Newsub under this Agreement.
10.2 BY SELLER FOR ENVIRONMENTAL DAMAGES.
(a) From and after the Closing Date, to the extent provided in
this Section 10 and in accordance with the formula set forth below in this
Section 10.2, the Seller shall indemnify and hold harmless the Buying Parties
from and against any Damages
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(including, in particular, reasonable engineering fees, consulting fees, legal
fees and the purchase of materials, equipment and other services) that any
Buying Party may sustain, suffer or incur after the Closing and that result
from, arise out of or relate to any Environmental Conditions existing on or
prior to the Closing, including Damages that result from (i) the ongoing efforts
to remove soil contamination and perform other remedial actions under the
supervision of the NJ DEPE at the Roselle Facility (the "Pending New Jersey
Proceeding"), (ii) any soil, water or other remedial efforts that any Company
Group Member may be required to undertake with respect to any Environmental
Condition existing on or prior to the Closing Date at the premises at which the
Business of any Company Group Member has been conducted or at any property
owned, leased or operated at any time by any Company Group Member, any Person
controlled by any Affiliate of any Company Group Member or any predecessor
thereof or (iii) any government or other third party actions or claims relating
to any Environmental Condition. The indemnification provided under this Section
10.2 shall apply to any breach of the representations and warranties in Section
4.15 to the extent that the breach relates to an Environmental Condition, except
that the Buying Parties may seek indemnification under Section 10.1 for any such
breach of any such representations and warranties that were untrue when made and
were made with an intent to mislead or defraud. The Damages covered by this
Section 10.2 are referred to herein as the "Environmental Damages."
(b) The Seller's responsibility to indemnify and hold harmless
the Buying Parties under this Section 10.2 shall apply to only one-third of the
Environmental Damages (and Newsub shall be responsible for the remaining
two-thirds) until the total Environmental Damages are equal to $750,000, after
which point the Seller shall be responsible to indemnify and hold harmless the
Buying Parties for all of the Environmental Damages until the total
Environmental Damages, including the aforesaid $750,000, are equal to $2.75
million, after which point the Seller shall not have any further responsibility
under this Section 10.2 for any Environmental Damages. The foregoing limitation
on the Seller's total obligations under this Section 10.2 shall not apply to any
obligations that the Seller may have with respect to any breach of any
representations or warranties of the Seller that result in Environmental Damages
if such representations and warranties were untrue when made and were made with
an intent to mislead or defraud,
(c) The Buying Parties shall recover the first $1.5 million of
the Environmental Damages for which the Seller may be responsible under this
Section 10.2 by drawing funds under the Letter of Credit in accordance with the
procedures set forth in this paragraph (c).
(i) If any Buying Party shall claim indemnification
from the Seller under this Section 10.2 (the "Environmental Claimant"),
the Environmental Claimant shall give notice of the claim (a "Claim
Notice") for Environmental Damages to the Seller prior to the
expiration of the third anniversary of the Closing Date. Such notice
shall (A) explain the basis of
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the claim in sufficient detail so as to be understandable to a
reasonable person, (B) specify the amount thereof and (C) be
accompanied by any supporting documentation from third parties such as
invoices for services or products. The 30-day period immediately
following the date on which the Claimant gives the Claim Notice to the
Seller is referred to herein as the "Claim Response Period." If the
matter to which a claim relates shall not have been resolved as of the
date of the Claim Notice, the Environmental Claimant shall estimate the
amount of the claim in the Claim Notice, but also specify therein that
the claim has not yet been liquidated (an "Unliquidated Claim"). If a
Environmental Claimant gives a Claim Notice for an Unliquidated Claim,
the Claimant shall also give a second Claim Notice within 60 days after
the matter giving rise to the Claim becomes finally resolved, and such
second Claim Notice shall specify the amount of the claim. The 30-day
period immediately following the date on which the Environmental
Claimant gives such a second Claim Notice to the Seller is referred to
herein as the "Liquidated Claim Response Period."
(ii) The Environmental Claimant shall be entitled to
draw under the Letter of Credit the amount of a claim specified in a
Claim Notice at any time after the 20 days immediately following the
date of the Claim Notice. The Environmental Claimant may draw such
amount by presenting the issuer of the Letter of Credit with a
certificate of an officer of the Environmental Claimant that specified
the amount requested and certifies that the Environmental Claimant is
due Environmental Damages equal to such specified amount. Any such draw
shall not prejudice the Seller's rights to contest the Environmental
Claimant's rights to recover such Environmental Damages, except as
provided in subparagraph (iii) hereof.
(iii) If the Environmental Claimant shall not have
received a written objection to a claim from the Seller prior to the
end of the Claim Response Period, or in the case of an Unliquidated
Claim, prior to the end of the Liquidated Claim Response Period, the
claim shall be conclusively presumed to have been approved for the
purposes of this Agreement by the Seller.
(iv) If during the Claim Response Period or the
Liquidated Claim Response Period, as the case may be, the Environmental
Claimant receives from the Seller a written objection to a Claim
Notice, then for a period of 45 days after receipt by the Environmental
Claimant of such objection, the Seller and the Environmental Claimant
shall endeavor to resolve the claim. To the extent that the Seller and
the Environmental Claimant are unable to resolve the claim prior to the
end of such 45-day period (or any extension thereto to which the
Environmental Claimant and
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the Seller may agree in writing), the Seller may pursue whatever legal
remedies may be available to resolve the dispute.
(v) The Seller shall keep the Letter of Credit in
effect until the later of the third anniversary of the Closing Date or
the date as of which all unresolved claim, including any unresolved
Unliquidated Claim, shall have been resolved.
(vi) If for any reason a Environmental Claimant shall
not be able to recover under the Letter of Credit any Environmental
Damages that it shall be entitled to recover under the terms of this
Section 10.2, the Seller shall promptly pay the Environmental Claimant
the amount of any such unrecovered Environmental Damages.
(d) The Buying Parties shall cause the Company to use the
Escrow Fund solely to satisfy the Environmental Damages for which the Company is
retaining responsibility under this Section 10.2.
(e) Notwithstanding any other provision of this Agreement, the
Seller shall not be liable to the Buying Parties or the Company for any expenses
that the Buying Parties or the Company may be required to incur to the extent
that the Buying Parties or the Company would not have been required to incur
such expenses prior to any modification of any Environmental Law after the
Closing Date.
10.3 BY THE BUYING PARTIES. From and after the Closing Date, to the
extent provided in this Section 10, the Buying Parties shall, jointly and
severally, indemnify and hold harmless the Seller from and against any Damages
that the Seller may sustain, suffer or incur and that result from, arise out of
or relate to (a) any breach of any representation, warranty, covenant or
agreement of any Buying Party contained in this Agreement or (b) any
Environmental Conditions arising after the Closing. Notwithstanding the
foregoing, the Buying Parties shall not have any obligation to indemnify the
Seller with respect to any Environmental Conditions arising after the Closing to
the extent that it (a) exists for up to 60 days after the Closing and (b)
consists of a condition or circumstance that existed prior to the Closing and
that continued in substantially the same manner after the Closing. The total
obligations of the Buying Parties under this Section 10.3 shall not exceed $5
million, except that this limitation shall not apply to any obligations that any
Buying Party may have with respect to breaches of any representations and
warranties contained in this Agreement that were untrue when made and were made
with an intent to mislead or defraud.
10.4 PROCEDURE FOR CLAIMS. This Section 10.4 contains the procedure for
making all claims under this Section 10 except for any claim under Section 10.2,
as to which the procedure is set forth in paragraph (c) of Section 10.2. A party
seeking indemnification under any part of this Section 10 other than Section
10.2 (an "Indemnified Party") shall give
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a Claim Notice to each party responsible or alleged to be responsible for
indemnification hereunder (an "Indemnitor") prior to any applicable Survival
Date specified below. Such notice shall explain the basis of the claim in
sufficient detail so as to be understandable to a reasonable person and shall
specify the amount thereof. If the matter to which a claim relates shall not
have been resolved as of the date of the Claim Notice, the Indemnified Party
shall estimate the amount of the claim in the Claim Notice, but also specify
therein that the claim has not yet been liquidated (an "Unliquidated Claim"). If
an Indemnified Party gives a Claim Notice for an Unliquidated Claim, the
Indemnified Party shall also give a second Claim Notice within 60 days after the
matter giving rise to the claim becomes finally resolved, and such second Claim
Notice shall specify the amount of the claim. The Indemnified Party may pursue
whatever legal remedies may be available for recovery of the Damages claimed
from any Indemnitor.
10.5 CLAIMS PERIOD. Any claim for indemnification under this Section 10
shall be made by giving a Claim Notice under Section 10.2 or 10.4, whichever is
applicable, on or before the applicable "Survival Date" specified below in this
Section 10.5, or the claim shall be invalid. The following claims shall have the
following respective "Survival Dates": (a) the date that is 18 months after the
Closing Date--any claims that are not specified in any of the succeeding
clauses; (b) the date on which the applicable statute of limitations expires--
any claim for Damages related to (i) a breach of any covenant or agreement to be
performed at least in part after the Closing Date or (ii) a breach of any
representations or warranties of a party to this Agreement that were untrue when
made and were made with an intent to mislead or defraud; (c) the second
anniversary of the Closing Date--a products liability matter specified in clause
(b) of the first sentence of Section 10.1; and (d) the third anniversary of the
Closing Date--any claim for Environmental Damages. If more than one of such
Survival Dates applies to a particular claim, the latest of such Survival Dates
shall be the controlling Survival Date for such claim.
10.6 THIRD PARTY CLAIMS. An Indemnified Party shall give any Indemnitor
prompt notice of the institution by a third party of any actions, suits or other
administrative or judicial proceedings at any time prior to the applicable
Survival Date if the Indemnified Party would be entitled to claim
indemnification under this Section 10 in connection with any such action, suit
or other proceeding. After such notice, any Indemnitor may, or if so requested
by the Indemnified Party, any Indemnitor shall, participate in any such action,
suit or other proceeding or assume the defense thereof, with counsel
satisfactory to the Indemnified Party; provided, however, that the Indemnified
Party shall have the right to participate at its own expense in the defense of
any such action, suit or other proceeding; and provided, further, that the
Indemnitor shall not consent to the entry of any judgment or enter into any
settlement, except with the written consent of the Indemnified Party, that (a)
fails to include as an unconditional term thereof the giving by the claimant or
plaintiff to the Indemnified Party of a release from all liability in respect of
any such action, suit or other proceeding or (b) grants the claimant or
plaintiff any injunctive relief against the Indemnified Party. Any failure to
give prompt notice under this Section 10.6 shall not bar
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an Indemnified Party's right to claim indemnification under this Section 10,
except to the extent that an Indemnitor shall have been harmed by such failure.
10.7 OTHER REMEDIES. The indemnification rights under this Section 10
are the exclusive remedies that the parties shall have at law or in equity or
otherwise for any misrepresentation, breach of warranty or failure to fulfill
any agreement or covenant hereunder on the part of any party hereto or any
Environmental Damages, except that the Buying Parties may pursue whatever legal
remedies may be available, at law, in equity or otherwise, to enforce the
provisions of Section 8.
11. Contents of Agreement, Amendment, Parties in Interest, Assignment, Etc.
-----------------------------------------------------------------------
This Agreement sets forth the entire understanding of the parties
hereto with respect to the subject matter hereof. This Agreement may be amended,
modified or supplemented only by a written instrument duly executed by each of
the parties hereto. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective heirs, legal representatives,
successors and permitted assigns of the parties hereto. No party hereto shall
assign this Agreement or any right, benefit or obligation hereunder, except that
any Buying Party may assign its rights and obligations hereunder to any
Affiliate of, or lender to, any Buying Party, but in the case of any such
assignment, the assignor shall continue to be liable for fulfillment of its
obligations hereunder and shall give the Seller notice of any such assignment.
The Buying Parties hereby give the Seller notice of their collateral assignment
to First Fidelity Bank, National Association, of solely their rights hereunder.
Any term or provision of this Agreement may be waived at any time by the party
entitled to the benefit thereof by a written instrument duly executed by such
party. The parties hereto shall execute and deliver any and all documents and
take any and all other actions that may be deemed reasonably necessary by their
respective counsel to complete the Transactions.
12. Interpretation.
---------------
Unless the context of this Agreement clearly requires otherwise, (a)
references to the plural include the singular, the singular the plural, the part
the whole, (b) "or" has the inclusive meaning frequently identified with the
phrase "and/or" and (c) "including" has the inclusive meaning frequently
identified with the phrase "but not limited to." The section and other headings
contained in this Agreement are for reference purposes only and shall not
control or affect the construction of this Agreement or the interpretation
thereof in any respect. Section, subsection, schedule and exhibit references are
to this Agreement unless otherwise specified. Each accounting term used herein
that is not specifically defined herein shall have the meaning given to it under
GAAP.
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13. Notices.
--------
All notices that are required or permitted hereunder shall be in
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
party hereto:
If to a Buying Party:
Pamarco Technologies Inc.
c/o Bradford Ventures Ltd.
1212 Avenue of the Americas
New York, New York 10036
FAX: 212-764-3467
with a required copy to:
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, Pennsylvania 19103
FAX: 215-963-5299
Attention: Thomas J. Sharbaugh, Esquire
If to SIBV:
Smurfit International B.V.
Strawinskylaan 2001
1077 ZZ
Amsterdam, Netherlands
FAX: 011-3393-25-25-75
Attention: Rokin Corporate Services B.V.
with a required copy to:
Piper & Marbury
31 West 52nd Street
New York, New York 10019
FAX: 212-261-2001
Attention: E. Miles Prentice, III, Esquire
and to:
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William Fry
Solicitors
Fitzwilton House
Wilton Place
Dublin 2
Ireland
FAX: 011-353-1-668-7016
Attention: Houghton Fry, Esquire
If to the Seller:
Amir Investments Corporation
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
FAX: 201-912-9744
Attention: Richard Bartley
with a required copy to:
Piper & Marbury
31 West 52nd Street
New York, New York 10019
FAX: 212-261-2001
Attention: E. Miles Prentice, III, Esquire
and also to:
William Fry
Solicitors
Fitzwilton House
Wilton Place
Dublin 2
Ireland
FAX: 011-353-1-668-7016
Attention: Houghton Fry, Esquire
14. Governing Law.
--------------
This Agreement shall be construed and interpreted in accordance with
the laws of the State of New York, without regard to its provisions concerning
conflict of laws.
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15. Jurisdiction.
-------------
The Seller and SIBV each hereby irrevocably submits personally to the
non-exclusive jurisdiction of each of the courts of the State of New Jersey in
and for the County of Union and the United States District Court for the
Northern District of New Jersey and any other court with jurisdiction to hear
appeals from any such court for the purposes of any suit, action or other
proceeding of any type whatsoever arising out of this Agreement, any other
Transaction Document or the subject matter of any of the Transaction Documents
or any of the Transactions, and to the extent permitted by law, hereby waives,
and agrees not to assert, by way of motion, as a defense or otherwise, in any
such suit, action or proceeding any claim that it is not personally subject to
the jurisdiction of the above-named courts, that the suit, action or proceeding
is brought in an inconvenient forum, that the venue of the suit, action or
proceeding is improper or that this Agreement or the subject matter hereof may
not be enforced in or by any such court. The Seller and SIBV hereby irrevocably
appoints Smurfit Packaging Corporation, with offices on the date hereof at 182
Maryland Avenue, Clayton, Missouri 63105, to receive for it and on its behalf
service of process in any suit, action or other proceeding of the type specified
above in this Section 15. Nothing herein shall affect the right to serve process
in any other manner permitted by law.
16. Counterparts.
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This Agreement may be executed in two or more counterparts, each of
which shall be binding as of the date first written above, and all of which
shall constitute one and the same instrument. Each such copy shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
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IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first written above.
AMIR INVESTMENTS CORPORATION
By:
------------------------------
Title:
SMURFIT INTERNATIONAL B.V.
By:
------------------------------
Title:
PAMARCO TECHNOLOGIES INC.
By:
------------------------------
Title:
PAMARCO ACQUISITION CO.
By:
------------------------------
Title:
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<PAGE> 1
Exhibit 10.3
ASSET PURCHASE AGREEMENT
among
ASHCON, INC.
(the Seller and a Pennsylvania corporation
formerly known as Dauphin Graphic Machines, Inc.),
CHRISTOPHER J. LUNT
(the majority shareholder of the Seller),
DAUPHIN GRAPHIC MACHINES, INC.,
(a newly-formed Pennsylvania corporation and the Buyer)
and
PAMARCO TECHNOLOGIES INC.
(a Delaware corporation and the sole shareholder of the Buyer)
Section Page
------- ----
1. Definitions............................................................ 1
2. Sale and Purchase...................................................... 5
3. Closing................................................................ 10
4. Representations and Warranties of the Selling Parties.................. 10
5. Representations and Warranties of the Buying Parties................... 17
6. Conditions Precedent to Obligations of the Buying Parties.............. 18
7. Conditions Precedent to Obligations of the Selling Parties. ........... 18
8. Payment of Tax Liabilities............................................. 18
9. Competition and Confidentiality by the Selling Parties................. 19
10. Additional Covenants................................................... 20
11. Indemnification. ...................................................... 21
12. Contents of Agreement, Amendment, Parties in Interest, Assignment, Etc. 23
13. Interpretation......................................................... 24
14. Notices................................................................ 24
15. Governing Law.......................................................... 25
16. Counterparts........................................................... 25
<PAGE> 2
Schedules
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2.6 Assumed Liabilities
4.3 Required Consents
4.5 Encumbrances
4.6 Real Property
4.7 Fixed Asset Schedule
4.8 Leases
4.11 Liabilities
4.14 Litigation; Governmental Permits
4.15 Contracts
4.16 Insurance
4.20 Benefit Plans
4.22 Payments to Affiliates
<PAGE> 3
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of January 23, 1995 by and
among Dauphin Graphic Machines, Inc., a Pennsylvania corporation formed on the
date hereof (the "Buyer"), Pamarco Technologies Inc., a Delaware corporation
("Pamarco," and together with the Buyer, the "Buying Parties"), Ashcon, Inc.,
formerly known as Dauphin Graphic Machines, Inc. and a Pennsylvania corporation
(the "Seller"), and Christopher J. Lunt, a Pennsylvania resident ("Lunt," and
together with the Seller, the "Selling Parties"). Certain terms are used herein
as defined below in Section 1 or elsewhere in this Agreement.
Background
----------
The Seller and Pamarco are engaged in similar lines of business. Lunt
and his wife, Karen Fox Lunt (together referred to as the "Shareholders") own
all of the outstanding capital stock of the Seller. Pamarco owns all of the
outstanding capital stock of the Buyer and has formed the Buyer on the date
hereof for the purpose of entering into this Agreement. Subject to the terms and
conditions of this Agreement, on the date hereof, the Seller is selling to the
Buyer, and the Buyer is buying from the Seller, the Assets, subject to Buyer's
assumption of the Assumed Liabilities.
Witnesseth
----------
NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Definitions.
------------
For convenience, certain terms used in more than one part of this
Agreement are listed in alphabetical order and defined or referred to below
(such terms as well as any other terms defined elsewhere in this Agreement shall
be equally applicable to both the singular and plural forms of the terms
defined).
"1994 Distributions" is defined in Section 4.4(c).
"Affiliates" means, with respect to a particular party, persons or
entities controlling, controlled by or under common control with that party, as
well as any officers, directors and majority-owned entities of that party and of
its other Affiliates.
"Agreement" means this Agreement and the exhibits and schedules hereto.
"Assets" is defined in Section 2.1(a).
"Assigned Leases" is defined in Section 4.8.
"Assumed Liabilities" is defined in Section 2.6(a).
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"Balance Sheet Date" is defined in Section 4.4.
"Benefit Plans" means all employee benefit plans of the Seller within
the meaning of Section 3(3) of ERISA and any related or separate Contracts,
plans, trusts, programs, policies, arrangements, practices, customs and
understandings, in each case whether formal or informal, that provide benefits
of economic value to any present or former employee of Seller, or present or
former beneficiary, dependent or assignee of any such employee or former
employee.
"Building Lease" means the Agreement of Lease, dated April 1, 1990,
among the Seller, as the tenant, and Frederick G. Lunt and Patricia Ann Lunt, as
the landlords.
"Building Lease Assignment" means the Assignment and Assumption
Agreement among the lessors under the Building Lease, the Seller and the Buyer,
dated the date hereof.
"Business" means the entire business, operations and facilities of the
Seller.
"Buyer" is defined above in the preamble.
"Buyer Paydown Amount" is defined in Section 2.2(d).
"Certain Seller Liabilities" is defined in Section 2.2(c).
"Charter Documents" means an entity's certificate or articles of
incorporation, articles of organization, general or limited partnership
agreement, certificate of limited partnership, joint venture agreement or
similar document governing the entity.
"Closing" means the closing on the Transactions.
"Closing Date" means the date on which the Closing is held.
"Closing Payments" is defined in Section 2.2(a).
"Contingent Purchase Price" is defined in Section 2.3(a).
"Contract" means any written or oral contract, agreement, lease,
instrument or other commitment that is binding on any person or its property
under applicable law.
"Court Order" means any judgment, decree, injunction, order or ruling
of any federal, state, local or foreign court or governmental or regulatory body
or authority that is binding on any person or its property under applicable law.
"Custom Software" means any computer software that has been developed
or designed for use in the Business.
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"Customer Records" is defined in Section 2.1(a)(v).
"Default" means (a) a breach, default or violation, or (b) the
occurrence of an event that with the passage of time or the giving of notice, or
both, would constitute a breach, default or violation.
"Dispute Notice" is defined in Section 2.4(c).
"Earnings Period" is defined in Section 2.3(a).
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest.
"Environmental Condition" is defined in Section 4.14(b).
"Environmental Law" is defined in Section 4.14(b).
"Environmental Liabilities" means any Liabilities arising from or
related to an Environmental Condition or a Default under an Environmental Law.
"Employment Agreements" means the Employment Agreements between the
Buyer and each of Chris Lunt, Richard Leitzel, Rodney Fenstermacher and Kyle
Monroe, all dated the date hereof.
"Employee Subscription Agreement" means the Employee Subscription
Agreement between Pamarco and Lunt, dated as of the date hereof.
"ERISA" means the Employee Retirement Income Act of 1974, as amended.
"Escrow Agent" means First Fidelity Bank, N.A.
"Escrow Agreement" means the Escrow Agreement among the Seller, the
Buyer and the Escrow Agent, dated the date hereof.
"Escrow Funds" is defined in Section 2.2(b)(i).
"Excluded Assets" is defined in Section 2.1(b).
"Excluded Land" means the two parcels of real estate described on
SCHEDULE 4.6.
"Financial Statements" is defined in Section 4.4.
"GAAP" means generally accepted accounting principles.
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"Governmental Permits" is defined in Section 4.14(c).
"Subordination and Pledge Agreement" means the Subordination and Pledge
Agreement among the Seller, Lunt, the Buyer and First Fidelity Bank, N.A., dated
the date hereof.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Minor Contracts" is defined in Section 4.15.
"Note Reduction" means a prepayment as part of the Contingent Purchase
Price of Lunt's obligation under the Note and Pledge Agreement delivered by Lunt
in accordance with the Employee Subscription Agreement.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practices.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Pre-Tax Income" is defined in Section 2.3.
"Purchase Price" is defined in Section 2.3(a).
"Regulation" means any statute, law, ordinance, regulation, order or
rule of any federal, state, local, foreign or other governmental agency or body
or of any other type of regulatory body, including those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Required Consents" is defined in Section 4.3.
"Seller" is defined above in the preamble.
"Shareholders" is defined above in the Background section.
"Specialty Printing" means Specialty Printing, Inc., a Pennsylvania
corporation.
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"Stock Option" means an option to purchase shares of Class A Common
Stock of Pamarco at an exercise price of $10 per share, which option is granted
under a Stock Option Agreement.
"Stock Option Agreement" means a Stock Option Agreement substantially
in the form of Exhibit "A" hereto.
"Subchapter S Income" is defined in Section 8.1.
"Subordinated Note" means the 6% Subordinated Note payable by the Buyer
to the Seller in the aggregate principal amount $1.0 million, dated the date
hereof.
"Transaction Documents" means this Agreement, the Building Lease
Assignment, the Employment Agreements, the Escrow Agreement, the Stock Option
Agreement, the Subordinated Note and the other agreements and documents
contemplated thereby.
"Transactions" means the sale of the Assets and the other transactions
contemplated by the Transaction Documents.
2. Sale and Purchase.
------------------
2.1 ASSIGNMENT OF ASSETS.
(a) At the Closing on the date hereof, the Seller is granting, selling,
conveying, assigning, transferring and delivering to the Buyer, and the Buyer is
purchasing from the Seller, all right, title and interest of the Seller in and
to all of the Assets, free and clear of all Encumbrances. The term "Assets"
means all assets, properties and rights of the Seller on the Closing Date of
every kind and description, real, personal and mixed, tangible and intangible,
wherever situated, excluding the Excluded Assets, but including the following:
(i) All cash and cash equivalents;
(ii) All accounts receivable and other receivables;
(iii) All inventory;
(iv) All furniture, fixtures, automobiles, leasehold
improvements, tooling, machinery and equipment;
(v) All customer records, including principal
contacts, address and telephone number, purchasing history,
payment information and any other information with respect to
the Seller's customers (the "Customer Records");
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(vi) All records related to suppliers, employees and
other aspects of the Business;
(vii) All patents, patent applications, logos,
tradenames, including rights to the name "Dauphin Graphic
Machines, Inc.";
(viii) All manufacturing, warehouse and office
supplies;
(ix) All computer software (including documentation
and related object and source codes);
(x) All rights under the Building Lease, and any
easements, deposits or other rights pertaining thereto;
(xi) All rights under any Governmental Permits;
(x) Any capital stock or other interests in any
Person;
(xi) All rights related to any prepaid expenses; and
(xii) All rights under any insurance contracts.
(b) Notwithstanding the foregoing, the Assets do not include any of the
following (the "Excluded Assets"):
(i) shares of capital stock, notes receivable and any
other rights related to Specialty Printing; and
(ii) the Excluded Land.
2.2 PURCHASE PRICE.
(a) The total purchase price for the Assets (the "Purchase Price")
equals the sum of (i) $4,250,000 in cash, subject to reduction in accordance
with paragraph (c) below (the "Closing Payments"), (ii) the principal amount of
the Subordinated Note, (iii) the Buyer Paydown Amount, (iv) the Contingent
Purchase Price and (v) the Assumed Liabilities.
(b) The Buyer shall pay the Purchase Price to the Seller as set forth
below:
(i) At the Closing, the Buyer is paying by a wire
transfer of immediately available funds (A) $3,000,000 to the
Seller and (B) $750,000 to the Escrow Agent in accordance with
the Escrow Agreement (the "Escrow Funds").
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(ii) At the Closing, the Seller has directed the
Buyer to pay a $500,000 portion of the Purchase Price to
Pamarco on behalf of Lunt in order to pay a like portion of
Lunt's obligation under his Employee Subscription Agreement.
(iii) At the Closing, the Buyer is delivering to the
Seller the Subordinated Note.
(iv) At the Closing, the Buyer is assuming the
Assumed Liabilities as provided in Section 2.6.
(v) The Buyer shall pay the Seller the Contingent
Purchase Price to the extent that it shall be due under
Section 2.3.
(c) Notwithstanding the foregoing, the Purchase Price shall be reduced
to the extent that the aggregate balance of Certain Seller Liabilities (defined
below) as of the Closing Date is less than $1,344,915 excluding the Buyer
Paydown Amount of $112,500. The Buyer shall deduct any such deficiency from the
cash amount of $3,500,000 payable to the Seller at the Closing. The term
"Certain Seller Liabilities" means the following Liabilities of the Seller: (i)
the Line of Credit, dated March 6, 1989 and amended February 13, 1992, payable
to Community Banks, N. A. (the "Existing Lender") in the maximum amount of
$1,500,000 (the "Credit Line"); and (ii) the Promissory Note, dated February 25,
1994, in the amount of $840,000, payable to the Existing Lender and secured by
23 SSC press units and four SSC folders.
(d) At the Closing, the Buyer shall pay the Existing Lender $112,500 to
reduce the amount due under the Credit Line (the "Buyer Paydown Amount"), and
the Seller shall pay in full the remainder of the Credit Line and all other
obligations of the Seller to the Existing Lender.
2.3 CONTINGENT PURCHASE PRICE.
(a) The Buying Parties shall deliver the Contingent Purchase Price to
the Seller if the aggregate Pre-Tax Income of the Business during the period
beginning on January 1, 1995 and continuing for three years thereafter (referred
to herein as the "Earnings Period") shall be at least $3,400,000. The term
"Contingent Purchase Price" means the cash, Stock Options or Note Reduction
specified below in this paragraph (a). If the Pre-Tax Income of the Business is
at least $3,400,000 during the Earnings Period, the Buying Parties shall deliver
the Contingent Purchase Price specified below for the range of Pre-Tax Income
that shall be achieved for the Earnings Period:
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<TABLE>
<CAPTION>
PRE-TAX INCOME CASH NOTE REDUCTION TOTAL
- -------------- ---- -------------- -----
<S> <C> <C> <C>
$3,400,000 to $3,499,999 $250,000 $250,000 $500,000
$3,500,000 to $3,599,999 $333,000 $250,000 $583,000
$3,600,000 to $3,699,999 $406,000 $250,000 $656,000
$3,700,000 to $3,799,999 $500,000 $250,000 $750,000
$3,800,000 to $3,899,999 $583,000 $250,000 $833,000
$3,900,000 to $3,999,999 $666,000 $250,000 $916,000
$4,000,000 and greater $750,000 $250,000 $1,000,000
PRE-TAX INCOME STOCK OPTIONS
- -------------- -------------
$4,000,000 to $4,099,999 6,250
$4,100,000 to $4,199,999 12,500
$4,200,000 to $4,299,999 18,750
$4,300,000 and greater 25,000
</TABLE>
(b) The Buyer shall calculate and cause its independent accountants to
report on the Pre- Tax Income of the Business (each an "Income Determination")
within 90 days after each of the following dates: (i) December 31, 1995;
December 31, 1996; and December 31, 1997. Within 20 days after completion of
each Income Determination, the Buyer shall give the Seller notice (the "Income
Notice") of the results of the Income Determination together with access to all
work papers and all other supporting accounting documents.
(c) The Seller may dispute any Income Determination in the following
manner. Within 30 days after the Buyer gives the Income Notice, the Seller shall
give the Buyer notice of its disagreement with the Income Determination (the
"Dispute Notice"), and such notice shall specify in detail the nature of the
disagreement. During the 20 days after the day on which the Dispute Notice is
given, the Seller and the Buyer shall attempt to resolve such dispute. If they
fail to reach a written agreement regarding the dispute, the Seller shall refer
the matter to a firm of certified independent accountants (the "Second Firm")
that is different from the firm that initially prepared the Income
Determination, and cause the Second Firm to also determine the Pre-Tax Income of
the Business for the Earnings Period (the "Second Income Determination") within
the 60 days after such 20-day period. The Seller shall give the Buyer prompt
notice of the results of the Second Income Determination. The average of the
Income Determination prepared by the first firm of accountants (the "First
Income Determination") and of the Second Income Determination shall be the final
and binding Income Determination for the purposes of determining whether the
Buyer shall be obligated to pay the Seller any Contingent Purchase Price. The
Buyer shall deliver any Contingent Purchase
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Price due to the Seller in four equal installments on June 1 of 1998, and on
March 31 of 1999, 2000 and 2001; any cash portion of the Contingent Purchase
Price shall be paid by a wire transfer of immediately available funds and shall
be subject to the terms of the Subordination and Pledge Agreement. The Seller
shall pay the fees and expenses of the Second Firm with respect to the Second
Income Determination.
(d) "Pre-Tax Income" means income determined in accordance with GAAP
applied on a consistent basis without taking into account any of the following
items: (i) deductions or accruals for any Federal, state or local income taxes;
(ii) net operating loss carryforwards or carrybacks; (iii) any interest expense
related to the Buyer's being obligated for a term loan in an amount over
$1,000,000; (iv) any increase in depreciation expense over the amount reflected
in the Financial Statements for the year ended December 31, 1994 to the extent
that any such increase shall result from using the purchase method of accounting
with respect to the sale of the Assets hereunder; (v) any management, consulting
or similar fees paid to Pamarco, Bradford Ventures, Ltd. or any of their
respective Affiliates, successors or assigns; (vi) any interest expense incurred
by Buyer with respect to any debts or liabilities that result from Buyer's
acquisition of another business by means of a merger, a purchase or otherwise;
(vii) any income or loss resulting from any such acquired business; (viii) any
change in GAAP in comparison to those in effect on January 23, 1995; and (ix)
any items that would be considered extraordinary items under GAAP.
2.4 ESCROW ACCOUNT. At the Closing, the Seller and the Buyer are
entering into the Escrow Agreement with the Escrow Agent under which the Escrow
Agent shall hold the Escrow Funds for possible claims against the Seller under
Section 11.
2.5 ALLOCATION OF THE PURCHASE PRICE. The Purchase Price shall be
allocated among the Assets pursuant to the valuation study to be performed by
the Buyer within 30 days after the Closing. Such allocation shall be in
accordance with applicable requirements of the Code and the Regulations adopted
thereunder. Neither Seller nor Buyer will take a position on any income tax
return, before any governmental agency charged with the collection of any income
tax, or in any judicial proceeding that is in any way inconsistent with such
allocation.
2.6 ASSUMPTION OF LIABILITIES.
(a) As of the Closing, the Buyer shall assume, and pay, discharge or
perform, as appropriate, only the Liabilities of the Seller specifically
identified on SCHEDULE 2.6 hereto (the "Assumed Liabilities").
(b) Notwithstanding paragraph (a) above or any other provision of this
Agreement, the Buyer is not assuming under this Agreement or any other
Transaction Documents as of the Closing or at any time any of the following: (i)
Liabilities arising out of any breach by the Seller of any provision of any
Contract; (ii) any product liability or similar claim for injury to any person
or property, regardless of when made or asserted, that arises out of or is based
upon any express or implied representation, warranty, agreement or guarantee
made by the Seller, or alleged to have been
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made by the Seller, or which is imposed or asserted to be imposed by operation
of law, in connection with any service performed or product sold or leased by or
on behalf of the Seller on or prior to the Closing; (iii) subject to the
tax-reimbursement obligations under Section 10, any Federal, state or local
income or other tax payable with respect to the Business, the Assets, or other
properties or operations of the Seller or any member of any affiliated group of
which the Seller is a member for any period prior to the Closing Date, except to
the extent that such taxes are included in the taxes specified in subparagraph
(a)(i) of this Section 2.6; (iv) any Liabilities under or in connection with any
Excluded Assets; (v) any Liabilities arising prior to or as a result of the
Closing to any employees, agents or independent contractors of the Seller,
whether or not employed by the Buyer after the Closing, or under any benefit
plan or arrangement with respect thereto; (vi) any Liabilities of the Seller
arising or incurred in connection with the negotiation, execution and
performance of this Agreement and the Transactions; (vii) any Environmental
Liabilities arising from or related to circumstances existing on or before the
Closing Date.
3. Closing.
--------
The Closing is taking place at the offices of Riker, Danzig, Scherer,
Hyland & Perretti, counsel to First Fidelity Bank, N.A., in Morristown, New
Jersey, on January 23, 1995. At the Closing, subject to the terms and conditions
contained herein:
(a) The Seller is delivering to the Buyer a bill of sale and
such other instruments and documents of conveyance and transfer as are
necessary and effective, in the judgment of counsel to the Buying
Parties, to transfer and assign to, and vest in, the Buyer all of the
Seller's right, title and interest in and to the Assets, and
simultaneously with such delivery, all such steps are being taken as
may be required to put the Buyer in actual possession and operating
control of the Assets;
(b) The Buyer is delivering the Closing Payments to the Seller
and the Escrow Agent; and
(c) The Selling Parties and the Buying Parties are delivering
or causing to be delivered the documents required to satisfy the
conditions specified in Sections 8 and 9, respectively.
4. Representations and Warranties of the Selling Parties.
------------------------------------------------------
The Selling Parties hereby, jointly and severally, represent and
warrant to the Buying Parties as follows:
4.1 CORPORATE STATUS AND OWNERSHIP. The Seller is a corporation duly
organized, validly existing and in good standing under the laws under which it
was incorporated. The Seller is not required to qualify to do business as a
foreign corporation in any jurisdiction except where the failure to so qualify
would not have a material adverse effect on the Business. The Seller was duly
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authorized to conduct business under the name "Dauphin Graphic Machines, Inc."
and has taken all actions that are necessary to change its name to Ashcon, Inc.
Lunt owns a majority, and the Shareholders own all, of the issued and
outstanding shares of capital stock of the Seller.
4.2 AUTHORIZATION. The Seller has the requisite power and authority to
execute and deliver the Transaction Documents to which it is a party and to
perform the Transactions to be performed by it. Such execution, delivery and
performance have been duly authorized by all necessary corporate action,
including approval by the Shareholders as the sole shareholders of the Seller.
The Transaction Documents have been duly executed and delivered by, and
constitute valid and binding obligations of, each Selling Party that is a party
thereto, enforceable against each such party in accordance with their terms.
4.3 CONSENTS AND APPROVALS. Except for the consents specified on
SCHEDULE 4.3 (the "Required Consents"), neither the execution and delivery by
any Selling Party of the Transaction Documents to which it is a party, nor the
performance of the Transactions by any Selling Party, require any filing,
consent or approval or constitute a Default under (a) any Regulation or Court
Order to which any Selling Party is subject, (b) the Charter Documents or bylaws
of the Seller or (c) any Contract, Government Permit or other document to which
any Selling Party is a party or by which the properties or other assets of any
Selling Party may be subject. All Required Consents have been obtained and are
enforceable against the respective parties that have delivered them.
4.4 FINANCIAL STATEMENTS.
(a) The Seller has delivered to the Buyer correct and complete copies
of the Seller's unaudited monthly financial statements consisting of a balance
sheet of the Seller as of the end of each month from July 1994 through December
31, 1994 and the related statements of income, retained earnings and cash flows
for the periods then ended. The Seller has also delivered to the Buyer correct
and complete copies of financial statements consisting of a balance sheet of the
Seller as of June 30, 1993 and 1994 and as of December 31, 1992 and 1993 and the
related statements of income, retained earnings and cash flows for the periods
then ended, all of which have been reviewed by the firm of Custer & Custer, P.C.
In addition, the Seller has delivered to the Buyer a balance sheet of the Seller
as of the Closing Date. All such financial statements specified in this Section
4.4 are referred to herein collectively as the "Financial Statements."
(b) The Financial Statements are consistent with the books and records
of the Seller, and there have not been any material transactions that have not
been or will not be recorded in the accounting records underlying such Financial
Statements. In addition, except with respect to inventory, the Financial
Statements have been prepared in accordance with GAAP consistently applied and
present accurately the financial position and assets and liabilities of Seller
as of the respective dates thereof, and the results of its operations for the
respective periods then ended, subject in the case of interim statements to
customary year-end adjustments. The balance sheet of the Seller as of December
30, 1994 is referred to herein as the "December Balance Sheet," and the date
thereof is referred to as the "Balance Sheet Date."
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(c) The total amount of income distributed to the Shareholders for the
year ended December 31, 1994 in their role as the sole shareholders of the
Seller is $633,238.35 (the "1994 Distributions").
4.5 TITLE TO ASSETS AND RELATED MATTERS. The Seller has good and
marketable title to all of the Assets, and upon execution and delivery of the
Transaction Documents, the Buyer is acquiring good and marketable title to all
of the Assets, in both cases free from any Encumbrances except those specified
on SCHEDULE 4.5. The use of the Assets is not subject to any Encumbrances.
4.6 REAL PROPERTY. Except for the Excluded Land, which is described on
SCHEDULE 4.6, and the real estate that is the subject of the Building Lease, the
Seller has not owned or used any real property.
4.7 CERTAIN PERSONAL PROPERTY. SCHEDULE 4.7 is a complete fixed asset
schedule, describing and specifying the location of all items of tangible
personal property that were included in the December Balance Sheet at a carrying
value of at least $10,000. All of such personal property is in good operating
condition, except for reasonable wear and tear and such defects as would not, in
the aggregate, have a material adverse effect on the Business or the Assets.
4.8 ASSIGNED LEASES. SCHEDULE 4.8 lists any property, including any
real property, that is possessed by the Seller under an existing lease,
including all trucks, automobiles, forklifts, machinery, equipment, furniture
and computers. SCHEDULE 4.8 also lists the leases under which such assets and
property are possessed. All of such leases, including the Building Lease, are
referred to herein as the "Assigned Leases." To the knowledge of any Selling
Party, the Seller is not currently in Default under any of the Assigned Leases,
and neither of the Selling Parties is aware of any Default by any of the lessors
thereunder. The Building Lease Assignment is enforceable against the lessors
under the Building Lease.
4.9 ACCOUNTS RECEIVABLE. The accounts receivable of the Seller are bona
fide accounts receivable created in the ordinary course of business and are good
and collectible at the aggregate recorded amounts thereof (a) subject to
reduction for bad debts in accordance with the Seller's operating history and
(b) within periods of time normally prevailing in the Seller's Business.
4.10 INVENTORY. All inventory of the Seller consists of items of
quality and quantity saleable in the ordinary course of business at the Seller's
regular sales prices in the ordinary course of its business. The inventory
records for the Seller that have been delivered to Buyer are accurate with
respect to the data contained therein.
4.11 LIABILITIES. Except as specified on SCHEDULE 4.11, the Seller does
not have any Liabilities, and the Assets are not subject to any Liabilities,
except (a) to the extent specifically disclosed on the December Balance Sheet,
(b) Liabilities incurred since the date thereof that, individually or in the
aggregate, are not material to the Business or the Assets, and (c) Liabilities
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under any Contracts specifically disclosed on any Schedule to this Agreement
that were not required under GAAP to have been specifically disclosed or
reserved for on the December Balance Sheet.
4.12 TAXES. The Seller has duly filed all foreign, federal, state,
local and other tax returns that are required to be filed and that were due
prior to the Closing Date, and has paid all material taxes and assessments that
have become due pursuant to such returns or pursuant to any assessment received.
All taxes and other assessments and levies that the Seller is required by law to
withhold or to collect have been duly withheld and collected and have been paid
over to the proper gov ernmental authorities or are properly held by the Seller
for such payment. There are no proceedings or other actions, nor to any Selling
Party's knowledge is there any basis for any proceedings or other actions, for
the assessment and collection of material additional taxes of any kind for any
period for which returns have or should have been filed.
4.13 SUBSIDIARIES. Except for shares of capital stock of and notes
receivable from Specialty Printing, the Seller does not own, directly or
indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, business, trust, joint venture or other legal entity.
4.14 LEGAL PROCEEDINGS AND COMPLIANCE WITH LAW.
(a) There is no Litigation that is pending or, to any Selling Party's
knowledge, threatened against or related to the Seller, the Business or the
Assets. There has been no Default under any Regulations applicable to the Seller
with respect to the Assets or the Business, including Regulations relating to
pollution or protection of the environment, except for any Defaults that, in the
aggregate, are not material to the Business or the Assets. There has been no
Default with respect to any Court Order applicable to the Seller with respect to
the Business or the Assets.
(b) Without limiting the generality of Section 4.14(a), there has not
been any Environmental Condition (defined below) at or relating to the premises
at which the Business has been conducted, or at or relating to any property
owned, leased or operated by the Seller or any Affiliate of Seller (or any
predecessor thereof) at any time, or at or relating to any property at which
wastes have been deposited or disposed by or at the behest or direction of the
Seller or any Affiliate of the Seller, nor has the Seller or any Affiliate of
the Seller received written notice of any such Environmental Condition.
"Environmental Condition" means any condition or circumstance, whether created
by the Seller, any Affiliate of the Seller or any third party, at or relating to
any such property or premises that is reasonably likely to (i) require abatement
or correction under an Environmental Law (defined below), (ii) give rise to any
civil or criminal liability under an Environmental Law, or (iii) create a public
or private nuisance, including the presence or release of asbestos, PCBs,
hazardous substances, radioactive waste or radon in amounts that would require
any such abatement or correction described in clause (i), give rise to any such
civil or criminal penalty described in clause (ii) or create any such public or
private nuisance specified in clause (iii). "Environmental Law" means all
currently effective Regulations and currently effective Court Orders relating to
pollution or protection of the environment as well as any currently effective
principles
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of common law under which a party may be held liable for the release or
discharge of any materials into the environment.
(c) The Seller has obtained and is in full compliance with all
governmental permits, licenses, registrations, certificates of occupancy,
approvals and other authorizations (the "Governmental Permits"), all of which
are listed in SCHEDULE 4.14 along with their respective expiration dates, that
are required for the complete operation of the Business as currently operated.
All of the Governmental Permits are currently valid and in full force, and, to
any Selling Party's knowledge, no revocation, cancellation or withdrawal thereof
has been threatened. The Seller has filed such timely and complete renewal
applications as may be required with respect to its Governmental Permits.
4.15 CONTRACTS.
(a) SCHEDULE 4.15 lists each Contract of the following types to which
the Seller is a party, or by which it is bound, except for any Contract that may
be terminated by the Seller on not more than 30 days' notice without any
Liability and any Contract under which the executory obligation of the Seller
involves an amount of less than $10,000 (such excepted Contracts are referred to
collectively as "Minor Contracts"):
(i) Contracts with any present or former stockholder,
director, officer, employee, partner or consultant of any
Selling Party or Affiliate thereof;
(ii) Contracts for the future purchase of, or payment
for, supplies or products, or for the lease of any Asset from
or the performance of services by a third party, in excess of
$25,000 in any individual case, or any Contracts for the sale
of inventory or products that involve an amount in excess of
$25,000 with respect to any one supplier or other party;
(iii) Contracts to sell or supply products or to
perform services that involve an amount in excess of $25,000
in any individual case;
(iv) Contracts to lease to or to operate for any
other party any Asset that involve an amount in excess of
$25,000 in any individual case;
(v) Any notes, debentures, bonds, conditional sale
agreements, equipment trust agreements, letter of credit
agreements, reimbursement agreements, loan agreements or other
Contracts for the borrowing or lending of money (including
loans to or from officers, directors, partners, stockholders
or Affiliates of any Selling Party or any members of their
immediate families), agreements or arrangements for a line of
credit or for a
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guarantee of, or other undertaking in connection with, the
indebtedness of any other person or entity;
(vi) Any Contracts under which any Encumbrances exist
with respect to any Assets; and
(vii) Any other Contracts (other than Minor Contracts
and those described in any of (i) through (vi) above) not made
in the ordinary course of business.
(b) To any Selling Party's knowledge, the Seller is not in Default
under any Contract, which Default could result in a Liability on the part of the
Seller in excess of $20,000 in any individual case, and the aggregate
Liabilities that could result from all such Defaults do not exceed $50,000. The
Seller has not received any communication from, or given any communication to,
any other party indicating that the Seller or such other party, as the case may
be, is in Default under any Contract where such Default could have a material
adverse effect on the Business.
4.16 INSURANCE. SCHEDULE 4.16 lists all policies or binders of
insurance held by or on behalf of the Seller or relating to the Business or any
of its Assets, specifying with respect to each policy the insurer, the amount of
the coverage, the type of insurance, the risks insured, the expiration date, the
policy number and any pending claims thereunder. To any Selling Party's
knowledge, there is no Default with respect to any such policy or binder, nor
has there been any failure to give any notice or present any claim under any
such policy or binder in a timely fashion or in the manner or detail required by
the policy or binder, except for any of the foregoing that would not,
individually or in the aggregate, have a material adverse effect on the
Business. There is no notice of nonrenewal or cancellation with respect to, or
disallowance of any claim under, any such policy or binder that has been
received by the Seller, except for any of the foregoing that would not,
individually or in the aggregate, have a material adverse effect on the Business
or the Assets.
4.17 PATENTS AND OTHER INTELLECTUAL PROPERTY. The Business as
previously and currently operated did not and does not utilize any patent,
trademark, tradename, service mark, copyright, Custom Software, trade secret or
know-how. To any Selling Party's knowledge, the Seller does not infringe upon or
unlawfully or wrongfully use any patent, trademark, tradename, service mark,
copyright or trade secret owned or claimed by another.
4.18 COMPUTER SOFTWARE. Any Custom Software included in the Assets,
together with all know-how and processes used in connection therewith, functions
as intended, is in machine-readable form, and includes all computer programs,
materials, tapes, know-how, object and source codes and procedures used by the
Seller in the Business.
4.19 EMPLOYEE RELATIONS. The Seller is not (a) a party to, involved in
or, to any Selling Party's knowledge, threatened by, any labor dispute or unfair
labor practice charge, or (b) currently negotiating any collective bargaining
agreement, and the Seller has not experienced any work
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stoppage during the last three years. The Seller has delivered to the Buyer a
complete and correct list of the names and salaries, bonus and other cash
compensation of all employees (including officers) of the Seller.
4.20 ERISA. SCHEDULE 4.20 contains a complete list of all Benefit Plans
sponsored or maintained by the Seller or under which the Seller may be
obligated. For purposes of this Section 4.20, the term "Seller" shall include
any corporation that is a member of any controlled group of corporations (as
defined in Section 414(b) of the Internal Revenue Code of 1986, as amended, the
"Code") that includes the Seller, any trade or business (whether or not
incorporated) that is under common control (as defined in Section 414(c) of the
Code) with the Seller, any organization (whether or not incorporated) that is a
member of an affiliated service group (as defined in Section 414(m) of the Code)
that includes the Seller and any other entity required to be aggregated with the
Seller pursuant to the regulations issued under Section 414(o) of the Code.
4.21 CORPORATE RECORDS. The minute books of the Seller contain
complete, correct and current copies of its Charter Documents and bylaws and of
all minutes of meetings, resolutions and other proceedings of its Board of
Directors and shareholders. The stock record book of the Seller is complete,
correct and current.
4.22 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, the
Seller has conducted the Business in the ordinary course and there has not been
with respect to the Seller:
(a) any material adverse change in the Business, the
Assets or the Seller's Liabilities;
(b) any distribution or payment declared or made in
respect of its capital stock by way of dividends, purchase or
redemption of shares or otherwise;
(c) any increase in the compensation payable or to
become payable to any director, officer, employee or agent,
except for merit and seniority increases for non-officer
employees made in the ordinary course of business, nor any
other change in any employment or consulting arrangement;
(d) any sale, assignment or transfer of Assets, or
any additions to or transactions involving any Assets, other
than those made in the ordinary course of business;
(e) other than in the ordinary course of business,
any waiver or release of any claim or right or cancellation of
any debt held; or
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(f) any payments to any Affiliate of the Seller,
except as specified in SCHEDULE 4.22.
4.23 ASSETS. The Assets include all rights and property that are
necessary to the conduct of the Business by the Buyer in the manner in which it
is currently conducted by the Seller.
4.24 PREVIOUS SALES; WARRANTIES. All goods sold or distributed by the
Seller were of merchantable quality, and the Seller has not breached any express
or implied warranties in connection with the sale or distribution of such goods
or in connection with the performance of any services, except for breaches that
would not adversely affect the Buyer after the Closing. The Seller has provided
the Buyer with true and correct copies of all warranties (a) made by all Persons
from whom the Seller has obtained any goods that have been resold or distributed
by the Seller, including any goods that constituted parts included in other
goods sold or distributed by the Seller, and (b) made by the Seller with respect
to any goods that have been sold or distributed by the Seller or services
performed by the Seller.
4.25 DISTRIBUTORS, CUSTOMERS OR SUPPLIERS. No Selling Party is aware
that any major distributor, customer or supplier intends to cease doing business
with the Seller or, after the Closing, with the Buyer or to alter materially the
amount of business done with the Seller or the Buyer due to consummation of the
Transactions or any other reason. To any Selling Party's knowledge, the Customer
Records are accurate in all material respects.
4.26 FINDER'S FEES. Except for Siegel Business Services, Inc., no
Person retained by any Selling Party is or will be entitled to any commission or
finder's or similar fee in connection with the Transactions.
4.27 ACCURACY OF INFORMATION. No representation or warranty by any
Selling Party in any Transaction Document, and no information contained therein
or otherwise delivered to the Buyer or in connection with the Transactions,
including the Financial Statements and the due diligence questionnaire completed
and given to the Buying Parties, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements contained herein or therein not misleading.
5. Representations and Warranties of the Buying Parties.
The Buying Parties hereby, jointly and severally, represent and warrant
to the Selling Parties as follows:
5.1 CORPORATE. Each Buying Party is a corporation duly organized,
validly existing and in good standing under the laws under which it was
incorporated.
5.2 AUTHORIZATION. Each Buying Party has the requisite power and
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions to be
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performed by it. Such execution, delivery and performance have been duly
authorized by all necessary corporate action. The Transaction Documents have
been duly executed and delivered by, and constitute valid and binding
obligations of, each Buying Party that is a party thereto, enforceable against
each such Buying Party in accordance with their terms.
5.3 CONSENTS AND APPROVALS. Neither the execution and delivery by any
Buying Party of the Transaction Documents to which it is a party, nor the
performance of the Transactions by any Buying Party, require any filing, consent
or approval or constitute a Default under (a) any Regulation or Court Order to
which any Buying Party is subject, (b) the Charter Documents or bylaws of any
Buying Party or (c) any Contract, Government Permit or other document to which
any Buying Party is a party or by which the properties or other assets of any
Buying Party may be subject.
5.4 FINDER'S FEES. No Person retained by any Buying Party is or will be
entitled to any commission or finder's or similar fee in connection with the
Transactions.
5.5 ACCURACY OF INFORMATION. No representation or warranty by any
Buying Party in any Transaction Document, and no information contained therein
or otherwise delivered to the Seller or in connection with the Transactions,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements contained herein or therein not
misleading.
6. Conditions Precedent to Obligations of the Buying Parties.
----------------------------------------------------------
All obligations of the Buying Parties to consummate the Transactions at
the Closing are subject to the fulfillment (or waiver) of each of the following
conditions:
6.1 ENCUMBRANCES. The Encumbrances set forth on SCHEDULE 4.5 have been
removed, except for the Encumbrance related to the Equipment Note.
6.2 ANCILLARY DOCUMENTS. All parties to the following agreements have
executed and delivered the following documents: the Building Lease Assignment,
the Escrow Agreement, the Employment Agreements and the Employee Subscription
Agreement.
6.3 LEGAL OPINION. The Buying Parties have received the legal opinion
of Kerwin & Kerwin, counsel to the Selling Parties.
6.4 RELEASE. The Buying Parties have received a copy of Siegel Business
Services, Inc.'s release of the Selling Parties with respect to the
Transactions.
7. Conditions Precedent to Obligations of the Selling Parties.
-----------------------------------------------------------
All obligations of the Selling Parties to consummate the Transactions
at the Closing are subject to the fulfillment (or waiver) of each of the
following conditions:
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7.1 ANCILLARY DOCUMENTS. All parties to the following agreements have
executed and delivered the following agreements: the Building Lease Assignment,
the Escrow Agreement, the Employment Agreements and the Employee Subscription
Agreement.
7.2 LEGAL OPINION. The Selling Parties have received the legal opinion
of Morgan, Lewis & Bockius, counsel to the Buying Parties.
8. Payment of Tax Liabilities.
---------------------------
8.1 SUBCHAPTER S INCOME. For the purposes of this Agreement,
"Subchapter S Income" means the income of the Seller that is required to be
included in the income of the Shareholders under the "pass through" rules for
"S" corporations under Section 1366 of the Code, less the 1994 Distributions.
8.2 1994 TAX LIABILITIES. Notwithstanding any other provision of this
Agreement, the Buyer shall pay to the Shareholders not later than April 1, 1995
an amount equal to their respective liabilities up to $285,000 for federal and
state income taxes (other than any interest or penalties) with respect to the
Subchapter S Income for the fiscal year ended December 31, 1994.
8.3 1995 TAX LIABILITIES. Following the Closing, the Seller will cause
the Seller's accountants to prepare compiled financial statements for the Seller
in accordance with generally accepted accounting principles for the period from
January 1, 1995 through the Closing Date (the "1995 Interim Period"). Such
accountants shall also compute the Subchapter S Income for the Interim Period,
and the Shareholders' respective liabilities for federal and state income taxes
(other than any interest or penalties) with respect to the Seller's operations
during the Interim Period but excluding any tax liabilities with respect to the
sale of the Assets and the other Transactions contemplated by the Transaction
Documents (the "1995 Tax Liabilities"). The Seller shall provide the Buyer with
whatever documents the Buyer may reasonably request in order to verify the
foregoing calculations. The Buyer shall pay to the Shareholders on April 1, 1995
an amount equal to the 1995 Tax Liabilities of the Shareholders.
8.4 TAX REIMBURSEMENT. The Buyer shall pay to the Shareholders any
additional federal or state income taxes for the Buyer's operations during the
1995 Interim Period that must be paid by them pursuant to a determination of the
appropriate governmental taxing authority. The foregoing obligation shall not
extend to any interest and penalties that may be due in connection with any such
additional taxes.
9. Competition and Confidentiality by the Selling Parties.
-------------------------------------------------------
9.1 RESTRICTED PERIOD. None of the Selling Parties shall, at any time
within the Restricted Period (defined below), directly or indirectly, engage in,
or have any interest on behalf of itself or others in any person, firm,
corporation or business (whether as an employee, officer, director, agent,
security holder, creditor, partner, joint venturer, beneficiary under a trust,
investor, consultant or
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otherwise) that engages within the Restricted Territory in any of the business
activities in which the Seller has at any time been engaged, including the
refurbishing and remanufacturing of printing presses and the manufacturing and
sale of replacement parts for printing presses. The "Restricted Period" means
(a) with respect to the Seller, the three-year period immediately following the
Closing Date, and (b) with respect to Lunt, the longer of (i) the three-year
period immediately following the Closing Date or (ii) the period during which
Lunt shall be employed by the Buyer or an Affiliate of the Buyer plus (A) an
additional two years if Lunt resigns from such employment or (B) an additional
one year if the Buyer or such an Affiliate terminates such employment. The
"Restricted Territory" means the area comprising the entire United States of
America, Canada and those other areas of the world in which the Seller has
engaged in business at any time within the two years prior to the Closing Date.
9.2 CONFIDENTIAL INFORMATION. Prior to the Closing and indefinitely
thereafter, none of the Selling Parties shall divulge, communicate or use in any
way, any confidential information or trade secrets of the Business, including
personnel information, know-how and other technical information, customer lists,
customer information and supplier information (the "Confidential Information").
9.3 AFFILIATES. The terms of this Section 10 shall apply to each
Selling Party and any of its Affiliates to the same extent as if they were
parties hereto, and each Selling Party shall take whatever actions may be
necessary to cause its Affiliates to adhere to the terms of this Section 10.
9.4 INJUNCTIVE RELIEF. In the event of any breach or threatened breach
by any Selling Party or any Affiliate thereof of any provision of this Section
10, the Buyer shall be entitled to injunctive or other equitable relief,
restraining such party from using or disclosing any Confidential Information in
whole or in part, or from engaging in conduct that would constitute a breach of
the obligations of such party under this Section 10. Such relief shall be in
addition to and not in lieu of any other remedies that may be available,
including an action for the recovery of damages. In the event of litigation
involving this Agreement, if a court of competent jurisdiction determines that
the scope of this Section 10 is too broad in any respect, then the scope shall
be deemed to be reduced or narrowed to such scope as is found lawful and
reasonable by such court. Each Selling Party acknowledges, however, that this
Section 10 has been negotiated by the parties and that the geographical and time
limitations, as well as the limitation on activities, are reasonable in light of
the circumstances pertaining to the Business.
10. Additional Covenants.
---------------------
10.1 POST-CLOSING RECEIPTS. The Seller and the Buyer each will hold and
will promptly transfer and deliver to the other, from time to time as and when
received by them, any cash, checks with appropriate endorsements or other
property that they may receive on or after the Closing that properly belongs to
the other party under the terms of this Agreement, and will account to the other
for all such receipts.
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10.2 TRANSFER TAXES. The Seller and the Buyer shall each pay at the
Closing one-half of all state and local sales, documentary and other transfer
taxes, if any, due as a result of the purchase, sale or transfer of the Assets
hereunder.
10.3 BULK SALES. The Buyer hereby waives the Seller's compliance with
any bulk sales laws that may apply to the Transactions, including with respect
to taxes, but the Selling Parties hereby jointly and severally indemnify the
Buyer against any Damages that the Buyer may incur that it would not have
incurred if the Seller had complied with any such bulk sales laws.
10.4 LIQUIDATION. To the extent that the Seller shall effect any
partial or total liquidation after the Closing, the Seller shall require as part
of the plan of such liquidation that the direct and indirect recipient of any
assets distributed in such liquidation shall be responsible for any obligations
of the Seller under this Agreement to the extent of any assets so distributed.
Lunt shall take such actions as are necessary to cause the Seller to impose such
obligation on any recipient of any such distributed assets of the Seller,
including himself if he is a recipients, and shall give the Buyer prompt notice
of any such distribution.
10.5 SATISFACTION OF LIABILITIES. After the Closing, the Selling
Parties shall take whatever actions are necessary to pay, discharge or perform,
as appropriate, all Liabilities of the Seller that are not Assumed Liabilities.
In particular, the Selling Parties shall pay and discharge any Liabilities that
may be due to Siegel Business Services, Inc. with respect to the Transactions.
10.6 CONFIDENTIALITY. If the Transactions are not consummated, each
party shall treat all information obtained in its investigation of another party
or any Affiliate thereof, and not otherwise known to them or already in the
public domain, as confidential and shall return to such other party or Affiliate
all copies made by it or its representatives of confidential information
provided by such other party or Affiliate.
10.7 PAYMENT OF EXPENSES OF SELLING PARTIES. Lunt shall pay any
obligations of the Selling Parties that may be due with respect to the
Transactions.
10.8 PAYMENT OF EXPENSES OF BUYING PARTIES. The Buying Parties shall
pay all obligations of the Buying Parties that may be due to legal counsel for
the Buying Parties with respect to the Transactions.
10.9 INSURANCE. The Buying Parties shall maintain after the Closing
Date products liability insurance for an amount of coverage that is equal to the
highest aggregate amount of coverage maintained by the Seller at any time during
the one year prior to the Closing Date. The Buying Parties shall maintain such
insurance until the later of (a) the latest date when all statutes of
limitations expire for products liability claims with respect to any products or
services sold or provided by the Seller prior to the Closing Date, or (b) the
date when all pending products liability claims that may be covered, at least in
part, by such insurance have been finally resolved.
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11. Indemnification.
----------------
11.1 BY SELLING PARTIES. From and after the Closing Date, to the extent
provided in this Section 11, the Selling Parties shall, jointly and severally,
indemnify and hold harmless the Buying Parties from and against any liabilities,
claims, demands, judgments, losses, costs, damages or expenses whatsoever
(including attorneys', consultants' and other professional fees and
disbursements of every kind, nature and description incurred by them in
connection therewith) (collectively, "Damages") that any Buying Party may
sustain, suffer or incur and that result from, arise out of or relate to (a) any
breach of any representation, warranty, covenant or agreement of any Selling
Party contained in any Transaction Document; (b) any injuries to persons,
property or business by reason of defectiveness, improper design or manufacture
or malfunction, or otherwise, of any product sold or services provided by any
Selling Party, whether known or unknown, currently asserted or arising
hereafter, if such claims are based upon or arise out of products sold or
services performed on or prior to the Closing Date; (c) any Environmental
Conditions existing on or prior to the Closing; or (d) any Liabilities of the
Seller, whether arising before, on or after the Closing, that are not assumed by
Buyer hereunder ("Unassumed Liabilities"). For the purposes of this Agreement,
Pamarco shall be deemed to have suffered any Damages that are suffered by the
Buyer so that Pamarco shall be entitled to claim recovery to the same extent
that the Buyer would be entitled to claim recovery, but the Buyer's right to
claim recovery shall be reduced by the amount for which Pamarco claims recovery
in order to avoid duplication.
11.2 BY BUYING PARTIES. From and after the Closing Date, to the extent
provided in this Section 11, the Buying Parties shall, jointly and severally,
indemnify and hold harmless the Selling Parties from and against any Damages
that any Selling Party may sustain, suffer or incur and that result from, arise
out of or relate to (a) any breach of any representation, warranty, covenant or
agreement of any Buying Party contained in this Agreement; (b) any injuries to
persons, property or business by reason of defectiveness, improper design or
manufacture or malfunction, or otherwise, of any product sold or services
provided by any Buying Party, whether known or unknown, currently asserted or
arising hereafter, if such claims are based upon or arise out of products sold
or services performed after the Closing Date but only to the extent that the
Buying Parties would not be entitled to seek indemnification under Section 11.1
with respect to any such claims; (c) any Environmental Conditions existing after
the Closing that were not existing on or prior to the Closing Date; or (d) the
Assumed Liabilities. For the purposes of this Agreement, Lunt shall be deemed to
have suffered any Damages that are suffered by the Seller so that Lunt shall be
entitled to claim recovery to the same extent that the Seller would be entitled
to claim recovery, but the Seller's right to claim recovery shall be reduced by
the amount for which Lunt claims recovery in order to avoid duplication.
11.3 PROCEDURE FOR CLAIMS. A party seeking indemnification under this
Section 11 (an "Indemnified Party") shall give notice of the claim for Damages
and a brief explanation of the basis thereof, to each party responsible alleged
to be responsible for indemnification hereunder (an "Indemnitor"), prior to any
applicable Survival Date specified below. In the case of a claim against the
Selling Parties that may be covered at least in part by the Escrow Funds, a
Buying Party shall
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<PAGE> 25
pursue such claim in accordance with the Escrow Agreement. In the case of a
claim against the Selling Parties that cannot be fully satisfied by the amount
of Escrow Funds then maintained by the Escrow Agent, and in the case of any
claim against the Buying Parties, the Indemnified Party may pursue whatever
legal remedies may be available for recovery of the Damages claimed from any
Indemnitor.
11.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as provided
below, any claim for breach of any representations or warranties or for breach
of any covenants or agreements of a party in this Agreement shall be made by
giving notice under Section 11.3 and in accordance with the Escrow Agreement on
or before the expiration of 18 months after the Closing Date (the "Survival
Date") or the claim shall be invalid. Any of the following types of claims shall
be made before the respective dates specified below or the claims shall be
invalid (such date for each type of claim being the "Survival Date" for that
particular type of claim): (a) prior to the expiration of the applicable statute
of limitations--any claim for Damages related to (i) any Unassumed Liabilities,
(ii) a breach of any covenant or agreement to be performed at least in part
after the Closing Date, (iii) a breach of any representations or warranties of a
party to this Agreement that were untrue when made and were made with an intent
to mislead or defraud, or (iv) a products liability matter specified in clause
(b) of the first sentence of Section 11.1 or in clause (b) of the first sentence
of Section 11.2; and (b) prior to the third anniversary of the Closing Date--any
claim for Damages with respect to an Environmental Condition, whether based on a
breach of any representation or warranty or on the indemnification for
Environmental Conditions in clause (c) of the first sentence of Section 11.1 or
in clause (c) of the first sentence of Section 11.2. If more than one of such
Survival Dates applies to a particular claim, the latest of such Survival Dates
shall be the controlling Survival Date for such claim.
11.5 THIRD PARTY CLAIMS. An Indemnified Party shall give any Indemnitor
prompt notice of the institution by a third party of any actions, suits or other
administrative or judicial proceedings at any time prior to the applicable
Survival Date if the Indemnified Party would be entitled to claim
indemnification under this Section 11 in connection with any such action, suit
or other proceeding. After such notice, any Indemnitor may, or if so requested
by the Indemnified Party, any Indemnitor shall, participate in any such action,
suit or other proceeding or assume the defense thereof, with counsel
satisfactory to the Indemnified Party; provided, however, that the Indemnified
Party shall have the right to participate at its own expense in the defense of
any such action, suit or other proceeding; and provided, further, that the
Indemnitor shall not consent to the entry of any judgment or enter into any
settlement, except with the written consent of the Indemnified Party, that (a)
fails to include as an unconditional term thereof the giving by the claimant or
plaintiff to the Indemnified Party of a release from all liability in respect of
any such action, suit or other proceeding or (b) grants the claimant or
plaintiff any injunctive relief against the Indemnified Party. Any failure to
give prompt notice under this Section 11.5 shall not bar an Indemnified Party's
right to claim indemnification under this Section 11, except to the extent that
an Indemnified Party shall have been harmed by such failure.
-23-
<PAGE> 26
11.6 OTHER REMEDIES. The indemnification rights under this Section 11
are independent of and in addition to such rights and remedies as the parties
may have at law or in equity or otherwise for any misrepresentation, breach of
warranty or failure to fulfill any agreement or covenant hereunder on the part
of any party hereto, including the right to seek specific performance,
rescission or restitution, none of which rights or remedies shall be affected or
diminished hereby.
12. Contents of Agreement, Amendment, Parties in Interest, Assignment, Etc.
-----------------------------------------------------------------------
This Agreement sets forth the entire understanding of the parties
hereto with respect to the subject matter hereof. This Agreement may be amended,
modified or supplemented only by a written instrument duly executed by each of
the parties hereto. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective heirs, legal representatives,
successors and permitted assigns of the parties hereto. No party hereto shall
assign this Agreement or any right, benefit or obligation hereunder, except that
Pamarco may assign its rights and obligations hereunder to any Affiliate of
Pamarco, but in the case of any such assignment, Pamarco shall continue to be
liable for fulfillment of its obligations hereunder. In addition, the Buying
Parties may grant security interests in their rights hereunder to First Fidelity
Bank, N.A. Any term or provision of this Agreement may be waived at any time by
the party entitled to the benefit thereof by a written instrument duly executed
by such party. After the Closing, each party hereto shall execute and deliver
any and all papers and documents that may be deemed reasonably necessary by
counsel to the other parties to complete the Transactions.
13. INTERPRETATION.
---------------
Unless the context of this Agreement clearly requires otherwise, (a)
references to the plural include the singular, the singular the plural, the part
the whole, (b) "or" has the inclusive meaning frequently identified with the
phrase "and/or" and (c) "including" has the inclusive meaning frequently
identified with the phrase "but not limited to." The section and other headings
contained in this Agreement are for reference purposes only and shall not
control or affect the construction of this Agreement or the interpretation
thereof in any respect. Section, subsection, schedule and exhibit references are
to this Agreement unless otherwise specified. Each accounting term used herein
that is not specifically defined herein shall have the meaning given to it under
generally accepted accounting principles.
14. NOTICES.
--------
All notices that are required or permitted hereunder shall be in
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
party hereto:
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<PAGE> 27
If to a Buying Party:
Pamarco Technologies Inc.
c/o Bradford Ventures Limited
1212 Avenue of the Americas
New York, New York 10036
FAX: 212-764-3467
with a copy to:
Morgan, Lewis & Bockius
Attention: Thomas J. Sharbaugh
2000 One Logan Square
Philadelphia, Pennsylvania 19103
FAX: 215-963-5299
If to a Selling Party:
Mr. Christopher J. Lunt
3462 Route 147
Millersburg, Pennsylvania 17061
with a copy to:
Joseph D. Kerwin, Esquire
Kerwin & Kerwin
East Main Street
R.R.1, Box 566
Elizabethville, Pennsylvania 17023-9765
15. Governing Law.
--------------
This Agreement shall be construed and interpreted in accordance with
the laws of the Commonwealth of Pennsylvania, without regard to its provisions
concerning conflict of laws.
16. Counterparts.
-------------
This Agreement may be executed in two or more counterparts, each of
which shall be binding as of the date first written above. Each such copy shall
be deemed an original, and it shall not be
-25-
<PAGE> 28
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first written above.
ASHCON, INC.
By:
------------------------------
Title:
---------------------------------
CHRISTOPHER J. LUNT
PAMARCO TECHNOLOGIES, INC.
By:
------------------------------
Title:
DAUPHIN GRAPHIC MACHINES, INC.
By:
------------------------------
Title:
-26-
<PAGE> 1
Exhibit 10.4
STOCK PURCHASE AGREEMENT
by and among
PAMARCO TECHNOLOGIES INC.
(a Delaware corporation),
PAMARCO, INCORPORATED
(a Maryland corporation),
and
DENNIS E. ANDERSEN and E. HUGH SCHNEIDER
(New Jersey residents)
with respect to
ARMOTEK INDUSTRIES, INC.
(a New Jersey corporation)
- --------------------------------------------------------------------------------
<PAGE> 2
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
Section Page
- ------- ----
1. Definitions.......................................................... 1
2. Purchase and Sale of Shares.......................................... 9
3 Closing.............................................................. 13
4. Representations and Warranties of the Sellers........................ 13
5. Representations and Warranties of the Buying Parties................. 26
6. Payment of Tax Liabilities........................................... 28
7. Covenants of the Sellers............................................. 29
8. Covenants of the Buying Parties...................................... 31
9. Other Covenants...................................................... 31
10. Conditions Precedent to Obligations of the Buying Parties............ 31
11. Conditions Precedent to Obligations of the Sellers................... 32
12. Competition and Confidentiality...................................... 34
13. Indemnification...................................................... 34
14. Remedies............................................................. 38
15. Termination.......................................................... 38
16. Contents of Agreement................................................ 40
17. Amendment, Parties in Interest, Assignment, Etc...................... 40
18. Interpretation....................................................... 40
19. Notices. ............................................................ 41
20. Governing Law........................................................ 42
21. Counterparts......................................................... 42
Exhibits Expense Schedule
- --------
A Andersen Employment Agreement
B Schneider Employment Agreement
C Escrow Agreement
D Joinder to Registration Rights Agreement
E Joinder to Stockholders' Agreement
F Pamarco's Certificate of Incorporation
G Legal Opinion of counsel to Sellers
H Legal Opinion of counsel to Buying Parties
I Annual Depreciation Expense Schedule
<PAGE> 3
Schedules
- ---------
4.4 Required Consents
4.7 Encumbrances
4.8 Real Property
4.10 Non-Real Estate Leases
4.13 Liabilities
4.16 Litigation; Governmental Permits
4.17 Contracts
4.18 Insurance
4.19 Intellectual Property
4.20 Employee Relations
4.21 Benefit Plans
4.23 Payments to Affiliates
4.25 Customers and Suppliers
4.27 Additional Information
5.9 Stockholders
-ii-
<PAGE> 4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of March 5,
1996 by and among Pamarco Technologies Inc., a Delaware corporation ("Pamarco"),
Pamarco, Incorporated, a Maryland corporation (the "Buyer" and, together with
Pamarco, the "Buying Parties"), Dennis E. Andersen, a New Jersey resident
("Andersen"), and E. Hugh Schneider, a New Jersey resident ("Schneider" and,
together with Andersen, the "Sellers"). Certain other terms are used herein as
defined below in Section 1 or elsewhere in this Agreement.
Background
----------
The Sellers own all of the issued and outstanding capital stock of
Armotek Industries, Inc., a New Jersey corporation ("Armotek"). The Sellers
desire to sell, and the Buyer desires to buy, all of such stock in accordance
with the terms of this Agreement.
Witnesseth
----------
NOW, THEREFORE, in consideration of the respective covenants and
agreements contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. DEFINITIONS.
For convenience, certain terms used in more than one part of this
Agreement are listed in alphabetical order and defined or referred to below
(such terms as well as any other terms defined elsewhere in this Agreement shall
be equally applicable to both the singular and plural forms of the terms
defined).
"Action" is defined in Section 13.6.
"Affiliates" means, with respect to a particular party, persons or
entities controlling, controlled by or under common control with that party, as
well as any present officers, directors (other than David R. Landrey) and
majority-owned entities of that party and of its other Affiliates.
"Agreement" means this Agreement and the exhibits and schedules hereto.
"Andersen Employment Agreement" means the Employment Agreement between
Armotek and Dennis E. Andersen, in the form of Exhibit "A" hereto and entered
into as of the Closing Date.
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<PAGE> 5
"Annual Depreciation Expense Schedule" means the Company's annual
depreciation expense schedule (attached hereto as Exhibit I) for depreciable
assets owned by the Company as of December 31, 1995.
"Armotek" is defined above in the preamble.
"Armotek Change of Control" means (a) a sale of substantially all of
the Assets of the Company during the Earnings Period to a party other than an
Affiliate of the Buying Parties; (b) a sale of more than 50% of the outstanding
Armotek Common Stock during the Earnings Period to a party other than an
Affiliate of the Buying Parties; or (c) a merger or consolidation of the Company
during the Earnings Period that results in more than 50% of the Armotek Common
Stock being held by a party other than an Affiliate of the Buying Parties. The
term "Armotek Change of Control" does not include (x) a merger which is effected
solely to change the jurisdiction of incorporation of the Company or (y) any
consolidation with or merger of the Company into either of the Buying Parties or
a wholly-owned subsidiary of either of the Buying Parties.
"Armotek Common Stock" means the Common Stock, no par value, of
Armotek.
"Armotek Shareholders' Agreement" means the Shareholders' Agreement
dated November 11, 1988 by and among Andersen, Schneider and the Company.
"Assets" means all of the assets, properties, goodwill and rights of
every kind and description, real and personal, tangible and intangible, wherever
situated and whether or not reflected in the most recent Company Financial
Statements, that are owned or possessed by the Company.
"Audited Financial Statements" is defined in Section 4.6.
"Balance Sheet Date" is defined in Section 4.6.
"Benefit Plans" means all employee benefit plans of the Company within
the meaning of Section 3(3) of ERISA and any related or separate Contracts,
plans, trusts, programs, policies, arrangements, practices, customs and
understandings, in each case whether formal or informal, that provide benefits
of economic value to any present or former employee of the Company, or present
or former beneficiary, dependent or assignee of any such employee or former
employee.
"Business" means the entire business, operations and facilities of
Armotek.
"Buyer" is defined above in the preamble.
"Buying Parties" is defined above in the preamble.
-2-
<PAGE> 6
"Buying Parties' Non-Covenant Indemnification Obligations" is defined
in Section 13.2(a).
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Claim Notice" is defined in Section 13.4(a).
"Claim Response" is defined in Section 13.4(a).
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Armotek Industries, Inc., a New Jersey corporation, and
no other corporation within the definition of Company Group.
"Company Balance Sheet" is defined in Section 4.6.
"Company Financial Statements" is defined in Section 4.6.
"Company Group" shall mean, collectively, (a) the Company, (b) Old
Armotek and (c) any and all corporations which were at any time subsidiaries of
Old Armotek.
"Confidential Information" means any confidential information or trade
secrets of the Business, the Core Business or the business of any Buying Party
(including personnel information, know-how and other technical information,
customer lists, customer information and supplier information), other than
confidential information or trade secrets of the Business, the Core Business or
the business of any Buying Party that (a) is in the public domain through no
fault of either Andersen or Schneider, (b) is made available to Andersen or
Schneider by an independent third party or (c) is required by law to be
disclosed.
"Contingent Purchase Price" is defined in Section 2.2.
"Contract" means any written or oral contract, agreement, lease,
instrument or other commitment that is binding on any person or its property
under applicable law.
-3-
<PAGE> 7
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Core Business" means, collectively, (a) the entire business,
employees, expertise, operations and facilities of the Company, as the same may
reasonably be expected, based on historical experience, to be conducted from the
date hereof through December 31, 1998, including the Company's current product
line and products under development, (b) the Richmond Project and (c) such
additions to the activities or business operations described in the preceding
clauses (a) and (b) as one or more of the Buying Parties or one or more of their
Affiliates may elect or determine through December 31, 1998 to have accomplished
or performed utilizing, in whole or substantial part, the present or future
employees, expertise, operations or facilities of the Company.
"Court Order" means any judgment, decree, injunction, order or ruling
of any federal, state, local or foreign court or governmental or regulatory body
or authority that is binding on any person or its property under applicable law.
"Covenant Claim" is defined in Section 13.4(c).
"Damages" is defined in Section 13.1.
"Deal Rate" means 8.25% per annum.
"Deductible Amount" is defined in Section 13.4(c).
"Default" means (a) a breach, default or violation, (b) the occurrence
of an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration.
"Earnings Period" is defined in Section 2.2(a).
"Employment Agreements" means the Andersen Employment Agreement and the
Schneider Employment Agreement.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest, other
than Permitted Encumbrances.
"Environmental Condition" is defined in Section 4.16(b).
-4-
<PAGE> 8
"Environmental Law" is defined in Section 4.16(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means First Union National Bank.
"Escrow Agreement" means the Escrow Agreement among the Buyer, the
Sellers and the Escrow Agent, in the form of Exhibit "C" hereto and entered into
as of the Closing Date.
"Escrow Funds" means the Escrowed Cash and the Escrowed Shares
"Escrowed Cash" is defined in Section 2.1(b).
"Escrowed Shares" is defined in Section 2.1(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Dates" is defined in Section 13.5.
"First Claim Notice" is defined in Section 13.4(a).
"First Income Determination" is defined in Section 2.2(c).
"Fraud Claims" shall mean any and all claims based upon a willful,
fraudulent or intentional misrepresentation or omission of Sellers, or any one
of them, contained in this Agreement, any other agreement, instrument or
document delivered to the Buying Parties in connection herewith.
"GAAP" means generally accepted accounting principles.
"Governmental Permits" is defined in Section 4.16(d).
"Hazardous Substances" means (i) any gasoline, fuel oil or any other
petroleum products, explosives, alcohols or chemical solvents or polychlorinated
biphenyls, (ii) any substance, waste, material or product defined as hazardous,
radioactive, extremely hazardous or toxic under any Environmental Law, and (iii)
asbestos or asbestos-containing substances.
"Immaterial Lease" is defined in Section 4.10.
"Income Determination" is defined in Section 2.2(b).
-5-
<PAGE> 9
"Income Dispute Notice" is defined in Section 2.2(c).
"Income Notice" is defined in Section 2.2(b).
"Indemnified Party" is defined in Section 13.4.
"Indemnified Buyer Party" is defined in Section 13.1.
"Indemnified Seller Party" is defined in Section 13.2.
"Indemnitor" is defined in Section 13.4(a).
"Intellectual Property" means any Copyrights, Patents, Trademarks,
technology rights and licenses, trade secrets, franchises, know-how, inventions
and other intellectual property.
"Joinders" means the Joinders to the Registration Rights Agreement and
the Joinders to the Stockholders' Agreement executed by Pamarco and each of the
Sellers.
"Joinder to Registration Rights Agreement" means the Joinder to the
Registration Rights Agreement between Pamarco and each of the Sellers, in the
form of Exhibit D hereto and entered into as of the date hereof.
"Joinder to Stockholders' Agreement" means the Joinder to the
Stockholders' Agreement between Pamarco and each of the Sellers, in the form of
Exhibit E hereto and entered into as of the date hereof.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Liquidated Claim Notice" is defined in Section 13.4(a).
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the
Business, Assets, financial condition, results of operations, liquidity,
products, competitive position, customers or customer relations of the Company.
"Maximum Performance Target" means $1,870,237.
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<PAGE> 10
"Minimum Performance Target" means $1,550,266.
"Minor Contracts" is defined in Section 4.17(a).
"Non-Covenant Claim" is defined in Section 13.4(c).
"Non-Real Estate Leases" is defined in Section 4.10.
"Old Armotek" means Armotek Industries, Inc., a New York corporation,
which was merged into the Company on November 21, 1988.
"ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practices.
"Pamarco" is defined above in the preamble.
"Pamarco Common Stock" means the 6,667 shares of Pamarco's Class A
Common Stock, par value $0.01 per share, being issued to the Sellers hereunder.
"Pamarco Financial Statements" is defined in Section 5.6.
"Patents" means all patents and patent applications.
"Permitted Encumbrances" means, collectively, (a) those mortgages,
liens, security interests, leases, licenses, claims, charges, pledges, equities,
options, conditional sales contracts, easements, rights-of-way, covenants,
conditions, restrictions or other encumbrances of any nature whatsoever against
the Assets of the Company as set forth on Schedule 4.7, (b) restrictions
contained within the terms and provisions of any Non-Real Estate Lease and any
Real Estate Lease; (c) unrecorded easements, rights-of-way and covenants, which
do not individually or in the aggregate materially and adversely interfere with
the present operations of any entity occupying or using such real property; (d)
easements, encumbrances, rights-of-way, covenants and restrictions of record
disclosed in the Title Report dated March 22, 1991 prepared by Continental Title
Insurance Company, which do not materially and adversely interfere with the
present operations of any Person occupying or using such real property; and (e)
liens, if any, for taxes and water and sewer rents not delinquent.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Pre-Tax Income" is defined in Section 2.2(d).
-7-
<PAGE> 11
"Prime Rate" means the prime lending rate as announced from time to
time in The Wall Street Journal.
"Purchase Price" is defined in Section 2.1(a).
"Real Property" is defined in Section 4.8.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of July 25, 1994, among Pamarco and certain of its
stockholders, as it may be amended from time to time.
"Regulation" means any statute, law, ordinance, regulation, order or
rule of any federal, state, local, foreign or other governmental agency or body
or of any other type of regulatory body, including those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Required Consents" is defined in Section 4.4.
"Response Period" is defined in Section 13.4.
"Restricted Party" is defined in Section 12.1.
"Restricted Period" is defined in Section 12.1.
"Restricted Territory" is defined in Section 12.1.
"Richmond Project" means the potential establishment by the Company of
a separate operating facility in the Richmond, Virginia area.
"Schneider Employment Agreement" means the Employment Agreement between
Armotek and E. Hugh Schneider, in the form of Exhibit "B" hereto and entered
into as of the Closing Date.
"Second Firm" is defined in Section 2.2(c).
"Second Income Determination" is defined in Section 2.2(c).
"Securities Act" means the Securities Act of 1933, as amended.
"Sellers" is defined above in the preamble.
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<PAGE> 12
"Sellers' Non-Covenant Indemnification Obligations" is defined in
Section 11.2(a).
"Shares" is defined in Section 2.1.
"Stockholders' Agreement" means the Stockholders' Agreement, dated as
of July 25, 1994, among the Buyer and certain of its stockholders, as it may be
amended from time to time.
"Subchapter S Income" is defined in Section 6.1.
"Trademarks" means registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and service
marks.
"Transaction Documents" means, collectively, this Agreement, the Escrow
Agreement, the Employment Agreements and the Joinders.
"Transactions" means, collectively, the purchase and sale of the Shares
and the other transactions contemplated by the Transaction Documents.
"Unliquidated Claim" is defined in Section 13.4(a).
2. Purchase and Sale of Shares.
----------------------------
2.1 PURCHASE PRICE; SHARES.
(a) At the Closing, the Buyer shall buy from the Sellers, and
the Sellers shall sell to the Buyer, all of the issued and outstanding shares of
Armotek Common Stock (the "Shares") for an aggregate purchase price (the
"Purchase Price") equal to the sum of (i) $1,100,000 in cash, plus interest
thereon from the date hereof through the Closing Date at the Deal Rate, (ii) the
Pamarco Common Stock and (iii) the Contingent Purchase Price.
(b) The Buyer shall pay the Purchase Price to the Sellers as
set forth below:
(i) at the Closing, the Buyer shall pay by a wire
transfer of immediately available funds (A) $449,379 to Andersen (plus interest
thereon from the date hereof through the Closing Date at the Deal Rate) and
$400,621 to Schneider (plus interest thereon from the date hereof through the
Closing Date at the Deal Rate) and (B) $250,000 to the Escrow Agent (plus
interest thereon from the date hereof through the Closing Date at the Deal Rate)
in accordance with the Escrow Agreement (the "Escrowed Cash").
(ii) at the Closing, the Buyer shall issue to
Andersen a stock certificate for 3,525 shares of Pamarco Common Stock and a
stock certificate to Schneider for 3,142 shares
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<PAGE> 13
of Pamarco Common Stock; provided, however, that both certificates, along with
duly executed stock powers endorsed in blank by the Sellers, shall be delivered
at the Closing to the Escrow Agent in accordance with the Escrow Agreement (the
"Escrowed Shares").
(iii) if the Company meets or exceeds the Minimum
Performance Target (as specified in Section 2.2(a) below), the Buyer shall pay
the Sellers the Contingent Purchase Price in accordance with the following
percentages, which percentages reflect their record ownership of the Shares:
52.86812% of the Contingent Purchase Price shall be paid to Andersen and
47.13188% of the Contingent Purchase Price shall be paid to Schneider.
2.2 CONTINGENT PURCHASE PRICE.
(a) The term "Contingent Purchase Price" means the cash
payment specified below in this Section 2.2(a). The Buyer shall pay the
Contingent Purchase Price to the Sellers if the aggregate Pre-Tax Income of the
Core Business during the period beginning on April 15, 1996 and ending on
December 31, 1998 (referred to herein as the "Earnings Period") shall be at
least equal to the Minimum Performance Target. It is the intent of the parties
that (so long as the Minimum Performance Target shall be achieved) the amount of
the Contingent Purchase Price cannot be less than $200,000 in the aggregate nor
more than $800,000 in the aggregate, and it is the further intent of the parties
that if the actual Pre-Tax Income of the Core Business shall exceed the Maximum
Performance Target, the Sellers shall get no credit for, or Contingent Purchase
Price payment in connection with, the amount by which the actual Pre-Tax Income
of the Core Business exceeds the Maximum Performance Target. The Buyer shall pay
by a wire transfer of immediately available funds any Contingent Purchase Price
due to the Sellers in three equal installments on June 30 of 1999, 2000 and
2001. The Contingent Purchase Price shall be determined and paid in accordance
with the following schedule:
<TABLE>
<CAPTION>
Pre-Tax Income Contingent Purchase Price
-------------- -------------------------
<S> <C>
less than $1,550,266 $0
$1,550,266 or more, but $200,000
less than $1,603,594
$1,603,594 or more, but $300,000
less than $1,656,923
$1,656,923 or more, but $400,000
less than $1,710,251
</TABLE>
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<PAGE> 14
<TABLE>
<S> <C>
$1,710,251 or more, but $500,000
less than $1,763,580
$1,763,580 or more, but $600,000
less than $1,816,909
$1,816,909 or more, but $700,000
less than $1,870,237
$1,870,237 or more $800,000
</TABLE>
(b) The Buyer shall calculate and cause its independent
accountants to report on the Pre-Tax Income of the Core Business (each an
"Income Determination") within 90 days after each of the following dates: (i)
December 31, 1996; December 31, 1997; and December 31, 1998. Within 20 days
after completion of each Income Determination, the Buyer shall give the Sellers
a notice (the "Income Notice"), which shall contain appropriate information and
details with respect to the results of the Income Determination together with
access to all work papers and all other supporting accounting documents.
(c) The Sellers may dispute any Income Determination in the
following manner. Within 30 days after the Buyer gives the Income Notice, the
Sellers shall give the Buyer notice of its disagreement with the Income
Determination (the "Income Dispute Notice"), and such notice shall specify in
detail the nature of the disagreement. During the 20 days after the day on which
the Income Dispute Notice is given, the Sellers and the Buyer shall attempt to
resolve such dispute. If they fail to reach a written agreement regarding the
dispute, the Sellers shall refer the matter to a firm of certified independent
accountants (the "Second Firm") that is different from the firm that initially
prepared the Income Determination, and request the Second Firm to also determine
the Pre-Tax Income of the Core Business for the Earnings Period (the "Second
Income Determination") within the 30 days after such 20-day period. The Sellers
shall give the Buyer prompt notice of the results of the Second Income
Determination. The average of the Income Determination prepared by the first
firm of accountants (the "First Income Determination") and of the Second Income
Determination shall be the final and binding Income Determination for the
purposes of determining whether the Buyer shall be obligated to pay the Sellers
any Contingent Purchase Price. The Sellers shall pay the fees and expenses of
the Second Firm with respect to the Second Income Determination.
(d) "Pre-Tax Income" means income for the year or 12-month
period in question determined in accordance with GAAP applied on a consistent
basis without taking into account any of the following items: (i) deductions or
accruals for any Federal, state or local income taxes; (ii) net operating loss
carryforwards or carrybacks; (iii) interest expense incurred
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<PAGE> 15
by the Company on indebtedness for money borrowed (other than borrowings under
revolving credit facilities used to finance working capital needs of the
Company) in excess of the principal amount of $1,500,000, (iv) any decrease in
depreciation expense in excess of any decrease set forth in the Company's Annual
Depreciation Expense Schedule; provided, however, that any increase in
depreciation resulting from purchases by the Company of depreciable assets on or
after the date hereof shall not be excluded from the calculation of "Pre-Tax
Income," (v) any income or loss resulting from any other business that may be
acquired by or combined with the Core Business by means of a merger or a
purchase; (vi) any change in GAAP in comparison to those in effect on the
Closing Date; and (vii) any items that would be considered extraordinary items
under GAAP. It is recognized by the parties that the Buying Parties may, during
the Earnings Period, desire to merge the Company into another entity or to cause
one or more entities to be acquired by, or merged into, the Company. The Buying
Parties may cause the Company to participate in such transactions and if the
Core Business is thus operated as a division of a corporation or business entity
other than the Company, or, if the Company acquires by merger or otherwise, one
or more businesses, then the determination of the Pre-Tax Income shall include
such adjustments as are deemed appropriate so that the Pre-Tax Income would be
as close as possible to the Pre-Tax Income that would have existed if the Core
Business were operated as a separate corporation, which did not acquire, by
merger or otherwise, one or more businesses.
(e) To ensure an accurate determination of Pre-Tax Income, the
Buyer shall conduct the Core Business during the Earnings Period substantially
as it was conducted by Sellers immediately prior to the Closing Date.
(f) Notwithstanding any other provision in this Agreement,
upon the occurrence of an Armotek Change of Control, the maximum Contingent
Purchase Price shall be deemed to be due to the Sellers and the Buyer shall,
within 30 days after the Armotek Change of Control, pay by a wire transfer of
immediately available funds $422,945 to Andersen and $377,055 to Schneider. Upon
receipt of the payments set forth in this Section 2.2(f), Andersen and Schneider
shall have no rights to any further payments under Section 2.2.
2.3 ESCROW ACCOUNT. At the Closing, the Sellers and the Buyer shall
enter into the Escrow Agreement with the Escrow Agent under which the Escrow
Agent shall hold the Escrow Funds for possible claims against the Sellers under
Section 13.
3. Closing.
--------
3.1 LOCATION, DATE. The closing for the Transactions (the "Closing")
shall be held at the offices of Morgan, Lewis & Bockius LLP, in Philadelphia,
Pennsylvania, at 10:00 a.m. on April 15, 1996, or on such later date as the
parties may agree. The date on which the Closing occurs is referred to herein as
the "Closing Date."
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<PAGE> 16
3.2 DELIVERIES. At the Closing,
(a) the Buyer shall pay the Purchase Price to the Sellers
as provided in clauses (i) and (ii) of Section
2.1(b);
(b) the Sellers shall deliver to the Buyer certificates
for the Shares, either duly endorsed for transfer to
the Buyer or accompanied by appropriate stock powers;
(c) the Sellers and the Buyer shall cause the Company to
issue to the Buyer new certificates for the Shares,
in due and proper form and registered in the name of
the Buyer; and
(d) the parties shall also deliver to each other the
agreements, legal opinions and other documents and
instruments specified in Sections 10 and 11.
4. Representations and Warranties of the Sellers.
The Sellers hereby represent and warrant to the Buying Parties as
follows:
4.1 CORPORATE STATUS. The Company is a corporation duly organized,
validly existing and in good standing under the laws under which it was
incorporated and is qualified to do business as a foreign corporation in any
jurisdiction where it is required to be so qualified, except where the failure
to so qualify would not have a Material Adverse Effect. The Charter Documents
and bylaws of the Company that have been delivered to the Buyer are effective
under applicable Regulations and are current, correct and complete.
4.2 AUTHORIZATION. The Company has the requisite power and authority to
own its property and carry on the Business as currently conducted.
4.3 ENFORCEABILITY. Each Seller has duly executed and delivered each
Transaction Document to which he or it is a party, and each such Transaction
Document constitutes a valid and binding obligation of such Seller, enforceable
against the Seller in accordance with its terms.
4.4 CONSENTS AND APPROVALS. Except for the consents specified on
SCHEDULE 4.4 (the "Required Consents"), neither the execution and delivery by
each Seller of the Transaction Documents to which it is a party, nor the
performance of the Transactions to be performed by such Seller, will require any
filing, consent or approval, constitute a Default or cause any payment
obligation to arise under (a) any Regulation or Court Order to which any Seller
or the Company is subject, (b) the Charter Documents or bylaws of the Company or
(c) any Contract, Government
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<PAGE> 17
Permit or other document to which any Seller or the Company is a party or by
which the properties or other assets of any Seller or the Company may be
subject.
4.5 CAPITALIZATION AND STOCK OWNERSHIP. The total authorized capital
stock of the Company consists of 50,000 shares of Armotek Common Stock, 26,167
shares of which are issued and outstanding. Andersen and Schneider are the sole
record and beneficial owners, respectively, of 13,834 and 12,333 shares of
Armotek Common Stock. The Shares being transferred to the Buyer hereunder
comprise all of such issued and outstanding shares of the Company. Except for
the Armotek Shareholders' Agreement, there are no existing options, warrants,
calls, commitments or other rights of any character (including conversion or
preemptive rights) relating to the acquisition of any issued or unissued capital
stock or other securities of the Company. All of the Shares are duly and validly
authorized and issued, fully paid and non-assessable. The Company complied with
all applicable Regulations in connection with the issuance of the Shares, and
none of the Shares were issued in violation of any Contract binding upon the
Company. Upon completion of the Transactions at the Closing, the Buyer shall
receive valid title to all of the Shares, free and clear of all Encumbrances.
4.6 FINANCIAL STATEMENTS. The Sellers have delivered to the Buyer
correct and complete copies of the unaudited monthly financial statement of the
Company for the month ended January 31, 1996 and the related statements of
income for the period then ended. The Sellers have also delivered to the Buyer
correct and complete copies of financial statements consisting of a balance
sheet of the Company as of December 31, 1992, 1993, 1994 and 1995 and the
related statements of income, retained earnings and cash flows for the years
then ended, all of which have been audited by Ernst & Young LLP (the "Audited
Financial Statements"). All such unaudited financial statements and the Audited
Financial Statements and all notes thereto are referred to herein collectively
as the "Company Financial Statements." The Company Financial Statements are
consistent with the books and records of the Company, and there have not been
any material transactions completed on or before the date of the most recent
Company Financial Statements that have not been recorded in the accounting
records underlying such Company Financial Statements. The Company Financial
Statements have been prepared in accordance with GAAP consistently applied
(subject in the case of the unaudited statements to year-end adjustments and the
absence of notes to the financial statements) and present accurately the
financial position and assets and liabilities of the Company as of the dates
thereof, and the results of its operations for the periods then ended. The
balance sheet of the Company as of December 31, 1995 that is included in the
Company Financial Statements is referred to herein as the "Company Balance
Sheet," and the date thereof is referred to as the "Balance Sheet Date."
4.7 TITLE TO ASSETS AND RELATED MATTERS. The Company has good and
marketable title to, or valid leasehold interests in, all of its Assets
(including the Real Property identified in Section 4.8), free from any
Encumbrances except those specified on SCHEDULE 4.7. The use of the Assets is
not subject to any Encumbrances (other than those specified in the preceding
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<PAGE> 18
sentence), and such use does not materially encroach on the property or rights
of anyone else. All Real Property and tangible personal property (other than
inventory) of the Company are suitable for the purposes for which they are used,
in good working condition and reasonable repair, free from any known defects.
4.8 REAL PROPERTY. SCHEDULE 4.8 describes all real estate owned by the
Company used in the operation of the Business as well as any other real estate
that is in the possession of or leased by the Company (collectively, the "Real
Property"), and lists any leases under which any such Real Property is possessed
(the "Real Estate Leases"). SCHEDULE 4.8 also describes any other real estate
previously owned, leased or otherwise operated by the Company Group since March
1, 1976 and the time periods of any such ownership, lease or operation. The Real
Property is zoned industrial. The Company has obtained all licenses and
rights-of-way from governmental entities or private parties that are necessary
to ensure vehicular and pedestrian ingress and egress to and from the Real
Property.
4.9 CERTAIN PERSONAL PROPERTY. The Company has delivered to the Buyer a
complete schedule of major fixed assets, describing and specifying the location
of all major items of tangible personal property that were included in the
Company Balance Sheet. Since the Balance Sheet Date, the Company has not
acquired any items of tangible personal property that have, in each case, a
carrying value in excess of $50,000, or an aggregate carrying value of $100,000.
All of such personal property (a) is in operating condition, reasonable wear and
tear excepted, (b) is usable in the ordinary course of business and (c) conforms
in all material respects with any applicable Regulations relating to its
construction, use and operation. Except for those items subject to the Non-Real
Estate Leases (defined below), no Person other than the Company owns any
vehicles, equipment or other tangible Assets located on the Real Property that
are used by the Company in the Business (other than immaterial items of personal
property owned by the Company's employees) or that are necessary for the
operation of the Business.
4.10 NON-REAL ESTATE LEASES. SCHEDULE 4.10 lists all assets and
property (other than Real Property) that are being used in the operation of the
Business and that are possessed by the Company under an existing lease,
including all trucks, automobiles, forklifts, machinery, equipment, furniture
and computers, except for any lease under which the aggregate annual payments
are less than $25,000 (each, an "Immaterial Lease"). SCHEDULE 4.10 also lists
the leases under which such assets and property listed on SCHEDULE 4.10 are
possessed. All of such leases (excluding Immaterial Leases) are referred to
herein as the "Non-Real Estate Leases."
4.11 ACCOUNTS RECEIVABLE. The accounts receivable of the Company are
bona fide accounts receivable created in the ordinary course of business and are
good and collectible (net of the reserve for doubtful accounts included in the
Company Balance Sheet) at the aggregate recorded amounts thereof.
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<PAGE> 19
4.12 INVENTORY. All inventory of the Company consists of items saleable
in the ordinary course, and the aggregate market value of the inventory included
in the Company Balance Sheet is at least equal to the value specified therefor
in the Company Balance Sheet. The inventory records for the Company that have
been delivered to the Buyer are accurate with respect to the data contained
therein.
4.13 LIABILITIES. Except as disclosed on SCHEDULE 4.13, the Company
does not have any Liabilities, and none of the Assets of the Company is subject
to any Liabilities, except (a) as specifically disclosed on the Company Balance
Sheet (except as heretofore paid or discharged), (b) Liabilities incurred in the
ordinary course since the date thereof that are not in the aggregate materially
adverse to the Company, or (c) Liabilities of the Company under any Contracts
specifically disclosed on any Schedule (or not required to be disclosed because
of the term or amount involved) that were not required under GAAP to have been
specifically disclosed or reserved for on the Company Balance Sheet.
4.14 TAXES. The Company has duly filed all foreign, federal, state,
local and other tax returns that are required to be filed and that were due
prior to the Closing Date, and has paid, or made provision in its financial
statements for the payment of, all material taxes and assessments shown as being
due pursuant to such returns or pursuant to any assessment received. All taxes
and other assessments and levies that the Company has been required by law to
withhold or to collect have been duly withheld and collected and have been paid
over to the proper governmental authorities or are properly held by the Company
for such payment. There are no proceedings or other actions, nor is there any
basis for any proceedings or other actions, for the assessment and collection of
additional taxes of any kind for any period for which returns have or should
have been filed.
4.15 SUBSIDIARIES. The Company does not own, directly or indirectly,
any interest or investment (whether equity or debt) in any corporation,
partnership, business, trust, joint venture or other legal entity.
4.16 LEGAL PROCEEDINGS AND COMPLIANCE WITH LAW.
(a) Except as disclosed on SCHEDULE 4.16, there is no
Litigation that is pending or, to any Seller's knowledge, overtly threatened
against or related to the Company Group. Except for (i) items disclosed on
SCHEDULE 4.16, (ii) Defaults that have been cured and (iii) other Defaults that
would not, in the aggregate, have a Material Adverse Effect, there has been no
Default since March 1, 1986 under any Regulations applicable to the Company
Group, including Regulations relating to pollution or protection of the
environment, and since March 1, 1986 no member of the Company Group has received
any notices from any governmental entity regarding any alleged Defaults under
any Regulations. There has been no Default with respect to any Court Order
applicable to the Company.
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<PAGE> 20
(b) Without limiting the generality of Section 4.16(a), except
as described on SCHEDULE 4.16, there has not been any Environmental Condition
(defined below) (i) at the premises at which the business and operations of the
Company Group has been conducted since March 1, 1976, (ii) at any property
owned, leased or operated at any time by the Company Group, or (iii) at any
property at which wastes have been deposited or disposed by or at the behest or
direction of any of the foregoing, nor has any member of the Company Group
received written notice of any such Environmental Condition. "Environmental
Condition" means any condition or circumstance, including the presence of
Hazardous Substances, resulting from Company Group operations since March 1,
1976, at or relating to any such property or premises that imposes or threatens
to subject the Company Group to any liability for (i) the abatement or
correction under an Environmental Law (defined below), (ii) any civil or
criminal liability under an Environmental Law, or (iii) a public or private
nuisance. "Environmental Law" means all Regulations and Court Orders relating to
pollution or protection of the environment as well as any principles of common
law under which a party may be held liable for the release or discharge of any
materials into the environment.
(c) The Company has delivered to, or made available for
inspection by, the Buyer correct and complete copies of any written reports,
studies or assessments in the possession or control of any Seller or the Company
that relates to any Environmental Condition.
(d) Except in those cases where the failure would not have a
Material Adverse Effect and except as otherwise disclosed, (i) the Company has
obtained and is in compliance with all governmental permits, licenses,
registrations, certificates of occupancy, approvals and other authorizations
(the "Governmental Permits"), all of which are listed in SCHEDULE 4.16 along
with their respective expiration dates, that are required for the complete
operation of the Business of the Company as currently operated, (ii) all of the
Governmental Permits are currently valid and in full force and (iii) the Company
has filed such timely and complete renewal applications as may be required with
respect to its Governmental Permits. To any Seller's knowledge, no revocation,
cancellation or withdrawal thereof has been threatened.
4.17 CONTRACTS.
(a) SCHEDULE 4.17 lists each Contract of the following types
to which the Company is a party, or by which it is bound, as of the date hereof,
except for any Contract that may be terminated by the Company on not more than
30 days' notice without any Liability and any Contract under which the executory
obligation of the Company involves an amount of less than $10,000 (such excepted
Contracts are referred to collectively as "Minor Contracts"):
(i) Contracts with any present or former stockholder,
director, officer, employee, partner or consultant of the
Company or any Affiliate
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<PAGE> 21
thereof, including any loans by any such party to the Company
and any guarantees by any such party of any obligations of the
Company;
(ii) Contracts for the future purchase of, or payment
for, supplies or products, or for the lease of any Asset from
or the performance of services by a third party, in excess of
$50,000 in any individual case, or any Contracts for the sale
of inventory or products that involve an amount in excess of
$50,000 with respect to any one supplier or other party;
(iii) Contracts to sell or supply products or to
perform services that involve an amount in excess of $50,000
in any individual case;
(iv) Contracts to lease to or to operate for any
other party any Asset that involve an amount in excess of
$25,000 in any individual case (other than Real Estate Leases
and Non-Real Estate Leases identified on other SCHEDULES);
(v) Any notes, debentures, bonds, conditional sale
agreements, equipment trust agreements, letter of credit
agreements, reimbursement agreements, loan agreements or other
Contracts for the borrowing or lending of money (including
loans to or from the Sellers or any officers, directors,
partners, stockholders or Affiliates of the Company or any
members of their immediate families), agreements or
arrangements for a line of credit or for a guarantee of, or
other undertaking in connection with, the indebtedness of any
other Person;
(vi) Any Contracts under which any Encumbrances exist
with respect to any Assets; and
(vii) Any other Contracts (other than Minor Contracts
and those described in any of (i) through (vi) above) not made
in the ordinary course of business.
(b) The Company is not in Default under any Contract
(including any Real Estate Leases and Non-Real Estate Leases). The Company has
not received any communication from, or given any communication to, any other
party indicating that the Company or such other party, as the case may be, is in
Default under any Contract where such Default could have a Material Adverse
Effect. To the knowledge of any Seller, none of the other parties in any such
Contract to which the Company is a party is in Default thereunder.
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<PAGE> 22
4.18 INSURANCE. SCHEDULE 4.18 lists all policies or binders of
insurance held by or on behalf of the Company or relating to the Business or
Assets of the Company, specifying with respect to each policy the insurer, the
amount of the coverage, the type of insurance, the risks insured, the expiration
date, the policy number and any pending claims thereunder (other than pending
claims with respect to health insurance policies maintained by the Company).
There is no Default with respect to any such policy or binder, nor has there
been any failure to give any notice or present any claim under any such policy
or binder in a timely fashion or in the manner or detail required by the policy
or binder. There is no notice of nonrenewal or cancellation with respect to, or
disallowance of any claim under, any such policy or binder that has been
received by the Company.
4.19 INTELLECTUAL PROPERTY AND SOFTWARE PRODUCTS.
(a) The Company currently does not use nor has the Company
previously used in the operation of its Business (including in the development
or marketing of products and services) any Copyrights, Patents or Trademarks
except for those listed on SCHEDULE 4.19. The Company owns or has the lawful
right to use all Intellectual Property that is used in the operation of the
Business in the ordinary course or otherwise. All of the Intellectual Property
listed on SCHEDULE 4.19 is owned by the Company free and clear of any
Encumbrances, or used pursuant to an agreement that is described on SCHEDULE
4.19. The Company does not infringe upon or unlawfully or wrongfully uses any
Intellectual Property rights owned or claimed by another Person. The Company is
not in Default, nor has the Company received any notice of any claim of
infringement or any other claim or proceeding, with respect to any such
Intellectual Property. No current or former employee of the Company and no other
Person owns or has any proprietary, financial or other interest, direct or
indirect, in whole or in part, and including any right to royalties or other
compensation, in any of the Intellectual Property, or in any application
therefor.
(b) To any Seller's knowledge, (i) none of the Confidential
Information pertaining to the Company has been used, disclosed or appropriated
(A) for the benefit of any Person other than the Company or a customer thereof
or (B) otherwise to the detriment of the Company, except where such use,
disclosure or appropriation would not, in the aggregate, have a Material Adverse
Effect, (ii) none of such employees or consultants of the Company is subject to
any contractual or legal restrictions that might interfere with the use of his
best efforts to promote the interests of the Company, (iii) no employee or
consultant of the Company has used any other Person's trade secrets or other
information that is confidential in the course of his or her work for the
Company, and (iv) no employee or consultant of the Company is, or is currently
expected to be, in Default under any term of any employment contract, agreement
or arrangement relating to the Intellectual Property, or any confidentiality
agreement or any other Contract or any restrictive covenant relating to the
Intellectual Property, or the development or exploitation thereof.
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<PAGE> 23
4.20 EMPLOYEE RELATIONS. Except as described on SCHEDULE 4.20, the
Company is not (a) a party to any collective bargaining agreement, (b) a party
to, involved in or, to any Seller's knowledge, threatened by, any labor dispute
or unfair labor practice charge, or (c) currently negotiating any collective
bargaining agreement. The Company has not experienced any work stoppage during
the last three years. The Seller has delivered to the Buyer a complete and
correct list of the names and salaries, bonus and other cash compensation of all
employees (including officers) of the Company whose total cash compensation for
1995 exceeded, or whose total compensation for 1996 is expected to exceed,
$50,000.
4.21 ERISA.
(a) SCHEDULE 4.21 contains a complete list of all Benefit
Plans sponsored or maintained by the Company or under which the Company may be
obligated. The Seller has delivered to the Buyer (i) accurate and complete
copies of all Benefit Plan documents and all other material documents relating
thereto, including all summary plan descriptions, summary annual reports and
insurance contracts, (ii) accurate and complete detailed summaries of all
unwritten Benefit Plans, (iii) accurate and complete copies of the most recent
financial statements and actuarial reports with respect to all Benefit Plans for
which financial statements or actuarial reports are required or have been
prepared, (iv) accurate and complete copies of all annual reports for all
Benefit Plans (for which annual reports are required) prepared within the last
three years and (v) any written communications made to employees within the last
three years regarding the amount of any employer contribution to be made under
any Benefit Plan. There has been no material change in the funding status or
financial condition of any of the Benefit Plans since the date of the most
recent statements or reports provided to the Buyer pursuant to the preceding
sentence. Each Benefit Plan providing benefits that are funded through a policy
of insurance is indicated by the word "insured" placed by the listing of the
Benefit Plan on SCHEDULE 4.21.
(b) All Benefit Plans conform (and at all times have
conformed) in all material respects to, and are being administered and operated
(and have at all time been administered and operated) in material compliance
with, the requirements of ERISA, the Code and all other applicable Regulations.
All returns, reports and disclosure statements required to be made under ERISA
and the Code with respect to all Benefit Plans have been timely filed or
delivered. There have not been any "prohibited transactions," as such term is
defined in Section 4975 of the Code or Section 406 of ERISA involving any of the
Benefit Plans or otherwise, that could subject the Company to any material
penalty or tax imposed under the Code or ERISA.
(c) Except as provided in SCHEDULE 4.21, any Benefit Plan that
is intended to be qualified under Section 401(a) of the Code and exempt from tax
under Section 501(a) of the Code has been determined by the Internal Revenue
Service to be so qualified under the Code as currently in effect, and such
determination remains in effect and has not been revoked. Nothing has occurred
since the date of any such determination that is reasonably likely to affect
adversely
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<PAGE> 24
such qualification or exemption, or result in the imposition of excise taxes or
income taxes on unrelated business income under the Code or ERISA with respect
to any Benefit Plan.
(d) Except as set forth on SCHEDULE 4.21, the Company does not
maintain, contribute to or have any current or contingent obligation or
liability with respect to any defined benefit plan subject to Title IV of ERISA
or any multiemployer plan (as defined in Section 3(37) of ERISA). The Company
does not have any liability with respect to any employee benefit plan (as
defined in Section 3(3) of ERISA) other than with respect to the Benefit Plans.
For purposes of this Section 4.21(d), the term "Company" shall include any
corporation that is a member of any controlled group of corporations (as defined
in Section 414(b) of the Code) that includes the Company, any trade or business
(whether or not incorporated) that is under common control (as defined in
Section 414(c) of the Code) with the Company, any organization (whether or not
incorporated) that is a member of an affiliated service group (as defined in
Section 414(m) of the Code) that includes the Company and any other entity
required to be aggregated with the Company pursuant to the regulations issued
under Section 414(o) of the Code.
(e) There are no pending or, to the knowledge of any Seller,
threatened claims by or on behalf of any Benefit Plans, or by or on behalf of
any individual participants or beneficiaries of any Benefit Plans, alleging any
breach of fiduciary duty on the part of the Company or any of its officers,
directors or employees under ERISA or any other applicable regulations, or
claiming benefit payments other than those made in the ordinary operation of
such plans, nor is there, to the knowledge of any Seller, any basis for such
claim. The Benefit Plans are not the subject of any investigation, audit or
action by the Internal Revenue Service, the Department of Labor or the Pension
Benefit Guaranty Corporation ("PBGC").
(f) The Company has made all required payments and
contributions under the Benefit Plans including the payment of any premiums
payable to the PBGC and other insurance premiums on a timely basis.
(g) With respect to each Benefit Plan that is a defined
benefit plan, there has been no reportable event (as defined in Section 4043 of
ERISA) and there will be no reportable event as a result of the Transactions,
nor an event described in Section 4062(c) of ERISA. The Company would not have
any liability under Title IV of ERISA if any Benefit Plan that is a defined
benefit plan were terminated as of the Closing Date and the Company has not
incurred any withdrawal liability, nor does the Company have any contingent
withdrawal liability with respect to any multiemployer plan under ERISA. No
event has occurred which will result in liability under Section 302 of Title IV
of ERISA or Section 412 of the Code in connection with any defined benefit plan
established, maintained or contributed to (currently or previously) by the
Company or any other entity, whether or not incorporated which, together with
the Company, would be deemed a "single employer" within the meaning of Section
4001 of ERISA. The
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<PAGE> 25
Company has not incurred any liability to the PBGC (or any successor thereto),
including any liability under Sections 4063 or 4064 of ERISA.
(h) With respect to any Benefit Plan that is an employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare
Plan"), (i) each Welfare Plan for which contributions are claimed as deductions
under any provision of the Code is in material compliance with all applicable
requirements pertaining to such deduction, (ii) with respect to any welfare
benefit fund (within the meaning of Section 419 of the Code) related to a
Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code, (iii) any Benefit Plan that is a group health plan (within
the meaning of Section 4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the material requirements of Section 4980B of the
Code, ERISA, Title XXII of the Public Health Service Act and the applicable
provisions of the Social Security Act, and (iv) all Welfare Plans may be amended
or terminated at any time on or after the Closing Date. Except as specified on
SCHEDULE 4.21, no Benefit Plan provides any health, life or other welfare
coverage to employees of the Company beyond termination of their employment with
the Company by reason of retirement or otherwise, other than coverage as may be
required under Section 4980B of the Code or Part 6 of ERISA, or under the
continuation of coverage provisions of the laws of any state or locality.
(i) The consummation of the transactions contemplated by this
Agreement will not (in and of themselves) (i) entitle any employee to severance
pay, unemployment compensation or any other payment; (ii) accelerate the time of
payment or vesting, or increase the amount of contribution due to any such
employee; or (iii) result in any liability under Title IV of ERISA.
4.22 CORPORATE RECORDS. The minute book of the Company contains
complete, correct and current copies of its Charter Documents and bylaws and of
all minutes of meetings, resolutions and other proceedings of its Board of
Directors and stockholders. The stock record book of the Company is complete,
correct and current.
4.23 ABSENCE OF CERTAIN CHANGES. Except as specified on SCHEDULE 4.23
and as otherwise contemplated by this Agreement, since the Balance Sheet Date,
the Company has conducted its Business in the ordinary course and there has not
been with respect to the Company:
(a) any material adverse change in its Business or
Liabilities;
(b) any distribution or payment declared or made in
respect of its capital stock by way of dividends,
purchase or redemption of shares or otherwise;
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(c) any increase in the compensation payable or to become
payable to any director, officer, employee or agent,
except for increases for non-officer employees made
in the ordinary course of business, nor any other
change in any employment or consulting arrangement,
other than those in the ordinary course of business;
(d) any sale, assignment or transfer of Assets, or any
additions to or transactions involving any Assets,
other than those made in the ordinary course of
business;
(e) other than in the ordinary course of business, any
waiver or release of any claim or right or
cancellation of any debt held; or
(f) any payments to any Affiliate of the Company.
4.24 PREVIOUS SALES; WARRANTIES. All goods sold or distributed and all
services performed by the Company were of merchantable quality, and the Company
has not breached any express or implied warranties in connection with the sale
or distribution of such goods where the aggregate effect of all such breaches
could have a Material Adverse Effect.
4.25 CUSTOMERS AND SUPPLIERS. The Company has used its reasonable
business efforts to maintain, and currently maintains, good working
relationships with all of its customers and suppliers. SCHEDULE 4.25 contains a
list of the names of each of the ten customers that, in the aggregate, for the
four years ending December 31, 1992, 1993, 1994 and 1995, were the largest
dollar volume customers of products or services, or both, sold by the Company.
Except as specified on SCHEDULE 4.25, none of such customers has given the
Company notice terminating, canceling or threatening to terminate or cancel any
Contract or relationship with the Company. SCHEDULE 4.25 also contains a list of
the ten suppliers that, in the aggregate, for the year ending December 31, 1995
were the largest dollar volume suppliers of supplies used by the Company. None
of such suppliers has given the Company notice terminating, canceling or
threatening to terminate or cancel any Contract or relationship with the
Company.
4.26 FINDER'S FEES. No Person retained by any Seller or the Company is
or will be entitled to any commission or finder's or similar fee in connection
with the Transactions.
4.27 ADDITIONAL INFORMATION. SCHEDULE 4.27 accurately lists the
following:
(a) the names of all officers and directors of the
Company as of immediately prior to the Closing;
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(b) the names and addresses of every bank or other
financial institution in which the Company maintains
an account (whether checking, saving or otherwise),
lock box or safe deposit box, and the account numbers
and names of Persons having signing authority or
other access thereto;
(c) the names of all Persons authorized to borrow money
or incur or guarantee indebtedness on behalf of the
Company;
(d) the names of any Persons holding powers of attorney
from the Company and a summary statement of the terms
thereof; and
(e) all names under which the Company has conducted any
Business or which it has otherwise used at any time
during the past five years.
4.28 PAMARCO COMMON STOCK
(a) The Sellers are receiving the Pamarco Common Stock
solely for investment purposes, with no present
intention of distributing or reselling any of the
Pamarco Common Stock or any interest therein. The
Sellers acknowledge that the Pamarco Common Stock has
not been registered under the Securities Act.
(b) The Sellers are aware of the applicable limitations
under the Securities Act and the Stockholders'
Agreement relating to a subsequent sale, transfer,
pledge, mortgage, hypothecation, gift, assignment or
other encumbrance of the Pamarco Common Stock. The
Sellers further acknowledge that the Pamarco Common
Stock must be held indefinitely unless it is
subsequently registered under the Securities Act and
applicable state securities laws or an exemption from
such registration is available.
(c) The Sellers will not sell, transfer, pledge, donate,
assign, mortgage, hypothecate or otherwise encumber
the Pamarco Common Stock unless the Pamarco Common
Stock is registered under the Securities Act or the
Buying Parties are given an opinion of counsel (which
may be an opinion of counsel to the Buying Parties),
acceptable to the Buying Parties, that such
registration is not required under the Securities
Act.
(d) The Sellers realize that there is no public market
for the Pamarco Common Stock, that no market may ever
develop for it, and that it has not been
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<PAGE> 28
approved or disapproved by the Securities and
Exchange Commission or any governmental agency.
(e) The Sellers acknowledge that the Buying Parties have
provided them with adequate access to financial and
other information concerning Pamarco and the Pamarco
Common Stock, and that the Sellers have had the
opportunity to ask questions of and receive answers
from the Buying Parties concerning the Pamarco Common
Stock and to obtain therefrom any additional
information necessary to make an informed decision
regarding the acquisition of the Pamarco Common
Stock.
(f) The Sellers represent that they have such knowledge
and experience in financial and business matters that
they are capable of evaluating the merits and risks
of the acquisition of the Pamarco Common Stock.
(g) The Sellers realize that the Buying Parties are
relying on the validity of the Sellers'
representations and agreements contained herein and
in the other Transaction Documents in issuing the
Pamarco Common Stock to them without registration
under the Securities Act.
(h) The Sellers are each an "accredited investor" as that
term is defined in Regulation D under the Securities
Act.
4.29 ACCURACY OF INFORMATION. No representation or warranty by any
Seller in any Transaction Document, and no information contained therein,
including the Financial Statements and the due diligence materials given to the
Buying Parties, contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements contained
herein or therein not misleading.
5. Representations and Warranties of the Buying Parties.
-----------------------------------------------------
The Buying Parties hereby represent and warrant to the Sellers as
follows:
5.1 CORPORATE. Each Buying Party is a corporation, duly organized,
validly existing and in good standing under the laws under which it was
incorporated.
5.2 AUTHORIZATION. Each Buying Party has the requisite power and
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions to be performed by it. Such execution,
delivery and performance by such Buying Party have been duly authorized by all
necessary corporate action.
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<PAGE> 29
5.3 ENFORCEABILITY. The Transaction Documents to which any Buying Party
is a party constitute valid and binding obligations of such Buying Party,
enforceable against such Buying Party in accordance with their terms.
5.4 CONSENTS AND APPROVALS. Neither the execution and delivery by any
Buying Party of the Transaction Documents to which it is a party, nor the
performance of the Transactions by any Buying Party, will require any filing,
consent or approval or constitute a Default under (a) any Regulation or Court
Order to which any Buying Party is subject, (b) the Charter Documents or bylaws
of any Buying Party or (c) any Contract, Government Permit or other document to
which any Buying Party is a party or by which the properties or other assets of
such may be subject.
5.5 CAPITALIZATION AND STOCK OWNERSHIP. Attached hereto as Exhibit F is
a correct and complete copy of Pamarco's Certificate of Incorporation, as
amended. The total authorized capital stock of Pamarco consists of 3,000,000
shares of Class A Common Stock, par value $0.01 per share, 934,595 shares of
which are issued and outstanding (excluding the Pamarco Common Stock); 500,000
shares of Class B Common Stock, par value $0.01 per share, 379,225 shares of
which are issued and outstanding; 100,000 shares of Class C Common Stock, par
value $0.01 per share, none of which is issued and outstanding; and 100,000
shares of Preferred Stock, par value $0.01 per share, none of which is issued
and outstanding. Except for (a) options granted to certain officers of the
Buying Parties for the purchase of an aggregate of up to 127,000 shares of Class
A Common Stock, (b) an option to purchase up to 25,000 shares of Class A Common
Stock granted in January of 1995 to Ashcon, Inc. in connection with the Dauphin
Graphics Machines, Inc. acquisition, (c) the right of the holders of shares of
Class B Common Stock to convert such shares at any time into an equal number of
shares of Class A Common Stock, and (d) the right of the holders of shares of
Class C Common Stock to convert such shares into an equal number of shares of
Class A Common Stock upon the occurrence of certain events described in
Pamarco's Certificate of Incorporation, there are no existing options, warrants,
calls, commitments or other rights of any character (including conversion or
preemptive rights) relating to the acquisition of any issued or unissued capital
stock or other securities of Pamarco. All of the shares of capital stock of
Pamarco that are issued and outstanding are duly and validly authorized and
issued, fully paid and non-assessable. All of the issued and outstanding capital
stock of Buyer is owned of record and beneficially by Pamarco. The Pamarco
Common Stock to be issued to the Sellers at the Closing will be duly authorized,
validly issued, fully paid and non-assessable.
5.6 FINANCIAL STATEMENTS. The Buyer has delivered to the Sellers
correct and complete copies of consolidated financial statements consisting of a
balance sheet of Pamarco as of December 31, 1994 and 1995, and the related
consolidated statements of income, retained earnings and cash flows for the
years then ended. The financial statements as of and for the year ended December
31, 1994 have been audited by Deloitte & Touche LLP. All of such audited and
unaudited financial statements, together with the notes to the audited financial
statements, are
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<PAGE> 30
referred to herein as the "Pamarco Financial Statements." The Pamarco Financial
Statements are consistent with the books and records of Pamarco, and there have
not been any material transactions completed on or before the date of the most
recent Pamarco Financial Statements that have not been recorded in the
accounting records underlying such Pamarco Financial Statements. The Pamarco
Financial Statements have been prepared in accordance with GAAP consistently
applied (subject in the case of the unaudited statements to year-end adjustments
and the absence of notes to the financial statements) and present accurately the
financial position and assets and liabilities of Pamarco as of the dates
thereof, and the results of its operations for the periods then ended.
5.7 NO ADVERSE CHANGES. Since December 31, 1995, there have been no
material adverse changes in the financial position, results of operations,
business, assets or properties of the Buying Parties, except as disclosed in the
financial statements referred to in Section 5.6 above.
5.8 LEGAL PROCEEDINGS. There is no Litigation pending, or to the
knowledge of the Buying Parties, threatened against or affecting the Buying
Parties which seeks to enjoin or obtain damages with respect to the
Transactions.
5.9 STOCKHOLDER'S AGREEMENT. The copy of the Stockholder's Agreement
attached to the Joinder to Stockholder's Agreement is a correct and complete
copy of the Stockholder's Agreement, including all amendments thereof. SCHEDULE
5.9 is a correct and complete list of all of the stockholders of record of
Pamarco and the amount of shares owned by each. All such stockholders are
parties to the Stockholder's Agreement and the Registration Rights Agreement.
5.10 REGISTRATION RIGHTS AGREEMENT. The copy of the Registration Rights
Agreement attached to the Joinder to Registration Rights Agreement is a correct
and complete copy of the Registration Rights Agreement, including all amendments
thereof.
5.11 FINDER'S FEES. No Person retained by the Buying Parties is or will
be entitled to any commission or finder's or similar fee in connection with the
Transactions.
5.12 ACCURACY OF INFORMATION. No representation or warranty by the
Buying Parties in any Transaction Document, and no information contained therein
or otherwise delivered to any Seller or in connection with the Transactions,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements contained herein or therein not
misleading.
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<PAGE> 31
6. Payment of Tax Liabilities.
---------------------------
6.1 SUBCHAPTER S INCOME. For the purposes of this Agreement,
"Subchapter S Income" means the income of the Company that is required to be
included in the income of the Sellers under the "pass through" rules for "S"
corporations under Section 1366 of the Code.
6.2 1996 TAX LIABILITIES. The Buyer shall pay to the Sellers within 60
days of the Closing Date as additional compensation for the period prior to the
Closing Date an aggregate amount equal to 47.7% (allocated 52.86812% to Andersen
and 47.13188% to Schneider, which percentages reflect their record ownership of
the Shares) of the Company's Subchapter S Income to account for their respective
liabilities for federal and state income taxes (other than any interest or
penalties) with respect to the Subchapter S Income for the period from January
1, 1996 through the Closing Date (the "1996 Closing Tax Payments"). In computing
the payment to be made under this Section 6.2, there shall be first deducted
from the 1996 Closing Tax Payment otherwise payable to a Seller any compensation
made to such Seller during or with respect to the period from January 1, 1996
through the Closing Date in excess of the following aggregate amounts, which
aggregate amounts shall be defined as the "1996 Compensation":
Andersen Schneider
-------- ---------
$66,643.48 $56,002.01
If a Seller's 1996 Closing Tax Payment minus all compensation paid in
excess of such Seller's 1996 Compensation results in a negative number, the
Sellers shall pay such negative amount to the Buyer in immediately available
funds.
7. Covenants of the Sellers.
-------------------------
From the date hereof through the Closing Date:
7.1 OPERATION OF THE BUSINESS.
(a) The Sellers shall conduct the Business solely in the
ordinary course, and refrain from the following actions in furtherance of and in
addition to such restriction: merging or consolidating with, or acquiring all or
substantially all of, or otherwise acquiring any business operations of, any
corporation, partnership, proprietorship or other business organization; selling
or otherwise disposing of any Assets except for sales and other dispositions in
the ordinary course; entering into any Contract or otherwise incurring any
Liability, even if in the ordinary course, if the Company's executory obligation
in any such individual case, or series of related cases, would (i) exceed
$100,000 or (ii) cause the sum of all such executory obligations to exceed
$200,000 in the aggregate; discharging or satisfying any Encumbrance or paying
or satisfying any material
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<PAGE> 32
Liability except pursuant to the terms thereof or compromising, settling or
otherwise modifying any material claim or litigation; or making any capital
expenditure involving in any individual case, or series of related cases, an
amount that would cause the sum of all such capital expenditures to exceed
$50,000 in the aggregate.
(b) Neither the Sellers nor the Company shall take any actions
or enter into any agreements with respect to the Richmond Project unless such
actions or agreements have been approved in advance in writing by the Buyer.
7.2 ACCESS. The Sellers shall give the Buying Parties and their
accountants, counsel and other representatives full access, without unreasonably
interfering with business operations in the ordinary course, to all properties,
books, Contracts and records of the Company and furnish to the Buying Parties
copies of all such documents, records and information as the Buying Parties
shall from time to time reasonably request.
7.3 UNAUDITED FINANCIAL STATEMENTS. The Sellers shall deliver to the
Buying Parties as soon as practicable unaudited financial statements of the
Company as of the end of each month after January 1996 that precedes the Closing
and for the period then ended.
7.4 MAINTENANCE OF THE ASSETS. The Sellers shall continue to maintain
and service the Assets consistent with past practice. Except for sales in the
ordinary course of business, the Company shall not, directly or indirectly, sell
or encumber all or any part of the Assets, or initiate or participate in any
discussions or negotiations or enter into any agreement to do any of the
foregoing.
7.5 EMPLOYEES AND BUSINESS RELATIONS. The Sellers shall use
commercially reasonable efforts (consistent with past practice) to keep
available the services of the Company's current employees and agents and to
maintain its relations and goodwill with its suppliers, customers, distributors
and any others having business relations with it.
7.6 LITIGATION DURING INTERIM PERIOD. The Sellers shall promptly advise
the Buying Parties in writing of the threat or commencement of any Litigation
against or involving the Business or the Assets.
7.7 NO OTHER NEGOTIATIONS. The Sellers shall not (a) solicit,
encourage, directly or indirectly, any inquiries, discussions or proposals for,
(b) continue, propose or enter into any negotiations or discussions looking
toward or (c) enter into any agreement or understanding providing for any
acquisition of any capital stock of the Company or of any part of the Assets or
the Business, other than as contemplated or authorized hereby, nor shall any
Seller provide any information to any Person (other than as contemplated by
Section 7.2) for the purpose of evaluating or determining whether to make or
pursue any such inquiries or proposals with respect
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<PAGE> 33
to any such acquisition. Each Seller shall immediately notify the Buying Parties
of any such inquiries or proposals or requests for information for such purpose.
Each Seller shall cause its agents and representatives and the directors,
officers and employees of the Company to comply with the provisions of this
Section 7.7.
7.8 FULFILLMENT OF CONDITIONS. Each Seller shall use commercially
reasonable efforts to fulfill the conditions specified in Sections 10 and 11 to
the extent that the fulfillment of such conditions is within such Seller's
control.
7.9 DISCLOSURE OF CERTAIN MATTERS. Each Seller shall give the Buying
Parties prompt written notice of any event or development that occurs (and that
is known by such Seller) that (a) had it existed or been known on the date
hereof would have been required to be disclosed under this Agreement, (b) would
cause any of the representations and warranties of any of the Sellers contained
herein to be inaccurate or otherwise misleading, except as contemplated by the
terms hereof, or (c) gives any Seller any reason to believe that any of the
conditions set forth in Section 10 will not be satisfied prior to the Closing
Date.
7.10 MERIDIAN LOAN PAYOFF INFORMATION. Not later than three business
days before the Closing Date, the Sellers shall provide the Buyer with all
information necessary to repay, on the Closing Date, all indebtedness for money
borrowed by the Company from Meridian Bank.
7.11 COMPANY COMPLIANCE WITH COVENANTS. Each Seller shall cause the
Company to comply with the covenants contained in this Section 7.
8. Covenants of the Buying Parties.
--------------------------------
From the date hereof through the Closing Date:
8.1 FULFILLMENT OF CONDITIONS. Each Buying Party shall use commercially
reasonable efforts to fulfill the conditions specified in Sections 10 and 11 to
the extent that the fulfillment of such conditions is within its control.
8.2 DISCLOSURE OF CERTAIN MATTERS. Each Buying Party shall give the
Sellers prompt written notice of any event or development that occurs (and that
is known by such Buying Party) that (a) had it existed or been known on the date
hereof would have been required to be disclosed under this Agreement, (b) would
cause any of the representations and warranties of any of the Buying Parties
contained herein to be inaccurate or otherwise misleading, except as
contemplated by the terms hereof, or (c) gives any Buying Party any reason to
believe that any of the conditions set forth in Section 11 will not be satisfied
prior to the Closing Date.
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<PAGE> 34
8.3 CONSENT REQUIRED UNDER REGISTRATION RIGHTS AGREEMENT. Pamarco shall
use commercially reasonable efforts to obtain any consents required pursuant to
Section 9 of the Registration Rights Agreement to add Andersen and Schneider as
parties to the Registration Rights Agreement.
9. Other Covenants.
----------------
9.1 PAYMENT OF EXPENSES. Each of the parties hereto shall pay their own
expenses for lawyers, accountants, consultants, investment bankers, brokers,
finders and other advisors with respect to the Transactions; provided, however,
that at the Closing, the Buyer will reimburse the Sellers for out-of-pocket
legal costs associated with the Transactions up to a maximum aggregate amount of
$50,000.
10. Conditions Precedent to Obligations of the Buying Parties.
----------------------------------------------------------
All obligations of the Buying Parties to consummate the Transactions on
the Closing Date are subject to the satisfaction (or waiver by the Buying
Parties) prior thereto of each of the following conditions:
10.1 REPRESENTATIONS AND WARRANTIES TRUE WHEN MADE AND AT CLOSING. The
representations and warranties of the Sellers contained in Section 4 shall have
been be true and correct as of the date such representations and warranties were
made and the representations and warranties of the Sellers contained in Sections
4.1, 4.2, 4.3, 4.4, 4.5, and 4.28 shall be true and correct at and as of the
Closing Date as though such representations and warranties were made as of that
time.
10.2 PERFORMANCE OF COVENANTS. Each Seller shall have performed or
tendered performance of all covenants and agreements that are to be performed by
him under this Agreement on the Closing Date, including delivery of the
certificates specified in Section 3, and shall have delivered to the Buying
Parties evidence, in form and substance reasonably satisfactory to counsel to
the Buying Parties, that such covenants and agreements have been so performed.
10.3 REQUIRED CONSENTS. The Company shall have obtained the Required
Consents without any modification that the Buying Parties deem unacceptable.
10.4 NO COURT ORDER OR LITIGATION. No Court Order or Litigation shall
be pending or threatened (a) that seeks to restrain the consummation, or
challenges the validity or legality, of any of the Transactions, or (b) that
would limit or affect adversely the Buyer's ability to acquire, or the Buyer's
ownership of, the Shares.
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<PAGE> 35
10.5 DIRECTORS. All directors of the Company shall have tendered their
resignations as directors, effective as of the Closing.
10.6 CERTIFICATE. Each Seller shall have tendered a certificate by
which he certifies to the Buying Parties that the conditions set forth in this
Section 10 have been satisfied, and such certificate shall be deemed to be a
representation of such Seller hereunder.
10.7 ANCILLARY DOCUMENTS. The Buying Parties shall have received
executed copies of the Employment Agreements, the Escrow Agreement and the
Joinders.
10.8 LEGAL OPINION. The Seller shall have tendered a legal opinion of
Stradley, Ronon, Stevens & Young LLP, counsel to the Sellers, substantially in
the form of Exhibit G hereto.
10.9 APPROVAL. The Buying Parties shall have received all of the
approvals from the Board of Directors of Bessemer Securities Corporation and any
Affiliates of the Buying Parties that the Buying Parties may need in order to
consummate the Transactions.
10.10 ARMOTEK SHAREHOLDERS' AGREEMENT. The Sellers and the Company
shall have terminated the Armotek Shareholders' Agreement.
11. Conditions Precedent to Obligations of the Sellers.
---------------------------------------------------
All obligations of the Sellers to consummate the Transactions on the
Closing Date are subject to the satisfaction (or waiver by the Sellers to which
the condition relates) prior thereto of each of the following conditions:
11.1 REPRESENTATIONS AND WARRANTIES TRUE WHEN MADE AND AT CLOSING. The
representations and warranties of the Buying Parties contained in Section 5
shall have been be true and correct as of the date such representations and
warranties were made and the representations and warranties of the Buying
Parties contained in Sections 5.1, 5.2, 5.3, 5.4 and 5.5 shall be true and
correct at and as of the Closing Date as though such representations and
warranties were made as of that time; provided, however, that the Buying Parties
shall be permitted to revise the representations and warranties contained in
Section 5.5 to the extent necessary to maintain the accuracy of such
representations and warranties after taking into account the impact of any
agreement of Pamarco or its Affiliates to acquire a French company and any
related actions. If Section 5.5 is revised pursuant to the preceding sentence,
the representations and warranties of the Buying Parties contained in such
revised Section 5.5 shall be true and correct at and as of the Closing Date.
11.2 PERFORMANCE OF COVENANTS. The Buying Parties shall have performed
in all material respects all covenants and agreements that are to be performed
by it under this Agreement on the
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<PAGE> 36
Closing Date, including delivery of the payments specified in Section 3, and
shall have delivered to the Sellers evidence, in form and substance reasonably
satisfactory to counsel to the Sellers, that such covenants and agreements have
been so performed.
11.3 CERTIFICATE. Each Buying Party shall have tendered a certificate
by which it certifies to the Sellers that the conditions set forth in this
Section 11 have been satisfied, and such certificate shall be deemed to be a
representation of such Buying Party hereunder.
11.4 ANCILLARY DOCUMENTS. Armotek and the Buying Parties shall have
tendered executed copies of the Employment Agreements, the Escrow Agreement and
the Joinders, to the extent that they are to be parties thereto.
11.5 LEGAL OPINION. The Buying Parties shall have tendered a legal
opinion of Morgan, Lewis & Bockius LLP, counsel to the Buyer, substantially in
the form of Exhibit H hereto.
11.6 CONSENT REQUIRED UNDER REGISTRATION RIGHTS AGREEMENT. Pamarco
shall have received any consents required pursuant to Section 9 of the
Registration Rights Agreement to add Andersen and Schneider as parties to the
Registration Rights Agreement.
11.7 PAYOFF OF MERIDIAN LOANS. The Buyer shall have tendered payment in
full for all indebtedness for money borrowed by the Company from Meridian Bank.
11.8 1995 AUDITED FINANCIAL STATEMENTS. Pamarco shall have delivered to
the Sellers a correct and complete copy of its audited financial statements as
of and for the year ended December 31, 1995.
12. Competition and Confidentiality by Sellers.
-------------------------------------------
12.1 AGREEMENT NOT TO COMPETE. Each Seller shall comply with the
covenants contained in Section 5 of his Employment Agreement to the same extent
as if such covenants were set forth in full in this Agreement.
12.2 CONFIDENTIAL INFORMATION. For an indefinite period after the date
hereof, neither the Sellers nor their respective Affiliates provided in Section
12.3 (each a "Restricted Party") shall divulge, communicate or use in any way,
any Confidential Information.
12.3 AFFILIATES. The terms of this Section 12 shall apply to each
Seller and any Affiliate controlled by either of them to the same extent as if
they were parties hereto, and each Seller shall take whatever actions that may
be necessary to cause his respective Affiliates to adhere to the terms of this
Section 12.
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<PAGE> 37
12.4 INJUNCTIVE RELIEF. In the event of any breach or threatened breach
by any Restricted Party of any provision of this Section 12, any Buying Party
shall be entitled to injunctive or other equitable relief, restraining such
party from using or disclosing any Confidential Information in whole or in part,
or from engaging in conduct that would constitute a breach of the obligations of
a Restricted Party under this Section 12. Such relief shall be in addition to
and not in lieu of any other remedies that may be available, including an action
for the recovery of damages. In the event of litigation involving this
Agreement, if a court of competent jurisdiction determines that the scope of
this Section 12 is too broad in any respect, then the scope shall be deemed to
be reduced or narrowed to such scope as is found lawful and reasonable by such
court. Each Seller acknowledges, however, that this Section 12 has been
negotiated by the parties and that the geographical and time limitations, as
well as the limitation on activities, are reasonable in light of the
circumstances pertaining to the Business and the Core Business.
13. Indemnification.
----------------
13.1 BY THE SELLERS.
(a) From and after the Closing Date, to the extent provided in
this Section 13, the Sellers shall, jointly and severally, indemnify and hold
harmless each Buying Party, and its successors and assigns, and its officers,
directors, employees, stockholders, agents, affiliates and any Person who
controls any Buying Party within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Buyer Party") from and against any
liabilities, claims, demands, judgments, losses, costs, damages or expenses
whatsoever (including attorneys', consultants' and other professional fees and
disbursements of every kind, nature and description incurred by such Indemnified
Buyer Party in connection therewith) (collectively, "Damages") that such
Indemnified Buyer Party may sustain, suffer or incur and that result from, arise
out of or relate to (i) any breach of any representation or warranty of any
Seller contained in this Agreement, (ii) any Environmental Condition existing on
or prior to the Closing, and (iii) any breach of any covenant or agreement of
the Sellers contained in this Agreement, except that the Sellers' obligations
under this Section 13 with respect to any breach of the covenants set forth in
Section 12 shall be several and not joint. The indemnification obligations of
the Sellers under clauses (i) and (ii) of this Section 13.1(a) are referred to
herein as the "Sellers' Non-Covenant Indemnification Obligations."
(b) Notwithstanding any provisions of this Section 13 to the
contrary, the Sellers' Non-Covenant Indemnification Obligations shall be limited
to (i) an aggregate of $550,000 for Claim Notices made by Indemnified Buyer
Parties on or before the first anniversary of the Closing Date and (ii) an
aggregate of $200,000 for Claim Notices made by Indemnified Buyer Parties after
the first anniversary of the Closing Date.
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<PAGE> 38
(c) The sole source of funds to satisfy the Sellers'
Non-Covenant Indemnification Obligations relating to Claim Notices made by
Indemnified Buyer Parties on or before the first anniversary of the Closing Date
shall be limited to (i) the Escrow Funds held by the Escrow Agent pursuant to
the Escrow Agreement and (ii) the amounts, if any, payable to the Sellers
pursuant to Section 2.2 as Contingent Purchase Price. The sole source of funds
to satisfy the Sellers' Non-Covenant Indemnification Obligations relating to
Claim Notices made by Indemnified Buyer Parties after the first anniversary of
the Closing Date and on or before the second anniversary of the Closing Date
shall be limited to the amounts, if any, payable to the Sellers pursuant to
Section 2.2 as Contingent Purchase Price.
13.2 BY THE BUYING PARTIES.
(a) From and after the Closing Date, to the extent provided in
this Section 13, the Buying Parties shall jointly and severally indemnify and
hold harmless any Seller, his successors and assigns (each, an "Indemnified
Seller Party") from and against any Damages that such Indemnified Seller Party
may sustain, suffer or incur and that result from, arise out of or relate to (i)
any breach of any representation or warranty of such Buying Party contained in
this Agreement and (ii) any breach of any covenant or agreement of the Buying
Parties contained in this Agreement. The indemnification obligations of the
Buying Parties under clause (i) of this Section 13.2(a) are referred to herein
as the "Buying Parties' Non-Covenant Indemnification Obligations."
(b) Notwithstanding any provisions of this Section 13 to the
contrary, the Buying Parties' Non-Covenant Indemnification Obligations shall be
limited to an aggregate of $550,000.
13.3 LIMITATION ON INDEMNIFICATION. Losses indemnifiable by any party
hereunder shall not include any amounts recovered from any surety, insurance
carrier or third party obligor, nor the cost of maintaining any surety or
insurance policies, and no right of subrogation shall accrue to any party
hereunder for the benefit of any surety, insurance company or third party. The
Buying Parties and Sellers each agree to submit in a timely matter to any
applicable surety, insurance carrier or third party obligor, all claims for
indemnifiable losses for which such other entities may have responsibility.
13.4 PROCEDURE FOR CLAIMS.
(a) An Indemnified Buyer Party or an Indemnified Seller Party
that desires to seek indemnification under any part of this Section 13 (each, an
"Indemnified Party") shall give notice (the "First Claim Notice") to each party
responsible or alleged to be responsible for indemnification hereunder (an
"Indemnitor") and, if applicable, to the Escrow Agent, prior to any applicable
Expiration Date specified below. Such notice shall briefly explain the nature of
the
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claim and shall specify the amount thereof. If the matter to which a claim
relates shall not have been resolved as of the date of the First Claim Notice,
the Indemnified Party shall estimate the amount of the claim in the First Claim
Notice, but also specify therein that the claim has not yet been liquidated (an
"Unliquidated Claim"). If an Indemnified Party gives a First Claim Notice for an
Unliquidated Claim, the Indemnified Party shall also give a second claim notice
(the "Liquidated Claim Notice") within 60 days after the matter giving rise to
the claim becomes finally resolved, and the Liquidated Claim Notice shall
specify the amount of the claim. For purposes of this Agreement, "Claim Notice"
shall mean (i) the First Claim Notice with respect to a claim that is not an
Unliquidated Claim, or (ii) the Liquidated Claim Notice with respect to an
Unliquidated Claim. Each Indemnitor to which a Claim Notice is given shall
respond to any Indemnified Party that has given a Claim Notice (a "Claim
Response") within 20 days (the "Response Period") after the date that the Claim
Notice is given. Any Claim Notice or Claim Response shall be given in accordance
with the notice requirements hereunder, and any Claim Response shall specify
whether or not the Indemnitor giving the Claim Response disputes the claim
described in the Claim Notice. If any Indemnitor fails to give a Claim Response
within the Response Period, such Indemnitor shall be deemed not to dispute the
claim described in the related Claim Notice. If any Indemnitor elects not
dispute a claim described in a Claim Notice, whether by failing to give a timely
Claim Response or otherwise, then the amount of such claim shall be conclusively
deemed to be an obligation of such Indemnitor.
(b) If any Indemnitor shall be obligated to indemnify an
Indemnified Party hereunder, such Indemnitor shall pay to such Indemnified Party
within 30 days after the last day of the Claim Response Period the amount to
which such Indemnified Party shall be entitled. If a Buying Party shall be the
Indemnified Party, it shall first request payment of the related Damages under
the Escrow Agreement, but only to the extent that Escrow Funds are then being
held by the Escrow Agent and are not subject to other claims for
indemnification, and thereafter such a Buying Party shall seek indemnification
from the Contingent Purchase Price. If there shall be a dispute as to the amount
or manner of indemnification under this Section 13, the Indemnified Party may
pursue whatever legal remedies may be available for recovery of the Damages
claimed from any Indemnitor. If any Indemnified Party fails to receive all or
part of any indemnification obligation when due, then such Indemnified Party
shall also be entitled to receive from the applicable Indemnitor or, if
applicable, the Escrow Agent, interest on the unpaid amount for each day during
which the obligation remains unpaid at an annual rate equal to the Prime Rate,
and the Prime Rate in effect on the first business day of each calendar quarter
shall apply to the amount of the unpaid obligation during such calendar quarter.
(c) Notwithstanding any other provision of this Section 13, no
Indemnified Party shall be entitled to indemnification for any Non-Covenant
Claim (defined below) until the aggregate of all Damages to all Indemnified
Parties in the group to which such Indemnified Party belongs (either Indemnified
Buyer Parties, as a group, or Indemnified Seller Parties, as a group) exceeds
$25,000 (the "Deductible Amount"), and then such Indemnified Party shall be
entitled
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to indemnification for its Damages in excess of the Deductible Amount. For
purposes of this Agreement, "Non-Covenant Claim" means any claim for
indemnification made under clauses (i) or (ii) of Section 13.1(a) or clause (i)
of Section 13.2(a), and "Covenant Claim" means any claim for indemnification
made under clause (iii) of Section 13.1(a) or clause (ii) of Section 13.2(a).
13.5 CLAIMS PERIOD. Any claim for indemnification under this Section 13
shall be made by giving a Claim Notice under Section 13.4 on or before the
applicable "Expiration Date" specified below in this Section 13.5, or the claim
under this Section 13 shall be invalid. The following claims shall have the
following respective "Expiration Dates": (a) the first anniversary of the
Closing Date--any claims that are not specified in any of the succeeding
clauses; (b) the second anniversary of the Closing Date--any claim for Damages
related to an Environmental Condition, whether based on a breach of a
representation or warranty or the indemnification for Environmental Conditions
in Section 13(a); and (c) the date on which the applicable statute of
limitations expires--any claim for Damages related to a breach of any covenant
or agreement of the parties contained in this Agreement. If more than one of
such Expiration Dates applies to a particular claim, the latest of such
Expiration Dates shall be the controlling Expiration Date for such claim. So
long as an Indemnified Party gives a Claim Notice for an Unliquidated Claim on
or before the applicable Expiration Date, such Indemnified Party shall be
entitled to pursue its rights to indemnification regardless of the date on which
such Indemnified Party gives the related Liquidated Claim Notice.
13.6 THIRD PARTY CLAIMS. An Indemnified Party that desires to seek
indemnification under any part of this Section 13 with respect to any actions,
suits or other administrative or judicial proceedings (each, an "Action") that
may be instituted by a third party shall give each Indemnitor prompt notice of a
third party's institution of such Action. After such notice, any Indemnitor may,
or if so requested by such Indemnified Party, any Indemnitor shall, participate
in such Action or assume the defense thereof, with counsel satisfactory to such
Indemnified Party; provided, however, that such Indemnified Party shall have the
right to participate at its own expense in the defense of such Action; and
provided, further, that the Indemnitor shall not consent to the entry of any
judgment or enter into any settlement, except with the written consent of such
Indemnified Party (which consent shall not be unreasonably withheld), that (a)
fails to include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
of any such Action or (b) grants the claimant or plaintiff any injunctive relief
against the Indemnified Party. Any failure to give prompt notice under this
Section 13.6 shall not bar an Indemnified Party's right to claim indemnification
under this Section 13, except to the extent that an Indemnitor shall have been
harmed by such failure.
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<PAGE> 41
14. REMEDIES.
Except with respect to Fraud Claims and Covenant Claims, the remedies
provided by Section 13 shall be the sole and exclusive remedies of the parties
for the matters covered thereby. With respect to Fraud Claims and Covenant
Claims, any party shall be entitled to such rights and remedies as such party
may have at law or in equity or otherwise for any breach of this Agreement,
including the right to seek specific performance, recision or restitution, none
of which rights or remedies shall be affected or diminished by the remedies
provided hereunder.
15. TERMINATION.
15.1 GROUNDS FOR TERMINATION. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by mutual written consent of the Sellers and the Buying
Parties;
(b) by any Seller or any Buying Party, if the Closing has not
occurred (other than through the failure of any party seeking to
terminate this Agreement to comply with its obligations under this
Agreement) on or before April 15, 1996, or such later date as the
parties may agree;
(c) by any Seller or any Buying Party, if there shall be any
Regulation that makes consummation of the Transactions illegal or
otherwise prohibited or if any Court Order enjoining such Seller or
such Buying Party from consummating the Transactions is entered and
such Court Order shall become final and nonappealable;
(d) by any Buying Party, if any Seller shall have breached any
of its covenants hereunder and, if such breach is subject to cure, such
Seller shall not have cured such breach within 10 business days of a
Buying Party's notice of an intent to terminate;
(e) by any Seller, if any Buying Party shall have breached any
of its covenants hereunder and, if such breach is subject to cure, such
Buying Party shall not have cured such breach within 10 business days
of a Seller's notice of an intent to terminate;
(f) (i) by any Buying Party if any of the conditions in
Section 10 has not been satisfied as of the Closing Date or if
satisfaction of such a condition is or becomes impossible (other than
through the failure of such Buying Party to comply with its obligations
under this Agreement) and the Buying Party has not waived such
condition on or before the Closing Date; or (ii) by any Seller if any
of the conditions in Section 11 has not been satisfied as of the
Closing Date or if satisfaction of such a condition is or
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<PAGE> 42
becomes impossible (other than through the failure of such Seller to
comply with its obligations under this Agreement) and the Seller has
not waived such condition on or before the Closing Date.
15.2 EFFECT OF TERMINATION.
(a) If this Agreement is terminated pursuant to Section 15.1,
this Agreement shall immediately terminate and be of no further force and
effect. Any party may pursue any legal or equitable remedies that may be
available if such termination is based on a breach of another party.
(b) The provisions of Sections 12.2, 12.3 and 12.4 shall
survive any termination of this Agreement pursuant to Section 15.1.
(c) The confidentiality provisions of that certain letter of
Pamarco to Andersen dated March 31, 1995 shall survive any termination of this
Agreement pursuant to Section 15.1.
(d) If this Agreement is terminated pursuant to Section 15.1,
each party hereto shall promptly return to the other parties any and all
documents, materials, financial statements and other written items received or
obtained by such party since October 1, 1995 that are confidential or
proprietary to the other parties hereto.
16. CONTENTS OF AGREEMENT.
This Agreement, together with the other Transaction Documents, sets
forth the entire understanding of the parties hereto with respect to the
Transactions and supersedes all prior agreements or understandings among the
parties regarding those matters.
17. AMENDMENT, PARTIES IN INTEREST, ASSIGNMENT, ETC.
This Agreement may be amended, modified or supplemented only by a
written instrument duly executed by each of the parties hereto. If any provision
of this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein. This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the respective heirs, legal representatives, successors
and permitted assigns of the parties hereto. No party hereto shall assign this
Agreement or any right, benefit or obligation hereunder. Any term or provision
of this Agreement may be waived at any time by the party entitled to the benefit
thereof by a written instrument duly executed by such party. The parties hereto
shall execute and
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deliver any and all documents and take any and all other actions that may be
deemed reasonably necessary by their respective counsel to complete the
Transactions.
18. INTERPRETATION.
Unless the context of this Agreement clearly requires otherwise, (a)
references to the plural include the singular, the singular the plural, the part
the whole, (b) references to one gender include all genders, (c) "or" has the
inclusive meaning frequently identified with the phrase "and/or," (d)
"including" has the inclusive meaning frequently identified with the phrase "but
not limited to" and (e) references to "hereunder" or "herein" relate to this
Agreement. The section and other headings contained in this Agreement are for
reference purposes only and shall not control or affect the construction of this
Agreement or the interpretation thereof in any respect. Section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified. Each accounting term used herein that is not specifically defined
herein shall have the meaning given to it under GAAP.
19. NOTICES.
All notices that are required or permitted hereunder shall be in
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
party hereto:
If to the Buyer or Pamarco:
Pamarco Technologies Inc.
c/o Bradford Ventures Ltd.
1212 Avenue of the Americas
Suite 1802
New York, NY 10036
Attention: Thomas L. Ferguson
Fax: 212-764-3467
with a required copy to:
Thomas J. Sharbaugh, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
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<PAGE> 44
Fax: 215-963-5299
If to the Sellers:
Dennis E. Andersen
122 Buddtown Road
Southampton, NJ 08088
E. Hugh Schneider
188 William Feather Drive
Voorhees, NJ 08043
with a required copy to:
David R. Landrey, Esquire
Stradley, Ronon, Stevens & Young LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Fax: 215-564-8120
20. GOVERNING LAW.
This Agreement shall be construed and interpreted in accordance with
the laws of the State of Delaware without regard to its provisions concerning
conflict of laws.
21. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be binding as of the date first written above, and all of which
shall constitute one and the same instrument. Each such copy shall be deemed an
original, and it shall not be necessary
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<PAGE> 45
in making proof of this Agreement to produce or account for more than one such
counterpart.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first written above.
PAMARCO TECHNOLOGIES INC.
By:
--------------------------
Name:
-----------------------
Title:
-----------------------
PAMARCO, INCORPORATED
By:
--------------------------
Name:
-----------------------
Title:
-----------------------
-----------------------------------
DENNIS E. ANDERSEN
-----------------------------------
E. HUGH SCHNEIDER
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<PAGE> 46
THIRD AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS THIRD AMENDMENT TO STOCK PURCHASE AGREEMENT (the "Amendment") is
made this 19th day of April, 1996 by and among Pamarco Technologies Inc., a
Delaware corporation ("Pamarco"), Pamarco, Incorporated, a Maryland corporation
(the "Buyer" and, together with Pamarco, the "Buying Parties"), Dennis E.
Andersen, a New Jersey resident ("Andersen"), and E. Hugh Schneider, a New
Jersey resident ("Schneider" and, together with Andersen, the "Sellers").
Background
----------
The parties hereto are all parties to a Stock Purchase Agreement, dated
March 5, 1996, which was amended on April 15, 1996 and on April 17, 1996. Such
Stock Purchase Agreement as amended is referred to herein as the "Agreement."
Terms are used in this Amendment with any definitions assigned to such terms in
the Agreement unless they are otherwise defined herein.
The parties desire to enter into this Amendment in order to reflect to
certain changes to the terms and conditions of the Agreement. These changes
include deleting the Escrow Agent and the Escrow Agreement and providing for the
payment of a $250,000 portion of the Purchase Price to the Sellers at the
Closing rather than paying such funds to the Escrow Agent.
Witnesseth
----------
NOW, THEREFORE, in consideration of the respective covenants and
agreements contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
22. DEFINITIONS. Section 1 of the Agreement is hereby amended to reflect
the following:
(1) All references in the definitions to the "Escrow Agent,"
the "Escrowed Funds" and the "Escrow Agreement" are hereby deleted.
(2) "Maximum Performance Target" means $1,798,749.
(3) "Minimum Performance Target" means $1,490,983.
(4) "Pamarco Common Stock" means the 7,692 shares of Pamarco's
Class A Common Stock, par value $0.01 per share, being issued to the
Sellers hereunder.
23. PURCHASE AND SALE OF SHARES. Section 2.1(b) of the Agreement is hereby
amended in its entirety to read as follows:
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(b) The Buyer shall pay the Purchase Price to the Sellers as
set forth below:
(1) at the Closing, the Buyer shall pay by a wire
transfer of immediately available funds $581,549.30 to Andersen (plus
interest thereon from the date hereof through the Closing Date at the
Deal Rate) and $518,450.70 to Schneider (plus interest thereon from the
date hereof through the Closing Date at the Deal Rate);
(2) at the Closing, the Buyer shall issue to Andersen
a stock certificate for 4,067 shares of Pamarco Common Stock and a
stock certificate to Schneider for 3,625 shares of Pamarco Common
Stock; provided, however, that both certificates, along with duly
executed stock powers endorsed in blank by the Sellers, shall be
delivered at the Closing to Pamarco to hold in escrow in accordance
with Section 13 hereof (the "Escrowed Shares"); and
(3) if the Company meets or exceeds the Minimum
Performance Target (as specified in Section 2.2(a) below), the Buyer
shall pay the Sellers the Contingent Purchase Price in accordance with
the following percentages, which percentages reflect their record
ownership of the Shares: 52.86812% of the Contingent Purchase Price
shall be paid to Andersen and 47.13188% of the Contingent Purchase
Price shall be paid to Schneider.
24. CONTINGENT PURCHASE PRICE. Section 2.2(a) of the Agreement is hereby
amended in its entirety to read as follows:
(1) The term "Contingent Purchase Price" means the cash
payment specified below in this Section 2.2(a). The Buyer shall pay the
Contingent Purchase Price to the Sellers if the aggregate Pre-Tax
Income of the Core Business during the period beginning on April 19,
1996 and ending on December 31, 1998 (referred to herein as the
"Earnings Period") shall be at least equal to the Minimum Performance
Target. It is the intent of the parties that (so long as the Minimum
Performance Target shall be achieved) the amount of the Contingent
Purchase Price cannot be less than $200,000 in the aggregate nor more
than $800,000 in the aggregate, and it is the further intent of the
parties that if the actual Pre-Tax Income of the Core Business shall
exceed the Maximum Performance Target, the Sellers shall get no credit
for, or Contingent Purchase Price payment in connection with, the
amount by which the actual Pre-Tax Income of the Core Business exceeds
the Maximum Performance Target. The Buyer shall pay by a wire transfer
of immediately available funds any Contingent Purchase Price due to the
Sellers in three equal installments on June 30
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<PAGE> 48
of 1999, 2000 and 2001. The Contingent Purchase Price shall be
determined and paid in accordance with the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
PRE-TAX INCOME PURCHASE PRICE
-------------- ---------------
<S> <C>
less than $1,490,983 $0
$1,490,983 or more, but less $200,000
than $1,542,276
$1,542,276 or more, but less $300,000
than $1,593,571
$1,593,571 or more, but less $400,000
than $1,644,865
$1,644,865 or more, but less $500,000
than $1,696,159
$1,696,159 or more, but less $600,000
than $1,747,454
$1,747,454 or more, but less $700,000
than $1,798,749
$1,798,749 or more $800,000
</TABLE>
25. ESCROW ACCOUNT. Section 2.3 of the Agreement is hereby deleted.
26. 1996 TAX LIABILITIES. Section 6.2 of the Agreement is hereby amended
by substituting the following amounts for the 1996 Compensation amounts
specified for the Sellers:
Andersen Schneider
-------- ---------
$75,654.72 $62,575.04
27. MERIDIAN LOAN PAYOFF INFORMATION. Section 7.10 of the Agreement is
hereby deleted.
28. ANCILLARY DOCUMENTS. The references to "the Escrow Agreement" in
Section 10.7 and Section 11.4 of the Agreement are hereby deleted.
29. PAYOFF OF MERIDIAN LOANS. Section 11.7 of the Agreement is hereby
deleted.
30. INDEMNIFICATION. Section 13 of the Agreement is hereby amended in its
entirety to read as follows:
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<PAGE> 49
13.1 BY THE SELLERS.
(1) From and after the Closing Date, to the extent provided in
this Section 13, the Sellers shall, jointly and severally, indemnify
and hold harmless each Buying Party, and its successors and assigns,
and its officers, directors, employees, stockholders, agents,
affiliates and any Person who controls any Buying Party within the
meaning of the Securities Act or the Exchange Act (each, an
"Indemnified Buyer Party") from and against any liabilities, claims,
demands, judgments, losses, costs, damages or expenses whatsoever
(including attorneys', consultants' and other professional fees and
disbursements of every kind, nature and description incurred by such
Indemnified Buyer Party in connection therewith) (collectively,
"Damages") that such Indemnified Buyer Party may sustain, suffer or
incur and that result from, arise out of or relate to (i) any breach of
any representation or warranty of any Seller contained in this
Agreement, (ii) any Environmental Condition existing on or prior to the
Closing, and (iii) any breach of any covenant or agreement of the
Sellers contained in this Agreement, except that the Sellers'
obligations under this Section 13 with respect to any breach of the
covenants set forth in Section 12 shall be several and not joint. The
indemnification obligations of the Sellers under clauses (i) and (ii)
of this Section 13.1(a) are referred to herein as the "Sellers'
Non-Covenant Indemnification Obligations."
(2) Notwithstanding any provisions of this Section 13 to the
contrary, the Sellers' Non-Covenant Indemnification Obligations shall
be limited to (i) an aggregate of $550,000 for Claim Notices made by
Indemnified Buyer Parties on or before the first anniversary of the
Closing Date and (ii) an aggregate of $200,000 for Claim Notices made
by Indemnified Buyer Parties after the first anniversary of the Closing
Date.
(3) The sole source of funds to satisfy the Sellers'
Non-Covenant Indemnification Obligations relating to Claim Notices made
by Indemnified Buyer Parties on or before the first anniversary of the
Closing Date shall be limited to (i) the Escrowed Shares held by the
Pamarco pursuant to this Agreement and (ii) the amounts, if any,
payable to the Sellers pursuant to Section 2.2 as Contingent Purchase
Price. The sole source of funds to satisfy the Sellers' Non-Covenant
Indemnification Obligations relating to Claim Notices made by
Indemnified Buyer Parties after the first anniversary of the Closing
Date and on or before the second anniversary of the Closing Date shall
be limited to the amounts, if any, payable to the Sellers pursuant to
Section 2.2 as Contingent Purchase Price.
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<PAGE> 50
13.2 BY THE BUYING PARTIES.
(a) From and after the Closing Date, to the extent provided in
this Section 13, the Buying Parties shall jointly and severally
indemnify and hold harmless any Seller, his successors and assigns
(each, an "Indemnified Seller Party") from and against any Damages that
such Indemnified Seller Party may sustain, suffer or incur and that
result from, arise out of or relate to (i) any breach of any
representation or warranty of such Buying Party contained in this
Agreement and (ii) any breach of any covenant or agreement of the
Buying Parties contained in this Agreement. The indemnification
obligations of the Buying Parties under clause (i) of this Section
13.2(a) are referred to herein as the "Buying Parties' Non-Covenant
Indemnification Obligations."
(b) Notwithstanding any provisions of this Section 13 to the
contrary, the Buying Parties' Non-Covenant Indemnification Obligations
shall be limited to an aggregate of $550,000.
13.3 LIMITATION ON INDEMNIFICATION. Losses indemnifiable by
any party hereunder shall not include any amounts recovered from any
surety, insurance carrier or third party obligor, nor the cost of
maintaining any surety or insurance policies, and no right of
subrogation shall accrue to any party hereunder for the benefit of any
surety, insurance company or third party. The Buying Parties and
Sellers each agree to submit in a timely matter to any applicable
surety, insurance carrier or third party obligor, all claims for
indemnifiable losses for which such other entities may have
responsibility.
13.4 PROCEDURE FOR CLAIMS.
(a) An Indemnified Buyer Party or an Indemnified Seller Party
that desires to seek indemnification under any part of this Section 13
(each, an "Indemnified Party") shall give notice (the "First Claim
Notice") to each party responsible or alleged to be responsible for
indemnification hereunder (an "Indemnitor") prior to any applicable
Expiration Date specified below. Such notice shall briefly explain the
nature of the claim and shall specify the amount thereof. If the matter
to which a claim relates shall not have been resolved as of the date of
the First Claim Notice, the Indemnified Party shall estimate the amount
of the claim in the First Claim Notice, but also specify therein that
the claim has not yet been liquidated (an "Unliquidated Claim"). If an
Indemnified Party gives a First Claim Notice for an Unliquidated Claim,
the Indemnified Party shall also give a second claim notice (the
"Liquidated Claim Notice") within 60 days after the matter giving rise
to the claim becomes finally resolved, and the Liquidated Claim Notice
shall
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specify the amount of the claim. For purposes of this Agreement, "Claim
Notice" shall mean (i) the First Claim Notice with respect to a claim
that is not an Unliquidated Claim, or (ii) the Liquidated Claim Notice
with respect to an Unliquidated Claim. Each Indemnitor to which a Claim
Notice is given shall respond to any Indemnified Party that has given a
Claim Notice (a "Claim Response") within 20 days (the "Response
Period") after the date that the Claim Notice is given. Any Claim
Notice or Claim Response shall be given in accordance with the notice
requirements hereunder, and any Claim Response shall specify whether or
not the Indemnitor giving the Claim Response disputes the claim
described in the Claim Notice. If any Indemnitor fails to give a Claim
Response within the Response Period, such Indemnitor shall be deemed
not to dispute the claim described in the related Claim Notice. If any
Indemnitor elects not dispute a claim described in a Claim Notice,
whether by failing to give a timely Claim Response or otherwise, then
the amount of such claim shall be conclusively deemed to be an
obligation of such Indemnitor.
(b) If any Indemnitor shall be obligated to indemnify an
Indemnified Party hereunder, such Indemnitor shall pay to such
Indemnified Party within 30 days after the last day of the Claim
Response Period the amount to which such Indemnified Party shall be
entitled. If a Buying Party shall be the Indemnified Party, the
applicable Damages shall first be satisfied with the Escrowed Shares in
accordance with Section 13.7 below, and thereafter such a Buying Party
shall seek indemnification from the Contingent Purchase Price. If there
shall be a dispute as to the amount or manner of indemnification under
this Section 13, the Indemnified Party may pursue whatever legal
remedies may be available for recovery of the Damages claimed from any
Indemnitor. If any Indemnified Party fails to receive all or part of
any indemnification obligation when due, then such Indemnified Party
shall also be entitled to receive from the applicable Indemnitor
interest on the unpaid amount for each day during which the obligation
remains unpaid at an annual rate equal to the Prime Rate, and the Prime
Rate in effect on the first business day of each calendar quarter shall
apply to the amount of the unpaid obligation during such calendar
quarter.
(c) Notwithstanding any other provision of this Section 13, no
Indemnified Party shall be entitled to indemnification for any
Non-Covenant Claim (defined below) until the aggregate of all Damages
to all Indemnified Parties in the group to which such Indemnified Party
belongs (either Indemnified Buyer Parties, as a group, or Indemnified
Seller Parties, as a group) exceeds $25,000 (the "Deductible Amount"),
and then such Indemnified Party shall be entitled to indemnification
for its Damages in excess of the Deductible Amount. For purposes of
this Agreement, "Non-Covenant Claim" means any claim for
indemnification
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<PAGE> 52
made under clauses (i) or (ii) of Section 13.1(a) or clause (i) of
Section 13.2(a), and "Covenant Claim" means any claim for
indemnification made under clause (iii) of Section 13.1(a) or clause
(ii) of Section 13.2(a).
13.5 CLAIMS PERIOD. Any claim for indemnification under this
Section 13 shall be made by giving a Claim Notice under Section 13.4 on
or before the applicable "Expiration Date" specified below in this
Section 13.5, or the claim under this Section 13 shall be invalid. The
following claims shall have the following respective "Expiration
Dates": (a) the first anniversary of the Closing Date--any claims that
are not specified in any of the succeeding clauses; (b) the second
anniversary of the Closing Date--any claim for Damages related to an
Environmental Condition, whether based on a breach of a representation
or warranty or the indemnification for Environmental Conditions in
Section 13(a); and (c) the date on which the applicable statute of
limitations expires--any claim for Damages related to a breach of any
covenant or agreement of the parties contained in this Agreement. If
more than one of such Expiration Dates applies to a particular claim,
the latest of such Expiration Dates shall be the controlling Expiration
Date for such claim. So long as an Indemnified Party gives a Claim
Notice for an Unliquidated Claim on or before the applicable Expiration
Date, such Indemnified Party shall be entitled to pursue its rights to
indemnification regardless of the date on which such Indemnified Party
gives the related Liquidated Claim Notice.
13.6 THIRD PARTY CLAIMS. An Indemnified Party that desires to
seek indemnification under any part of this Section 13 with respect to
any actions, suits or other administrative or judicial proceedings
(each, an "Action") that may be instituted by a third party shall give
each Indemnitor prompt notice of a third party's institution of such
Action. After such notice, any Indemnitor may, or if so requested by
such Indemnified Party, any Indemnitor shall, participate in such
Action or assume the defense thereof, with counsel satisfactory to such
Indemnified Party; provided, however, that such Indemnified Party shall
have the right to participate at its own expense in the defense of such
Action; and provided, further, that the Indemnitor shall not consent to
the entry of any judgment or enter into any settlement, except with the
written consent of such Indemnified Party (which consent shall not be
unreasonably withheld), that (a) fails to include as an unconditional
term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of any
such Action or (b) grants the claimant or plaintiff any injunctive
relief against the Indemnified Party. Any failure to give prompt notice
under this Section 13.6 shall not bar an Indemnified Party's right to
claim indemnification under this Section 13, except to the extent that
an Indemnitor shall have been harmed by such failure.
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<PAGE> 53
13.7 ESCROWED SHARES.
(a) Pamarco shall hold the Escrowed Shares in escrow for the
purpose of satisfying claims under this Section 13.7. The Sellers shall
not be considered to have an ownership interest in the Escrowed Shares
for purposes of transfer, attachment or otherwise until and only to the
extent such Escrowed Shares are paid or released to the Sellers.
Notwithstanding the foregoing, during the period in which the Escrowed
Shares are held hereunder, the Sellers shall be entitled to (i) receive
all cash dividends paid with respect to the Escrowed Shares and (ii)
exercise all voting powers of the Escrowed Shares.
(b) In the case of any claim to be satisfied out of the
Escrowed Shares hereunder, Pamarco shall deliver to the Indemnified
Party Escrowed Shares in an amount equal to the unsatisfied claim, with
each Escrowed Share being valued at Fair Market Value, as such term is
defined below. "Fair Market Value" means the price at which shares of
Class A Common Stock of Pamarco are valued in the most recent
arm's-length transaction with an unaffiliated party that preceded the
date of the claim; provided, however, that such arm's-length
transaction shall have (i) involved the sale of shares of Class A
Common Stock of Pamarco with an aggregate value of at least $100,000
and (ii) involved the issuance of shares of Class A Common Stock of
Pamarco to persons or entities other than directors, officers or
employees of Pamarco or the Buyer or any entities controlled by them.
(c) On the first anniversary of the Closing Date, Pamarco
shall deliver the Escrowed Shares to the Sellers in the same proportion
as they were delivered to Pamarco, except that if a claim hereunder is
unresolved at that time, a portion of the Escrowed Shares that is equal
to any such outstanding claim shall continue to be held until the
resolution of the claim in accordance with this Agreement.
31. EFFECT OF THIS AMENDMENT. The Agreement shall continue in full
force and effect and shall not be amended hereby except to the extent expressly
provided herein.
32. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be binding as of the date first written above,
and all of which shall constitute one and the same instrument. Each such copy
shall be deemed an original, and it shall not be necessary in making proof of
this Amendment to produce or account for more than one such counterpart.
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<PAGE> 54
IN WITNESS WHEREOF, this Amendment has been executed by the parties
hereto as of the day and year first written above.
PAMARCO TECHNOLOGIES INC.
By:
-------------------------------
Name:
Title:
PAMARCO, INCORPORATED
By:
-------------------------------
Name:
Title:
------------------------------
DENNIS E. ANDERSEN
------------------------------
E. HUGH SCHNEIDER
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<PAGE> 1
Exhibit 10.5
SHARE PURCHASE AGREEMENT
in respect of the acquisition of the
entire issued share capital of
QUALTECH HOLDINGS LIMITED
among
PAMARCO EUROPE LIMITED
PAMARCO TECHNOLOGIES, INC.
and
THE SHAREHOLDERS OF QUALTECH HOLDINGS LIMITED
Section Page
------- ----
1. Definitions and Interpretation 1
2. Purchase and Sale of Shares 6
3. Closing 9
4. Warranties of the Sellers 10
5. Representations and Warranties of the Buying Parties 24
6. Conditions Precedent to Obligations of the Buying Parties 26
7. Conditions Precedent to Obligations of the Sellers 26
8. Competition and Confidentiality 26
9. Limitation on the Sellers' Liability and Claims Procedure 27
10. Entire Agreement 31
11. Amendment, Parties in Interest, Assignment, Etc. 31
12. Post Closing Obligations 32
13. Notices 32
14. Governing Law 33
15. Counterparts 33
<PAGE> 2
Exhibits
- --------
A Building Lease
B Escrow Agreement
C Debt
D Fixed Asset Schedule
Schedules
- ---------
1. The Sellers
2. Part I The Company
Part II the Subsidiaries
3. Disclosures
Section:
--------
4.3 Required Consents
4.6 Encumbrances
4.7 Real Property
4.9 Non-Real Estate Leases
4.12 Liabilities
4.13 Taxes
4.14 Subsidiaries
4.15 Litigation; Governmental Permits
4.16 Contracts
4.17 Insurance
4.18 Patents and Other Intellectual Property
4.19 Employees
4.20 Employee Benefit Plans
4.21 Corporate Records
4.22 Absence of certain charges
4.25 Customers and Suppliers
<PAGE> 3
SHARE PURCHASE AGREEMENT
DATED: June, 1995
BETWEEN:
(1) PAMARCO EUROPE LIMITED a company incorporated in England and Wales and
registered under Company Number 2684327, whose registered office is at
Fernden House, Chapel Lane, Stockton Heath, Cheshire, England ("the
Buyer"); and
(2) Each of the persons listed on Schedule 1 hereto, being the holders of
the whole of the issued share capital of the Company (together the
"Sellers"); and
(3) PAMARCO TECHNOLOGIES, INC., a Delaware corporation, whose principal
place of business is at Suite 119, 571 Central Avenue, New Providence,
New Jersey 07974, USA ("Pamarco").
WHEREAS:
(A) The Sellers are together the beneficial owners and registered holders of the
entire issued share capital of Qualtech Holdings Limited, a company incorporated
in England and Wales and having its registered office as Fernden House, Chapel
Lane, Stockton Heath, Warrington, Cheshire, brief particulars of which are set
out in Part I of Schedule 2. ("the Company").
(B) The Subsidiaries are the only subsidiaries of the Company and they are each
wholly-owned. Brief particulars of each of the Subsidiaries are set out in Part
II of Schedule 2.
(C) Pamarco is the ultimate holding company of the Buyer.
(D) Subject to the limitations and exclusions contained in this Agreement, and
on the terms and conditions set forth herein, the Sellers are selling to the
Buyer, and the Buyer is buying from the Sellers, all of the Shares.
IT IS HEREBY AGREED as follows:
1. Definitions And Interpretation.
-------------------------------
For convenience, certain terms used in more than one part of this
Agreement are listed in alphabetical order and defined or referred to below
(such terms as well as any other terms defined elsewhere in this Agreement shall
be equally applicable to both the singular and plural forms of the terms
defined).
"Accounts" means the audited financial statements of the Company out of
each of the Subsidiaries for the year ended on the Balance Sheet Date.
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<PAGE> 4
"Agreement" means this Agreement and the exhibits and schedules hereto.
"Assets" means all of the assets, properties, goodwill and rights of
every kind and description, real and personal, tangible and intangible, wherever
situated and whether or not reflected in the Accounts that are owned or used by
any Group Company.
"Balance Sheet Date" means 31 December 1994.
"Benefit Plans" means all employee benefit plans of any Group Company
and any related or separate Contracts, plans, trusts, programs, policies,
arrangements, practices, customs and understandings, in each case whether formal
or informal, that provide benefits of economic value to any present or former
employee of any Group Company, or present or former beneficiary, dependant or
assignee of any such employee or former employee.
"Building Lease" means the lease of the property situated at Dallam
Lane, Warrington, Cheshire, England to be entered into on the Closing Date
between Earthgrade Limited and the Buyer in the form of Exhibit A.
"Business" means the entire business and operations of the Group on a
consolidated basis unless otherwise specified.
"Buyer" is defined above in the preamble.
"Buying Parties" means the Buyer and Pamarco.
"Buyers' Counsel" means Morgan, Lewis & Bockius of 2000 One Logan
Square, Philadelphia, PA 19103-6993 and 4 Carlton Gardens, Pall Mall, London
SW1Y 5AA.
"Charter Documents" means an entity's certificate of incorporation,
memorandum and articles of association, and any joint venture agreement or
similar document governing the entity.
"Closing" means completion of the sale and purchase of the Shares in
accordance with Section 3.1.
"Closing Date" means June 1995.
"Company" means Qualtech Holdings Limited, brief particulars of which
are set out in Part I of Schedule 2.
"Contingent Purchase Price" is defined in Section 2.4(a).
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<PAGE> 5
"Contract" means any written or oral contract, agreement, lease,
instrument or other commitment that is binding on any person or its property
under applicable law.
"Court Order" means any judgment, decree, injunction, order or ruling
of any federal, state, local or foreign court or governmental or regulatory body
or authority that is binding on any person or its property under applicable law.
"Debt" means the items listed in Exhibit C.
"Default" means (a) a breach, default or violation, or (b) the
occurrence of an event that with the passage of time or the giving of notice, or
both, would constitute a breach, default or violation.
"Dispute Notice" is defined in Section 2.4.3.
"Effective Date" means 19th June 1995.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest, other
than any liens for personal property taxes that are not yet due.
"Environmental Condition" is defined in Section 4.15.2.
"Environmental Law" is defined in Section 4.15.2.
"Escrow Agent" means FIRST FIDELITY BANK, N.A. of 1 Bishopsgate, London
EC2N 2AB, England.
"Escrow Agreement" means the Escrow Agreement to be entered into on the
Closing Date between Escrow Agent, the Buyer and the Sellers in the form of
Exhibit B.
"Flexographic Services" means Flexographic Services Limited, a
wholly-owned subsidiary of the Company brief details of which are set out in
Part II of Schedule 2.
"Flexographic Supplies" means Incorporated Flexographic Supplies
Limited, a wholly-owned subsidiary of the Company brief details of which are set
out in Part II of Schedule 2.
"Financial Statements" is defined in Section 4.5.
"SSAP" means statements of standard accounting practice and other
generally accepted accounting principles in England and Wales.
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<PAGE> 6
"Governmental Permits" is defined in Section 4.15.4.
"Group" means the Company and the Subsidiaries.
"Group Company" means the Company or any Subsidiary.
"Hazardous Substances" means (i) any gasoline, fuel oil or any other
petroleum products, explosives, alcohols or chemical solvents or polychlorinated
biphenyls, (ii) any substance, waste, material or product defined as hazardous,
radioactive, extremely hazardous or toxic under any Environmental Law, and (iii)
asbestos or asbestos- containing substances.
"Intellectual Property" is defined in Section 4.18.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Litigation" means any lawsuit, legal action, arbitration,
administrative or other proceeding, criminal prosecution or governmental
investigation or inquiry.
"Loan Note" means the 6% Loan Note payable by the Buyer to the Sellers
in the aggregate principal amount U.S. $287,500.
"Minor Contracts" is defined in Section 4.16.1.
"Non-Real Estate Leases" is defined in Section 4.9.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practices.
"Pamarco" is defined above in the Preamble.
"Pamarco Stock" means the 75,000 shares of Class A Common (voting)
Stock, par value $0.01 per share, of Pamarco.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Purchase Price" is defined in Section 2.1.
"Real Property" is defined in Section 4.7.
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<PAGE> 7
"Regulation" means any statute, law, ordinance, regulation, order or
rule of any governmental agency or body or of any other type of regulatory body,
including those covering environmental, energy, safety, health, transportation,
bribery, recordkeeping, zoning, antidiscrimination, antitrust, wage and hour,
and price and wage control matters.
"Required Consents" is defined in Section 4.3.
"Sellers" is defined above in the preamble.
"Sellers' Solicitors" means Davies Arnold Cooper of 6-8 Bouverie
Street, London EC4Y 8DD.
"Shares" the 10,200 fully paid ordinary shares of (pound)1 each in the
capital of the Company, being the entire issued share capital of the Company.
"Subsidiaries" means Flexographic Services and Flexographic Supplies.
"Tax" means corporation tax, advance corporation tax, income tax,
capital gains tax, inheritance tax, value added tax, national insurance
contributions, capital duty, stamp duty, stamp duty reserve tax, duties of
customs and excise, local authority rates and charges, all taxes, duties or
charges replaced by or replacing any of them, and all other taxes on gross or
net income, profits or gains, distributions, receipts, sales, franchise, value
added, and all levies, duties, charges or withholdings of any nature whatsoever
chargeable by any tax authority, together with all penalties, charges and
interest relating to any of the foregoing or to any late or incorrect return in
respect of any of them (save insofar as attributable to the delay or default
after Closing of the Company, any Subsidiary or any of the Sellers.)
"Taxes Act" means the Income and Corporation Taxes Act 1988.
"Tax Indemnity" means the deed of indemnity in the agreed form to be
entered into on Closing by each of the Sellers.
"Transaction Documents" means this Agreement, the Tax Indemnity, the
Escrow Agreement, the Building Lease and the other agreements and documents
contemplated thereby.
"Transactions" means the purchase and sale of the Shares and the other
transactions contemplated by the Transaction Documents.
"Warranties" the warranties of the Sellers contained in Section 4.
1.2 A reference to a section, schedule, exhibit or paragraph will be
construed as a reference to the section, schedule, exhibit or paragraph
of that number in or
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<PAGE> 8
to this Agreement. The Schedules and Exhibits form part of this
Agreement and shall be deemed incorporated herein. Unless the context
of this Agreement clearly requires otherwise, (a) references to the
plural include the singular, the singular the plural, the part the
whole, (b) "or" has the inclusive meaning frequently identified with
the phrase "and/or" and (c) "including" has the inclusive meaning
frequently identified with the phrase "but not limited to." The section
and other headings contained in this Agreement are for reference
purposes only and shall not control or affect the construction of this
Agreement or the interpretation thereof in any respect. Section,
subsection, schedule and exhibit references are to this Agreement
unless otherwise specified. Each accounting term used herein that is
not specifically defined herein shall have the meaning given to it
under SSAP.
1.3 A document referred to as being "in the agreed form" will be in the
form of the draft thereof for identification initialled by the Sellers'
Solicitors and the Buyers' Counsel.
1.4 Each of the Warranties, indemnities and obligations which is
expressed to be an obligation of the Sellers or of one or more of the
Sellers shall be a joint and several obligation unless it is expressed
to be an obligation of each of the Sellers or of each of one or more of
the Sellers, in which case it shall be a several obligation.
1.5 Where any of the Warranties refers to the knowledge, information,
awareness or belief of the Sellers, each of the Sellers undertakes that
he has made due enquiry into the subject matter of that Warranty
including, without limitation, due and careful enquiry of the
directors, officers, senior employees and auditors of each Group
Company and it shall not be a defence that the Sellers or either of
them did not appreciate the relevance or significance of any particular
matter.
1.8 A person shall be deemed to be connected with another if that
person is connected with another within the meaning of section 839 of
the Taxes Act and "Control", "Controlling" and "associate" shall be
construed accordingly.
2. Purchase and Sale of Shares.
----------------------------
2.1 PURCHASE AND SALE OF SHARES. At the Closing, the Buyer shall buy
from the Sellers, and the Sellers shall sell to the Buyer, the Shares
as beneficial owner, free from all liens charges, encumbrances and
equities and together with all rights now or hereafter attaching
accrued or accruing thereto arising therefrom with effect from the
opening of business on the Effective Date. The Buyer shall be entitled
to all dividends and distributions declared, paid or made by the
Company on or after the Effective Date. The Buyer need not complete
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<PAGE> 9
the purchase of any of the Shares unless the purchase of all of the
Shares is completed simultaneously. The Sellers hereby waive all rights
of pre-emption which they may have pursuant to the Company's Articles
of Association or otherwise in respect of the Shares.
2.2 PAYMENTS. The aggregate purchase price for the Shares shall be:
2.2.1 (pound) million in cash, of which (pound) will be held in
escrow (the "Escrow Funds") pursuant to Section 2.5, (the "Closing
Payments");
2.2.2 the principal amount of the Subordinated Note;
2.2.3 the Pamarco Stock; and
2.2.4 the Contingent Purchase Price (if any),
as hereinafter defined (collectively, the "Purchase Price"). The Buyer
shall make the Closing payments for the Shares in "same day" funds on
the Closing Date by wire transfer.
2.3 ALLOCATION AMONG SELLERS. Each Seller shall be obligated to sell to
the Buyer the number of Shares set forth next to such Seller's name in
Schedule 1. Subject to any claims under the Warranties or the Tax
Indemnity, the Sellers shall be entitled to receive the aggregate
Purchase Price, which shall be allocated among the Sellers in equal
shares.
2.4 CONTINGENT PURCHASE PRICE.
2.4.1 The Buyer shall pay to the Sellers an additional sum ("the
Contingent Purchase Price") under this Section 2.4 the amount of
which shall be dependent upon the excess (if any) of the combined
earnings before interest and taxes of the Buyer and the Group
(together) for the three years ending 31 December 1996, 1997 and
1998 ("the Earnings Periods") as shown in the consolidated
audited accounts for the Buyer and the Group for the Earnings
Periods, over the combined earnings before interest and taxes of
the Buyer and the Group for the year ending 31 December 1995 ("the
1195 EBIT") as calculated and adjusted in the manner provided in
Section 2.4.2.
2.4.2 In calculating the combined earnings before interest and
taxes for the Buyer and the Group for the period from Closing to
31st December, 1995 and the Earnings Periods there shall be
excluded any pre-tax profits
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<PAGE> 10
or losses of the Buyer attributable to any shares of any other
company or business and assets of any other company or
partnership acquired by the Buyer during the Earnings Periods
and the combined earnings before interest and taxes for the
Earnings Periods shall be adjusted accordingly ("the Combined
EBIT").
2.4.3 The combined earnings before interest and after taxes
for the Buyer and the Group for the financial year to 31st
December, 1995 ("the 1995 EBIT shall be multiplied by a
compound annual growth figure of 5 per cent in each of the
three Earnings Periods (the resulting figure at the end of the
Earnings Periods, that is being hereinafter referred to as
"the 5 per cent growth figure").
2.4.5 The 1995 EBIT shall also but separately be multiplied by
a compound annual growth figure of 12.5 per cent in respect of
each of the three Earnings Periods (the resulting figure at
the end of the Earnings Periods being hereinafter referred to
as "the 12.5 per cent growth figure").
2.4.6 If the Combined EBIT for each of the three Earnings
Periods when aggregated with one another amount to the 5 per
cent growth figure the amount of the Contingent Purchase Price
shall be US$100,000.
2.4.7 If the Combined EBIT amounts to or exceeds the 12.5 per
cent growth figure the amount of the Contingent Purchase Price
shall be US$300,000. For the avoidance of doubt, the maximum
amount of the Contingent Purchase Price shall be US$300,000.
2.4.8 If the Combined EBIT exceeds the 5 per cent growth
figure but fall short of the 12.5 per cent growth figure the
Contingent Purchase Price shall be calculated by applying the
following formula, where x is the percentage increase in
Combined EBIT above the 1995 EBIT.
US$ (X-5) x 200,000 + 100,000 = Contingent
---
7.5 Purchase Price
2.4.9 If the Combined EBIT falls short of the 5 per cent
growth figure no Contingent Purchase price shall be payable.
2.4.10 The Buyer shall procure that its Auditors shall upon
completion of their audit of the Buyer's accounts for the year
ending 31 December 1998 (and at the cost of the Buyer) issue
to each of the Buyer and the Sellers a certificate ("the EBIT
Certificate") as to the respective amounts
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<PAGE> 11
of the 5 per cent growth figure, the 12.5 per cent growth
figure, the 1995 EBIT, the Combined EBIT and the Contingent
Purchase Price.
2.4.11 The Buyer and the Sellers shall have a period of 14
days from receipt of the EBIT Certificate within which either
or both of them may by written notice to the other of them and
to the Auditors dispute the EBIT Certificate failing which it
shall at the end of that period be final and binding upon the
parties and the Buyer shall not later than the 30th day
following the receipt of the certificate pay to the Sellers
the amount of the Contingent Purchase Price by wire transfer
of immediately available funds.
2.4.12 In the event of the Buyer or the Sellers disputing the
EBIT Certificate and the dispute not being resolved in a
manner satisfactory to the Buyer and the Sellers within 30
days following the date upon which the notice of dispute is
given the calculation of the Contingent Purchase Price or (as
the case may be) whether or not any Contingent Purchase Price
is payable shall be referred to an independent accountant to
be nominated on the application of either party by the
President for the time being of the Institute of Chartered
Accountants in England and Wales whose decision shall in the
absence of manifest error be final and binding upon the
parties and whose costs shall be borne equally between the
Buyer of the one part and the Sellers of the other.
2.4.13 For the avoidance of doubt pre-tax profits shall
(subject as provided in Section 2.4.2) be determined in
accordance with SSAP and the accounting practices and
procedures customarily followed by the Buyer and the Group
Companies.
2.5 ESCROW ACCOUNT. At the Closing, the Sellers and the Buyer are
entering into the Escrow Agreement with the Escrow Agent under which
the Escrow Agent shall hold the Escrow Funds as detailed therein.
3. Closing.
--------
3.1 LOCATION. The closing for the Transactions (the "Closing") shall be
held at the offices of Morgan, Lewis & Bockius in London on the Closing
Date.
3.2 DELIVERIES. At the Closing, the parties shall procure that the
following events shall occur:
3.2.1 The Buyer shall pay by wire transfers of same day available
funds (A) (pound) to the Sellers to the Sellers' Solicitors Client
account and (B) (pound) to the Escrow
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<PAGE> 12
Agent in accordance with the Escrow Agreement (the "Escrow Funds");
3.2.2 the Buyer shall deliver to the Sellers the Loan Note;
3.2.3 Pamarco shall deliver to the Sellers the Pamarco Stock;
3.2.4 each of the Sellers shall deliver to the Buyer certificates
representing the number of the Shares set forth next to such
Seller's name in Schedule 1, accompanied by Stock Transfer forms in
respect of the same;
3.2.5 the Sellers shall deliver an original of the Tax Indemnity,
duly executed by each Seller;
3.2.6 the Escrow Agreement shall be delivered, duly executed by the
parties thereto;
3.2.7 the Building Lease shall be delivered, duly executed by the
parties thereto.
3.2.8 written confirmation from Bank plc that all amounts of loans
to Sellers or their associates have been repaid in respect of the
mortgages and charges referred to in Schedule 2.
3.2.9 the company seals and statutory books of each Group Company,
including the registers and minute books of each such company.
3.2.10 the parties shall also deliver to each other the agreements,
and other documents and instruments specified in Sections 6 and 7
and such other items as may be reasonably requested.
4. Warranties of the Sellers.
--------------------------
The Warranties are subject only to the exceptions specifically
identified in this Agreement and its Exhibits and fully and accurately set out
therein or on the face of the copy documents and papers annexed thereto. Each of
the Warranties is a separate and independent warranty and shall not, and the
liability of the Sellers hereunder shall not, be limited by or restricted by
reference to or inference from any of the other Warranties, or any knowledge of
any of the officers, employees or advisers of the Buyer who are officers
employees or advisers of any Group Company.
The Buyer acknowledges that it has had the opportunity to undertake and
has undertaken a commercial and financial due diligence exercise in respect of
the Company
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<PAGE> 13
and the Subsidiaries. The Sellers warrant that all information supplied in
writing by or on behalf of the Sellers in connection with such due diligence
exercise in response to the due diligence questionnaire submitted to the Sellers
is accurate in all material respects and that nothing has been omitted from such
information or supplied which would render it misleading.
Whilst with respect to disclosure the Warranties are subject only as
provided in the first paragraph of this Section, the Buyer acknowledges that as
at the Closing Date it has no actual knowledge of any material fact of
circumstance revealed by the due diligence exercise which will result in the
Buyer bringing a claim for breach of the warranties after the Closing. For the
avoidance of doubt, the Sellers hereby waive any claims against the Group
Companies which as employees of the Group Companies which they might have in
connection with the giving of the warranties and the seeking of any disclosures
against such warranties.
The Sellers hereby jointly and severally warrant to the Buyer in the
terms of the Warranties.
4.1 CORPORATE STATUS. Each Group Company is a corporation duly
organized, validly existing and in good standing under the laws of
England and Wales. Each Group Company is qualified to do business as a
foreign corporation in any jurisdiction where it is required to be so
qualified, except where the failure to so qualify would not have a
material adverse effect. The copy Memorandum and Articles of
Association of each Group Company that have been delivered to the
Buying Parties have been duly adopted and are current, correct and
complete.
4.2 AUTHORIZATION. Each of the Sellers and each Group Company has the
requisite power and authority to execute and deliver the Transaction
Documents to which it is a party and to perform the Transactions to be
performed by it. Such execution, delivery and performance by such
persons has been duly authorized by all necessary corporate action. The
Transaction Documents constitute valid and binding obligations of each
and any Group Company that is a party thereto, enforceable against each
such party in accordance with their terms.
4.3 CONSENTS AND APPROVALS. Except for any consents specified on
SCHEDULE 4.3 (the "Required Consents"), neither the execution and
delivery by any Seller or any Group Company of the Transaction
Documents to which it is a party, nor the performance of the
Transactions to be performed by any Seller or any Group Company will
require any filing, consent or approval or constitute a Default under
(a) any Regulation or Court Order to which any Seller or Group Company
is subject, (b) the Charter Documents or bylaws of any Seller or Group
Company or (c) any Contract, Government Permit or other document to
which any Seller or Group Company is a party or by which the properties
or other
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<PAGE> 14
assets of any Group Company may be subject. All of the Required
Consents are valid and have been properly obtained.
4.4 CAPITALIZATION AND STOCK OWNERSHIP. The Shares comprise the total
issued share capital of the Company, being (pound)10,200 divided into
10,200 Ordinary shares of (pound)1 each all of which have been issued
and are fully paid on the date hereof. There are no existing options,
warrants, calls, commitments or other rights of any character
(including conversion or preemptive rights) relating to the acquisition
of any issued or unissued capital stock or other securities of the
Company. All of the Shares are duly and validly authorized and issued,
and all stamp duties in respect of any transfer of the same prior to
Closing has been paid. Upon completion of the Transactions at the
Closing, the Buyer shall receive valid title to the Shares, free and
clear of all Encumbrances.
4.5 FINANCIAL STATEMENTS. Each Group Company has delivered to the
Buying Parties correct and complete copies of such Group Company
unaudited monthly financial statements consisting of a balance sheet of
such Group Company as of the end of each month from January 31, 1992
through April 30, 1995 and the related statements of income, retained
earnings and cash flows for the periods then ended. Each Group Company
has also delivered to the Buying Parties correct and complete copies of
financial statements consisting of a balance sheet of such Group
Company as of December 31, 1992, 1993 and 1994, and the related
statements of income, retained earnings and cash flows for the periods
then ended, all of which have been audited by the firm of GLF. All such
financial statements specified in this Section 4.4 are referred to
herein collectively as the "Financial Statements." The Financial
Statements are consistent with the books and records of the Company,
and there have not been any material transactions that have not been
recorded in the accounting records underlying the Financial Statements.
In addition, the Financial Statements have been prepared in accordance
with SSAP consistently applied and presented accurately the financial
position and Assets and Liabilities of each Group Company as at the
dates to which they have respectively been made up, and the results of
its operations for the periods then ended. The Accounts comply with the
requirements of the Companies Act 1985 (as amended) and are not
affected by any extraordinary, exceptional or non-recurring item, save
as specifically identified in the notes thereto.
4.6 TITLE TO ASSETS AND RELATED MATTERS. Each Group Company has good
and marketable title to, or valid leasehold interests in, all of its
Assets (including the Real Property defined below), free from any
Encumbrances except those specified on SCHEDULE 4.6. The use of the
Assets is not subject to any Encumbrances (other than those specified
in the preceding sentence), and such use does not materially encroach
on the property or rights of anyone else. All Real Property and
tangible personal property (other than inventory) of each
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<PAGE> 15
Group Company is suitable for the purposes for which it is used, in
good working condition and reasonable repair, free from any known
defects, except such minor defects that would not have a material
adverse effect fair wear and tear accordingly to age and usage
excepted.
4.7 REAL PROPERTY. SCHEDULE 4.7 describes all real estate used in the
operation of the Business as well as any other real estate that is in
the possession of or leased by each Group Company and the improvements
(including buildings and other structures) located on such real estate
(collectively, the "Real Property"), and lists any leases under which
any such Real Property is held (the "Real Estate Leases"). To the
knowledge of any Seller, no Group Company is currently in Default under
any of the Real Estate Leases, and no Seller is aware of any Default by
any of the lessors thereunder. No Group Company has an ownership
interest in any real property. SCHEDULE 4.7 also describes any other
real estate previously owned, leased or otherwise operated by any Group
Company and the time periods of any such ownership, lease or operation.
4.8 CERTAIN PERSONAL PROPERTY. The Sellers have delivered to the Buying
Parties a complete fixed asset schedule in the form of Exhibit D,
describing and specifying the location of all items of tangible
personal property (other than inventory) that were included in the
Accounts. Since the Balance Sheet Date, the Company has not acquired
any items of tangible personal property that have, in each case, a
carrying value (net book value) in excess of (POUND)50,000, or an
aggregate carrying value of (POUND)500,000. All of such personal
property is in operating condition, reasonable wear and tear excepted
or has been fully depreciated.
4.9 NON-REAL ESTATE LEASES. SCHEDULE 4.9 lists all assets and property
(other than Real Property) that are being used in the operation of the
Business and that are possessed by any Group Company under an existing
lease, including all automobiles, machinery, equipment, furniture and
computers, except for any lease under which the aggregate annual
payments are less than (POUND)25,000 (each, an "Immaterial Lease"). The
aggregate annual payments under all Immaterial Leases does not exceed
(POUND)500,000. SCHEDULE 4.9 includes the leases under which such
assets and property listed on SCHEDULE 4.6 are possessed. All of such
leases (excluding Immaterial Leases) are referred to herein as the
"Non-Real Estate Leases." To the knowledge of any Seller, no Group
Company is currently in Default under any of the Non-Real Estate
Leases, and no Seller is aware of any Default by any of the lessors
thereunder.
4.10 ACCOUNTS RECEIVABLE. The accounts receivable of each Group Company
are bona fide accounts receivable created in the ordinary course of
business and are good and collectible (net of the reserve for doubtful
accounts included in the Accounts) within 120 days at the aggregate
recorded amounts thereof.
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<PAGE> 16
4.11 INVENTORY. All stock in trade of each Group Company consists of
items saleable in the ordinary course, and the value thereof included
in the Accounts is at least equal to the lower of cost and net
realisable value. The inventory records for each Group Company that
have been delivered to Buyer are accurate with respect to the data
contained therein at the date to which they have respectively been made
up.
4.12 LIABILITIES. Except as specified on SCHEDULE 4.12, none of the
Group Companies has any Liabilities, and none of the Assets of any
Group Company is subject to any Liabilities, except (a) to the extent
specifically disclosed in the Accounts, (b) Liabilities incurred since
the date thereof that, individually or in the aggregate, are not
material to the Business or the Assets, or (c) Liabilities under any
Contracts specifically disclosed on any Schedule to this Agreement that
were not required under SSAP to have been specifically disclosed or
reserved for in the Accounts.
4.13 TAXES.
4.13.1 ACCOUNTS. All liabilities, whether actual, deferred,
contingent or disputed, of each Group Company for tax measured
by reference to income, profits or gains earned, accrued or
received on or before the Balance Sheet Date or arising in
respect of an event occurring or deemed to occur on or before the
Balance Sheet Date are fully provided for or (as appropriate)
disclosed in the Accounts. All other warranties relating to
specific tax matters are made without prejudice to the generality
of this Section.
4.13.2 POSITION SINCE LAST ACCOUNTS DATE. Since the Balance
Sheet Date:
(a) no Group Company has been involved in any
transaction which has given or may give rise to a
liability to tax on any Group Company (or would
have given or might give rise to such a liability
but for the availability of any relief) other
than tax in respect of normal trading income or
receipts of the Group Company concerned arising
from transactions entered into by it in the
ordinary course of business;
(b) no payment has been made by any Group Company
which will not be deductible for the purposes of
corporation tax (or any corresponding tax on
profits in any relevant foreign jurisdiction),
either in computing the profits of that Group
Company or in computing the corporation tax or
corresponding tax chargeable on it;
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<PAGE> 17
(c) no disposal has taken place or other event
occurred which had been planned or predicted at
the Balance Sheet Date and which has or may have
the effect of crystallising a liability which
should have been but was not reflected in the
provision for deferred tax contained in the
Accounts; and
(d) the Sellers have not caused any accounting
period (as defined in section 12 of the Taxes Act
1988) of any Group Company to end as referred to
in section 12(3) of that Act.
4.13.3 RETURNS ETC. Each Group Company has duly, and within
any appropriate time limits, made all returns, given all
notices and supplied all other information required to be
supplied to all relevant tax authorities; all such information
was and remains complete and accurate in all material respects
and were made on the proper basis and do not, and so far as
the Sellers are aware are not likely to, reveal any
transactions which may be the subject of any dispute with any
tax authority.
4.13.4 DISPUTES, INVESTIGATIONS. No Group Company is involved
in any current dispute with any tax authority or is or has in
the last six years been the subject of any investigation,
audit or non-routine visit by any tax authority. So far as the
Sellers are aware in relation to each Group Company there is
no planned investigation audit or non-routine visit by any tax
authority and there are no facts which might cause such an
investigation, audit or non-routine visit to be instituted.
4.13.5 EMPLOYEES/PENSIONS. All National Insurance
contributions and sums payable to the Inland Revenue under the
P.A.Y.E. system and any amounts of a corresponding nature
payable to any foreign tax authority due and payable by any
Group Company up to the date hereof have been paid and each
Group Company has made all such deductions and retentions as
should have been made under section 203 of the Taxes Act and
all regulations made thereunder or under any comparable laws
or regulations of any relevant foreign jurisdiction.
4.13.6 CAPITAL GAINS. If each Group Company disposed of each
of its assets (except trading stock and work-in-progress) for
a consideration equal to the book value of that asset as shown
in or adopted for the purposes of the Accounts to a person not
connected with it and by way of bargain at arm's length, no
liability to tax would arise by reference to any actual or
deemed gain and no Group Company has acquired any such asset
(otherwise than from another Group Company) except by way of
bargain at arm's length and from an unconnected person.
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<PAGE> 18
4.13.7 No Group Company has made any such transfer as is
referred to in section 125 of the TCGA (close company
transferring assets at under value).
4.13.8 CAPITAL EXPENDITURE. If each Group Company disposed of
each of its assets, or of any pool of assets (that is to say
all those assets expenditure relating to which would be taken
into account in computing whether a balancing charge or
corresponding tax would arise on a disposal of any of those
assets) for a consideration equal to their book value as shown
in or adopted for the purpose of the Accounts, no balancing
charge (or corresponding tax of any relevant foreign
jurisdiction) would arise in respect of any such asset or pool
of assets under any legislation relating to capital allowances
(or corresponding legislation of the relevant foreign
jurisdiction).
4.13.9 LOSSES - MAJOR CHANGES ETC. There has been no change in
the ownership of any Group Company nor any major change in the
nature or conduct of any trade or business carried on by any
Group Company nor has any other event or series of events
occurred before Closing which might cause the disallowance of
the carry forward or back of losses or excess charges or the
disallowance of the carry forward or back, set-off or
surrender of advance corporation tax under the provisions of
section 768 or 768A of the Taxes Act (change in ownership of
company: disallowance of relief for trading losses) or
sections 245 to 245B (inclusive) of the Taxes Act (ACT set
off), or which might cause a trade to be disregarded by virtue
of paragraph 8 of Schedule 7A to the TCGA.
4.13.10 SURRENDERS Schedule 14.13 gives full details of any
surrender or claim or agreement to surrender or claim any
advance corporation tax under the provisions of section 240 of
the Taxes Act (surrender of advance corporation tax) or any
amount by way of group relief) by each Group Company,
including any receipt or payment (or any entitlement to
receive or obligation to make a payment) in respect thereof,
where such surrender or claim has not become final and
determined for any reason.
4.13.11 GROUP COMPOSITION All Group Companies resident in the
United Kingdom for tax purposes together comprise a group for
the purposes of Chapter IV of Part X of the Taxes Act and
there are no circumstances or arrangements as a result of
which any Group Company might cease to form part of such
group.
4.13.12 CLOSE COMPANIES
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<PAGE> 19
(a) No apportionment under sections 423 to 430
(inclusive) and Schedule 19 to the Taxes Act has
been made or threatened against any Group
Company, and no action has been taken and no
event has occurred which could lead to such an
apportionment being made in relation to any
accounting period of a Group Company beginning on
or before 31 March 1989.
(b) Each Group Company has obtained clearances
under Schedule 19 to the Taxes Act for each
accounting period of that Group Company beginning
on or before 31 March 1989.
(c) Each Group Company has throughout each
accounting period beginning on or before 31 March
1989 been a trading company or a member of a
trading group as defined by paragraph 7 of
Schedule 19 to the Taxes Act.
(d) No Group Company has made any transfers of
value within section 94 of the Inheritance Tax
Act 1984.
(e) No Group Company is or has at any time been a
close investment-holding company as defined in
section 13A of the Taxes Act.
(f) No Group Company has since 5 April 1965 done
anything so as to give rise to an assessment or
any charge to tax under section 419 (as extended
by section 422) of the Taxes Act (loans to
participators and associates).
4.13.13 VALUE ADDED TAX. For the purposes of this section the
expression "VAT LEGISLATION" shall include the Value Added Tax
Act 1994, the Finance Act 1985 and all other enactments in
relation to value added tax and all notices, provisions and
conditions made or issued thereunder including the terms of
any agreement reached with H.M.
Commissioners of Customs and Excise.
4.13.14 In relation to each Group Company:
(a) it is registered for the purposes of value
added tax, has been so registered at all times
that it has been required to be registered by VAT
legislation, and such registration is not subject
to any conditions imposed by or agreed with H.M.
Customs and Excise;
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<PAGE> 20
(b) it has complied fully with and observed in
all material respects the terms of VAT
legislation;
(c) it has maintained and obtained at all times
complete, correct and up-to-date records,
invoices and other documents(as the case may be)
appropriate or requisite for the purposes of VAT
legislation and has preserved such records,
invoices and other documents in such form and for
such periods as are required by VAT legislation;
(d) it obtains credit for all input tax paid or
suffered by it;
(e) it is not and has not been treated as a
member of a group for the purposes of VAT
legislation, and has not applied for such
treatment;
(f) it is not required to make payments on
account of value added tax for which it may
become liable in a prescribed accounting period
(pursuant to The Value Added Tax (Payments on
Account) Regulations 1992); and
(g) it is not and has not been subject under VAT
legislation to any penalty liability notice,
written warning of failure to comply, surcharge
liability notice or requirement to give security
as a condition of making taxable supplies.
4.14 SUBSIDIARIES. Except as specified on SCHEDULE 4.14, no Group
Company owns, directly or indirectly, any interest or investment
(whether equity or debt) in any corporation, partnership, business,
trust, joint venture or other legal en tity. The Company is the record
owner of all of the issued and outstanding shares of capital stock of
each of the Subsidiaries. All of such shares of each of the
Subsidiaries are duly and validly authorized, issued and fully paid.
There are no existing options, warrants, calls, commitments or other
rights of any character (including conversion or preemptive rights)
relating to the acquisition of any issued or unissued capital stock or
other securities of any of the Subsidiaries.
4.15 LEGAL PROCEEDINGS AND COMPLIANCE WITH LAW.
4.15.1 Except as disclosed on SCHEDULE 4.15, there is no
Litigation that is pending or, to any Seller's knowledge,
threatened against or related to any Group Company. There has
been no Default under any Regulations applicable to any Group
Company, including Regulations relating to
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<PAGE> 21
pollution or protection of the environment, except for any
Defaults that would not have a material adverse effect. There has
been no Default with respect to any Court Order applicable
to any Group Company.
4.15.2 Without limiting the generality of Section 4.15.1, except
as described on SCHEDULE 4.15, there has not been any
Environmental Condition (defined below) (i) at the premises at
which the Business of any Group Company has been conducted, (ii)
at any property owned, leased or operated at any time by any
Group Company, any Person controlled by any Affiliate of any
Group Company or any predecessor thereof, or (iii) at any
property at which wastes have been deposited or disposed by or at
the behest or direction of any of the foregoing, nor has any
Group Company received written notice of any such Environmental
Condition. "Environmental Condition" means any condition or
circumstance, including the presence of Hazardous Substances,
whether created by any Group Company or any third party, at or
relating to any such property or premises that would (i) require
abatement or correction under an Environmental Law (defined
below), (ii) give rise to any civil or criminal liability under
an Environmental Law, or (iii) create a public or private
nuisance. "Environmental Law" means all Regulations and Court
Orders relating to pollution or protection of the environment as
well as any principles of common law under which a party may be
held liable for the release or discharge of any materials into
the environment.
4.15.3 The Company has delivered to the Buying Parties correct
and complete copies of any written reports, studies or
assessments in the possession or control of any Seller that
relates to any Environmental Condition.
4.15.4 Except in those cases where the failure would not have a
material adverse effect, (i) each Group Company has obtained and
is in full compliance with all governmental permits, licenses,
registrations, certificates of occupancy, approvals and other
authorizations (the "Governmental Permits"), all of which are
listed in SCHEDULE 4.15 along with their respective expiration
dates, that are required for the complete operation of the
Business of any Group Company as currently operated, (ii) all of
the Governmental Permits are currently valid and in full force
and (iii) each Group Company has filed such timely and
complete renewal applications as may be required with respect to
its Governmental Permits. To any Seller's knowledge, no
revocation, cancellation or withdrawal thereof has been
threatened.
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<PAGE> 22
4.16 CONTRACTS.
4.16.1 SCHEDULE 4.16 lists each Contract of the following
types to which any Group Company is a party, or by which it is
bound, as of the execution date of this Agreement, except for
any Contract that may be terminated by such Group Company on
not more than 30 days' notice without any Liability and any
Contract under which the executory obligation of such Group
Company involves an amount of less than (pound)10,000 (such
excepted Contracts are referred to collectively as "Minor
Contracts"):
(a) Contracts with any present or former stockholder,
director, officer, employee, partner or consultant of
any Selling Party or associate thereof;
(b) Contracts for the future purchase of, or payment
for, supplies or products, or for the lease of any
Asset from or the performance of services by a third
party, in excess of (pound)25,000 in any individual
case, or any Contracts for the sale of inventory or
products that involve an amount in excess of
(pound)25,000 with respect to any one supplier or
other party;
(c) Contracts to sell or supply products or to
perform services that involve an amount in excess of
(pound)25,000 in any individual case;
(d) Contracts to lease to or to operate for any other
party any Asset that involve an amount in excess of
(pound)100,000 in any individual case;
(e) Any notes, debentures, bonds, conditional sale
agreements, equipment trust agreements, letter of
credit agreements, reimbursement agreements, loan
agreements or other Contracts for the borrowing or
lending of money (including loans to or from
officers, directors, partners, stockholders or
Affiliates of any Selling Party or any members of
their immediate families), agreements or arrangements
for a line of credit or for a guarantee of, or other
undertaking in connection with, the indebtedness of
any other Person;
(f) Any Contracts under which any Encumbrances exist
with respect to any Assets; and
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<PAGE> 23
(g) Any other Contracts (other than Minor Contracts
and those described in any of (a) through (f) above)
not made in the ordinary course of business.
14.6.2 To any Seller's knowledge, none of the Group Companies
is in Default under any Contract, which Default could result
in a Liability on the part of any Group Company in excess of
(pound)25,000 in any individual case, and the aggregate
Liabilities that could result from all such Defaults do not
exceed (pound)50,000. No Group Company has received any
communication from, or given any communication to, any other
party indicating that any Group Company or such other party,
as the case may be, is in Default under any Contract where
such Default could have a material adverse effect.
4.17 INSURANCE. SCHEDULE 4.17 contain particulars of all policies or
binders of insurance held by or on behalf of any Group Company or
relating to the Business or any of its Assets, specifying with respect
to each policy the insurer, the amount of the coverage, the type of
insurance, the risks insured, the expiration date, the policy number
and any pending claims thereunder. To any Seller's knowledge, there is
no Default with respect to any such policy or binder, nor has there
been any failure to give any notice or present any claim under any such
policy or binder in a timely fashion or in the manner or detail
required by the policy or binder, except for any of the foregoing that
would not, individually or in the aggregate, have a material adverse
effect. There is no notice of non renewal or cancellation with respect
to, or disallowance of any claim under, any such policy or binder that
has been received by any Group Company, except for any of the foregoing
that would not, individually or in the aggregate, have a material
adverse effect.
4.18 PATENTS AND OTHER INTELLECTUAL PROPERTY.
(a) No Group Company currently uses or has used in the operation of its
Business (including in the development or marketing of products and
services) any patent, trademark, tradename, service mark or copyright
except for those listed on SCHEDULE 4.18(a). As used herein, the term
"Intellectual Property" means the items listed on SCHEDULE 4.18(a) and
the trade secrets and know-how that any Group Company uses or has used
in the operation of its Business. Each Group Company owns or has the
lawful right to use all Intellectual Property that is necessary for the
operation of its Business in the ordinary course. All of the
Intellectual Property listed on SCHEDULE 4.18(a) is owned by a Group
Company free and clear of any Encumbrances, or used pursuant to an
agreement that is described on SCHEDULE 4.18(a). To the knowledge of
any Seller, no Group Company infringes upon or unlawfully or wrongfully
uses any patent, trademark, tradename, service mark, copyright or trade
secret owned or claimed by another
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<PAGE> 24
Person. No Group Company is in Default, or has received notice of any
claim of infringement or any other claim or proceeding, with respect to
any such patent, trademark, tradename, service mark or copyright.
Except as specified on SCHEDULE 4.18(a), no current or former employee
of any Group Company and no other Person owns or has any proprietary,
financial or other interest, direct or indirect, in whole or in part,
including any right to royalties or other compensation, in any of the
Intellectual Property, or in any application therefor.
(b) SCHEDULE 4.18(b) identifies employees and consultants of each Group
Company who have executed a nondisclosure or assignment of inventions
agreements with respect to the confidentiality or ownership of the
Intellectual Property. To any Selling Party's knowledge, (i) none of
the Confidential Information has been used, divulged or appropriated
(A) for the benefit of any Person other than a Group Company or a
customer thereof or (B) otherwise to the detriment of any Group
Company, (ii) except as specified on SCHEDULE 4.18(b), none of the
employees or consultants of any Group Company who is involved in the
design, review, evaluation or development of Intellectual Property is
subject to any contractual or legal restrictions that might interfere
with the use of his best efforts to promote the interests of the
Company Group, and (iii) no employee or consultant of any Group Company
has used any Confidential Information of any other Person in the course
of his work for any Group Company.
4.19 EMPLOYEE RELATIONS. Except as described on SCHEDULE 4.19, none of
the Group Companies is (a) a party to, involved in or, to any Seller's
knowledge, threatened by, any employee dispute or unfair employee
practice charge, or (b) currently negotiating any collective bargaining
agreement, and none of the Group Companies has experienced any work
stoppage during the last three years. Schedule 4.19 and 4.20 comprises
a complete and correct list as at the date of the Agreement of the
names and salaries, bonus and other cash compensation of all employees
(including the directors and company secretary) of any Group Company.
4.20 EMPLOYEE BENEFIT PLANS.
(a) Save as provided in SCHEDULE 4.20 there are no Benefit
Plans sponsored or maintained by any Group Company, under
which any Group Company may be obligated, or to which any
Group Company has contributed. The summaries produced in
Schedule 4.20 are accurate and complete as at the date to
which they were made up and no Group Company will be required
to make any additional payment or contribution in respect of
such period. .
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<PAGE> 25
(b) All Benefit Plans conform (and at all times have
conformed) in all material respects to, and are being
administered and operated (and have at all time been
administered and operated) in material compliance with, the
requirements of all applicable Regulations. All returns,
reports and disclosure statements required to be made with
respect to all Benefit Plans have been timely filed or
delivered.
(c) There are no pending or, to the knowledge of any Seller,
threatened claims by or on behalf of any Benefit Plans, or by
or on behalf of any individual participants or beneficiaries
of any Benefit Plans, alleging any breach of fiduciary duty on
the part of any Group Company or any of its officers,
directors or employees under any applicable Regulations, or
claiming benefit payments other than those made in the
ordinary operation of such plans, nor is there, to the
knowledge of any Seller, any basis for such claim. The Benefit
Plans are not the subject of any investigation, audit or
action pursuant to any Regulation.
(d) Each Group Company has made all required contributions
under the Benefit Plans including the payment of any insurance
premiums on a timely basis.
4.21 CORPORATE RECORDS. Except as stated in Schedule 4.21 the minute
books of each Group Company contain complete and accurate records of
all minutes of meetings, resolutions and other proceedings of its Board
of Directors and stockholders. The stock record book of each Group
Company is complete, correct and current.
4.22 ABSENCE OF CERTAIN CHANGES. Except as contemplated by this
Agreement or as specified in SCHEDULE 4.22, since the Balance Sheet
Date, each Group Company has conducted its Business in the ordinary
course and there has not been with respect to such Group Company:
(a) any material adverse change in its Business or
Liabilities;
(b) any distribution or payment declared or made in respect of
its capital stock by way of dividends, purchase or redemption
of shares or otherwise;
(c) any increase in the compensation payable or to become
payable to any director, officer, employee or agent, except
for increases for non-officer employees made in the ordinary
course of business, nor any other change in any employment or
consulting arrangement;
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(d) any sale, assignment or transfer of Assets, or any
additions to or transactions involving any Assets, other than
those made in the ordinary course of business;
(e) other than in the ordinary course of business, any waiver
or release of any claim or right or cancellation of any debt
held; or
(f) any payments to any associate of any Group Company.
4.23 PREVIOUS SALES; WARRANTIES. No Group Company has breached any ex
press or implied warranties in connection with the sale or distribution
of such goods, except for breaches that, individually and in the
aggregate, would not have a material adverse effect.
4.24 CUSTOMERS AND SUPPLIERS. Each Group Company has used its
reasonable business efforts to maintain and currently maintains, good
working relationships with all of its customers and suppliers. SCHEDULE
4.24 contains a list of the names of each of the ten customers that, in
the aggregate, for the year ended December 31, 1994, were the largest
dollar volume customers of products sold by each of the Subsidiaries.
Except as specified on SCHEDULE 4.24, none of such customers has given
any Group Company written notice terminating, canceling or threatening
to terminate or cancel any Contract or relationship with any Group
Company. SCHEDULE 4.24 also contains a list of the ten suppliers of
each of the Subsidiaries that, in the aggregate, for the year ended
December 31, 1994, were the largest dollar volume suppliers of supplies
used by those Subsidiaries. None of such suppliers has given any Group
Company notice terminating, canceling or threatening to terminate or
cancel any Contract or relationship with any Group Company.
4.25 FINDER'S FEES. No Person retained by any Seller is or will be
entitled to any commission or finder's or similar fee in connection
with the Transactions.
4.26 ACCURACY OF INFORMATION. No representation or warranty by any
Group Company in any Transaction Document, and no information contained
therein or in the Financial Statements, contains any untrue statement
of a material fact or omits to state any material fact necessary in
order to make the statements contained herein or therein not
misleading.
4.27 INVESTMENT INTENT. Each of the Sellers is acquiring the Pamarco
Stock solely for itself and not for other persons.
4.28 LIMITATIONS ON TRANSFER. Each of the Sellers acknowledges that the
Pamarco Stock has not been registered under the Securities Act of 1933,
as
-24-
<PAGE> 27
amended (the "Act"). Each of the Sellers is aware of the applicable
limitations under the Act and the Stockholders' Agreement upon the
subsequent sale or other disposition of the Pamarco Stock or any
interest therein. The Sellers further acknowledge that such shares of
Pamarco Stock cannot be transferred unless they are subsequently
registered under the Act and applicable state securities laws or the
Buyer receives an acceptable legal opinion that an exemption from such
registration is available.
4.29 NO PUBLIC MARKET. Each of the Sellers realizes that there is no
public market for the shares of Pamarco Stock, that no market may ever
develop for them, and that they have not been approved or disapproved
by the Securities and Exchange Commission or any similar commission or
authority of any state.
4.30 ACCESS TO INFORMATION. Each of the Sellers acknowledges that the
Buyer has provided it with adequate access to financial and other
information concerning the Buyer and the shares of Pamarco Stock as
requested, and that each of the Sellers has had the opportunity to ask
questions of and receive answers from the Buyer concerning the terms
and conditions of the purchase of such shares and to obtain therefrom
any additional information necessary to make an informed decision
regarding the investment in such shares.
4.31 EXPERIENCE. Each of the Sellers has such knowledge and experience
in financial and business matters that he is capable of evaluating the
merits and risks of the acquisition of the Pamarco Stock.
5. Representations and Warranties of the Buying Parties.
-----------------------------------------------------
The Buyer and Pamarco hereby jointly and severally warrant to the
Company and the Sellers and each of them severally as follows:
5.1 CORPORATE. Each of the Buying Parties is a corporation duly
organized, validly existing and in good standing under the laws under
which it was incorporated. Each of the Buying Parties is qualified to
do business as a foreign corporation in any jurisdiction where it is
required to be so qualified, except where the failure to so qualify
would not have a material adverse effect on its business, assets,
financial condition, results of operation or liquidity.
5.2 AUTHORIZATION. Each of the Buying Parties has the requisite power
and authority to execute and deliver the Transaction Documents to which
it is a party and to perform the Transactions to be performed by it.
Such execution, delivery and performance have been duly authorized by
all necessary corporate action, and such Transaction Documents
constitute valid and binding obligations of the Buyer and Pamarco,
enforceable against such party in accordance with their terms.
-25-
<PAGE> 28
5.3 CONSENTS AND APPROVALS. Neither the execution and delivery by
either of the Buying Parties of the Transaction Documents to which it
is a party, nor the performance of the Transactions either of the
Buying Parties, require any filing, consent or approval or constitute a
Default under (a) any Regulation or Court Order to which such Buying
Party is subject, (b) the Charter Documents or bylaws of such Buying
Party or (c) any Contract, Government Permit or other document to which
such Buying Party is a party or by which the properties or other assets
of the such Buying Party may be subject.
5.4 INVESTMENT INTENT. The Buyer is acquiring the Shares solely for
investment purposes, with no present intention of distributing or
reselling any of the Shares or any interest therein.
5.5 FINDER'S FEES. No Person retained by the Buying Parties is or will
be entitled to any commission or finder's or similar fee in connection
with the Transactions.
5.6 ACCURACY OF INFORMATION. No representation or warranty by either
Buying Party in any Transaction Document, and no information contained
therein or otherwise delivered to any Selling Party or in connection
with the Transactions, contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the
statements contained herein or therein not misleading.
5.7 PAMARCO SHARES. The Pamarco Shares shall be validly issued, fully
paid and non-assessable upon the consummation of the Transactions. The
total authorized capital stock of the Company consists of 1,600,000
shares of Common Stock, 1,238,820 of which are issued and outstanding
on the date hereof, and 100,000 shares of Preferred Stock, par value
$.01 per share, none of which are issued and outstanding on the date
hereof.
6. Conditions Precedent to Obligations of the Buying Parties.
----------------------------------------------------------
All obligations of the Buying Parties to consummate the Transactions
are subject to the satisfaction (or waiver by each Buying Party to which the
condition relates) prior thereto of each of the following conditions:
6.1 SATISFACTION OF DEBT. The Debt (including interest) shall have been
satisfied in full, and written evidence of such satisfaction shall have
been provided to the Buyer.
6.2 DELIVERY OF CERTIFICATES. The Sellers shall have tendered to the
Buyer, the certificates for the Shares.
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<PAGE> 29
6.3 ANCILLARY DOCUMENTS. All parties to the following agreements are
executing and delivering the following documents: the Escrow Agreement,
the Building Lease.
7. Conditions Precedent to Obligations of the Sellers.
---------------------------------------------------
All obligations of the Sellers to consummate the Transactions are
subject to the satisfaction (or waiver by each Selling Party to which the
condition relates) prior thereto of each of the following conditions:
7.1 DELIVERY OF PURCHASE PRICE. As contemplated by Section 3, the Buyer
shall have tendered to the Sellers the Purchase Price.
7.2 ANCILLARY DOCUMENTS. All parties to the following agreements shall
have executed and delivered the following agreements: the Escrow
Agreement, the Building Lease.
8. Competition and Confidentiality.
--------------------------------
8.1 NON-COMPETITION. For the purpose of assuring to the Buyer the full
benefit of the businesses and goodwill of the Group Companies, each of
the Sellers undertakes by way of further consideration for the
obligations of the Buyer under this Agreement as separate and
independent agreements that he or it will not:
8.1.1 for two years after the Closing Date either on his own
or its account or for any other person directly or indirectly
solicit, interfere with or endeavour to entice away from any
Group Company any person who to his or its knowledge is, or
has during the past year been, a client, customer of, or in
the habit of dealing with, any Group Company;
8.1.2 for two years after the Closing Date, either alone or
jointly with or as manager, agent for or employee of any
person, directly or indirectly carry on or be engaged
concerned or interested in the United Kingdom in any business
which carries on the same type of business as that carried on
by any Group Company as at the Closing Date including, without
limitation, the sale and manufacture of printing plates and
software to the printing industry.
8.1.3 for two years after the Closing Date either on his or
its own account, directly or indirectly solicit, interfere
with or endeavour to entice away from any Group Company any
person who is or, at the time when the matter falls for
consideration has been employed as an
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<PAGE> 30
employee by or as an agent or consultant of any Group Company
during the period of one year to such date.
8.2 CONFIDENTIAL INFORMATION. For an indefinite time after the Closing,
no Seller shall directly or indirectly divulge, communicate or use in
any way, any confidential information or trade secrets of the Business,
including personnel information, know-how and other technical
information, customer lists, customer information and supplier
information (the "Confidential Information") (and shall use all
reasonable endeavours to prevent any of their respective associates
from so doing) provided however that Information shall cease to be
Confidential Information to the extent that it is either within the
public domain at the date of this Agreement or becomes within it at any
later date howsoever the same may occur otherwise than by breach by the
Sellers or their associates of this undertaking.
8.3 For the avoidance of doubt, nothing in this Section 8 shall prevent
the Sellers or their associates from the bona fide carrying out their
duties, if any, as officers and employees of the Buyer or its
associates.
8.4 INJUNCTIVE RELIEF. In the event of any breach or threatened breach
by any Seller of any provision of this Section 8, the Buyer shall be
entitled to injunctive or other equitable relief, restraining such
party from using or disclosing any Confidential Information in whole or
in part, or from engaging in conduct that would constitute a breach of
the obligations of such party under this Section 8. Such relief shall
be in addition to and not in lieu of any other remedies that may be
available, including an action for the recovery of damages.
9. Limitations on Sellers' Liability and Claims Procedures.
--------------------------------------------------------
9.1 Notwithstanding any other provisions of this Agreement:
9.1.1 the aggregate liability of the Sellers in respect of the
Warranties and Tax Indemnity shall not exceed US$ 1 million and
the liability of each of the Sellers in respect of all claims
arising out of the Warranties and under the Tax Indemnity shall be
limited to US$500,00 (including, without limitation, any
properly incurred legal and other expenses of the Buyer in making
such claims);
9.1.2 the Buyer shall not be entitled to make any claim against
the Sellers or either of them in respect of the Warranties or
under the Tax Indemnity unless the amount of any liability in
respect of such claim (when aggregated with the amount of any
other liabilities in respect of such claims or with any amount
which would have given rise to a claim hereunder had not the limit
contained in this clause 9.1.2 applied to it)
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<PAGE> 31
then or previously made by the Buyer against the Sellers
exceeds (pound)25,000 in which event the Buyer shall be
entitled to bring a claim or claims against the Sellers for
the whole of the claims and not just for the excess thereof;
9.1.3 no claims may be brought by the Buyer in respect of any
breach of the Warranties or under the Tax Indemnity unless
notice in writing of the claim (specifying in reasonable
detail the matters or defaults which give rise to the claim
and estimates of the amount claimed) has been given to the
Sellers not later than the expiration of the appropriate
period. For the purposes of this clause, the "appropriate
period":
(a) in respect of a claim which could have been
brought by the Buyer or any of the Group Companies
under the Tax Indemnity is seven years from the
Balance Sheet Date;
(b) in respect of any other claim is two years from
the Closing Date.
9.1.4 the Buyer and/or the Company and/or any appropriate
Subsidiary and/or some other of the Buying Parties shall
reimburse to the Sellers an amount equal to so much of any sum
paid by the Sellers in relation to a claim arising out of the
Warranties as is subsequently recovered by or paid to the
Buyer or the Company or a Subsidiary or some other Buying
Party or any other person associated with the Company or the
Buyer by any third party in respect of such claim and in any
event within 30 days of such recovery or payment;
9.1.5 no claim shall be made against the Sellers in relation
to the Warranties in respect of any matter fully and fairly
disclosed as provided in Section 4;
9.1.6 any claim which may have been made against the Sellers
in relation to the Warranties or under the Tax Indemnity shall
(unless previously satisfied settled or withdrawn) be deemed
to have been withdrawn at the expiration of one year from the
date of notification to the Sellers in respect of the
Warranties and the expiration of two years from the date of
notification in respect of the Tax Indemnity unless legal
proceedings in respect thereof have been commenced against the
Sellers and for this purpose such legal proceedings shall not
be deemed to have been commenced unless they have been not
only issued but served;
9.1.7 any amount paid by any Seller in respect of the
Warranties or under the Tax Indemnity shall be deemed to
constitute a reduction in the
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<PAGE> 32
purchase consideration received by that Seller for the Shares
sold by it pursuant to this Agreement.
9.2 The Sellers shall not incur liability in relation to any of
the Warranties or (as the case may be) their liability shall be
reduced:-
9.2.1 to the extent that provision or reserve in respect of
any sum in question was specifically made in the Accounts; or
9.2.2 where the claim would not have arisen but for a
voluntary action or omission carried out (other than pursuant
to a legally binding commitment created before the Closing) by
the Company or a Subsidiary after the Closing and otherwise
than in the ordinary course of business if such act or
omission has been authorised by the Buyer; or
9.2.3 to the extent that the Company or a Subsidiary is
insured against the loss or damage suffered by it and receives
payment from the insurer in respect of such loss or damage and
the Buyer undertakes to procure that the Company or the
relevant Subsidiary submits a claim against such policy of
insurance in respect of such loss or damage; or
9.2.4 to the extent that the claim arises out of any change in
accounting policy or practice or any change in the date to
which accounts of the Buyer or the Company or a Subsidiary are
made up in any year introduced on or after the Closing save
where the Buyer is advised by the Company's Auditors from time
to time that such change in accounting policy or practice is
necessary to comply with SSAP; or
9.2.5 to the extent that the claim is based upon a liability
of the Company or a Subsidiary which is contingent and such
contingent liability does not become an actual liability and
is discharged.
9.3 In the event of any claim being made against the Sellers in
relation to the Warranties the Buyer shall use its reasonable
endeavours to mitigate its loss and shall consult with the Sellers as
to what action the Sellers may reasonably deem appropriate to avoid,
dispute, resist, appeal against, compromise or defend the claim or
matter giving rise to the potential liability of the Sellers thereunder
and shall provide the Sellers with all such information as the Sellers
may reasonably require (subject to the signing of any confidentiality
undertakings which the Buyer may reasonably require) to facilitate such
consultation.
9.4 Notwithstanding the provisions of clause 9.3 hereof:
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<PAGE> 33
9.4.1 The Buyer shall in particular take or procure to be
taken appropriate steps in relation to any matter which gives
or may give rise to a claim in relation to any of the
Warranties and which is or may be covered under any policy of
insurance now or hereafter maintained by the Company or a
Subsidiary including making a claim on the insurers under such
policy;
9.4.2 If any claim is received by or any properly
substantiated matter or circumstance comes to the attention of
the Buyer which reasonably appears to establish or evidence a
breach of any of the Warranties and for which the Sellers may
be liable under the Warranties the Buyer shall:
9.4.2.1 as soon as reasonably practicable give
written notice and full details thereof to the
Sellers;
9.4.2.2 give the Sellers' professional advisers
reasonable access on reasonable notice to the
premises and the personnel of the Buyer and/or the
Company or any Subsidiary (as the case may be) to
examine any relevant chattels, accounts, documents
and records within the possession or control of the
Buyer and/or the Company or Subsidiary provided that
the Sellers shall and shall procure that their
professional advisers shall keep confidential all
matters so examined.
9.4.3 The Buyer shall permit the Sellers to take such action
on behalf of (and in the name of) the Company or any
Subsidiary (with such advisers as the Sellers may nominate) as
the Sellers may reasonably request to avoid, dispute, resist,
appeal, compromise or defend any matter which might otherwise
result in a claim by the Buyer in relation to the Warranties
provided that the Sellers shall (if so requested by the Buyer)
first have indemnified and secured the Buyer the Company or
the Subsidiary (as the circumstances may require) in a form
reasonably acceptable to the Buyer from an against any losses,
damages, claims and expenses incurred by it or any of them as
a result thereof.
9.4.4 WITHHOLDING TAX AND GROSSING UP. All sums payable by the
Sellers under this Agreement shall be paid free and clear of
all deduction or withholdings unless the deduction or
withholding is required by law, in which event the Sellers
shall pay such additional amount as shall be required to
ensure that the net amount received by the payee hereunder
will equal the full amount which would have been received had
no such deduction or withholding been required to be made. If
any tax authority brings into charge to tax any sum paid by
the Sellers hereunder, then the Sellers shall pay such
additional amount as shall be required to ensure
-31-
<PAGE> 34
that the total amount paid, less the tax chargeable on such
amount, is equal to the amount that would otherwise be payable
hereunder.
9.4.5 The Buyer shall not be entitled to recover both under
the Warranties and the Tax Indemnity in respect of the same
subject matter, but, for the avoidance of doubt the Buyer
shall be entitled to choose whether to recover under the
Warranties or the Tax Indemnity.
10. Entire Agreement
----------------
This Agreement, together with the other Transaction Documents, sets
forth the entire understanding of the parties hereto with respect to the
Transactions and supersedes all prior agreements or understandings among the
parties regarding those matters. None of the parties hereto is making any
representations or warranties to another party except to the extent that the
Sellers have made representations and warranties in Section 4 and except to the
except that the Buyer has made representations and warranties in Section 5.
11. Amendment, Parties in Interest, Assignment, Etc.
------------------------------------------------
This Agreement may be amended, modified or supplemented only by a
written instrument duly executed by each of the parties hereto. If any provision
of this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein. This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the respective heirs, legal representatives, successors
and permitted assigns of the parties hereto. No party hereto shall assign this
Agreement or any right, benefit or obligation hereunder save that the Buyer
and/or Pamarco shall be entitled to assign any of their rights or benefits
hereunder to any holding or subsidiary company or to such company's bankers in
connection with any financing arrangement. Any term or provision of this
Agreement may be waived at any time by the party entitled to the benefit thereof
by a written instrument duly executed by such party. The parties hereto shall
execute and deliver any and all documents and take any and all other actions
that may be deemed reasonably necessary by their respective counsel to complete
the Transactions. Any liability to the Buyer under this Agreement may be
released, compounded or comprised in whole or in part by the Buyer or Pamarco
without in any way prejudicing or affecting their rights against any of the
Sellers or any other liability of the Seller in question.
-32-
<PAGE> 35
12. Post Closing Obligations
------------------------
12.1 Each of the Sellers shall, after Closing, execute and do or cause
to be executed and done all such deeds, documents, acts and things as
may be required to give effect the Transaction Documents, including,
without limitation, vesting the full benefit of the Shares in the
Buyer.
13. Notices.
--------
All notices that are required or permitted hereunder shall be in
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
party hereto:
If to the Buyer or Pamarco:
Pamarco Technologies Inc.
c/o Bradford Ventures Limited
1212 Avenue of the Americas
New York, New York 10036
FAX: (212) 764-3467
with copies to:
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia PA 19103-6993
FAX: (215) 963-5299
Morgan, Lewis & Bockius
4 Carlton Gardens
Pall Mall
London SW1Y 5AA
FAX: (UK) 171 839 3650
If to a Seller to their respective addressed set out in
Schedule 1,
with a copy to:
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<PAGE> 36
Davies Arnold Cooper
6-8 Bouverie Street
London EC4Y 8DD
FAX: (UK) 171 936 2020
14. Governing Law.
--------------
This Agreement shall be construed and interpreted in accordance with
the laws of England.
15. Counterparts.
-------------
This Agreement may be executed in two or more counterparts, each of
which shall be binding as of the date first written above, and all of which
shall constitute one and the same instrument. Each such copy shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
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<PAGE> 37
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned
parties as of the day and year first written above.
By:
---------------------------------
Title: Director
for and on behalf of
PAMARCO EUROPE LIMITED
In the presence of:
Witness Signature
Witness name:
Witness address:
By:
---------------------------------
TERENCE WILLIAM FORD
In the presence of:
Witness Signature
Witness name:
Witness address:
By:
---------------------------------
Title: Director
for and on behalf of
GREENBAY LIMITED
In the presence of:
Witness Signature
Witness name:
Witness address:
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<PAGE> 38
By:
---------------------------------
Title: (duly authorised
representative) for and on behalf of
PAMARCO TECHNOLOGIES, INC.
In the presence of:
Witness Signature
Witness name:
Witness address:
-36-
<PAGE> 39
SCHEDULE 1
THE SELLERS
- --------------------------------------------------------------------------------
Name No. of Shares
- --------------------------------------------------------------------------------
1. Terence William Ford 5,100
6 Rutland Avenue
Walton
Warrington
Cheshire
WA4 6PD
2. Greenbay Limited 5,100
Ragnall House
18 Peel Street
Douglas
Isle of Man
------
10,200
------
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<PAGE> 40
SCHEDULE 2
PART 1
THE COMPANY
Name: QUALTECH HOLDINGS LIMITED (formerly
Landgable Ltd name changed 20 November 1992)
Registration No: 2684884
Date of Incorporation: 6th February 1992
Authorised share capital: (pound)100,000 divided into 100,000 ordinary
shares of (pound)1 each.
Issued share capital: (pound)10,200 divided into 10,200 ordinary
shares of(pound)1 each. 5100 with TW Ford and
5100 with Greenbay Ltd.
Directors: D H Buckley, M A Buckley, T W Ford and W J
Ford
Secretary: T W Ford
Auditors: Gruber Levinson Franks
Registered Office: Fernden House, Chapel Lane, Stockton Heath,
Warrington, WA4 6LL
Accounting Reference Date: 31 December
Bankers: Barclays Bank PLC
Debentures/Mortgages/Charges: Guarantee and Debenture registered 5 April
1994 dated 22 March 1994 securing all monies
due or to become due from the Company and/or
Incorporated Flexographic Supplies Ltd and/or
Flexographic Services Ltd to the chargee on
any
-38-
<PAGE> 41
account whatsoever by fixed and floating
charges over the undertaking and all property
and assets present and future including
goodwill, book debts, uncalled capital,
building, fixtures, fixed plant and machinery.
The Chargee is Barclays Bank PLC
Legal Charge registered 13 April 1994 and
dated 25 March 1994 for all monies due or to
become due from the company to the Chargee on
any account whatsoever secured against land
East Side of Dallam Lane, Warrington, Cheshire
(Title Number CH345895). The Chargee is
Barclays Bank PLC
Legal Charge registered 13 March 1994 and
dated 31 March 1994 for all monies due or to
become due from the company to the Chargee on
any account whatsoever against land on East
Side of Dallam Lane, Warrington, Cheshire
(Title numbers CH 324005 and CH 325395). The
Chargee is Barclays Bank PLC.
Subsidiaries: Incorporated Flexographic Supplies Ltd and
Flexographic Services Ltd
-39-
<PAGE> 42
SCHEDULE 2
PART II
THE SUBSIDIARIES
1. Name: INCORPORATED FLEXOGRAPHIC SUPPLIES LIMITED
Registration No: 993660
Date of Incorporation: 6th November 1970
Authorized share capital: (pound)100,000 divided into 100,000 ordinary
shares of (pound)1 each.
Issued share capital: [(pound)36,000 divided into 36,000 ordinary
shares of (pound)1 each. 36,000 held by
Qualtech Holdings Ltd.]
Directors: D H Buckley and D Johnson
Secretary: P Williams
Auditors: Gruber Levinson Franks
Registered Office: Fernden House, Chapel Lane, Stockton Heath,
Warrington, WA4 6LL
Accounting Reference Date: 31 December
Bankers: Barclays Bank PLC
Debentures/Mortgages/Charges: Guarantee and Debenture registered 19 February
1985 and dated 5 February 1985. All monies due
or to become due from the company to the
chargee on any account whatsoever secured by
fixed and floating charges over the
undertaking and all property assets present
and future including uncalled capital,
machinery, fixtures and fittings and fixed
plant in favour of Barclays Bank PLC.
-40-
<PAGE> 43
Debenture registered 12 June 1992 dated 6 June
1992 securing all monies due or to become due
from the company to the chargee on any account
whatsoever secured by fixed and floating
charges over the undertaking and all property
and assets present and future including
goodwill, book debts, uncalled capital,
buildings, fixtures, fixed plant and machinery
in favour of Barclays Bank PLC.
Memorandum of Full Satisfaction dated 21
[September 1992].
Guarantee and Debenture registered 5 April
1994 dated 22 March 1994 securing all monies
due or to become due from the Company and/or
Qualtech Holdings Ltd to the chargee on any
account whatsoever by fixed and floating
charges over the undertaking and all property
and assets, goodwill, book debts, uncalled
capital, buildings, fixtures, fixed plant and
machinery of the chargors in favour of
Barclays Bank PLC.
Subsidiaries: None
-41-
<PAGE> 44
2. Name: FLEXOGRAPHIC SERVICES LIMITED
(formerly Galering Ltd name changed on 23 June
1984)
Registration No: 1813731
Date of Incorporation: 4 May 1984
Authorised share capital: (pound)50,000 divided into 50,000 ordinary
shares of(pound)1 each.
Issued share capital: (pound)10,000 divided into 10,000 ordinary
shares of(pound)1 each held by Qualtech
Holdings Ltd.
Directors: K G Cleminson, M A Ford, T W Ford, W J Ford
and E G Wright
Secretary: P Williams
Auditors: Gruber Levinson Franks
Registered Office: Fernden House, Chapel Lane, Stockton Heath,
Warrington, WA4 6LL
Accounting Reference Date: 31 December
Bankers: Barclays Bank PLC
Debentures/Mortgages/Charges: Charge registered 22 August 1984 dated 16
August 1984 securing all monies due or to
become due from the Company to the chargee on
any account whatsoever by fixed and floating
charges over the undertaking and all property,
assets present and future including goodwill,
book debts, uncalled capital, buildings,
fixtures, fixed plant and machinery of the
chargors in favour of Barclays Bank PLC.
Legal Charge registered 5 April 1987 dated 2
April 1986 against premises at Padgate Lane,
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<PAGE> 45
Elmwood Avenue, Oakwood Avenue and Gorsey
Lane, Warrington (title number LA 346860) in
favour of Barclays Bank PLC.
Guarantee and Debenture registered 27 April
1987 dated 13 April 1987 securing all monies
due or to become due from the Company and/or
Fastforme Services Ltd to the chargee on any
account whatsoever and/or Fastforme Services
Ltd by way of fixed and floating charges over
the undertaking and property and assets
present and future including goodwill, book
debts, uncalled capital, buildings, fixtures,
fixed plant and machinery in favour of
Barclays Bank PLC.
Guarantee and Debenture registered 5 April
1994 dated 22 March 1994 securing all monies
due or to become due from the Company and/or
Qualtech Holdings Ltd to the chargee on any
account whatsoever by fixed and floating
charges over the undertaking and all property
and assets present and future including
goodwill, book debts, uncalled capital,
buildings, fixtures, fixed plant and machinery
in favour of Barclays Bank PLC.
Subsidiaries: None
3. NAME: FASTFORME SERVICES LIMITED (formerly
known as Ultrarealm Limited).
COMPANY NO.: 2062797
DATE OF INCORPORATION: 9th October, 1986
AUTHORISED ISSUED
SHARE CAPITAL: (pound)1,000 divided into 1,000 Ordinary
Shares of (pound)1 each, all issued to
Flexographic Supplies Limited.
DIRECTORS: Terence William Ford.
SECRETARY: Paul Williams.
REGISTERED OFFICE: Fernden House, Chapel Lane, Stockton Heath,
Warrington, Cheshire.
-43-
<PAGE> 1
Exhibit 10.6
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
among
PAMARCO TECHNOLOGIES INC.
(a Delaware Corporation)
and
MAX GYSIN
(a resident of Georgia)
with respect to
DIAMOND HOLDING CORPORATION
(a Georgia Corporation)
- --------------------------------------------------------------------------------
<PAGE> 2
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
Section Page
- ------- ----
1. Definitions...........................................................1
2. Purchase and Sale of Shares...........................................8
3. Closing..............................................................12
4. Representations and Warranties of the Seller.........................13
5. Representations and Warranties of the Buyer..........................25
6. Covenants of the Seller..............................................27
7. Covenants of the Buyer...............................................27
8. Conditions Precedent to Obligations of the Buyer.....................28
9. Conditions Precedent to Obligations of the Seller....................28
10. Competition and Confidentiality by Seller............................29
11. Indemnification......................................................30
12. Dispute Resolution...................................................33
13. Contents of Agreement................................................34
14. Amendment, Parties in Interest, Assignment, Etc......................34
15. Interpretation.......................................................34
16. Remedies.............................................................35
17. Notices..............................................................35
18. Governing Law........................................................36
19. Counterparts.........................................................37
<PAGE> 3
Exhibits
- --------
A Escrow Agreement
B Gysin Employment Agreement
C Joinder to Registration Rights
Agreement
D Joinder to Stockholders' Agreement
E Releases
F Subordinated Note
G Form of Alston & Bird Legal Opinion
H Form of Morgan, Lewis & Bockius
LLP Legal Opinion
Schedules
- ---------
1.1 Real Estate Leases
4.3 Consents and Approvals
4.6 Encumbrances
4.7 Real Property
4.9 Non-Real Estate Leases
4.12 Liabilities
4.15 Litigation; Governmental Permits
4.16 Contracts
4.17 Insurance
4.18 Intellectual Property
4.19 Employee Relations
4.20 Benefit Plans
4.22 Absence of Certain Changes
4.24 Customers and Suppliers
4.26 Additional Information
-ii-
<PAGE> 4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of January
10, 1997 between Pamarco Technologies Inc., a Delaware corporation ("Pamarco" or
the "Buyer"), and Max Gysin, a resident of Georgia (the "Seller"). Certain other
terms are used herein as defined below in Section 1 or elsewhere in this
Agreement.
Background
----------
The Seller owns all of the capital stock of Diamond Holding
Corporation, a Georgia corporation ("Diamond" and, together with the Seller, the
"Selling Parties"). Until their merger with and into Diamond, Diamond owned all
of the capital stock of the following subsidiaries: Diamond Roller Corporation,
an Arizona corporation, Diamond Roller Corporation, an Illinois corporation,
Diamond Roller Corporation, a Florida corporation, Diamond Roller Corporation, a
Georgia corporation, Diamond Roller Corporation, a Maryland corporation, Diamond
Roller Corp. of New England, Inc., a Connecticut corporation, U.S. Elastomer
Corporation, a Georgia corporation, Ohio Roller, Inc., an Ohio corporation, and
Diamond Roller Systems Corporation, a Georgia corporation (collectively, the
"Diamond Subsidiaries"). The Buyer desires to buy all of the outstanding capital
stock of Diamond from the Seller, and the Seller desires to sell all of such
stock to the Buyer, on the date hereof in accordance with the terms and
conditions of this Agreement.
Witnesseth
----------
NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Definitions.
------------
For convenience, certain terms used in more than one part of this
Agreement are listed in alphabetical order and defined or referred to below
(such terms as well as any other terms defined elsewhere in this Agreement shall
be equally applicable to both the singular and plural forms of the terms
defined).
"Action" is defined in Section 11.5.
"Accounts Receivable" means, as of any date any trade accounts
receivable, notes receivable, bid or performance deposits, employee advances and
other miscellaneous receivables included in the Assets of a Company.
"Affiliates" means, with respect to a particular party, persons or
entities controlling, controlled by or under common control with that party, as
well as any officers, directors and majority-owned entities of that party and of
its other Affiliates.
"Agreement" means this Agreement and the exhibits and schedules hereto.
-1-
<PAGE> 5
"Assets" means, with respect to a particular Person, all of the assets,
properties, goodwill and rights of every kind and description, real and
personal, tangible and intangible, that are owned or possessed by such Person.
"Balance Sheet Date" is defined in Section 4.5.
"Benefit Plans" means all employee benefit plans of a Company within
the meaning of Section 3(3) of ERISA and any related or separate Contracts,
plans, trusts, programs, policies, arrangements, practices, customs and
understandings, in each case whether formal or informal, that provide benefits
of economic value to any present or former employee of a Company, or present or
former beneficiary, dependent or assignee of any such employee or former
employee.
"Business" means, with respect to a particular Person, the entire
business, operations, and facilities of such Person.
"Buyer" is defined above in the preamble.
"Buyer Release" means the Release of Diamond, in the form of such
document included in Exhibit "E" hereto and entered into as of the Closing Date.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Claim Notice" is defined in Section 11.3.
"Claim Response" is defined in Section 11.3.
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means any of Diamond or the Diamond Subsidiaries.
"Confidential Information" means information, including a formula,
pattern, compilation, program, device, method, technique or process that (a)
derives independent economic value, actual or potential, from not being
generally known to the public or to other Persons who can obtain economic value
from its disclosure or use; and (b) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
-2-
<PAGE> 6
"Contingent Purchase Price" is defined in Section 2.2.
"Contract" means any written or oral contract, agreement, lease,
instrument or other commitment that is binding on any Person or its property
under applicable law.
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or ruling
of any federal, state, local or foreign court or governmental or regulatory body
or authority that is binding on any person or its property under applicable law.
"Damages" is defined in Section 11.1.
"Default" means (a) a breach, default or violation, (b) the occurrence
of an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration or a right to receive damages or a payment of
penalties.
"Default Rate" is defined in Section 2.2(d).
"Diamond" is defined above in the preamble.
"Diamond Balance Sheet" is defined in Section 4.5.
"Diamond Common Stock" means the Common Stock, no par value, of
Diamond.
"Diamond Financial Statements" is defined in Section 4.5.
"Diamond Subsidiaries" is defined above in the Background section.
"Earnings Period" is defined in Section 2.2(a).
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest.
"Environmental Condition" is defined in Section 4.15(b).
"Environmental Law" is defined in Section 4.15(b).
"Escrow Agent" means CoreStates Bank, N.A.
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<PAGE> 7
"Escrow Agreement" means the Escrow Agreement among the Buyer, the
Seller and the Escrow Agent, in the form of Exhibit "A" hereto and entered into
as of the date hereof.
"Escrow Funds" is defined in Section 2.1(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Dates" is defined in Section 11.4.
"GAAP" means generally accepted accounting principles.
"Governmental Permits" is defined in Section 4.15(d).
"Gysin Employment Agreement" means the Employment Agreement between
Diamond and Seller, in the form of Exhibit "B" hereto and entered into as of the
Closing Date.
"Hazardous Substances" means any gaseous, liquid or solid material or
waste that may or could pose a hazard to the environment or human health or
safety including (i) any "hazardous substances" as defined by the federal
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
sections 9601 ET SEQ., (ii) any "extremely hazardous substance," "hazardous
chemical," or "toxic chemical" as those terms are defined by the federal
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. sections 11001 ET
SEQ., (iii) any "hazardous waste," as defined under the federal Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act, 42
U.S.C. sections 6901 ET SEQ., (iv) any "pollutant," as defined under the federal
Water Pollution Control Act, 33 U.S.C. sections 1251 ET SEQ., as any of such
laws in clauses (i) through (iv) may be amended from time to time, and (v) any
regulated substance or waste under any Laws or Court Orders that currently exist
or that may be enacted, promulgated or issued in the future by any federal,
state or local governmental authorities concerning protection of the
environment.
"Immaterial Lease" is defined in Section 4.9.
"Income Determination" is defined in Section 2.2(b).
"Income Dispute Notice" is defined in Section 2.2(c).
"Income Notice" is defined in Section 2.2(b).
"Indemnified Party" is defined in Sections 11.1 and 11.2.
"Indemnitor" is defined in Section 11.3.
-4-
<PAGE> 8
"Intellectual Property" means any Copyrights, Patents, Trademarks,
technology rights and licenses, trade secrets, franchises, know-how, inventions
and other intellectual property.
"Inventory" means all inventory, including raw materials, supplies,
work in process and finished goods.
"Joinders" means the Joinder to the Registration Rights Agreement and
the Joinder to the Stockholders' Agreement executed by the Buyer and the Seller.
"Joinder to Registration Rights Agreement" means the Joinder to the
Registration Rights Agreement between the Buyer and the Seller, in the form of
Exhibit "C" hereto and entered into as of the Closing Date.
"Joinder to Stockholders' Agreement" means the Joinder to the
Stockholders' Agreement between the Buyer and the Seller, in the form of Exhibit
"D" hereto and entered into as of the Closing Date.
"Law" means any statute, law, ordinance, regulation, order or rule of
any federal, state, local, foreign or other governmental agency or body or of
any other type of regulatory body, including those covering environmental,
energy, safety, health, transportation, bribery, record keeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Leases" means the leases to be entered into between the Seller and
Diamond on the Closing Date with respect to the real estate parcels specified on
SCHEDULE 1.1.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Liquidated Claim Notice" is defined in Section 11.3.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means, with respect to a particular Person, a
material adverse effect on the Business, Assets, financial condition or results
of operations of such Person, determined on a consolidated basis, and when used
with respect to representations, warranties or conditions, means the individual
effect of the situation to which such term relates and also the aggregate effect
of all similar situations unless the context indicates otherwise.
"Minor Contracts" is defined in Section 4.16(a).
-5-
<PAGE> 9
"Net Worth of Diamond" means the difference as of December 31, 1996
between Diamond's total assets and total liabilities, as such amounts are
calculated on a consolidated basis in accordance with GAAP, consistently applied
with past practices; provided, however, (i) $57,500 shall be added to such
difference to account for certain extraordinary accounting fees; (ii) $10,000
shall be added to such difference to account for legal expenses incurred in
connection with the Subsidiary Mergers; and (iii) $3,600 shall be added to such
difference to account for certain costs associated with qualifying Diamond to do
business in various states.
"Net Worth Statement" is defined in Section 2.3.
"Net Worth Target" is defined in Section 2.3.
"Non-Real Estate Leases" is defined in Section 4.9.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practices.
"Pamarco" is defined above in the preamble.
"Pamarco Balance Sheet" is defined in Section 5.5.
"Pamarco Common Stock" means the 33,333 shares of Pamarco's Class A
Common Stock, par value $0.01 per share, being issued to the Seller hereunder.
"Pamarco Financial Statements" is defined in Section 5.5.
"Pamarco Subsidiaries" means those entities of which Pamarco, directly
or indirectly, owns at least a majority of the equity interests.
"Patents" means all patents and patent applications.
"Permitted Encumbrances" means those Encumbrances that are designated
as Permitted Encumbrances on Schedule 4.6.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Pre-Tax Income" is defined in Section 2.2(e).
"Prime Rate" means the prime rate announced from time to time in The
Wall Street Journal as the base rate on corporate loans by at least 75% of the
30 largest banks in the United States or, if such rate is no longer announced in
such newspaper, such rate charged by the Buyer's then current lender.
-6-
<PAGE> 10
"Purchase Price" is defined in Section 2.1(a).
"Real Property" is defined in Section 4.7.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of July 25, 1994, among the Buyer and all of its
Stockholders at that time, as it may be amended from time to time.
"Releases" means the Buyer Release and the Seller Release.
"Response Period" is defined in Section 11.3.
"Restricted Party" is defined in Section 10.1.
"Restricted Period" is defined in Section 10.1.
"Restricted Territory" is defined in Section 10.1.
"Reviewed Financial Statements" is defined in Section 4.5
"Second Firm" is defined in Section 2.2(c).
"Second Income Determination" is defined in Section 2.2(c).
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" is defined above in the preamble.
"Seller Release" means the Release of the Seller, in the form of such
document included in Exhibit "E" hereto and entered into as of the Closing Date.
"Selling Party" means the Seller or Diamond.
"Selling Party's knowledge," "knowledge of a Selling Party" and similar
phrases relating to the knowledge of a Selling Party mean the actual knowledge
of (a) the Seller, (b) any director or officer of the Company or (c) any member
of the three-person supervisory team at any of the Company's facilities.
"Shares" is defined in Section 2.1.
"Stockholders' Agreement" means the Stockholders' Agreement, dated as
of July 25, 1994, among the Buyer and all of its stockholders at that time, as
it may be amended from time to time.
-7-
<PAGE> 11
"Subordinated Note" means the 8% Subordinated Note in the principal
amount of $1,000,000 payable by the Buyer to the Seller in the form of Exhibit
"F" hereto.
"Subsidiary Mergers" is defined in Section 4.14.
"Taxes" means all taxes, duties, charges, fees, levies or other
assessments imposed by any taxing authority including, without limitation,
income, gross receipts, value-added, excise, withholding, personal property,
real estate, sale, use, ad valorem, license, lease, service, severance, stamp,
transfer, payroll, employment, customs, duties, alternative, add-on minimum,
estimated and franchise taxes (including any interest, penalties or additions
attributable to or imposed on or with respect to any such assessment).
"Trademarks" means registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and service
marks.
"Transaction Documents" means this Agreement, the Escrow Agreement, the
Gysin Employment Agreement, the Leases, the Releases, the Subordinated Note and
the Joinders.
"Transactions" means the purchase and sale of the Shares and the other
transactions contemplated by the Transaction Documents.
"Unliquidated Claim" is defined in Section 11.3.
2. Purchase and Sale of Shares.
----------------------------
2.1 PURCHASE PRICE; SHARES.
(a) At the Closing, the Buyer shall buy from the Seller, and
the Seller shall sell to the Buyer, all of the shares of Diamond Common Stock
(the "Shares") for an aggregate purchase price (the "Purchase Price") equal to
the sum of (i) $8,500,000 in cash, (ii) the Pamarco Common Stock, (iii) the
Subordinated Note and (iv) the Contingent Purchase Price.
(b) The Buyer shall pay the Purchase Price to the Seller as
set forth below:
(i) at the Closing, the Buyer shall pay by a wire
transfer of immediately available funds (A) $8,000,000 to the Seller and (B)
$500,000 to the Escrow Agent in accordance with the Escrow Agreement (the
"Escrow Funds");
(ii) at the Closing, the Buyer shall issue to the
Seller a certificate for the Pamarco Common Stock; and
(iii) at the Closing, the Buyer shall execute and
deliver to the Seller the Subordinated Note.
-8-
<PAGE> 12
2.2 CONTINGENT PURCHASE PRICE.
(a) The Buyer shall pay the Contingent Purchase Price to the
Seller if (i) the aggregate Pre-Tax Income of Diamond during the period
beginning on January 1, 1997 and continuing through December 31, 1998 (referred
to herein as the "Earnings Period") shall be at least $3,608,129, or (ii)
Diamond terminates the Seller under the Gysin Employment Agreement without cause
prior to December 31, 1998 ("Termination Without Cause"). The term "Contingent
Purchase Price" means the cash payment specified below in this paragraph (a);
provided, however, that in the case of a Termination Without Cause, "Contingent
Purchase Price" means $2,500,000. If the Pre-Tax Income of Diamond is at least
$3,608,129 during the Earnings Period, the Buyer shall deliver the Contingent
Purchase Price specified below for the range of Pre-Tax Income that shall be
achieved for the Earnings Period:
<TABLE>
<CAPTION>
PRE-TAX INCOME CASH
-------------- ----
<S> <C>
$3,608,129 to $3,675,178 $ 500,000
$3,675,179 to $3,742,228 $ 750,000
$3,742,229 to $3,809,278 $1,000,000
$3,809,279 to $3,876,328 $1,250,000
$3,876,329 to $3,943,378 $1,500,000
$3,943,379 to $4,010,428 $1,750,000
$4,010,429 to $4,077,478 $2,000,000
$4,077,479 to $4,144,528 $2,250,000
$4,144,529 to Above $2,500,000
</TABLE>
(b) The Buyer shall calculate and report on the Pre-Tax Income
of Diamond (each an "Income Determination") within 90 days after each of the
following dates: December 31, 1997 and December 31, 1998. Within 20 days after
completion of each Income Determination, the Buyer shall give the Seller notice
(the "Income Notice") of the results of the Income Determination together with
access to all work papers and all other supporting accounting documents.
-9-
<PAGE> 13
(c) The Seller may dispute any Income Determination in the
following manner. Within 30 days after the Buyer gives the Income Notice, the
Seller shall give the Buyer notice of its disagreement with the Income
Determination (the "Income Dispute Notice"), and such notice shall specify in
detail the nature of the disagreement. During the 20 days after the day on which
the Income Dispute Notice is given, the Seller and the Buyer shall attempt to
resolve such dispute. If they fail to reach a written agreement regarding the
dispute, the Seller shall refer the matter to a firm of certified independent
accountants (the "Second Firm") that is different from the firm that initially
prepared the Income Determination (the "First Firm"), and request the Second
Firm to also determine the Pre-Tax Income of the Business for the Earnings
Period (the "Second Income Determination") within the 30 days after such 20-day
period. The Seller shall give the Buyer prompt notice of the results of the
Second Income Determination. During the 20 days after the day on which the
Seller gives the Buyer notice of the Second Income Determination, the Seller and
the Buyer shall again attempt to resolve such dispute. If they fail to reach a
written agreement regarding the dispute, the Seller and the Buyer shall request
the First Firm and the Second Firm, respectively, to choose a third firm of
certified independent accountants (the "Third Firm") and request the Third Firm
to also determine the Pre-Tax Income of the Business for the Earnings Period
(the "Third Income Determination") within the 30 days after the request to do
so. If the First Firm and the Second Firm cannot agree on the choice of the
Third Firm, the Seller and the Buyer shall meet and at such meeting the Seller
shall choose the Third Firm by randomly selecting a piece of paper from a
container that holds one piece of paper for each of the "Big Six" certified
independent accounting firms; provided, however, that the name of any "Big Six"
firm then engaged by the Buyer or Seller shall not be included in the container.
The Buyer and the Seller shall request the First Firm and the Second Firm,
respectively, to confer with the Third Firm and to make available to the Third
Firm their respective work papers regarding the Income Determination and the
Second Income Determination. The Third Income Determination shall be the final
and binding Income Determination for the purposes of determining whether the
Buyer shall be obligated to pay the Seller any Contingent Purchase Price. The
Seller shall pay the fees and expenses of the Second Firm with respect to the
Second Income Determination. The Seller and the Buyer shall pay any expenses
relating to the engagement of the Third Firm, allocated between the Seller and
the Buyer so that the Seller's share of such costs shall be in the same
proportion that the aggregate amount of the disputed amounts submitted to such
accounting firm that are unsuccessfully disputed by the Seller (as finally
determined by such accounting firm) bears to the total amount of such disputed
amounts so submitted to such accounting firm.
(d) The Buyer shall pay any Contingent Purchase Price due to
the Seller in three equal installments on December 31 of 1999, 2000 and 2001;
provided, however, that in the case of a Termination Without Cause, the
Contingent Purchase Price shall be paid in three equal annual installments
beginning on the last day of the month following the date of Termination Without
Cause. The Contingent Purchase Price shall be paid on each such date by a wire
transfer of immediately available funds. The Buyer shall pay the Seller interest
at the Default Rate (defined below) on any installment of the Contingent
Purchase Price that is not paid to the Seller on the payment date, and if any
such installment remains unpaid for a period of 10 days after the date on which
the Seller gives the Buyer notice of the default, the Seller may, by notice to
the Buyer,
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<PAGE> 14
accelerate the payments date for any remaining installments and declare the
entire unpaid amount of the Contingent Purchase Price immediately due and
payable, together with interest thereon at the Default Rate and the costs of
collection, including reasonable legal fees and expenses. The term "Default
Rate" means an annual rate equal to the Prime Rate plus 5% or, if such rate is
usurious, the highest legal rate.
(e) "Pre-Tax Income" means income determined in accordance
with GAAP applied on a consistent basis without taking into account any of the
following items: (i) deductions or accruals for any Federal, state or local
income taxes; (ii) net operating loss carryforwards or carrybacks; (iii) any
income or loss resulting from any other business that may be acquired by or
combined with Diamond by means of a merger, a purchase or otherwise; (iv) any
change in GAAP in comparison to those in effect on the Closing Date; (v) any
items that would be considered extraordinary items under GAAP; (vi) any
amortization charges with respect to the Transactions resulting from the use of
the purchase method of accounting or any changes in depreciation resulting from
the use of Buyer's established depreciation policy; (vii) any interest or lease
payments related to the purchase of a new computer system; (viii) any consulting
or management fees paid to Buyer, Bradford Ventures, Ltd. or its Affiliates;
(ix) any selling, general and administrative expense of Diamond in excess of the
selling, general and administrative expense incurred in 1996 in the ordinary
course, other than items initiated by the Seller and items requested by Buyer
that are approved by the Seller; and (x) any interest in an amount greater than
$625,000 on indebtedness for money borrowed under the Subordinated Note and a
bank term loan plus any interest incurred in connection with that portion of a
revolving credit loan that relates to any dividends, management fees and similar
payments from Diamond to the Buyer. In addition, in computing the Pre-Tax
Income, the amount of the charge for interest expense with respect to the
Subordinated Note and any bank term loan shall be $625,000 in all cases
irrespective of the actual amount of interest expense for such indebtedness. If
Diamond's Business is operated as a division of a corporation or business entity
other than Diamond, the determination of the Pre- Tax Income shall include such
adjustments as are deemed appropriate so that the Pre-Tax Income would be as
close as possible to the Pre-Tax Income that would have existed if Diamond were
operated as a separate corporation.
2.3 POST-CLOSING PURCHASE PRICE ADJUSTMENT. As soon as practicable, but
in any event within 180 days after the Closing Date, Deloitte & Touche, at the
direction of the Buyer, shall prepare and deliver to the Seller a statement of
the Net Worth of Diamond as of December 31, 1996 (the "Net Worth Statement"). In
calculating the Net Worth Statement, the Seller may dispute any amounts
reflected on the Net Worth Statement to the extent the net effect of such
disputed amounts in the aggregate would affect the Net Worth of Diamond by more
than $25,000, but only on the basis that such amounts were not arrived at in
accordance with GAAP applied on a consistent basis. The Seller shall notify the
Buyer in writing of each disputed item, and specify the amount thereof in
dispute, within 30 days of the date on which the Buyer gives the Seller notice
of the Net Worth Statement. If the Seller timely notifies the Buyer of any such
dispute, and the Seller and the Buyer cannot resolve any such dispute within 15
days of the Seller's delivery of such notice, such dispute shall be resolved by
a "Big Six" certified independent accounting firm, other than any such firm
-11-
<PAGE> 15
engaged by the Seller or the Buyer, selected by both the Seller and the Buyer.
If the Seller and the Buyer cannot agree on the choice of such accounting firm,
the Seller shall choose the firm in the manner specified above for choosing the
Third Firm. The Seller and the Buyer shall request such accounting firm to
determine the Diamond Net Worth as promptly as practicable (and in any event
within 30 days of receipt of notice of such dispute by the Seller and the Buyer,
which notice shall be promptly given by the parties), and determination shall be
final on the parties. The Seller and the Buyer shall pay any expenses relating
to the engagement of such accounting firm, allocated between the Buyer and the
Seller so that the Seller's share of such costs shall be in the same proportion
that the aggregate amount of the disputed amounts submitted to such accounting
firm that are unsuccessfully disputed by the Seller (as finally determined by
such accounting firm) bears to the total amount of such disputed amounts so
submitted to such accounting firm. To the extent that the Net Worth Statement
reflects a Diamond Net Worth less than $3,225,000 (without taking into account
the stockholder loan being released on the Closing Date) (the "Net Worth
Target"), the Purchase Price shall be reduced by the amount of such deficiency,
and the Escrow Agent shall pay to the Buyer a portion of the Escrow Funds that
is equal to such deficiency as provided in the Escrow Agreement. If the amount
of the liability accrued on the Net Worth Statement for Diamond's obligation to
Dahlgren International, Inc. exceeds the amount spent by Diamond to resolve such
liability, the Buyer shall pay any such excess to the Seller; provided, however,
that such obligation to repay such excess amount to the Seller shall exist only
to the extent that the Escrow Agent shall have paid the Buyer funds as a result
of the Diamond Net Worth being less than the Net Worth Target. If as part of the
calculation of the Diamond Net Worth the value of the Diamond Assets are reduced
to account for a reserve for certain dampener systems, Diamond shall pay to the
Escrow Agent to hold as part of the Escrow Funds any net revenues received by
Diamond after the Closing from the sale of such systems (net of related selling
expenses), but Diamond shall not be required hereunder to pay to the Escrow
Agent more than the amount of any funds received by the Buyer from the Escrow
Agent for a claim under this Section 2.3. The Buyer's right to recover from the
Escrow Agreement under this Section 2.3 is independent of any right that the
Buyer may have to recover for a breach of any of the Seller's representations
and warranties in Section 4; provided, however, that in order to avoid double
counting the Buyer's rights to recover for a breach of any such representations
and warranties shall be reduced to the extent that the Buyer recovers for that
same breach through a payment from the Escrow Funds under this Section 2.3.
2.4 ESCROW ACCOUNT. At the Closing, the Seller and the Buyer shall
enter into the Escrow Agreement with the Escrow Agent under which the Escrow
Agent shall hold the Escrow Funds for possible claims against the Seller under
Section 2.3 and Section 11.
3. Closing.
--------
3.1 LOCATION, DATE. The closing for the Transactions (the "Closing") is
being held on the date hereof (the "Closing Date") at the offices of Morgan,
Lewis & Bockius LLP in Philadelphia, Pennsylvania.
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3.2 DELIVERIES. At the Closing,
(a) the Buyer shall pay the Purchase Price to the Seller as
provided in clauses (i), (ii) and (iii) of Section 2.1(b);
(b) the Seller shall deliver to the Buyer the certificate or
certificates representing the Shares, either duly endorsed for
transfer to the Buyer or accompanied by appropriate stock
powers;
(c) the Seller and the Buyer shall cause Diamond to issue to the
Buyer a new certificate for the Shares, in due and proper form
and registered in the name of the Buyer; and
(d) the parties shall also deliver to each other the
Transaction Documents, legal opinions and other
documents and instruments specified in Sections 8 and
9 and such other items as may be reasonably
requested.
4. Representations and Warranties of the Seller.
---------------------------------------------
The Seller hereby represents and warrants to the Buyer as follows:
4.1 CORPORATE STATUS. Each Company is a corporation duly organized,
validly existing and in good standing under the laws under which it was
incorporated and is qualified to do business as a foreign corporation in any
jurisdiction where it is required to be so qualified, except where the failure
to so qualify would not have a Material Adverse Effect. The Charter Documents
and bylaws of each Company that have been delivered to the Buyer are effective
under applicable Laws and are current, correct and complete.
4.2 AUTHORIZATION. Each Company has the requisite power and authority
to own its Assets and to carry on its Business. Each Transaction Document
executed and delivered by the Seller has been duly executed and delivered and
constitutes a valid and binding obligation of the Seller, enforceable against
him in accordance with its terms.
4.3 CONSENTS AND APPROVALS. Except for those consents that have been
obtained and those consents that have not been obtained, both of which are
specified on SCHEDULE 4.3, and except for consents that may be required under
Contracts under which the aggregate executory obligations of Diamond and any
other Company are less than $100,000, neither the execution and delivery by the
Seller of the Transaction Documents to which he is a party, nor the performance
of the Transactions to be performed by the Seller, will require any filing,
consent or approval, constitute a Default or cause any payment obligation to
arise under (a) any Law or Court Order to which any Selling Party is subject,
(b) the Charter Documents or bylaws of any Company or
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<PAGE> 17
(c) any Contract, Government Permit or other document to which the Seller or a
Company is a party or by which the properties or other assets of a Company may
be subject.
4.4 CAPITALIZATION AND STOCK OWNERSHIP. The total authorized capital
stock of Diamond consists of 200 shares of Diamond Common Stock, 48 shares of
which are issued and outstanding and constitute the Shares being transferred to
the Buyer hereunder. The Seller is the sole record and beneficial owner of all
of the Shares, and the Seller owns all of the Shares free and clear of any
Encumbrances. There are no existing options, warrants, calls, commitments or
other rights of any character (including conversion or preemptive rights)
relating to the acquisition of any issued or unissued capital stock or other
securities of the Company. All of the Shares are duly and validly authorized and
issued, fully paid and non-assessable. Diamond has complied with all applicable
Laws in connection with the issuance of the Shares, and none of the Shares were
issued in violation of any Contract binding upon Diamond. Upon completion of the
Transactions at the Closing, the Buyer shall receive valid title to all of the
Shares, free and clear of all Encumbrances.
4.5 FINANCIAL STATEMENTS. The Seller has delivered to the Buyer correct
and complete copies of the unaudited monthly consolidated financial statements
of Diamond consisting of a consolidated balance sheet of Diamond as of the end
of each month from July 1996 through October 1996 and the related consolidated
statements of income, changes to stockholders' equity and cash flows for the
periods then ended and a complete copy of the unaudited financial statement of
the Company for the fiscal year ended June 30, 1996. The Seller has also
delivered to the Buyer correct and complete copies of consolidated financial
statements consisting of a consolidated balance sheet of Diamond as of June 30,
1993, 1994 and 1995 and the related consolidated statements of income, retained
earnings and cash flows for the years then ended, all of which have been
reviewed by Albrecht, Viggiano, Zureck & Company, P.C. (the "Reviewed Financial
Statements"). All such unaudited consolidated financial statements and the
Reviewed Financial Statements and all notes thereto are referred to herein
collectively as the "Diamond Financial Statements." The Diamond Financial
Statements are consistent with the books and records of Diamond, and there have
not been any material transactions that have not been recorded in the accounting
records underlying such Financial Statements. The Diamond Financial Statements
have been prepared in accordance with GAAP applied consistently with past
practices, and the Diamond Financial Statements present accurately the financial
position and assets and liabilities of Diamond as of the dates thereof, and the
results of its operations for the periods then ended, subject in the case of
unaudited financial statements to normal recurring year-end adjustments and the
absence of notes. The balance sheet of Diamond as of October 31, 1996 that is
included in the Diamond Financial Statements is referred to herein as the
"Diamond Balance Sheet," and the date thereof is referred to as the "Balance
Sheet Date." The Seller, in good faith and after consulting with the independent
accountants customarily engaged by Diamond, estimates that the Diamond Net Worth
is at least $3,000,000 (without taking into account the stockholder loan being
released on the Closing Date). The Diamond Balance Sheet does not include any
Assets that consist of obligations from the Seller to Diamond.
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<PAGE> 18
4.6 TITLE TO ASSETS AND RELATED MATTERS. Each Company has good and
marketable title to, valid leasehold interests in, or valid licenses to use, all
of its Assets (including the Real Property identified in Section 4.7), free from
any Encumbrances except those specified on SCHEDULE 4.6. The use of the Assets
is not subject to any Encumbrances (other than those specified in the preceding
sentence), and such use does not materially encroach on the property or rights
of anyone else. All Real Property and tangible personal property (other than
Inventory) of each Company are suitable for the purposes for which they are
used, in good working condition and reasonable repair, free from any known
defects other than those incurred in the ordinary course of business.
4.7 REAL PROPERTY. SCHEDULE 4.7 describes all real estate owned by each
Company used in the operation of its Business as well as any other real estate
that is in the possession of or leased by each Company and the improvements
(including buildings and other structures) located on such real estate
(collectively, the "Real Property"), and lists any leases under which any such
Real Property is possessed (the "Real Estate Leases"). SCHEDULE 4.7 also
describes any other real estate previously owned, leased or otherwise operated
by each Company or any predecessor thereof and the time periods of any such
ownership, lease or operation. The Real Property complies with all applicable
zoning Laws. Each Company has obtained all licenses and rights-of-way from
governmental entities or private parties that are necessary to ensure vehicular
and pedestrian ingress and egress to and from the Real Property.
4.8 CERTAIN PERSONAL PROPERTY. Diamond has delivered to the Buyer a
complete fixed asset schedule, describing and specifying the location of all
items of tangible personal property that were included in the Diamond Balance
Sheet. Since the Balance Sheet Date, Diamond has not acquired any items of
tangible personal property that have, in each case, a carrying value in excess
of $50,000, or an aggregate carrying value of $100,000. Other than repairs in
the ordinary course of business, all of such personal property (a) is in
operating condition, reasonable wear and tear excepted, (b) is usable in the
ordinary course of business and (c) conforms with any applicable Laws relating
to its construction, use and operation. Except for those items subject to the
Non-Real Estate Leases (defined below), no Person other than the particular
Company owns any vehicles, equipment or other tangible Assets located on the
Real Property that are used by such Company in its Business (other than
immaterial items of personal property owned by such Company's employees) or that
are necessary for the operation of its Business.
4.9 NON-REAL ESTATE LEASES. SCHEDULE 4.9 lists all assets and property
(other than Real Property) that have been used in the operation of the Business
and that are possessed by each Company under an existing lease, including all
trucks, automobiles, forklifts, machinery, equipment, furniture and computers,
except for any lease under which the aggregate annual payments are less than
$25,000 (each, an "Immaterial Lease"). SCHEDULE 4.9 also lists the leases under
which such assets and property listed on SCHEDULE 4.9 are possessed. All of such
leases (excluding Immaterial Leases) are referred to herein as the "Non-Real
Estate Leases."
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<PAGE> 19
4.10 ACCOUNTS RECEIVABLE. The Accounts Receivable of each Company are
bona fide Accounts Receivable created in the ordinary course of business. None
of the Selling Parties knows of any facts or circumstances (other than general
economic conditions) that are likely to result in any material increase in the
uncollectibility of such Accounts Receivable.
4.11 INVENTORY. The Inventory records of each Company have been
delivered to the Buyer and are accurate in all material respects with respect to
the data contained therein.
4.12 LIABILITIES. Except as disclosed on SCHEDULE 4.12, none of the
Companies has any Liabilities, and none of the Assets of any Company is subject
to any Liabilities, except (a) as specifically disclosed on the Diamond Balance
Sheet (except as heretofore paid or discharged), (b) Liabilities incurred in the
ordinary course since the date thereof that, individually or in the aggregate,
are not material to the Business or the Assets of Diamond, or (c) Liabilities of
any Company under any Contracts specifically disclosed on any Schedule (or not
required to be disclosed because of the term or amount involved) that were not
required under GAAP to have been specifically disclosed or reserved for on the
Diamond Balance Sheet.
4.13 TAXES. Each Company has duly filed all returns for taxes that are
required to be filed and that were due prior to the Closing Date, and has paid
all material Taxes and assessments shown as being due pursuant to such returns
or pursuant to any assessment received. All Taxes and other assessments and
levies that each Company has been required by law to withhold or to collect have
been duly withheld and collected and have been paid over to the proper
governmental authorities or are properly held by each such Company for such
payment. There are no proceedings or other actions, nor is there any basis for
any proceedings or other actions, for the assessment and collection of
additional Taxes of any kind for any period for which returns have or should
have been filed.
4.14 DIAMOND SUBSIDIARIES. Diamond does not own, directly or indirectly
through any Diamond Subsidiary of otherwise, any interest or investment (whether
equity or debt) in any corporation, partnership, business, trust, joint venture
or other legal entity, except for its ownership of the Diamond Subsidiaries. All
of the Diamond Subsidiaries have merged into Diamond in accordance with all
applicable Laws (the "Subsidiary Mergers"), and as a consequence thereof,
Diamond has succeeded to all of the Assets and Liabilities of the Diamond
Subsidiaries. As of immediately prior to the effectiveness of the Subsidiary
Mergers, Diamond owned all of the issued and outstanding capital stock of each
Diamond Subsidiary, free and clear of any Encumbrances and there were no
existing options, warrants, calls, commitments or other rights of any character
(including conversion or preemptive rights) relating to the acquisition of any
issued or unissued capital stock or other securities of any of the Diamond
Subsidiaries. All of the shares of capital stock of each Diamond Subsidiary were
duly and validly issued, fully paid and non-assessable.
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4.15 LEGAL PROCEEDINGS AND COMPLIANCE WITH LAW.
(a) Except as disclosed on SCHEDULE 4.15, there is no
Litigation that is pending or, to any Selling Party's knowledge, threatened
against or related to any Company. There has been no Default under any Laws
applicable to any Company, including Laws relating to pollution or protection of
the environment, and no Company has received any notices from any governmental
entity regarding any alleged Defaults under any Laws. There has been no Default
with respect to any Court Order applicable to any Company.
(b) Without limiting the generality of Section 4.15(a), except
as described on SCHEDULE 4.15, there has not been any Environmental Condition
(defined below) (i) at the premises at which the Business of any Company has
been conducted, (ii) at any property owned, leased or operated at any time by
any Company, any Person controlled by any Affiliate of any Company or any
predecessor thereof, or (iii) at any property at which wastes have been
deposited or disposed by or at the behest or direction of any of the foregoing,
nor has any Company received written notice of any such Environmental Condition.
"Environmental Condition" means any condition or circumstance, including the
presence or release of Hazardous Substances, whether created by any Company or
any third party, at or relating to any such property or premises that (i)
requires investigation, monitoring, abatement or correction under an
Environmental Law (defined below), (ii) gives rise to any civil or criminal
liability under an Environmental Law, or (iii) has created a public or private
nuisance. "Environmental Law" means all Laws and Court Orders relating to
pollution or protection of the environment as well as any principles of common
law under which a party may be held liable for the release or discharge of any
materials into the environment.
(c) Diamond has delivered to the Buyer correct and complete
copies of any written reports, studies or assessments in the possession or
control of the Seller or any Company that relates to any Environmental
Condition.
(d) Except in those cases where the failure would not have a
Material Adverse Effect, (i) each Company has obtained and is in full compliance
with all governmental permits, licenses, registrations, certificates of
occupancy, approvals and other authorizations (the "Governmental Permits"), all
of which are listed in SCHEDULE 4.15 along with their respective expiration
dates, that are required for the complete operation of the Business of such
Company as currently operated, (ii) all of the Governmental Permits are
currently valid and in full force and (iii) each Company has filed such timely
and complete renewal applications as may be required with respect to its
Governmental Permits. To any Selling Party's knowledge, no revocation,
cancellation or withdrawal thereof has been threatened.
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4.16 CONTRACTS.
(a) SCHEDULE 4.16 lists each Contract of the following types
to which any Company is a party, or by which it is bound, as of the date hereof,
except for any Contract that may be terminated by each Company that is a party
thereto on not more than 30 days' notice without any Liability and any Contract
under which the executory obligation of any Company involves an amount of less
than $50,000 (such excepted Contracts are referred to collectively as "Minor
Contracts"):
(i) Contracts with any current or former stockholder,
director, officer, employee, partner or consultant of any
Company or any Affiliate thereof;
(ii) Contracts for the future purchase of, or payment
for, supplies or products, or for the lease of any Asset from
or the performance of services by a third party, in excess of
$50,000 in any individual case, or any Contracts for the sale
of Inventory or products that involve an amount in excess of
$50,000 with respect to any one supplier or other party;
(iii) Contracts to sell or supply products or to
perform services that involve an amount in excess of $50,000
in any individual case;
(iv) Contracts to lease to or to operate for any
other party any Asset that involve an amount in excess of
$50,000 in any individual case (other than Real Estate Leases
and Non-Real Estate Leases identified on other SCHEDULES);
(v) Any notes, debentures, bonds, conditional sale
agreements, equipment trust agreements, letter of credit
agreements, reimbursement agreements, loan agreements or other
Contracts for the borrowing or lending of money (including
loans to or from the Seller or any officers, directors,
partners, stockholders or Affiliates of any Company or any
members of their immediate families), agreements or
arrangements for a line of credit or for a guarantee of, or
other undertaking in connection with, the indebtedness of any
other Person;
(vi) Any Contracts under which any Encumbrances exist
with respect to any Assets; and
(vii) Any other Contracts (other than Minor Contracts
and those described in any of (i) through (vi) above) not made
in the ordinary course of business.
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(b) No Company is in Default under any Contract (including any
Real Estate Leases and Non-Real Estate Leases), which Default could result in a
Liability on the part of such Company in excess of $50,000 in any individual
case, and the aggregate Liabilities that could result from all such Defaults do
not exceed $100,000. No Company has received any communication from, or given
any communication to, any other party indicating that such Company or such other
party, as the case may be, is in Default under any Contract where such Default
could have a Material Adverse Effect. To the knowledge of any Selling Party,
none of the other parties in any such Contract to which any Company is a party
is in Default thereunder.
4.17 INSURANCE. SCHEDULE 4.17 lists all policies or binders of
insurance held by or on behalf of any Company, specifying with respect to each
policy the insurer, the amount of the coverage, the type of insurance, the risks
insured, the expiration date, the policy number and any pending claims
thereunder. There is no Default with respect to any such policy or binder, nor
has there been any failure to give any notice or present any claim under any
such policy or binder in a timely fashion or in the manner or detail required by
the policy or binder. There is no notice of nonrenewal or cancellation with
respect to, or disallowance of any claim under, any such policy or binder that
has been received by any Company.
4.18 INTELLECTUAL PROPERTY AND SOFTWARE PRODUCTS. To the knowledge of
any Selling Party, no Company currently uses nor has any Company previously used
in the development, production or marketing of its products and services any
Copyrights, Patents or Trademarks except for those listed on SCHEDULE 4.18. Each
Company owns or has the lawful right to use all Intellectual Property that is
used in the operation of its Business in the ordinary course or otherwise. All
of the Intellectual Property listed on SCHEDULE 4.18 is owned by the Company
listed as the owner on SCHEDULE 4.18 free and clear of any Encumbrances, or used
pursuant to an agreement that is described on SCHEDULE 4.18. No Company
infringes upon or unlawfully or wrongfully uses any Intellectual Property rights
owned or claimed by another Person. To the knowledge of any Selling Party, no
Company is in Default, nor has any Company received any notice of any claim of
infringement or any other claim or proceeding, with respect to any such
Intellectual Property. Except as set forth in SCHEDULE 4.18, no current or
former employee of any Company and no other Person owns or has any proprietary,
financial or other interest, direct or indirect, in whole or in part, and
including any right to royalties or other compensation, in any of the
Intellectual Property, or in any application therefor.
4.19 EMPLOYEE RELATIONS. Except as described on SCHEDULE 4.19, no
Company is (a) a party to, involved in or, to any Selling Party's knowledge,
threatened by, any labor dispute or unfair labor practice charge, or (b)
currently negotiating any collective bargaining agreement, and no Company has
experienced any work stoppage during the last three years. The Seller has
delivered to the Buyer a complete and correct list of the names and salaries,
bonus and other cash compensation of all employees (including officers) of each
Company whose total cash compensation for 1995 exceeded, or whose total cash
compensation for 1996 is expected to exceed, $60,000.
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4.20 ERISA.
(a) SCHEDULE 4.20 contains a complete list of all Benefit
Plans sponsored or maintained by any Company or under which any Company may be
obligated. The Seller has delivered to the Buyer (i) accurate and complete
copies of all Benefit Plan documents and all other material documents relating
thereto, including (if applicable) all summary plan descriptions, summary annual
reports and insurance contracts, (ii) accurate and complete detailed summaries
of all unwritten Benefit Plans, (iii) accurate and complete copies of the most
recent financial statements and actuarial reports with respect to all Benefit
Plans for which financial statements or actuarial reports are required or have
been prepared and (iv) accurate and complete copies of all annual reports for
all Benefit Plans (for which annual reports are required) prepared within the
last three years. Each Benefit Plan providing benefits that are funded through a
policy of insurance is indicated by the word "insured" placed by the listing of
the Benefit Plan on SCHEDULE 4.20.
(b) All Benefit Plans conform (and at all times have
conformed) in all material respects to, and are being administered and operated
(and have at all times been administered and operated) in material compliance
with, the requirements of ERISA, the Code and all other applicable Laws. All
returns, reports and disclosures required to be made under ERISA and the Code
with respect to all Benefit Plans have been timely and properly filed or
delivered. There have not been any "prohibited transactions," as such term is
defined in Section 4975 of the Code or Section 406 of ERISA involving any of the
Benefit Plans, that could subject any Company to any material penalty or tax
imposed under the Code or ERISA.
(c) Any Benefit Plan that is intended to be qualified under
Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code
has been determined by the Internal Revenue Service to be so qualified, and such
determination remains in effect and has not been revoked. Nothing has occurred
since the date of any such determination that is reasonably likely to affect
adversely such qualification or exemption, or result in the imposition of excise
taxes or income taxes on unrelated business income under the Code or ERISA with
respect to any Benefit Plan.
(d) No Company sponsors a defined benefit plan subject to
Title IV of ERISA, nor does any Company have a current or contingent obligation
to contribute to any multiemployer plan (as defined in Section 3(37) of ERISA),
and no Company or any of its predecessors have ever contributed to a
multiemployer plan. No Company has any liability with respect to any employee
benefit plan (as defined in Section 3(3) of ERISA) other than with respect to
the Benefit Plans.
(e) There are no pending or, to the knowledge of any Selling
Party, threatened claims by or on behalf of any Benefit Plans, or by or on
behalf of any individual participants or beneficiaries of any Benefit Plans,
alleging any breach of fiduciary duty on the part of any Company or any of its
officers, directors or employees under ERISA or any other applicable
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<PAGE> 24
regulations, or claiming benefit payments other than those made in the ordinary
operation of such plans, nor is there, to the knowledge of any Selling Party,
any basis for such claim. Any and all persons eligible to participate in any
Benefit Plan either is covered by and properly participates in and receives
benefits under such Benefit Plan or has properly executed an effective waiver of
his or her rights to participate in such Benefit Plan and to receive any
benefits thereunder (including any benefit for eligible dependents and
beneficiaries), and no Company has any liability for any such benefits. The
Benefit Plans are not the subject of any pending (or to the knowledge of any
Selling Party, any threatened) investigation or audit by the Internal Revenue
Service, the Department of Labor or the Pension Benefit Guaranty Corporation
("PBGC").
(f) Each Company has timely made any and all required
contributions under the Benefit Plans including the payment of any premiums
payable to the PBGC and other insurance premiums.
(g) With respect to any Benefit Plan that is an employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare
Plan"), (i) each Welfare Plan for which contributions are claimed as deductions
under any provision of the Code is in material compliance with all applicable
requirements pertaining to such deduction, (ii) with respect to any welfare
benefit fund (within the meaning of Section 419 of the Code) related to a
Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code, (iii) any Benefit Plan that is a group health plan (within
the meaning of Section 4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the material requirements of Section 4980B of the
Code, ERISA, Title XXII of the Public Health Service Act and the applicable
provisions of the Social Security Act, and (iv) all Welfare Plans may be amended
or terminated at any time on or after the Closing Date. Except as specified on
SCHEDULE 4.20, no Benefit Plan provides any health, life or other welfare
coverage to employees of any Company beyond termination of their employment with
any Company by reason of retirement or otherwise, other than coverage as may be
required under Section 4980B of the Code or Part 6 of ERISA, or under the
continuation of coverage provisions of the laws of any state or locality.
(h) Except as otherwise set forth in SCHEDULE 4.20, neither
the execution and delivery of this Agreement nor the consummation of the
Transactions will (i) result in any payment to be made by any Company
(including, without limitation, severance, unemployment compensation, golden
parachute (as defined in Code Section 280G or otherwise)) becoming due to any
employee or former employee, officer or director, or (ii) increase or vest any
benefits payable under any Benefit Plan.
(i) Except as otherwise set forth in SCHEDULE 4.20, any amount
that could be received (whether in cash or property or the vesting of property)
as a result of any of the Transactions by any employee, officer or director of
any Company who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Benefit Plan
currently in
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effect would not be characterized as an "excess parachute payment" (as such term
is defined in Section 280(b)(1) of the Code).
4.21 CORPORATE RECORDS. The minute books of each Company contain
complete, correct and current copies of their respective Charter Documents and
bylaws and of all minutes of meetings, resolutions and other proceedings of its
Board of Directors and stockholders. The stock record book of each Company is
complete, correct and current.
4.22 ABSENCE OF CERTAIN CHANGES. Except as specified on SCHEDULE 4.22
and as otherwise contemplated by this Agreement, since the Balance Sheet Date,
each Company has conducted its Business in the ordinary course and there has not
been with respect to any Company:
(a) a change in its business that has had or is
reasonably likely to have a Material Adverse Effect;
(b) any distribution or payment declared or made in
respect of its capital stock by way of dividends,
purchase or redemption of shares or otherwise;
(c) any increase in the compensation payable or to become
payable to any director, officer, employee or agent,
except for increases for non-officer employees made
in the ordinary course of business, nor any other
change in any employment or consulting arrangement;
(d) any sale, assignment or transfer of Assets, or any
additions to or transactions involving any Assets,
other than those made in the ordinary course of
business;
(e) other than in the ordinary course of business, any
waiver or release of any claim or right or
cancellation of any debt held; or
(f) any payments to any Affiliate of any Company.
4.23 PREVIOUS SALES; WARRANTIES. Except for such defects and other
breaches that would not have a Material Adverse Effect, all goods sold or
distributed and all services performed by each Company were of merchantable
quality and no Company has breached any express or implied warranties in
connection with the sale or distribution of such goods.
4.24 CUSTOMERS AND SUPPLIERS. Each Company has used its reasonable
business efforts to maintain and currently maintains, good working relationships
with all of its customers and suppliers as a whole. SCHEDULE 4.24 contains, with
respect to each of the fiscal years ended June 30, 1994, 1995 and 1996, a list
of the ten customers that were the largest dollar volume customers of products
or services, or both, sold by each Company for each such year. Except as
specified
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on SCHEDULE 4.24, none of such customers has given any Company notice
terminating, canceling or threatening to terminate or cancel any Contract or
relationship with such Company. SCHEDULE 4.24 also contains, with respect to
each of the fiscal years ended June 30, 1994, 1995 and 1996, a list of the ten
suppliers that were the largest dollar volume suppliers of supplies used by each
Company for each such year. None of such suppliers has given any Company notice
terminating, canceling or threatening to terminate or cancel any Contract or
relationship with any Company.
4.25 FINDER'S FEES. No Person retained by any Selling Party is or will
be entitled to any commission or finder's or similar fee in connection with the
Transactions.
4.26 ADDITIONAL INFORMATION. SCHEDULE 4.26 accurately lists the
following:
(a) the names of all officers and directors of each
Company, all of which directors of Diamond shall have
tendered their resignations as directors, effective
as of the Closing;
(b) the names and addresses of every bank or other
financial institution in which any Company maintains
an account (whether checking, saving or otherwise),
lock box or safe deposit box, and the account numbers
and names of Persons having signing authority or
other access thereto;
(c) the names of all Persons authorized to borrow money
or incur or guarantee indebtedness on behalf of any
Company;
(d) the names of any Persons holding powers of attorney
from any Company and a summary statement of the terms
thereof; and
(e) all names under which any Company has conducted any
Business or which it has otherwise used at any time
during the past five years.
4.27 PAMARCO COMMON STOCK
(a) The Seller is receiving the Pamarco Common Stock
solely for investment purposes, with no present
intention of distributing or reselling any of the
Pamarco Common Stock or any interest therein. The
Seller acknowledges that the Pamarco Common Stock has
not been registered under the Securities Act.
(b) The Seller is aware of the applicable limitations
under the Securities Act and the Stockholders'
Agreement relating to a subsequent sale, transfer,
pledge, mortgage, hypothecation, gift, assignment or
other encumbrance
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of the Pamarco Common Stock. The Seller further
acknowledges that the Pamarco Common Stock must be
held indefinitely unless it is subsequently
registered under the Securities Act and applicable
state securities laws or an exemption from such
registration is available.
(c) The Seller will not sell, transfer, pledge, donate,
assign, mortgage, hypothecate or otherwise encumber
the Pamarco Common Stock unless the Pamarco Common
Stock is registered under the Securities Act or the
Buyer is given an opinion of counsel (which may be an
opinion of counsel to the Buyer), reasonably
acceptable to the Buyer, that such registration is
not required under the Securities Act.
(d) The Seller realizes that there is no public market
for the Pamarco Common Stock, that no market may ever
develop for it, and that it has not been approved or
disapproved by the Securities and Exchange Commission
or any governmental agency.
(e) The Seller acknowledges that the Buyer has provided
them with adequate access to financial and other
information concerning Pamarco and the Pamarco Common
Stock, and that the Seller has had the opportunity to
ask questions of and receive answers from the Buyer
concerning the Pamarco Common Stock and to obtain
therefrom any additional information necessary to
make an informed decision regarding the acquisition
of the Pamarco Common Stock.
(f) The Seller represents that he has such knowledge and
experience in financial and business matters that he
is capable of evaluating the merits and risks of the
acquisition of the Pamarco Common Stock and also that
he is an "accredited investor" as that term is
defined in Regulation D under the Securities Act.
(g) The Seller realizes that the Buyer is relying on the
validity of his representations and agreements
contained herein and in the other Transaction
Documents in issuing the Pamarco Common Stock to him
without registration under the Securities Act.
4.28 SATISFACTION OF CERTAIN DEBT OBLIGATIONS. Any and all amounts owed
by Seller or any Company to Sun Tool Supply, Inc., Dahlgren Equipments Sales,
Inc. or National Westminster Bank, or any Affiliates thereof except for Dahlgren
International, Inc., have been paid in full, and no Company has any liability to
any of such entities.
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4.29 LITIGATION RELATED TO PETER MANGANO. Diamond has unlimited
insurance coverage for the litigation matter involving Diamond Roller Corp. and
Peter Mangano and Julie Mangano that is identified on Schedule 4.15.
5. Representations and Warranties of the Buyer.
--------------------------------------------
The Buyer hereby represents and warrants to the Seller as follows:
5.1 CORPORATE. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws under which it was incorporated and
is qualified to do business as a foreign corporation in any jurisdiction where
it is required to be so qualified, except where the failure to so qualify would
not have a Material Adverse Effect. The Charter Documents and bylaws of the
Buyer that have been delivered to the Seller are effective under applicable Laws
and are current, correct and complete.
5.2 AUTHORIZATION. The Buyer has the requisite power and authority to
own its Assets and to carry on its Business. The Buyer has the requisite power
and authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions performed or to be performed by it. Such
execution, delivery and performance by the Buyer has been duly authorized by all
necessary corporate action. Each Transaction Document executed and delivered by
the Buyer has been duly executed and delivered and constitutes a valid and
binding obligation of the Buyer, enforceable against the Buyer in accordance
with its terms.
5.3 CONSENTS AND APPROVALS. Neither the execution and delivery by the
Buyer of the Transaction Documents to which it is a party, nor the performance
of the Transactions by the Buyer, will require any filing, consent or approval
or constitute a Default under (a) any Law or Court Order to which the Buyer is
subject, (b) the Charter Documents or bylaws of the Buyer or (c) any Contract,
Government Permit or other document to which any Buyer is a party or by which
the properties or other assets of such may be subject.
5.4 CAPITALIZATION AND STOCK OWNERSHIP. The total authorized capital
stock of the Buyer consists of 3,000,000 shares of Class A Common Stock, par
value $0.01 per share, 2,001,576 shares of which are issued and outstanding
(including the Pamarco Common Stock); 500,000 shares of Class B Common Stock,
par value $0.01 per share, 379,225 shares of which are issued and outstanding;
100,000 shares of Class C Common Stock, par value $0.01 per share, none of which
is issued and outstanding; and 100,000 shares of Preferred Stock, par value
$0.01 per share, none of which is issued and outstanding. The shares of Class A
Common Stock being issued by the Buyer to certain of its stockholders on the
date hereof is being sold at a price of $15.00 per share, payable in cash.
Except for (a) options granted to certain officers of the Buyer and its
Affiliates for the purchase of an aggregate of up to 127,000 shares of Class A
Common Stock, (b) an option to purchase up to 25,000 shares of Class A Common
Stock granted in January 1995 to Ashcon, Inc. in connection with the Dauphin
Graphics Machines, Inc. acquisition, (c) the right of the holders of shares of
Class B Common Stock to convert such shares at any time into
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<PAGE> 29
an equal number of shares of Class A Common Stock, (d) the right of the holders
of shares of Class C Common Stock to convert such shares into an equal number of
shares of Class A Common Stock upon the occurrence of certain events described
in Buyer's Certificate of Incorporation, and (e) rights with respect to the
outstanding offers by the Company to sell up to 56,162 shares of Class A Common
Stock to existing stockholders of the Company, there are no existing options,
warrants, calls, commitments or other rights of any character (including
conversion or preemptive rights) relating to the acquisition of any issued or
unissued capital stock or other securities of the Buyer. The Pamarco Common
Stock to be issued to Seller at the Closing is duly and validly authorized and
issued, fully paid and non-assessable. The Buyer has complied with all
applicable Laws in connection with the issuance of the Buyer's outstanding
capital stock, and none of the Buyer's outstanding capital stock was issued in
violation of any Contract binding upon the Buyer. Upon completion of the
Transactions at the Closing, the Seller shall receive valid title to all of the
Pamarco Common Stock, free and clear of all Encumbrances.
5.5 FINANCIAL STATEMENTS. The Buyer has delivered to the Seller correct
and complete copies of its consolidated financial statements consisting of a
balance sheet as of December 31, 1994 and 1995, and the related consolidated
statements of income, changes to stockholders' equity and cash flows for the
years then ended. In addition, the Buyer has delivered to the Seller correct and
complete copies of Buyer's unaudited monthly consolidated financial statements
as of the end of each month from July 1996 through November 1996. The financial
statements as of and for the years ended December 31, 1994 and 1995 have been
audited by Deloitte & Touche LLP. All of such audited and unaudited financial
statements, together with the notes to the audited financial statements, are
referred to herein as the "Pamarco Financial Statements." The Pamarco Financial
Statements are consistent with the books and records of the Buyer, and there
have not been any material transactions that have not been recorded in the
accounting records underlying the Pamarco Financial Statements. The Pamarco
Financial Statements have been prepared in accordance with GAAP consistently
applied (subject in the case of the unaudited statements to year-end adjustments
and the absence of notes to the financial statements) and present accurately the
financial position and assets and liabilities of the Buyer as of the dates
thereof, and the results of its operations for the periods then ended. The
balance sheet of the Buyer as of November 30, 1996 that is included in the
Pamarco Financial Statements is referred to herein as the "Pamarco Balance
Sheet."
5.6 LEGAL PROCEEDINGS AND COMPLIANCE WITH LAW. There is no Litigation
that is pending or, to the Buyer's knowledge, threatened against or related to
the Buyer or any of the Pamarco Subsidiaries or any of their properties, the
outcome of which would reasonably be expected to have a Material Adverse Effect
for the Buyer or materially adversely affect the ability of the Buyer to
consummate the Transactions.
5.7 ABSENCE OF CERTAIN CHANGES. Except as specified on SCHEDULE 5.7 and
as otherwise contemplated by this Agreement, since the Balance Sheet Date, the
Buyer and each Pamarco Subsidiary has conducted its Business in the ordinary
course and there has not been with respect to any the Buyer or any Pamarco
Subsidiary:
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(a) a change in its business that has had or is
reasonably likely to have a Material Adverse Effect;
or
(b) any distribution or payment declared or made in
respect of its capital stock by way of dividends,
purchase or redemption of shares or otherwise.
5.8 FINDER'S FEES. Except for a $250,000 fee to be paid by the Buyer to
Laurence Barr & Co., Ltd., no Person retained by the Buyer is or will be
entitled to any commission or finder's or similar fee in connection with the
Transactions.
6. Covenants of the Seller.
------------------------
6.1 PAYMENT OF EXPENSES. On or after the Closing Date, the Seller shall
pay the expenses incurred by him and any Company in connection with the
Transactions, including any amounts that may be due from the Seller or any
Company to lawyers, consultants, investment bankers, brokers, finders, and other
advisors; provided, however, that the Seller shall not be required to pay any
accounting fees incurred by any Company with respect to the Transactions nor any
legal fees and expenses up to $13,600 incurred by the Companies in connection
with the Subsidiary Mergers.
6.2 ADDITIONAL DOCUMENTS. After the Closing Date, the Seller shall use
his best efforts to promptly obtain any UCC-3 termination statements or such
other documents reasonably requested by the Company or its lender in order to
release any liens granted to Sun Tool Supply, Inc., Dahlgren Equipment Sales,
Inc., and National Westminster Bank, and any Affiliates thereof except for
Dahlgren International, Inc.
6.3 RELEASE FROM MINIMUM ROYALTY OBLIGATION. After the Closing Date,
the Seller shall use his best efforts to obtain a written agreement from
Dahlgren International, Inc. releasing the Company's obligation to pay the
minimum royalties under Paragraph 4(B) of the Exclusive Manufacturing and
Marketing Agreement entered into between the Company and Dahlgren International,
Inc. on March 26, 1992; provided, however, that such efforts shall not require
the Seller to pay any amounts to Dahlgren International, Inc.
7. Covenants of the Buyer.
-----------------------
7.1 PAYMENT OF EXPENSES. On or after the Closing Date, the Buyer shall
pay the expenses incurred by it in connection with the Transactions, including
any amounts that may be due from the Buyer to lawyers, accountants, consultants,
investment bankers, brokers, finders, and other advisors as well as any amount
payable to Laurence Barr & Co., Ltd. with respect to the Transactions.
7.2 FINANCIAL STATEMENTS AND RECORDS. Until December 31, 1998, the
Buyer shall (a) cause Diamond to deliver to the Seller unaudited monthly
financial statements of Diamond consisting of a balance sheet and the related
statements of income, changes to stockholders' equity
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and cash flows, and (b) provide the Seller with access to the books and records
of Diamond during normal business hours upon the Seller making a reasonable
request.
7.3 GUARANTEES. The Buyer shall indemnify the Seller against any
obligations that the Seller may have as a guarantor of any Company's obligations
under any automobile leases or automobile installment sale agreements.
8. Conditions Precedent to Obligations of the Buyer.
-------------------------------------------------
All obligations of the Buyer to consummate the Transactions are subject
to the satisfaction (or waiver by the Buyer) prior thereto of each of the
following conditions:
8.1 PERFORMANCE OF COVENANTS. The Seller shall have performed or
tendered performance of all covenants and agreements that are to be performed by
him under this Agreement on the Closing Date, including delivery of the
certificates specified in Section 3.
8.2 ANCILLARY DOCUMENTS. The Seller shall have tendered executed copies
of the Escrow Agreement, the Gysin Employment Agreement, the Seller Release and
the Joinders, and the Seller shall have tendered executed copies of the Leases.
8.3 LEGAL OPINION. The Seller shall have tendered a legal opinion of
Alston & Bird, counsel to the Selling Parties, in a form that is acceptable to
the Buyer.
9. Conditions Precedent to Obligations of the Seller.
--------------------------------------------------
All obligations of the Seller to consummate the Transactions are
subject to the satisfaction (or waiver by the Seller to which the condition
relates) prior thereto of each of the following conditions:
9.1 PERFORMANCE OF COVENANTS. The Buyer shall have performed all
covenants and agreements that are to be performed by it under this Agreement on
the Closing Date, including delivery of the payments specified in Section 2.
9.2 ANCILLARY DOCUMENTS. The Buyer shall have tendered executed copies
of the Buyer Release, the Escrow Agreement, the Gysin Employment Agreement, the
Subordinated Note and the Joinders, to the extent that they are to be parties
thereto, and Diamond shall have tendered executed copies of the Leases.
9.3 LEGAL OPINION. The Buyer shall have tendered a legal opinion of
Morgan, Lewis & Bockius LLP, special counsel to the Buyer, that is acceptable to
the Seller.
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10. Competition and Confidentiality by Seller.
------------------------------------------
10.1 RESTRICTED PERIOD. Neither the Seller nor his respective
Affiliates as provided in Section 10.3 (each a "Restricted Party") shall, at any
time within the Restricted Period (defined below), directly or indirectly,
engage in, or have any interest on behalf of himself or others in any person,
firm, corporation or business (whether as an employee, officer, director, agent,
security holder, creditor, partner, joint venturer, beneficiary under a trust,
investor, consultant or otherwise) that engages within the Restricted Territory
(defined below) in any business in which Diamond is engaged as of the date
hereof or shall be engaged during the time of his employment during the
"Employment Term" under his Employment Agreement, including the engraving and
manufacturing of gravure cylinders and anilox rolls and the manufacturing of
printing rolls and printing and printing-related equipment. In addition, no
Restricted Party during the Restricted Period shall contact any of the employees
of any Company nor of the Buyer for the purpose of hiring or retaining any of
such employees for employment, consulting or similar purposes. The term
"Restricted Period" means the period beginning on the date hereof and ending
with respect to the Seller and his Affiliates on the later of (a) the third
anniversary of the Closing Date and (b) the first anniversary after the date on
which the Seller no longer receives payments under his Employment Agreement. The
"Restricted Territory" means the area comprising the entire United States of
America, Canada and Mexico.
10.2 CONFIDENTIAL INFORMATION. For an indefinite period after the
Closing, no Restricted Party shall divulge, communicate or use in any way, any
Confidential Information or trade secrets of the Business of a Company or of the
Buyer.
10.3 AFFILIATES. The terms of this Section 10 shall apply to the Seller
and any Affiliate of his to the same extent as if they were parties hereto, and
the Seller shall take whatever actions may be necessary to cause his Affiliates
to adhere to the terms of this Section 10.
10.4 INJUNCTIVE RELIEF. In the event of any breach or threatened breach
by any Restricted Party of any provision of this Section 10, the Buyer shall be
entitled to injunctive or other equitable relief, restraining such party from
using or disclosing any Confidential Information in whole or in part, or from
engaging in conduct that would constitute a breach of the obligations of a
Restricted Party under this Section 10. Such relief shall be in addition to and
not in lieu of any other remedies that may be available, including an action for
the recovery of damages. In the event of litigation involving this Section 10,
if a court of competent jurisdiction determines that the scope of this Section
10 is too broad in any respect, then the scope shall be deemed to be reduced or
narrowed to such scope as is found lawful and reasonable by such court. The
Seller acknowledges, however, that this Section 10 has been negotiated by the
parties and that the geographical and time limitations, as well as the
limitation on activities, are reasonable in light of the circumstances
pertaining to the Business of each Company.
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11. Indemnification.
----------------
11.1 BY THE SELLER. From and after the Closing Date, to the extent
provided in this Section 11, the Seller shall indemnify and hold harmless the
Buyer, and its successors and assigns, and its officers, directors, employees,
stockholders, agents, affiliates and any Person who controls the Buyer within
the meaning of the Securities Act or the Exchange Act (each, an "Indemnified
Party") from and against any liabilities, claims, demands, judgments, losses,
costs, damages or expenses whatsoever (including reasonable attorneys',
consultants' and other professional fees and disbursements of every kind, nature
and description incurred by such Indemnified Party in connection therewith)
(collectively, "Damages") that such Indemnified Party may sustain, suffer or
incur and that result from, arise out of or relate to (a) any breach of any
representation, warranty, covenant or agreement of the Seller contained in this
Agreement; (b) any Environmental Condition existing on or prior to the Closing;
(c) any Taxes due with respect to any Company for a tax period ending on or
prior to the Closing Date that were not paid when due on or prior to the Closing
Date; (d) any liability of any Company in connection with David Gysin's
automobile accident on or about April 27, 1996 in excess of any insurance
benefits received therefor; and (e) 50% of any Extraordinary Increase (defined
below) in the aggregate premiums for any Company's automobile liability
insurance and excess liability insurance policies at the time of the next
renewal of such insurance policies, but there shall be no indemnification
obligation under this clause (e) if there shall be any claims under such
policies for an aggregate amount over $5 million prior to the time of such
renewal. The term "Extraordinary Increase" means the amount of any increase that
exceeds the average premium increases for such insurance policies for the
current policy year and the two immediately preceding policy years.
11.2 BY THE BUYER. From and after the Closing Date, to the extent
provided in this Section 11, the Buyer shall indemnify and hold harmless the
Seller, his successors and assigns (each, an "Indemnified Party") from and
against any Damages that such Indemnified Party may sustain, suffer or incur and
that result from, arise out of or relate to any breach of any representation,
warranty, covenant or agreement of the Buyer contained in this Agreement.
11.3 PROCEDURE FOR CLAIMS.
(a) An Indemnified Party that desires to seek indemnification
under any part of this Section 11 shall give notice (a "Claim Notice") to each
party responsible or alleged to be responsible for indemnification hereunder (an
"Indemnitor") and if applicable, to the Escrow Agent, prior to any applicable
Expiration Date specified below. Such notice shall briefly explain the nature of
the claim and shall specify the amount thereof. If the matter to which a claim
relates shall not have been resolved as of the date of the Claim Notice, the
Indemnified Party shall estimate the amount of the claim in the Claim Notice,
but also specify therein that the claim has not yet been liquidated (an
"Unliquidated Claim"). If an Indemnified Party gives a Claim Notice for an
Unliquidated Claim, the Indemnified Party shall also give a second Claim Notice
(the "Liquidated Claim Notice") within 60 days after the matter giving rise to
the claim becomes finally resolved, and the Second Claim Notice shall specify
the amount of the claim. Each
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Indemnitor to which a Claim Notice is given shall respond to any Indemnified
Party that has given a Claim Notice (a "Claim Response") within 30 days (the
"Response Period") after the later of (i) the date that the Claim Notice is
given or (ii) if a Claim Notice is first given with respect to an Unliquidated
Claim, the date on which the Liquidated Claim Notice is given. Any Claim Notice
or Claim Response shall be given in accordance with the notice requirements
hereunder, and any Claim Response shall specify whether or not the Indemnitor
giving the Claim Response disputes the claim described in the Claim Notice. If
any Indemnitor fails to give a Claim Response within the Response Period, such
Indemnitor shall be deemed not to dispute the claim described in the related
Claim Notice. If any Indemnitor elects not to dispute a claim described in a
Claim Notice by notice to such effect, then the amount of such claim shall be
conclusively deemed to be an obligation of such Indemnitor. If any Indemnitor
fails to respond to a Claim Notice within the above-specified 30-day period and
the Indemnified Party institutes arbitration to recover the Damages for which it
is indemnified hereunder, the Indemnitor shall pay the Indemnified Party,
regardless of the outcome of the proceeding, an amount equal to twice the total
amount of any fees and expenses incurred by the Indemnified Party to institute
such proceeding.
(b) If any Indemnitor shall be obligated to indemnify an
Indemnified Party hereunder, such Indemnitor shall pay to such Indemnified Party
within 30 days after the last day of the Claim Response Period the amount to
which such Indemnified Party shall be entitled. If the Buyer shall be the
Indemnified Party, it shall first request payment of the related Damages under
the Escrow Agreement, but only to the extent that Escrow Funds are then being
held by the Escrow Agent and are not subject to other claims for
indemnification, and thereafter the Buyer shall seek indemnification directly
from the Seller. If there shall be a dispute as to the amount or manner of
indemnification under this Section 11, the Indemnified Party shall resolve the
dispute in the manner set forth in Section 12. If any Indemnified Party fails to
receive all or part of any indemnification obligation when due, then such
Indemnified Party shall also be entitled to receive from the applicable
Indemnitor or, if applicable, the Escrow Agent, interest on the unpaid amount
for each day during which the obligation remains unpaid at an annual rate equal
to the Default Rate, and the Default Rate in effect on the first business day of
each calendar quarter shall apply to the amount of the unpaid obligation during
such calendar quarter.
(c) Notwithstanding any other provision of this Section 11,
(i) an Indemnified Party shall be entitled to indemnification hereunder only
when the aggregate of all Damages to such Indemnified Party exceeds $100,000
(the "Deductible Amount") and then such Indemnified Party shall be entitled to
indemnification for its Damages in excess of the Deductible Amount and (ii) no
Indemnitor shall be liable under this Section 11 for any amount in excess of $4
million, except that any Damages based on a breach of representations and
warranties with respect to tax matters shall not be counted against or subject
to such maximum limitation. The limitations of this paragraph (c), however,
shall not apply to (x) the Seller's representations and warranties in Section
4.4, (y) Damages arising out of common law fraud in connection with the
Transactions or (z) any covenants or agreements to be performed by an Indemnitor
after the Closing. In addition, the calculation of the Deductible Amount shall
include any Damages incurred by an Indemnified Party for which the Indemnified
Party would have been entitled to claim indemnification under this Section 10
with
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respect to a breach of representation or warranty but for such representation or
warranty being qualified by materiality, the knowledge of a particular party or
related exceptions.
(d) The amount of Damages to which an Indemnified Party may be
entitled under this Section 11 shall be reduced by (i) any insurance proceeds
received by the Indemnified Party, and (ii) the deductible amount of any related
insurance recovery under the terms of the applicable insurance policy.
(e) If the existence of an obligation for the payment of money
to a third party (other than fines or other payments to any governmental entity
that relate to matters that affect the ongoing operation of the Business to
which the fines or other payments relate) causes any representation or warranty
of an Indemnitor in this Agreement to be untrue, then, if such Indemnitor
satisfies such obligation to such third party in full, such Indemnitor shall not
be required to indemnify any Indemnified Party for any Damages resulting from
such breach of the representation or warranty.
(f) If a claim under this Section 11 results in a tax benefit
to the Indemnified Party, the Indemnitor shall be entitled to a credit against
any Liability hereunder in any amount equal to the amount by which (i) the
present value of the Federal and state income taxes of the Indemnified Party
shall be reduced by reason of any reduction allowed the Indemnified Party for
any payment, settlement or satisfaction of such claim, exceeds (ii) the present
value of the Federal and state income taxes payable by the Indemnified Party by
reason of any payment under this Section 11.
(g) Any payment for indemnification under this Section 11
shall be deemed either an increase or decrease in the Purchase Price depending
upon which of the parties is the respective Indemnified Party or Indemnitor.
(h) Whenever an event (a "Possible Breach Event") occurs that
is specifically covered by one of the representations and warranties contained
in Article 4 or Article 5 (the "Specifically Applicable Warranty"), which
Specifically Applicable Warranty contains a limitation on the liability such as
a knowledge limitation, a threshold dollar amount, a materiality exception or
the like (a "Warranty Limitation"), and such Possible Breach Event would not
cause a breach of such Specifically Applicable Warranty as a result of the
application of the Warranty Limitation, then if such Possible Breach Event would
also cause the breach of another representation or warranty but for the
application of this paragraph, then no breach shall be deemed to have occurred
as the Warranty Limitation contained in the Specifically Applicable Warranty
shall overcome the application of any other representation or warranty that
might be applicable. By way of illustration but not by way of limitation, if,
for instance, pending litigation relating to environmental compliance matters
exists but is unknown to Seller and therefore would not constitute a breach of
Section 4.15(a) by virtue of the Warranty Limitation (i.e. Seller's knowledge),
then the existence of such pending litigation shall not be deemed to be a breach
of any other provision of this Agreement, including the representation in
Section 4.12 that there are
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no Liabilities (other than as listed in Section 4.12), or the representation in
Section 4.5 that the financial statements fairly reflect the financial position
and assets and liabilities of Diamond.
11.4 CLAIMS PERIOD. Any claim for indemnification under this Section 11
shall be made by giving a Claim Notice under Section 11.3 on or before the
applicable "Expiration Date" specified below in this Section 11.4, or the claim
under this Section 11 shall be invalid. The following claims shall have the
following respective "Expiration Dates": (a) the second anniversary of the
Closing Date--any claims that are not specified in any of the succeeding
clauses; and (b) the date on which the applicable statute of limitations
expires--any claims related to (i) a breach of any covenant or agreement to be
performed at least in part after the Closing Date, (ii) a breach of any
representations or warranties of a party to this Agreement that were untrue when
made with an intent to mislead or defraud, (iii) Section 11.1(c) or (iv) Section
11.1(d). If more than one of such Expiration Dates applies to a particular
claim, the latest of such Expiration Dates shall be the controlling Expiration
Date for such claim. So long as an Indemnified Party in good faith gives a Claim
Notice for an Unliquidated Claim on or before the applicable Expiration Date,
such Indemnified Party shall be entitled to pursue its rights to indemnification
regardless of the date on which such Indemnified Party gives the related
Liquidated Claim Notice.
11.5 THIRD PARTY CLAIMS. An Indemnified Party that desires to seek
indemnification under any part of this Section 11 with respect to any actions,
suits or other administrative or judicial proceedings (each, an "Action") that
may be instituted by a third party shall give each Indemnitor prompt notice of a
third party's institution of such Action. After such notice, any Indemnitor may,
or if so requested by such Indemnified Party, any Indemnitor shall, participate
in such Action or assume the defense thereof, with counsel satisfactory to such
Indemnified Party; provided, however, that such Indemnified Party shall have the
right to participate at its own expense in the defense of such Action; and
provided, further, that the Indemnitor shall not consent to the entry of any
judgment or enter into any settlement, except with the written consent of such
Indemnified Party (which consent shall not be unreasonably withheld), that (a)
fails to include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
of any such Action or (b) grants the claimant or plaintiff any injunctive relief
against the Indemnified Party. Any failure to give prompt notice under this
Section 11.5 shall not bar an Indemnified Party's right to claim indemnification
under this Section 11, except to the extent that an Indemnitor shall have been
harmed by such failure.
12. Dispute Resolution.
-------------------
12.1 GOOD-FAITH NEGOTIATIONS. If after the Closing any dispute arises
under Section 11 with respect to a claim for Damages that is not settled
promptly in the ordinary course of business, the parties shall seek to resolve
any such dispute between them, first, by negotiating promptly with each other in
good faith in face-to-face negotiations. These face-to-face negotiations shall
be conducted by the Seller and the Chief Executive Officer of the Buyer. If the
parties are unable to resolve such dispute between them within 20 business days
(or such period as the parties shall
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otherwise agree) through these face-to-face negotiations, then any such dispute
shall be resolved in the manner set forth in this Section 12.
12.2 ARBITRATION. If the parties do not resolve a dispute under Section
12.1, the dispute shall be settled by arbitration conducted on a confidential
basis, under the US Arbitration Act, if applicable, and the then current
Commercial Arbitration Rules of the American Arbitration Association (the
"Association") strictly in accordance with the terms of this Agreement and the
substantive law of the State of Delaware. The arbitration shall be conducted at
the Association's regional office located in the Washington, D.C. area by three
independent arbitrators, at least one of whom shall be knowledgeable in a
manufacturing industry, one of whom shall be an attorney and one of whom shall
be a member of a "Big Six" accounting firm familiar with businesses engaged in
manufacturing. Judgment upon the arbitrators' award may be entered and enforced
in any court of competent jurisdiction. Neither party shall institute a
proceeding hereunder unless at least 60 days prior thereto such party shall have
given written notice to the other party of its intent to do so.
13. Contents of Agreement.
----------------------
This Agreement, together with the other Transaction Documents, sets
forth the entire understanding of the parties hereto with respect to the
Transactions and supersedes all prior agreements or understandings among the
parties regarding those matters.
14. Amendment, Parties in Interest, Assignment, Etc.
------------------------------------------------
This Agreement may be amended, modified or supplemented only by a
written instrument duly executed by each of the parties hereto. If any provision
of this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein. This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the respective heirs, legal representatives, successors
and permitted assigns of the parties hereto. No party hereto shall assign this
Agreement or any right, benefit or obligation hereunder. Any term or provision
of this Agreement may be waived at any time by the party entitled to the benefit
thereof by a written instrument duly executed by such party. The parties hereto
shall execute and deliver any and all documents and take any and all other
actions that may be deemed reasonably necessary by their respective counsel to
complete the Transactions.
15. Interpretation.
---------------
Unless the context of this Agreement clearly requires otherwise, (a)
references to the plural include the singular, the singular the plural, the part
the whole, (b) references to any gender include all genders, (c) "or" has the
inclusive meaning frequently identified with the phrase "and/or," (d)
"including" has the inclusive meaning frequently identified with the phrase "but
not limited to" and (e) references to "hereunder" or "herein" relate to this
Agreement. The section
-34-
<PAGE> 38
and other headings contained in this Agreement are for reference purposes only
and shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, schedule and exhibit
references are to this Agreement unless otherwise specified. Each accounting
term used herein that is not specifically defined herein shall have the meaning
given to it under GAAP.
16. Remedies.
---------
Except with respect to any claimed breach of Section 10 and also with
respect to any remedies that cannot be restricted by contract under applicable
Laws, the remedies set forth in Sections 11 and 12 shall be the sole remedies
available to the Buyer and the Sellers for any breach of this Agreement, and the
Buyer and Seller hereby waive any and all other remedies that may be available
at law or equity for any breach or alleged breach of this Agreement.
17. Notices.
--------
All notices that are required or permitted hereunder shall be in
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
party hereto:
If to the Buyer:
Pamarco Technologies Inc.
1212 Avenue of the Americas
New York, NY 10036
Attention: Thomas L. Ferguson
Attn: Thomas J. Sharbaugh, Esquire
If to the Seller:
Mr. Max Gysin
Diamond Holding Corporation
150 Marr Avenue
Marietta, Georgia 30060
FAX: 770-795-8943
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<PAGE> 39
with a required copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309-3424
Fax: 404-881-7777
Attn: B. Harvey Hill, Jr., Esquire
18. Governing Law.
--------------
This Agreement shall be construed and interpreted in accordance with
the laws of the Delaware without regard to its provisions concerning conflict of
laws.
-36-
<PAGE> 40
19. Counterparts.
-------------
This Agreement may be executed in two or more counterparts, each of
which shall be binding as of the date first written above, and all of which
shall constitute one and the same instrument. Each such copy shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first written above.
PAMARCO TECHNOLOGIES INC.
By:
---------------------------------
Name: Larry A. Handeli
Title: Vice President
------------------------------------
MAX GYSIN
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<PAGE> 1
Exhibit 10.8
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the 1st day of August, 1994 between
Pamarco, Incorporated, a Maryland corporation (the "Company"), and Maurice A.
Buckley (the "Employee").
RECITALS
--------
The Employee is currently an executive employee of the Company pursuant
to an Employment Agreement dated December 11, 1992 (the "Former Agreement"). The
Company desires to continue the employment of the Employee under a new
agreement, and the Employee desires to continue to provide services to the
Company, upon the terms and conditions hereinafter set forth.
WITNESSETH:
-----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. EMPLOYMENT.
The Former Agreement is terminated as of the date hereof and shall be
of no further force and effect. The Company hereby continues the employment of
the Employee as an executive-level employee, and the Employee hereby accepts
such continued employment. During the term of employment under this Agreement
(the "Employment Term"), the Employee shall perform such duties as are assigned
by any senior officer or the Board of Directors the Company, as the case may be,
provided that such duties are consistent in all material respects with
Employee's responsibilities as an executive-level employee of the Company
immediately prior to the date hereof.
2. PERFORMANCE.
The Employee shall devote his entire business efforts to the
performance of his duties hereunder; provided, however, that the Employee may
engage in personal investment activities so long as they do not interfere with
the performance of his duties hereunder.
3. TERM.
Unless otherwise terminated in accordance with Sections 6 or 7, the
Employment Term shall be for an initial term of five years from the date of this
Agreement and shall automatically continue thereafter for successive one-year
renewal terms unless one party provides the other with at least 90 days' prior
written notice that the current term shall not be extended.
<PAGE> 2
4. COMPENSATION FOR EMPLOYMENT.
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company hereunder shall be $178,500 (the "Salary")
through December 31, 1995, which the Company shall pay to the Employee in equal
installments paid every two weeks. The Salary may be adjusted upward on an
annual basis as the Board of Directors of the Company (the "Board") may approve,
in its sole discretion, commencing on or after January 1, 1996, but the Salary
shall not be decreased.
(b) Commencing January 1, 1995, the Employee shall be entitled to a
bonus or such other incentive compensation as may be provided under any plan or
program established from time to time by the Board, in its sole discretion.
Through December 31, 1994, the Employee shall be entitled to an annual bonus
payable in accordance with the terms of the Company's Executive Committee
Incentive Program - 1993. Notwithstanding anything herein to the contrary, the
total bonus payable to the Employee for any calendar year shall not exceed 50%
of Salary.
(c) During the Employment Term, the Company shall provide, the Employee
with fringe benefits that are substantially equivalent to the fringe benefits
specified on Exhibit "A" (the "Fringe Benefits").
5. AGREEMENT NOT TO COMPETE.
During the Non-Competition Period (defined below), the Employee shall
not, within the United States, directly or indirectly, in any capacity, render
his services, engage or have a financial interest in, any business that shall be
competitive with any of those business activities in which the Company has been
or shall be engaged during his employment by the Company, including the
manufacture of anilox rolls or embossing rolls; nor shall the Employee assist
any person or entity that shall be engaged in such business, including by making
Company Information (defined below) available to any such person or entity. If a
court determines that the foregoing restrictions are too broad or otherwise
unreasonable under applicable law, including with respect to time or space, the
court is hereby requested and authorized by the parties hereto to revise the
foregoing restriction to include the maximum restrictions allowable under
applicable law. The "Non-Competition Period" means the period during which the
Employee is either employed by the Company or being paid the Salary despite his
termination under Section 7, plus an additional one year after the termination
of such employment or payments, whichever is later.
6. TERMINATION WITHOUT COMPENSATION.
(a) NON-RENEWAL OF TERM. The Employment Term may be terminated by
either party hereto as of the end of the initial term or any renewal term then
in effect by giving written notice of the intention to terminate the Employment
Term at least 90 days prior to the proposed termination date.
-2-
<PAGE> 3
(b) TOTAL DISABILITY. If the Employee becomes totally disabled (as
defined below), the Employment Term may be terminated by the Company, and the
Company shall have no further liability or obligation to the Employee hereunder
except as follows: the Employee shall receive (i) any unpaid Salary and Fringe
Benefits that have accrued through the date of termination; (ii) continued
Salary for three months following the date he is considered totally disabled and
a proportionate share of any bonus otherwise payable in accordance with the
provisions of Section 4 for the calendar year in which he is considered to be
totally disabled, determined in the same manner as in Section 7 and (iii)
whatever benefits that he may be entitled to receive under any then existing
disability benefit plans of the Company, including any such plans included in
the Fringe Benefits. For the purposes hereof, the Employee shall be deemed to be
"totally disabled" if the Employee is considered totally disabled under the
Company's group disability plan in effect at that time, if any, or in the
absence of any such plan, under applicable Social Security regulations. In the
event of any dispute under this Section 6(b), the Employee shall submit to a
physical examination by a licensed physician mutually satisfactory to the
Company and the Employee, the cost of such examination to be paid by the
Company, and the determination of such physician shall be determinative.
(c) DEATH. If the Employee dies, this Employment Agreement shall
terminate, and thereafter the Company shall not have any further liability or
obligation to the Employee, his executors, administrators, heirs, assigns or any
other person claiming under or through him except that the Employee's estate
shall receive any unpaid Salary and Fringe Benefits that have accrued through
the date of termination.
(d) CAUSE. The Company may terminate the Employment Term for "cause" by
giving the Employee 30 days' notice of the termination date, and thereafter the
Company shall not have any further liability or obligation to the Employee,
except that the Employee shall receive any unpaid Salary and Fringe Benefits
that have accrued through the date of termination, net of any liabilities that
the Employee may have to the Company. For purposes of this Agreement, "cause"
shall mean the failure of the Employee to observe or perform (other than by
reason of illness, injury or incapacity) any of the material terms or provisions
of this Agreement, dishonesty, willful misconduct, material neglect of the
Company's business, conviction of a felony or other crime involving moral
turpitude, misappropriation of funds or habitual insobriety.
7. TERMINATION WITH COMPENSATION.
The Company shall have the right to terminate the Employment Term
without cause at any time by giving the Employee 30 days' notice of the
termination date. Under such circumstances, the Employee's Salary under Section
4(a) then in effect hereunder and the Fringe Benefits specified on Exhibit "B"
will continue for 24 months unless a different term is specified on Exhibit "B";
provided, however, that such Fringe Benefits shall not continue in effect for
any period during which the Company is precluded from continuing the Employee's
participation in the plan or program under which any such Fringe Benefit is
provided by reason of any applicable
-3-
<PAGE> 4
law or regulation, including the Federal tax law regarding discrimination. In
addition, for the calendar year in which the termination occurs, the Employee
shall be entitled to a proportionate bonus under Section 4(b) by assuming that
he remained employed for the full year and multiplying the bonus that otherwise
would have been due by a fraction the numerator of which is the number of full
months the Employee was actually employed by the Company during such calendar
year and the denominator of which is 12. Such payment shall be made at the same
time as the Company pays bonuses to other executives for that year. The Employee
shall not be entitled to any compensation under this Section 7 unless the
Employee executes and delivers to the Company after a notice of termination a
release in a form satisfactory to the Company in its sole discretion by which
the Employee releases the Company from any obligations and liabilities of any
type whatsoever, except for the Company's obligation to provide the Salary and
Fringe Benefits specified in this Section 7. The parties hereto acknowledge that
the Salary and Fringe Benefits to be provided under this Section 7 are to be
provided in consideration for the above-specified release.
8. INVENTIONS, DESIGNS AND PRODUCT DEVELOPMENTS.
All inventions, innovations, designs, ideas and product developments,
developed or conceived by the Employee, solely or jointly with others, whether
or not patentable or copyrightable, at any time during the Employment Term or
during his employment by the Company prior to the commencement of the Employment
Term and that relate to the actual or planned business activities of the Company
(collectively, the "Developments") and all of the Employee's right, title and
interest therein, shall be the exclusive property of the Company. The Employee
hereby assigns, transfers and conveys to the Company all of his right, title and
interest in and to any and all such Developments. The Employee shall disclose
fully, as soon as practicable and in writing, all Developments to the Board. At
any time and from time to time, upon the request of the Company, the Employee
shall execute and deliver to the Company any and all instruments, documents and
papers, give evidence and do any and all other acts that, in the opinion of
counsel for the Company, are or may be necessary or desirable to document such
transfer or to enable the Company to file and prosecute applications for and to
acquire, maintain and enforce any and all patents, trademark registrations or
copyrights under United States or foreign law with respect to any such
Developments or to obtain any extension, validation, reissue, continuance or
renewal of any such patent, trademark or copyright. The Company will be
responsible for the preparation of any such instruments, documents and papers
and for the prosecution of any such proceedings and will reimburse the Employee
for all reasonable expenses incurred by him in compliance with the provisions of
this Section.
9. CONFIDENTIAL INFORMATION.
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer
-4-
<PAGE> 5
lists, the identity of or other facts relating to prospective customers,
inventory lists, arrangements with suppliers and customers, computer programs,
or other material embodying trade secrets, customer or product information or
technical or business information of the Company. All such information, other
than any information that is in the public domain through no act or omission of
the Employee or which he is authorized to disclose, is referred to collectively
as the "Company Information." During and after the Employment Term, the Employee
shall not (i) use or exploit in any manner the Company Information for himself
or any person, partnership, association, corporation or other entity other than
the Company, (ii) remove any Company Information, or any reproduction thereof,
from the possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company, and all Company
Information maintained by the Employee thereafter, shall remain at all times the
exclusive property of the Company. The Employee shall return to the Company all
Company Information, and reproductions thereof, whether prepared by him or
others, that are in his possession immediately upon request and in any event
upon the completion of his employment by the Company.
10. REMEDIES.
The Employee expressly acknowledges that the remedy at law for any
breach of Sections 5, 8 and 9 will be inadequate and that upon any such breach
or threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 10, the rights conferred upon the Company by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which the Company may have at law, in equity or otherwise.
11. SURRENDER OF OPTIONS.
In consideration for the undertakings of the Company under this
Agreement, the Employee agrees to surrender any and all rights that have been
granted to him prior to the date hereof to purchase any securities of the
Company, Pamarco Europe Ltd. or of any of their subsidiaries or affiliates.
12. GENERAL.
(a) GOVERNING LAW. The terms of this Agreement shall be governed by the
laws of the State of New Jersey.
-5-
<PAGE> 6
(b) COMPANY. For purposes of Sections 5, 8, 9 and 10, the term
"Company" shall be deemed to include any incorporated or unincorporated
subsidiaries or affiliates of the Company, including Pamarco Europe Ltd. and any
majority-owned subsidiaries thereof.
(c) BINDING EFFECT. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(d) NOTICES. All notices required to be given under this Agreement
shall be in writing and shall be deemed to have been given when personally
delivered or when mailed by registered or certified mail, postage prepaid,
return receipt requested, or when sent by Federal Express or other overnight
delivery service, addressed as follows:
TO EMPLOYEE:
Maurice A. Buckley
33 Meadowview Lane
Berkeley Heights, New Jersey 07922
TO THE COMPANY:
Pamarco, Incorporated
209 East 11th Avenue
Roselle, New Jersey 07203
Attn: Chairman of the Board
With a copy to:
Thomas J. Sharbaugh, Esq.
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, Pennsylvania 19103
-6-
<PAGE> 7
and
Bradford Ventures Ltd.
1212 Avenue of the Americas
Suite 1802
New York, NY 10036
Attn: Mr. Thomas L. Ferguson
(e) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) DURATION. Notwithstanding the termination of the Employment Term
and of the Employee's employment by the Company, this Agreement shall continue
to bind the parties for so long as any obligations remain under the terms of
this Agreement.
(g) WAIVER. No waiver of any breach of this Agreement shall be
construed to be a waiver as to succeeding breaches.
(h) SEVERABILITY. If any provision of this Agreement or application
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision in any other jurisdiction.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto duly executed this Agreement as of the day and year first written
above.
PAMARCO, INCORPORATED
By:__________________________
Robert J. Simon
Chairman of the Board
______________________________
MAURICE A. BUCKLEY
-8-
<PAGE> 9
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Medical, dental, term life, disability and travel accident
insurance coverage, all at levels comparable to those provided to Buckley as of
August 1, 1994.
(b) Participation in all pension and 401(k) savings plans, all at
levels comparable to those provided to Buckley as of August 1, 1994.
(c) Provision to Buckley of a late model automobile comparable to that
provided to Buckley as of August 1, 1994, including all related fuel,
maintenance, repair, insurance and other costs.
(d) Maintenance in effect during Buckley's employment of Northwestern
Mutual Whole Life Insurance Policy No. 12411195 insuring Buckley's life (at
annual premium cost of $32,586).
(e) Annuity, upon Buckley's retirement at age 65 or upon earlier
termination of Buckley's employment without cause or by reason of death or
disability, payable to Buckley or his widow, as the case may be, purchased by
the Company with the net cash surrender value of the Northwestern Mutual Whole
Life Insurance Policy referred to in paragraph (d).
(f) Reimbursement, in accordance with the Company's policies, upon
proper accounting, of reasonable expenses and disbursements incurred by Buckley
in the course of his duties.
(g) Reimbursement of health and golf club membership fees.
(h) Paid holidays in accordance with the Company's policies.
(i) Paid vacation of six weeks per year.
<PAGE> 10
EXHIBIT B
FRINGE BENEFITS
---------------
(a) Medical, dental, term life, disability and travel accident
insurance coverage, all at levels comparable to those provided to Buckley as of
August 1, 1994.
(b) Participation in all pension and 401(k) savings plans, all at
levels comparable to those provided to Buckley as of August 1, 1994.
(c) Provision to Buckley for a period of three months of a late model
automobile comparable to that provided to Buckley as of August 1, 1994,
including all related fuel, maintenance, repair, insurance and other costs.
(d) Maintenance in effect during Buckley's employment of Northwestern
Mutual Whole Life Insurance Policy No. 12411195 insuring Buckley's life (at
annual premium cost of $32,586), with the Company bearing the cost during
Buckley's termination period.
(e) Annuity, upon Buckley's retirement at age 65 or upon earlier
termination of Buckley's employment without cause or by reason of death or
disability, payable to Buckley or his widow, as the case may be, purchased by
the Company with the net cash surrender value of the Northwestern Mutual Whole
Life Insurance Policy referred to in paragraph (d), with the Company bearing the
cost during Buckley's termination period.
<PAGE> 11
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is made as of
April ___, 1997, to that certain Employment Agreement dated as of August 1, 1994
(the "Employment Agreement") between Pamarco, Incorporated and Maurice A.
Buckley (the "Employee"). Pamarco, Incorporated has assigned its rights, title
and interests in the Employment Agreement to Pamarco Technologies Inc. ("PTI"),
and PTI has assumed all of Pamarco, Incorporated's obligations under the
Employment Agreement, pursuant to that certain Assignment and Assumption
Agreement dated as of January 1, 1997 by and among Pamarco, Incorporated, PTI
and the Employee.
WHEREAS, PTI and the Employee desire to amend the Employment Agreement
and PTI and the Employee are willing to affect such Amendment.
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the parties hereto agree as follows:
1. DELETION OF SECTION 6(a). Section 6(a) of the Employment Agreement
shall be deleted in its entirety.
2. AMENDMENT AND RESTATEMENT OF SECTION 7. Section 7 of the Employment
Agreement shall be deleted in its entirety and replaced with the following:
"7. TERMINATION WITH COMPENSATION.
(a) NON-RENEWAL OF TERM. The Employment Term may be terminated
by either party hereto as of the end of the initial term or any renewal
term then in effect by giving written notice of the intention to
terminate the Employment Term at least 90 days prior to the proposed
termination date. Upon termination by the Company pursuant to this
Section 7(a), the Company shall provide the Employee with the
Termination Compensation specified in Section 7(c).
(b) WITHOUT CAUSE. The Company shall have the right to
terminate the Employment Term without cause at any time by giving the
Employee 30 days' notice of the termination date. Under such
circumstances, the Company shall provide the Employee with the
Termination Compensation specified in Section 7(c).
(c) TERMINATION COMPENSATION. The "Termination Compensation"
shall consist of the following: (i) payment of the Employee's Salary
under Section 4(a), at the level in effect at the date of termination,
for 24 months after the termination date, (ii) provision of the Fringe
Benefits specified on Exhibit "B" for 24 months unless a different term
is specified on Exhibit "B"; provided, however, that such Fringe
Benefits shall not
<PAGE> 12
continue in effect for any period during which the Company is precluded
from continuing the Employee's participation in the plan or program
under which any such Fringe Benefit is provided by reason of the terms
of such plan or program or of any applicable law or regulation,
including the Federal tax law regarding discrimination, and (iii) for
the calendar year in which the termination occurs, payment of a
proportionate bonus under Section 4(b) calculated by assuming that the
Employee remained employed for the full year and multiplying the bonus
that otherwise would have been due by a fraction the numerator of which
is the number of full months the Employee was actually employed by the
Company during such calendar year and the denominator of which is 12.
Such bonus payment shall be made at the same time as the Company pays
bonuses to other executives for that year. The Employee shall not be
entitled to any Termination Compensation under this Section 7 unless
the Employee executes and delivers to the Company after a notice of
termination a release in a form satisfactory to the Company in its sole
discretion by which the Employee releases the Company from any
obligations and liabilities of any type whatsoever, except for the
Company's obligation to provide the Salary, Fringe Benefits and bonus
specified in this Section 7. The parties hereto acknowledge that the
Salary, Fringe Benefits and bonus to be provided under this Section 7
are to be provided in consideration for the above-specified release.
(d) EXCLUSIVITY. Upon any termination by the Company under
Section 7(a) or Section 7(b), the Company shall not have any obligation
to the Employee, his executors, administrators, heirs, assigns or any
other person claiming under or through him other than to provide the
Termination Compensation under the terms and conditions of Section
7(c). Upon any termination by the Employee under Section 7(a), the
Company shall not have any further liability or obligation to the
Employee, his executors, administrators, heirs, assigns or any other
person claiming under or through him except to provide to the Employee
any unpaid Salary and Fringe Benefits that shall have accrued to him
through the date of termination."
3. COUNTERPARTS. This Amendment may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
4. MISCELLANEOUS. Except as herein modified and amended, all terms and
conditions of the Employment Agreement shall remain unchanged and in full force
and effect.
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
PAMARCO TECHNOLOGIES INC.
BY:___________________________
Name:
Title:
MAURICE A. BUCKLEY
_______________________________
<PAGE> 1
Exhibit 10.9
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the ___ day of _______________, 1995
between Pamarco, Incorporated, a Maryland corporation (the "Company"), and Larry
A. Handeli (the "Employee").
RECITALS
--------
The Employee has been an executive employee of the Company prior to the
date hereof. The Company desires to continue the employment of the Employee, and
the Employee desires to continue working for the Company, upon the terms and
conditions hereinafter set forth.
WITNESSETH:
-----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. EMPLOYMENT.
The Company hereby continues the employment of the Employee as an
executive-level employee, and the Employee hereby accepts such continued
employment, for the Employment Term specified in Section 3 (the "Employment
Term"). During the Employment Term, the Employee shall perform such duties as
are assigned by any senior officer or the Board of Directors of the Company.
2. PERFORMANCE.
The Employee shall devote his entire business efforts to the
performance of his duties hereunder; provided, however, that the Employee may
engage in personal investment activities so long as they do not interfere with
the performance of his duties hereunder.
3. TERM.
Unless otherwise terminated in accordance with Sections 6 or 7, the
Employment Term shall be for an initial term of one year from the date of this
Agreement and shall automatically continue thereafter for successive one-year
renewal terms unless one party provides the other with at least 90 days' prior
written notice that the then current term shall not be extended.
4. COMPENSATION FOR EMPLOYMENT.
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company hereunder shall be $96,305 (the "Salary"),
which the Company shall pay to the Employee in equal installments in accordance
with the Company's payroll payment schedule in effect from time to time. The
Salary may be adjusted upward as the Board of Directors of the Company (the
"Board") may approve, in its sole discretion, from time to time, but the Salary
shall not be decreased.
<PAGE> 2
(b) Commencing January 1, 1996, the Employee shall be entitled to a
bonus or such other incentive compensation as may be provided under any plan or
program established from time to time by the Board, in its sole discretion.
Through December 31, 1995, the Employee shall be entitled to an annual bonus
payable in accordance with the terms of the Company's Executive Committee
Incentive Program - 1993, with the following modification: for the period
January 1 through December 31, 1995, the Board, in its sole discretion, shall
establish a budget for pre-tax income in accordance with generally accepted
accounting principles consistently applied and the Employee's bonus will vary as
a percentage of Salary in relation to the percentage achievement of that budget
as follows:
<TABLE>
<CAPTION>
Percentage of Percentage of Salary
Budget Attained Earned as Bonus
---------------------------------------------
<S> <C>
<90% 0%
90% 10%
100% 20%
110% 30%
125% 35%
</TABLE>
For percentage of budget achievement between the benchmarks, the percentage of
Salary shall be linearly interpolated, provided that no bonus shall be paid for
achievement less than 90% of budget and the maximum bonus shall be 35% of Salary
in any event.
(c) During the Employment Term, the Company shall provide, the Employee
with fringe benefits that are substantially equivalent to the fringe benefits
specified on Exhibit "A" (the "Fringe Benefits").
5. TERMINATION WITHOUT COMPENSATION.
(a) TOTAL DISABILITY. If the Employee becomes totally disabled (as
defined below), the Employment Term may be terminated by the Company, and the
Company shall have no further liability or obligation to the Employee hereunder
except as follows: the Employee shall receive (i) any unpaid Salary and Fringe
Benefits that have accrued through the date of termination; (ii) continued
Salary for three months following the date he is considered totally disabled and
a proportionate share of any bonus otherwise payable in accordance with the
provisions of Section 4 for the calendar year in which he is considered to be
totally disabled, determined in the same manner as in Section 6 and (iii)
whatever benefits that he may be entitled to receive under any then existing
disability benefit plans of the Company, including any such plans included in
the Fringe Benefits. For the purposes hereof, the Employee shall be deemed to be
"totally disabled" if the Employee is considered totally disabled under the
Company's group disability plan in effect at that time, if any, or in the
absence of any such plan, under applicable Social Security regulations. In the
event of any
-2-
<PAGE> 3
dispute as to the disability of the Employee under this Section 6(b), the
Employee shall submit to a physical examination by a licensed physician mutually
satisfactory to the Company and the Employee, the cost of such examination to be
paid by the Company, and the determination of such physician shall be
determinative.
(b) DEATH. If the Employee dies, this Employment Agreement shall
terminate, and thereafter the Company shall not have any further liability or
obligation to the Employee, his executors, administrators, heirs, assigns or any
other person claiming under or through him except that the Employee's estate
shall receive any unpaid Salary and Fringe Benefits that have accrued through
the date of termination.
(c) CAUSE. The Company may terminate the Employment Term for "cause" by
giving the Employee 30 days' notice of the termination date, and thereafter the
Company shall not have any further liability or obligation to the Employee,
except that the Employee shall receive any unpaid Salary and Fringe Benefits
that have accrued through the date of termination, net of any liabilities that
the Employee may have to the Company. For purposes of this Agreement, "cause"
shall mean the failure of the Employee to observe or perform (other than by
reason of illness, injury or incapacity) any of the material terms or provisions
of this Agreement, dishonesty, willful misconduct, material neglect of the
Company's business, conviction of a felony or other crime involving moral
turpitude, misappropriation of funds or habitual insobriety.
6. TERMINATION WITH COMPENSATION.
(a) NON-RENEWAL OF TERM. The Employment Term may be terminated by
either party hereto as of the end of the initial term or any renewal term then
in effect by giving written notice of the intention to terminate the Employment
Term at least 90 days prior to the proposed termination date. Under such
circumstances, the Company shall provide the Employee with the Termination
Compensation specified in Section 6(c).
(b) WITHOUT CAUSE. The Company shall have the right to terminate the
Employment Term without cause at any time by giving the Employee 30 days' notice
of the termination date. Under such circumstances, the Company shall provide the
Employee with the Termination Compensation specified in Section 6(c).
(c) TERMINATION COMPENSATION. The "Termination Compensation" shall
consist of the following: (i) the payment of the Employee's Salary under Section
4(a), at the level in effect at the date of termination for 12 months after the
termination date, (ii) provision of the Fringe Benefits specified on Exhibit "B"
for 12 months unless a different term is specified on Exhibit "B"; provided,
however, that such Fringe Benefits shall not continue in effect for any period
during which the Company is precluded from continuing the Employee's
participation in the plan or program under which any such Fringe Benefit is
provided by reason of the terms of such plan or program or of any applicable law
or regulation, including the Federal tax law regarding discrimination and (iii)
for the calendar year in which the termination occurs, payment of a
proportionate bonus under Section 4(b) calculated by assuming that the Employee
remained employed for the full year and multiplying the bonus that otherwise
would have been due by a fraction the numerator of which is the number of full
-3-
<PAGE> 4
months the Employee was actually employed by the Company during such calendar
year and the denominator of which is 12. Such bonus payment shall be made at the
same time as the Company pays bonuses to other executives for that year. The
Employee shall not be entitled to any Termination Compensation under this
Section 6 unless the Employee executes and delivers to the Company after a
notice of termination a release in a form satisfactory to the Company in its
sole discretion by which the Employee releases the Company from any obligations
and liabilities of any type whatsoever, except for the Company's obligation to
provide the Salary, Fringe Benefits and bonus specified in this Section 6. The
parties hereto acknowledge that the Salary, Fringe Benefits and bonus to be
provided under this Section 6 are to be provided in consideration for the above-
specified release.
(d) EXCLUSIVITY. Upon any termination by the Company under Section 6(a)
or Section 6(b), the Company shall not have any obligation to the Employee, his
executors, administrators, heirs, assigns or any other person claiming under or
through him other than to provide the Termination Compensation under the terms
and conditions of Section 6(c). Upon any termination by the Employee under
Section 6(a), the Company shall not have any further liability or obligation to
the Employee, his executors, administrators, heirs, assigns or any other person
claiming under or through him except to provide to the Employee any unpaid
Salary and Fringe Benefits that shall have accrued to him through the date of
termination.
7. INVENTIONS, DESIGNS AND PRODUCT DEVELOPMENTS.
All inventions, innovations, designs, ideas and product developments
(collectively, the "Developments"), developed or conceived by the Employee,
solely or jointly with others, whether or not patentable or copyrightable, at
any time during the Employment Term or during any other period that he provided
services to the Company as an employee, independent contractor or otherwise, and
that relate to the actual or planned business activities of the Company and all
of the Employee's right, title and interest therein, shall be the exclusive
property of the Company. The Employee hereby assigns, transfers and conveys to
the Company all of his right, title and interest in and to any and all such
Developments. The Employee shall disclose fully, as soon as practicable and in
writing, all Developments to the Board. At any time and from time to time, upon
the request of the Company, the Employee shall execute and deliver to the
Company any and all instruments, documents and papers, give evidence and do any
and all other acts that, in the opinion of counsel for the Company, are or may
be necessary or desirable to document such transfer or to enable the Company to
file and prosecute applications for and to acquire, maintain and enforce any and
all patents, trademark registrations or copyrights under United States or
foreign law with respect to any such Developments or to obtain any extension,
validation, re-issue, continuance or renewal of any such patent, trademark or
copyright. The Company will be responsible for the preparation of any such
instruments, documents and papers and for the prosecution of any such
proceedings and will reimburse the Employee for all reasonable expenses incurred
by him in compliance with the provisions of this Section.
-4-
<PAGE> 5
8. CONFIDENTIAL INFORMATION.
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer or product information or technical or business information of
the Company. All such information, other than any information that is in the
public domain through no act or omission of the Employee or which he is
authorized to disclose, is referred to collectively as the "Company
Information." During and after the Employment Term, the Employee shall not (i)
use or exploit in any manner the Company Information for himself or any person,
partnership, association, corporation or other entity other than the Company,
(ii) remove any Company Information, or any reproduction thereof, from the
possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company or during any other
period that he provided services to the Company as an employee, independent
contractor or otherwise, and all Company Information maintained by the Employee
thereafter, shall remain at all times the exclusive property of the Company. The
Employee shall return to the Company all Company Information, and reproductions
thereof, whether prepared by him or others, that are in his possession
immediately upon request and in any event upon the completion of his employment
by the Company.
9. REMEDIES.
The Employee expressly acknowledges that the remedy at law for any
breach of Sections 7 and 8 will be inadequate and that upon any such breach or
threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 10, the rights conferred upon the Company by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which the Company may have at law, in equity or otherwise.
10. GENERAL.
(a) GOVERNING LAW. The terms of this Agreement shall be governed by the
laws of the State of New Jersey.
-5-
<PAGE> 6
(b) COMPANY. For purposes of Sections 7, 8 and 9, the term "Company"
shall be deemed to include any incorporated or unincorporated subsidiaries or
affiliates of the Company, including Pamarco Europe Ltd. and any majority-owned
subsidiaries thereof.
(c) BINDING EFFECT. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(d) NOTICES. All notices required to be given under this Agreement
shall be in writing and shall be deemed to have been given when personally
delivered or when mailed by registered or certified mail, postage prepaid,
return receipt requested, or when sent by Federal Express or other overnight
delivery service, addressed as follows:
TO EMPLOYEE:
Larry A. Handeli
[insert home address]
TO THE COMPANY:
Pamarco, Incorporated
c/o Bradford Ventures, Ltd.
1212 Avenue of the Americas
New York, New York 10036
Attention: Thomas L. Ferguson
(e) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) DURATION. Notwithstanding the termination of the Employment Term
and of the Employee's employment by the Company, this Agreement shall continue
to bind the parties for so long as any obligations remain under the terms of
this Agreement.
(g) WAIVER. No waiver of any breach of this Agreement shall be
construed to be a waiver as to succeeding breaches.
-6-
<PAGE> 7
(h) SEVERABILITY. If any provision of this Agreement or application
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto duly executed this Agreement as of the day and year first written
above.
PAMARCO, INCORPORATED
By:
--------------------------
-----------------------------
LARRY A. HANDELI
-7-
<PAGE> 8
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Medical, dental, term life, disability and travel accident
insurance coverage, all at levels comparable to those provided to Handeli on the
date hereof.
(b) Participation in any pension and 401(k) savings plans maintained by
the Company from time to time, all at levels comparable to those provided to
Handeli on the date hereof.
(c) Provision to Handeli of a late model automobile comparable to that
provided to Handeli on the date hereof, including all related fuel, maintenance,
repair, insurance and other costs.
(d) Reimbursement, in accordance with the Company's policies, upon
proper accounting, of reasonable expenses and disbursements incurred by Handeli
in the course of his duties.
(e) Reimbursement of CPE course tuition as provided on the date hereof.
(f) Paid holidays in accordance with the Company's policies.
(g) Paid vacation of five weeks per year.
-8-
<PAGE> 9
EXHIBIT B
FRINGE BENEFITS
---------------
(a) Medical, dental, term life, disability and travel accident
insurance coverage, all at levels comparable to those provided to Handeli on the
date hereof.
(b) To the extent permitted for a non-employee under the terms of such
plans, participation in any pension and 401(k) savings plans maintained by the
Company from time to time, all at levels comparable to those provided to Handeli
on the date hereof.
(c) Provision to Handeli for a period of three months of a late model
automobile comparable to that provided to Handel on the date hereof, including
all related fuel, maintenance, repair, insurance and other costs.
<PAGE> 10
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is made as of
April ___, 1997, to that certain Employment Agreement dated as of January 1,
1995 (the "Employment Agreement") between Pamarco, Incorporated and Larry A.
Handeli (the "Employee"). Pamarco, Incorporated has assigned its rights, title
and interests in the Employment Agreement to Pamarco Technologies Inc. ("PTI"),
and PTI has assumed all of Pamarco, Incorporated's obligations under the
Employment Agreement, pursuant to that certain Assignment and Assumption
Agreement dated as of January 1, 1997 by and among Pamarco, Incorporated, PTI
and the Employee.
WHEREAS, PTI and the Employee desire to amend the Employment Agreement
and PTI and the Employee are willing to affect such Amendment.
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the parties hereto agree as follows:
1. AMENDMENT AND RESTATEMENT OF SECTION 6(a). Section 6(a) of the
Employment Agreement shall be deleted in its entirety and replaced with the
following:
"(a) NON-RENEWAL OF TERM. The Employment Term may be
terminated by either party hereto as of the end of the initial term or
any renewal term then in effect by giving written notice of the
intention to terminate the Employment Term at least 90 days prior to
the proposed termination date. Upon termination by the Company pursuant
to this Section 6(a), the Company shall provide the Employee with the
Termination Compensation specified in Section 6(c)."
2. AMENDMENT AND RESTATEMENT OF SECTION 6(c). Section 6(c) of the
Employment Agreement shall be deleted in its entirety and replaced with the
following:
"(c) TERMINATION COMPENSATION. The "Termination Compensation"
shall consist of the following: (i) payment of the Employee's Salary
under Section 4(a), at the level in effect at the date of termination,
for 18 months after the termination date, (ii) provision of the Fringe
Benefits specified on Exhibit "B" for 18 months unless a different term
is specified on Exhibit "B"; provided, however, that such Fringe
Benefits shall not continue in effect for any period during which the
Company is precluded from continuing the Employee's participation in
the plan or program under which any such Fringe Benefit is provided by
reason of the terms of such plan or program or of any applicable law or
regulation, including the Federal tax law regarding discrimination and
(iii) for the calendar year in which the termination occurs, payment of
a proportionate bonus under Section 4(b) calculated by assuming that
the Employee remained employed for the full year and multiplying the
bonus that otherwise would have been due by a fraction the
<PAGE> 11
numerator of which is the number of full months the Employee was
actually employed by the Company during such calendar year and the
denominator of which is 12. Such bonus payment shall be made at the
same time as the Company pays bonuses to other executives for that
year. The Employee shall not be entitled to any Termination
Compensation under this Section 6 unless the Employee executes and
delivers to the Company after a notice of termination a release in a
form satisfactory to the Company in its sole discretion by which the
Employee releases the Company from any obligations and liabilities of
any type whatsoever, except for the Company's obligation to provide the
Salary, Fringe Benefits and bonus specified in this Section 6. The
parties hereto acknowledge that the Salary, Fringe Benefits and bonus
to be provided under this Section 6 are to be provided in consideration
for the above-specified release."
3. COUNTERPARTS. This Amendment may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
4. MISCELLANEOUS. Except as herein modified and amended, all terms and
conditions of the Employment Agreement shall remain unchanged and in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
PAMARCO TECHNOLOGIES INC.
BY:___________________________
Name:
Title:
LARRY A. HANDELI
______________________________
<PAGE> 1
Exhibit 10.10
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the 23rd day of January, 1995 between
Dauphin Graphic Machines, Inc., a Pennsylvania corporation (the "Company"), and
Christopher J. Lunt (the "Employee").
RECITALS
--------
The Employee has been an executive employee of Ashcon, Inc., formerly
known as "Dauphin Graphic Machines, Inc." (the "Seller"). The Company is buying
substantially all of the assets of the Seller on the date hereof. The Company
desires to hire the Employee, and the Employee desires to work for the Company,
upon the terms and conditions hereinafter set forth.
WITNESSETH:
-----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. EMPLOYMENT.
The Company hereby employs the Employee as the President and Chief
Executive Officer of the Company, and the Employee hereby accepts such
employment. During the term of employment under this Agreement (the "Employment
Term"), the Employee shall perform such duties as are assigned by any senior
officer or the Board of Directors the Company, and the Employee shall also be a
member of the Board of Directors of the Company's parent company, Pamarco
Technologies, Inc., during such Employment Term.
2. PERFORMANCE.
The Employee shall devote his entire business efforts to the
performance of his duties hereunder; provided, however, that the Employee may
engage in personal investment activities so long as they do not interfere with
the performance of his duties hereunder.
3. TERM.
Unless otherwise terminated in accordance with Sections 6 or 7, the
Employment Term shall be for an initial term of three years from the date of
this Agreement and shall automatically continue thereafter for successive
one-year renewal terms unless one party provides the other with at least 90
days' prior written notice that the current term shall not be extended.
4. COMPENSATION FOR EMPLOYMENT.
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company hereunder shall be $100,000 (the "Salary"),
which the Company shall pay to the Employee in equal installments every two
weeks in accordance with the Company's payroll payment
<PAGE> 2
schedule in effect from time to time. The Salary may be adjusted upward on an
annual basis as the Board of Directors of the Company (the "Board") may approve,
in its sole discretion, commencing on or after the first anniversary of the date
hereof, but the Salary shall not be decreased. The Board, in its sole
discretion, may also award bonuses to the Employee from time to time.
(b) During the Employment Term, the Company shall provide the Employee
with fringe benefits that are substantially equivalent to the fringe benefits
specified on Exhibit "A" (the "Fringe Benefits").
5. AGREEMENT NOT TO COMPETE.
During the Restrictive Period (defined below), the Employee shall not,
at any time within the Restrictive Territory (defined below), directly or
indirectly, engage in, or have any interest on behalf of itself or others in any
person, firm, corporation or business (whether as an employee, officer,
director, agent, security holder, creditor, partner, joint venturer, beneficiary
under a trust, investor, consultant or otherwise) that engages within the
Restricted Territory in any of the business activities in which the Company or
the Seller at any time has been engaged, or at any time during the Employment
Term will have been engaged, including the refurbishing, manufacturing and
remanufacturing of printing presses and the manufacturing and sale of
replacement parts for printing presses. The "Restricted Period" means the longer
of (a) the three-year period immediately following the date hereof, or (b) the
period during which the Employee shall be employed by the Company or any company
that is an affiliate of the Company plus (i) an additional two years if the
Employee resigns from such employment or (ii) an additional one year if the
Company or such an affiliate terminates such employment. The "Restricted
Territory" means the area comprising the entire United States of America, Canada
and those other areas of the world in which the Seller has engaged in business
at any time within the two years prior to the Closing Date.
6. TERMINATION WITHOUT COMPENSATION.
(a) NON-RENEWAL OF TERM. The Employment Term may be terminated by
either party hereto as of the end of the initial term or any renewal term then
in effect by giving written notice of the intention to terminate the Employment
Term as of the end of the initial term or of any renewal term at least 90 days
prior to the proposed termination date.
(b) TOTAL DISABILITY. If the Employee becomes totally disabled (as
defined below), the Employment Term may be terminated by the Company, and the
Company shall have no further liability or obligation to the Employee hereunder
except as follows: the Employee shall receive (i) any unpaid Salary and Fringe
Benefits that have accrued through the date of termination; (ii) continued
Salary for three months following the date he is considered totally disabled and
a proportionate share of any bonus otherwise payable in accordance with the
provisions of Section 4 for the calendar year in which he is considered to be
totally disabled, determined in the same manner as in Section 7 and (iii)
whatever benefits that he may be entitled to receive under any then existing
-2-
<PAGE> 3
disability benefit plans of the Company, including any such plans included in
the Fringe Benefits. For the purposes hereof, the Employee shall be deemed to be
"totally disabled" if the Employee is considered totally disabled under the
Company's group disability plan in effect at that time, if any, or in the
absence of any such plan, under applicable Social Security regulations. In the
event of any dispute as to the disability of the Employee under this Section
6(b), the Employee shall submit to a physical examination by a licensed
physician mutually satisfactory to the Company and the Employee, the cost of
such examination to be paid by the Company, and the determination of such
physician shall be determinative.
(c) DEATH. If the Employee dies, this Employment Agreement shall
terminate, and thereafter the Company shall not have any further liability or
obligation to the Employee, his executors, administrators, heirs, assigns or any
other person claiming under or through him except that the Employee's estate
shall receive any unpaid Salary and Fringe Benefits that have accrued through
the date of termination and any awarded but unpaid bonus.
(d) CAUSE. The Company may terminate the Employment Term for "cause" by
giving the Employee 30 days' notice of the termination date, and thereafter the
Company shall not have any further liability or obligation to the Employee,
except that the Employee shall receive any unpaid Salary and Fringe Benefits
that have accrued through the date of termination and any awarded but unpaid
bonus, net of any liabilities that the Employee may have to the Company. For
purposes of this Agreement, "cause" shall mean the failure of the Employee to
observe or perform (other than by reason of illness, injury or incapacity) any
of the material terms or provisions of this Agreement, dishonesty, willful
misconduct, material neglect of the Company's business, conviction of a felony
or other crime involving moral turpitude, misappropriation of funds or habitual
insobriety.
7. TERMINATION WITH COMPENSATION.
The Company shall have the right to terminate the Employment Term
without cause at any time by giving the Employee 30 days' notice of the
termination date. Under such circumstances, the Employee's Salary under Section
4(a) then in effect hereunder will continue for 12 months after the termination
date. The Employee shall not be entitled to any compensation under this Section
7 unless the Employee executes and delivers to the Company after a notice of
termination a release in a form satisfactory to the Company in its sole
discretion by which the Employee releases the Company from any obligations and
liabilities of any type whatsoever, except for the Company's obligation to
provide the Salary specified in this Section 7. The parties hereto acknowledge
that the Salary to be provided under this Section 7 are to be provided in
consideration for the above-specified release.
-3-
<PAGE> 4
8. INVENTIONS, DESIGNS AND PRODUCT DEVELOPMENTS.
All inventions, innovations, designs, ideas and product developments
(collectively, the "Developments"), developed or conceived by the Employee,
solely or jointly with others, whether or not patentable or copyrightable, at
any time during the Employment Term or during the period that he provided
services to the Seller as an employee, independent contractor or otherwise, and
that relate to the actual or planned business activities of the Company and all
of the Employee's right, title and interest therein, shall be the exclusive
property of the Company. The Employee hereby assigns, transfers and conveys to
the Company all of his right, title and interest in and to any and all such
Developments. The Employee shall disclose fully, as soon as practicable and in
writing, all Developments to the Board. At any time and from time to time, upon
the request of the Company, the Employee shall execute and deliver to the
Company any and all instruments, documents and papers, give evidence and do any
and all other acts that, in the opinion of counsel for the Company, are or may
be necessary or desirable to document such transfer or to enable the Company to
file and prosecute applications for and to acquire, maintain and enforce any and
all patents, trademark registrations or copyrights under United States or
foreign law with respect to any such Developments or to obtain any extension,
validation, re-issue, continuance or renewal of any such patent, trademark or
copyright. The Company will be responsible for the preparation of any such
instruments, documents and papers and for the prosecution of any such
proceedings and will reimburse the Employee for all reasonable expenses incurred
by him in compliance with the provisions of this Section.
9. CONFIDENTIAL INFORMATION.
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company and of the
Seller, including writings, equipment, processes, drawings, reports, manuals,
invention records, financial information, business plans, customer lists, the
identity of or other facts relating to prospective customers, inventory lists,
arrangements with suppliers and customers, computer programs, or other material
embodying trade secrets, customer or product information or technical or
business information of the Company. All such information, other than any
information that is in the public domain through no act or omission of the
Employee or which he is authorized to disclose, is referred to collectively as
the "Company Information." During and after the Employment Term, the Employee
shall not (i) use or exploit in any manner the Company Information for himself
or any person, partnership, association, corporation or other entity other than
the Company, (ii) remove any Company Information, or any reproduction thereof,
from the possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company or during the
period that he provided services to the Seller as an employee, independent
contractor or otherwise, and all Company Information maintained by the Employee
thereafter, shall remain at all times the exclusive property of the
-4-
<PAGE> 5
Company. The Employee shall return to the Company all Company Information, and
reproductions thereof, whether prepared by him or others, that are in his
possession immediately upon request and in any event upon the completion of his
employment by the Company.
10. REMEDIES.
The Employee expressly acknowledges that the remedy at law for any
breach of Sections 5, 8 and 9 will be inadequate and that upon any such breach
or threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 10, the rights conferred upon the Company by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which the Company may have at law, in equity or otherwise.
11. GENERAL.
(a) GOVERNING LAW. The terms of this Agreement shall be governed by the
laws of the Commonwealth of Pennsylvania.
(b) COMPANY. For purposes of Sections 5, 8, 9 and 10, the term
"Company" shall be deemed to include any incorporated or unincorporated
subsidiaries or affiliates of the Company and any majority-owned subsidiaries
thereof.
(c) BINDING EFFECT. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(d) NOTICES. All notices required to be given under this Agreement
shall be in writing and shall be deemed to have been given when personally
delivered or when mailed by registered or certified mail, postage prepaid,
return receipt requested, or when sent by Federal Express or other overnight
delivery service, addressed as follows:
TO EMPLOYEE:
Christopher J. Lunt
R.D. #2, Box 214A
Millersburg, PA 17061
-5-
<PAGE> 6
TO THE COMPANY:
Dauphin Graphic Machines, Inc.
c/o Bradford Ventures, Ltd.
1212 Avenue of the Americas
New York, New York 10036
Attention: Thomas L. Ferguson
(e) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) DURATION. Notwithstanding the termination of the Employment Term
and of the Employee's employment by the Company, this Agreement shall continue
to bind the parties for so long as any obligations remain under the terms of
this Agreement.
(g) WAIVER. No waiver of any breach of this Agreement shall be
construed to be a waiver as to succeeding breaches.
(h) SEVERABILITY. If any provision of this Agreement or application
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto duly executed this Agreement as of the day and year first written
above.
DAUPHIN GRAPHIC MACHINES, INC.
By:
--------------------------
-----------------------------
CHRISTOPHER J. LUNT
-6-
<PAGE> 7
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Participation in the following group plans that the Company
provides from to time to time to its most senior employees: medical, dental,
vision, short-term disability, life insurance, long-term disability and 401(k)
savings plan.
(b) Provision of a late model automobile, including related fuel,
maintenance, repair, insurance and similar costs.
(c) Extended disability insurance maintained by the Company on the date
hereof (United Teachers; Policy Number A031460).
(d) Life insurance maintained by the Company on the date hereof
(Principal Mutual; Policy Number 4293676).
<PAGE> 1
Exhibit 10.11
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the ___ day of _______________, 1995
between Pamarco, Incorporated, a Maryland corporation ("Pamarco" or the
"Company"), and Terence W. Ford (the "Employee").
RECITALS
--------
The Employee has been an executive employee of the Company and of
Pamarco Europe Ltd., the Company's subsidiary ("Pamarco Europe") prior to the
date hereof. The Company desires to continue such employment of the Employee,
and the Employee desires to continue working for the Company and Pamarco Europe,
upon the terms and conditions hereinafter set forth. For the purposes of this
Agreement, unless the context indicates otherwise, the term "Company" shall be
deemed to include any incorporated or unincorporated subsidiaries or affiliates
of the Company, including Pamarco Europe Ltd. and any majority-owned
subsidiaries thereof, and such subsidiaries and affiliates are referred to
herein as "Affiliated Companies."
WITNESSETH:
-----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. EMPLOYMENT.
The Company hereby continues the employment of the Employee as an
executive-level employee, and the Employee hereby accepts such continued
employment, for the Employment Term specified in Section 3 (the "Employment
Term"). During the Employment Term, the Employee shall perform for Pamarco and
any Affiliated Companies such duties as are assigned by any senior officer or
the Board of Directors of the Company.
2. PERFORMANCE.
The Employee shall devote his entire business efforts to the
performance of his duties hereunder; provided, however, that the Employee may
engage in personal investment activities so long as they do not interfere with
the performance of his duties hereunder.
3. TERM.
Unless otherwise terminated in accordance with Sections 6 or 7, the
Employment Term shall be for an initial term of one year from the date of this
Agreement and shall automatically continue thereafter for successive one-year
renewal terms unless one party provides the other with at least 90 days' prior
written notice that the then current term shall not be extended.
<PAGE> 2
4. COMPENSATION FOR EMPLOYMENT.
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company hereunder shall be the Employee's annual
salary on the date hereof (the "Salary"), which the Company shall pay to the
Employee in equal installments in accordance with the Company's payroll payment
schedule in effect from time to time. The Salary may be adjusted upward as the
Board of Directors of the Company (the "Board") may approve, in its sole
discretion, from time to time, but the Salary shall not be decreased.
(b) Commencing January 1, 1996, the Employee shall be entitled to a
bonus or such other incentive compensation as may be provided under any plan or
program established from time to time by the Board, in its sole discretion.
Through December 31, 1995, the Employee shall be entitled to an annual bonus
payable in accordance with the terms of the Company's Executive Committee
Incentive Program with respect to Pamarco Europe - 1993, with the following
modification: for the period January 1 through December 31, 1995, the Board, in
its sole discretion, shall establish a budget for pre-tax income of Pamarco
Europe in accordance with generally accepted accounting principles consistently
applied and the Employee's bonus will vary as a percentage of Salary in relation
to the percentage achievement of that budget as follows:
<TABLE>
<CAPTION>
Percentage of Percentage of Salary
Budget Attained Earned as Bonus
---------------------------------------------
<S> <C>
<90% 0%
90% 10%
100% 20%
110% 30%
125% 35%
</TABLE>
For percentage of budget achievement between the benchmarks, the percentage of
Salary shall be linearly interpolated, provided that no bonus shall be paid for
achievement less than 90% of budget and the maximum bonus shall be 35% of Salary
in any event.
(c) During the Employment Term, the Company shall provide, the Employee
with fringe benefits that are substantially equivalent to the fringe benefits
specified on Exhibit "A" (the "Fringe Benefits").
(d) This Agreement provides the total compensation that shall be due to
the Employee from Pamarco and any Affiliated Companies with respect to any
services provided by the Employee thereto.
-2-
<PAGE> 3
5. TERMINATION WITHOUT COMPENSATION.
(a) TOTAL DISABILITY. If the Employee becomes totally disabled (as
defined below), the Employment Term may be terminated by the Company, and the
Company shall have no further liability or obligation to the Employee hereunder
except as follows: the Employee shall receive (i) any unpaid Salary and Fringe
Benefits that have accrued through the date of termination; (ii) continued
Salary for three months following the date he is considered totally disabled and
a proportionate share of any bonus otherwise payable in accordance with the
provisions of Section 4 for the calendar year in which he is considered to be
totally disabled, determined in the same manner as in Section 6 and (iii)
whatever benefits that he may be entitled to receive under any then existing
disability benefit plans of the Company, including any such plans included in
the Fringe Benefits. For the purposes hereof, the Employee shall be deemed to be
"totally disabled" if the Employee is considered totally disabled under the
Company's group disability plan in effect at that time, if any, or in the
absence of any such plan, under applicable Social Security regulations. In the
event of any dispute as to the disability of the Employee under this Section
6(b), the Employee shall submit to a physical examination by a licensed
physician mutually satisfactory to the Company and the Employee, the cost of
such examination to be paid by the Company, and the determination of such
physician shall be determinative.
(b) DEATH. If the Employee dies, this Employment Agreement shall
terminate, and thereafter the Company shall not have any further liability or
obligation to the Employee, his executors, administrators, heirs, assigns or any
other person claiming under or through him except that the Employee's estate
shall receive any unpaid Salary and Fringe Benefits that have accrued through
the date of termination.
(c) CAUSE. The Company may terminate the Employment Term for "cause" by
giving the Employee 30 days' notice of the termination date, and thereafter the
Company shall not have any further liability or obligation to the Employee,
except that the Employee shall receive any unpaid Salary and Fringe Benefits
that have accrued through the date of termination, net of any liabilities that
the Employee may have to the Company. For purposes of this Agreement, "cause"
shall mean the failure of the Employee to observe or perform (other than by
reason of illness, injury or incapacity) any of the material terms or provisions
of this Agreement, dishonesty, willful misconduct, material neglect of the
Company's business, conviction of a felony or other crime involving moral
turpitude, misappropriation of funds or habitual insobriety.
6. TERMINATION WITH COMPENSATION.
(a) NON-RENEWAL OF TERM. The Employment Term may be terminated by
either party hereto as of the end of the initial term or any renewal term then
in effect by giving written notice of the intention to terminate the Employment
Term at least 90 days prior to the proposed termination date. Under such
circumstances, the Company shall provide the Employee with the Termination
Compensation specified in Section 6(c).
-3-
<PAGE> 4
(b) WITHOUT CAUSE. The Company shall have the right to terminate the
Employment Term without cause at any time by giving the Employee 30 days' notice
of the termination date. Under such circumstances, the Company shall provide the
Employee with the Termination Compensation specified in Section 6(c).
(c) TERMINATION COMPENSATION. The "Termination Compensation" shall
consist of the following: (i) payment of the Employee's Salary under Section
4(a), at the level in effect at the date of termination, for 12 months after the
termination date, (ii) provision of the Fringe Benefits specified on Exhibit "B"
for 12 months unless a different term is specified on Exhibit "B"; provided,
however, that such Fringe Benefits shall not continue in effect for any period
during which the Company is precluded from continuing the Employee's
participation in the plan or program under which any such Fringe Benefit is
provided by reason of the terms of such plan or program or of any applicable law
or regulation, including the Federal tax law regarding discrimination and (iii)
for the calendar year in which the termination occurs, payment of a
proportionate bonus under Section 4(b) calculated by assuming that the Employee
remained employed for the full year and multiplying the bonus that otherwise
would have been due by a fraction the numerator of which is the number of full
months the Employee was actually employed by the Company during such calendar
year and the denominator of which is 12. Such bonus payment shall be made at the
same time as the Company pays bonuses to other executives for that year. The
Employee shall not be entitled to any Termination Compensation under this
Section 6 unless the Employee executes and delivers to the Company after a
notice of termination a release in a form satisfactory to the Company in its
sole discretion by which the Employee releases the Company from any obligations
and liabilities of any type whatsoever, except for the Company's obligation to
provide the Salary, Fringe Benefits and bonus specified in this Section 6. The
parties hereto acknowledge that the Salary, Fringe Benefits and bonus to be
provided under this Section 6 are to be provided in consideration for the above-
specified release.
(d) EXCLUSIVITY. Upon any termination by the Company under Section 6(a)
or Section 6(b), the Company shall not have any obligation to the Employee, his
executors, administrators, heirs, assigns or any other person claiming under or
through him other than to provide the Termination Compensation under the terms
and conditions of Section 6(c). Upon any termination by the Employee under
Section 6(a), the Company shall not have any further liability or obligation to
the Employee, his executors, administrators, heirs, assigns or any other person
claiming under or through him except to provide to the Employee any unpaid
Salary and Fringe Benefits that shall have accrued through the date of
termination.
7. INVENTIONS, DESIGNS AND PRODUCT DEVELOPMENTS.
All inventions, innovations, designs, ideas and product developments
(collectively, the "Developments"), developed or conceived by the Employee,
solely or jointly with others, whether or not patentable or copyrightable, at
any time during the Employment Term or during any other period that he provided
services to the Company as an employee, independent contractor or
-4-
<PAGE> 5
otherwise, and that relate to the actual or planned business activities of the
Company and all of the Employee's right, title and interest therein, shall be
the exclusive property of the Company. The Employee hereby assigns, transfers
and conveys to the Company all of his right, title and interest in and to any
and all such Developments. The Employee shall disclose fully, as soon as
practicable and in writing, all Developments to the Board. At any time and from
time to time, upon the request of the Company, the Employee shall execute and
deliver to the Company any and all instruments, documents and papers, give
evidence and do any and all other acts that, in the opinion of counsel for the
Company, are or may be necessary or desirable to document such transfer or to
enable the Company to file and prosecute applications for and to acquire,
maintain and enforce any and all patents, trademark registrations or copyrights
under United States or foreign law with respect to any such Developments or to
obtain any extension, validation, re-issue, continuance or renewal of any such
patent, trademark or copyright. The Company will be responsible for the
preparation of any such instruments, documents and papers and for the
prosecution of any such proceedings and will reimburse the Employee for all
reasonable expenses incurred by him in compliance with the provisions of this
Section.
8. CONFIDENTIAL INFORMATION.
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer or product information or technical or business information of
the Company. All such information, other than any information that is in the
public domain through no act or omission of the Employee or which he is
authorized to disclose, is referred to collectively as the "Company
Information." During and after the Employment Term, the Employee shall not (i)
use or exploit in any manner the Company Information for himself or any person,
partnership, association, corporation or other entity other than the Company,
(ii) remove any Company Information, or any reproduction thereof, from the
possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company or during any other
period that he provided services to the Company as an employee, independent
contractor or otherwise, and all Company Information maintained by the Employee
thereafter, shall remain at all times the exclusive property of the Company. The
Employee shall return to the Company all Company Information, and reproductions
thereof, whether prepared by him or others, that are in his possession
immediately upon request and in any event upon the completion of his employment
by the Company.
-5-
<PAGE> 6
9. REMEDIES.
The Employee expressly acknowledges that the remedy at law for any
breach of Sections 7 and 8 will be inadequate and that upon any such breach or
threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 10, the rights conferred upon the Company by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which the Company may have at law, in equity or otherwise.
10. GENERAL.
(a) GOVERNING LAW. The terms of this Agreement shall be governed by the
laws of England.
(b) BINDING EFFECT. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(c) NOTICES. All notices required to be given under this Agreement
shall be in writing and shall be deemed to have been given when personally
delivered or when mailed by registered or certified mail, postage prepaid,
return receipt requested, or when sent by Federal Express or other overnight
delivery service, addressed as follows:
TO EMPLOYEE:
Terence W. Ford
6 Rutland Avenue
Walton, Warrington
Cheshire, England
Post Code WA4 6PD
-6-
<PAGE> 7
TO THE COMPANY:
Pamarco, Incorporated
c/o Bradford Ventures, Ltd.
1212 Avenue of the Americas
New York, New York 10036
Attention: Thomas L. Ferguson
(d) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(e) DURATION. Notwithstanding the termination of the Employment Term
and of the Employee's employment by the Company, this Agreement shall continue
to bind the parties for so long as any obligations remain under the terms of
this Agreement.
-7-
<PAGE> 8
(f) WAIVER. No waiver of any breach of this Agreement shall be
construed to be a waiver as to succeeding breaches.
(g) SEVERABILITY. If any provision of this Agreement or application
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto duly executed this Agreement as of the day and year first written
above.
PAMARCO, INCORPORATED
By:
--------------------------
-----------------------------
TERENCE W. FORD
-8-
<PAGE> 9
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Medical, dental, term life, disability and travel accident
insurance coverage, all at levels comparable to those provided to Ford on the
date hereof.
(b) Participation in any pension plans maintained by the Company from
time to time, all at levels comparable to those provided to Ford on the date
hereof.
(c) Provision to Ford of a late model automobile comparable to that
provided to Ford on the date hereof, including all related fuel, maintenance,
repair, insurance and other costs.
(d) Reimbursement, in accordance with the Company's policies, upon
proper accounting, of reasonable expenses and disbursements incurred by Ford in
the course of his duties.
(e) Paid holidays in accordance with the Company's policies.
(f) Paid vacation of five weeks per year.
(g) Annual membership in Mere Golf and County Club.
<PAGE> 10
EXHIBIT B
FRINGE BENEFITS
---------------
(a) Medical, dental, term life, disability and travel accident
insurance coverage, all at levels comparable to those provided to Ford on the
date hereof.
(b) To the extent permitted for a non-employee under the terms of such
plans, participation in any pension and 401(k) savings plans maintained by the
Company from time to time, all at levels comparable to those provided to Ford on
the date hereof.
(c) Provision to Ford for a period of three months of a late model
automobile comparable to that provided to Ford on the date hereof, including all
related fuel, maintenance, repair, insurance and other costs.
<PAGE> 1
Exhibit 10.12
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the ___ day of April, 1996 between Armotek
Industries, Inc., a New Jersey corporation (the "Company"), and Dennis E.
Andersen (the "Employee").
RECITALS
--------
The Employee has been an executive employee of the Company prior to the
date hereof. The Company desires to continue the employment of the Employee, and
the Employee desires to continue working for the Company, upon the terms and
conditions hereinafter set forth.
WITNESSETH:
-----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. EMPLOYMENT.
The Company hereby employs the Employee as an executive-level employee,
and the Employee hereby accepts such employment. During the term of employment
under this Agreement (the "Employment Term"), the Employee shall perform such
duties as are assigned by any senior officer or the Board of Directors the
Company (the "Board").
2. PERFORMANCE.
The Employee shall devote his entire business efforts to the
performance of his duties hereunder; provided, however, that the Employee may
engage in personal investment activities so long as they do not interfere with
the performance of his duties hereunder.
3. TERM.
Unless otherwise terminated in accordance with Sections 6 or 7, the
Employment Term shall be for an initial term of two years from the date of this
Agreement (the "Initial Term") and shall automatically continue thereafter for
successive one-year renewal terms (each a "Renewal Term") unless one party
provides the other with at least 45 days' prior written notice that the current
term shall not be extended.
4. COMPENSATION FOR EMPLOYMENT.
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company hereunder shall be $120,000 (the "Salary"),
which the Company shall pay to the Employee in equal installments in accordance
with the Company's payroll payment schedule in effect from time to time. The
Salary may be adjusted upward on an annual basis as the Board or a
<PAGE> 2
senior officer of the Company may approve, in their sole discretion, commencing
on or after the Initial Term set forth in Section 3.
(b) During the Employment Term, the Company shall provide the Employee
with fringe benefits that are substantially equivalent to the fringe benefits
specified on Exhibit "A" (the "Fringe Benefits").
5. AGREEMENT NOT TO COMPETE.
During the Restricted Period (defined below), the Employee shall not,
at any time within the Restricted Territory (defined below), directly or
indirectly, engage in, or have any interest on behalf of itself or others in any
person, firm, corporation or business (whether as an employee, officer,
director, agent, security holder, creditor, partner, joint venturer, beneficiary
under a trust, investor, consultant or otherwise) that engages within the
Restricted Territory in any of the business activities in which the Company at
any time has been engaged, or at any time during the Employment Term will have
been engaged, including but not limited to the engraving, manufacturing and
selling of gravure cylinders and anilox rolls; provided, however, that nothing
contained in this Section 5 shall prevent or prohibit the Employee from owning
of record or beneficially up to five percent (5%) of the stock or equity of any
corporation or other business entity that is traded on the New York Stock
Exchange, the American Stock Exchange or the NASDAQ National Market. In
addition, during the Restricted Period, the Employee shall not directly or
indirectly solicit or otherwise encourage any of the Company's employees to
terminate their employment with the Company. The "Restricted Period" means (i)
the period (the "Base Restricted Period") during which the Employee shall be
employed by the Company, or if longer, receiving payments from the Company under
this Agreement after termination of his employment, plus (ii) an additional one
year thereafter. Notwithstanding the foregoing, if the Company opts not to
extend the Employment Term beyond the Initial Term, or if the Employment Term is
terminated during the Initial Term pursuant to Section 7, then the "Restricted
Period" shall mean the Base Restricted Period. The "Restricted Territory" means
the area comprising the entire United States of America, Canada and those other
areas of the world in which the Company has engaged in business at any time
prior to or during the Employment Term.
6. TERMINATION WITHOUT COMPENSATION.
(a) NON-RENEWAL OF TERM. The Employment Term may be terminated by
either party hereto as of the end of the Initial Term or any Renewal Term then
in effect by giving written notice of the intention to terminate the Employment
Term as of the end of the Initial Term or any Renewal Term at least 45 days
prior to the proposed termination date. Upon any such termination, the Company
shall have no further liability or obligation to the Employee hereunder except
for any unpaid Salary and Fringe Benefits that have accrued through the date of
termination.
-2-
<PAGE> 3
(b) TOTAL DISABILITY. If the Employee becomes totally disabled (as
defined below), the Employment Term may be terminated by the Company, and the
Company shall have no further liability or obligation to the Employee hereunder
except as follows: the Employee shall receive (i) any unpaid Salary and Fringe
Benefits that have accrued through the date of termination; (ii) continued
Salary for three months following the date he is considered totally disabled;
and (iii) whatever benefits that he may be entitled to receive under any then
existing disability benefit plans of the Company, including any such plans
included in the Fringe Benefits. For the purposes hereof, the Employee shall be
deemed to be "totally disabled" if the Employee is considered totally disabled
under the Company's group disability plan in effect at that time (including any
applicable waiting period), if any, or in the absence of any such plan, under
applicable Social Security regulations. In the event of any dispute as to the
disability of the Employee under this Section 6(b), the Employee shall submit to
a physical examination by a licensed physician mutually satisfactory to the
Company and the Employee, the cost of such examination to be paid by the
Company, and the determination of such physician shall be determinative.
(c) DEATH. If the Employee dies, this Employment Agreement shall
terminate, and thereafter the Company shall not have any further liability or
obligation to the Employee, his executors, administrators, heirs, assigns or any
other person claiming under or through him except that the Employee's estate
shall receive any unpaid Salary and Fringe Benefits that have accrued through
the date of termination.
(d) CAUSE. The Company may terminate the Employment Term for "cause" by
giving the Employee 30 days' notice of the termination date, and thereafter the
Company shall not have any further liability or obligation to the Employee,
except that the Employee shall receive any unpaid Salary and Fringe Benefits
that have accrued through the date of termination, net of any liabilities that
the Employee may have to the Company. For purposes of this Agreement, "cause"
shall mean the failure of the Employee to observe or perform (other than by
reason of illness, injury or incapacity) any of the material terms or provisions
of this Agreement, dishonesty, willful misconduct, material neglect of the
Company's business, conviction of a felony or other crime involving moral
turpitude, misappropriation of funds or habitual insobriety.
7. TERMINATION WITH COMPENSATION.
The Company shall have the right to terminate the Employment Term
without cause at any time by giving the Employee 30 days' notice of the
termination date. Under such circumstances, the Employee's Salary under Section
4(a) then in effect hereunder and the fringe benefits specified on Exhibit "B"
(the "Termination Fringe Benefits") will continue for the remainder of the term
then in effect. The Employee shall not be entitled to any compensation under
this Section 7 unless the Employee executes and delivers to the Company after a
notice of termination a release in a form satisfactory to the Company in its
sole discretion by which the Employee releases the Company from any obligations
and liabilities of any type whatsoever, except for the Company's obligation to
provide the Salary and Termination Fringe Benefits specified in this Section 7.
The parties hereto
-3-
<PAGE> 4
acknowledge that the Salary payments and the Termination Fringe Benefits to be
provided under this Section 7 are to be provided in consideration for the
above-specified release.
8. INVENTIONS, DESIGNS AND PRODUCT DEVELOPMENTS.
All inventions, innovations, designs, ideas and product developments
(collectively, the "Developments"), developed or conceived by the Employee,
solely or jointly with others, whether or not patentable or copyrightable, at
any time during the Employment Term or during the period that he provided
services to the Company as an employee, independent contractor or otherwise, and
that relate to the actual or planned business activities of the Company and all
of the Employee's right, title and interest therein, shall be the exclusive
property of the Company. The Employee hereby assigns, transfers and conveys to
the Company all of his right, title and interest in and to any and all such
Developments. The Employee shall disclose fully, as soon as practicable and in
writing, all Developments to the Board. At any time and from time to time, upon
the request of the Company, the Employee shall execute and deliver to the
Company any and all instruments, documents and papers, give evidence and do any
and all other acts that, in the opinion of counsel for the Company, are or may
be necessary or desirable to document such transfer or to enable the Company to
file and prosecute applications for and to acquire, maintain and enforce any and
all patents, trademark registrations or copyrights under United States or
foreign law with respect to any such Developments or to obtain any extension,
validation, re-issue, continuance or renewal of any such patent, trademark or
copyright. The Company will be responsible for the preparation of any such
instruments, documents and papers and for the prosecution of any such
proceedings and will reimburse the Employee for all reasonable expenses incurred
by him in compliance with the provisions of this Section.
9. CONFIDENTIAL INFORMATION.
(a) The Employee has had and will have possession of or access to
confidential information relating to the businesses of the Company, Pamarco,
Incorporated and Pamarco Technologies Inc., including writings, equipment,
processes, drawings, reports, manuals, invention records, financial information,
business plans, customer lists, the identity of or other facts relating to
prospective customers, inventory lists, arrangements with suppliers and
customers, computer programs, or other material embodying trade secrets,
customer or product information or technical or business information of the
Company, Pamarco, Incorporated and Pamarco Technologies Inc. All such
information, other than any information that (i) is in the public domain through
no act or omission of the Employee, (ii) is made available to the Employee by an
independent third party or (iii) is required by law to be disclosed, is referred
to collectively as the "Company Information." During and after the Employment
Term, the Employee shall not (i) use or exploit in any manner the Company
Information for himself or any person, partnership, association, corporation or
other entity other than the Company, (ii) remove any Company Information, or any
reproduction thereof, from the possession or control of the Company or (iii)
treat Company Information otherwise than in a confidential manner.
-4-
<PAGE> 5
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company or during the
period that he provided services to the Company as an employee, independent
contractor or otherwise, and all Company Information maintained by the Employee
thereafter, shall remain at all times the exclusive property of the Company. The
Employee shall return to the Company all Company Information, and reproductions
thereof, whether prepared by him or others, that are in his possession
immediately upon request and in any event upon the completion of his employment
by the Company.
10. REMEDIES.
The Employee expressly acknowledges that the remedy at law for any
breach of Sections 5, 8 and 9 will be inadequate and that upon any such breach
or threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 10, the rights conferred upon the Company by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which the Company may have at law, in equity or otherwise.
11. GENERAL.
(a) GOVERNING LAW. The terms of this Agreement shall be governed by the
laws of the State of New Jersey.
(b) COMPANY. For purposes of Sections 5, 8, 9 and 10, the term
"Company" shall be deemed to include any incorporated or unincorporated
subsidiaries or affiliates of the Company and any majority-owned subsidiaries
thereof.
(c) BINDING EFFECT. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(d) NOTICES. All notices required to be given under this Agreement
shall be in writing and shall be deemed to have been given when personally
delivered or when mailed by registered or certified mail, postage prepaid,
return receipt requested, or when sent by Federal Express or other overnight
delivery service, addressed as follows:
-5-
<PAGE> 6
TO EMPLOYEE:
Dennis E. Andersen
122 Buddtown Road
Southampton, NJ 08088
TO THE COMPANY:
c/o Thomas L. Ferguson
Bradford Ventures Ltd.
1212 Avenue of the Americas
Suite 1802
New York, NY 10036
(e) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) DURATION. Notwithstanding the termination of the Employment Term
and of the Employee's employment by the Company, this Agreement shall continue
to bind the parties for so long as any obligations remain under the terms of
this Agreement.
(g) WAIVER. No waiver of any breach of this Agreement shall be
construed to be a waiver as to succeeding breaches.
(h) SEVERABILITY. If any provision of this Agreement or application
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision in any other jurisdiction.
(i) INTERPRETATION. Unless the context of this Agreement clearly
requires otherwise, (a) references to the plural include the singular, the
singular the plural, the part the whole, (b) references to one gender include
all genders, (c) "or" has the inclusive meaning frequently identified with the
phrase "and/or," (d) "including" has the inclusive meaning frequently identified
with the phrase "but not limited to" and (e) references to "hereunder" or
"herein" relate to this Agreement. The section and other headings contained in
this Agreement are for reference purposes only and shall not control or affect
the construction of this Agreement or the interpretation thereof in any respect.
Section, subsection, schedule and exhibit references are to this Agreement
unless otherwise specified. Each accounting term used herein that is not
specifically defined herein shall have the meaning given to it under generally
accepted accounting principles.
-6-
<PAGE> 7
(j) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be binding as of the date first written above.
Each such copy shall be deemed an original, and it shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto duly executed this Agreement as of the day and year first written
above.
ARMOTEK INDUSTRIES, INC.
By:
--------------------------
-----------------------------
DENNIS E. ANDERSEN
-7-
<PAGE> 8
EXHIBIT A
FRINGE BENEFITS
---------------
- Medical Insurance including the Employee's spouse
- Long-term disability after 90 days
- Short-term disability - New Jersey and self-funded
- Life Insurance in the aggregate amount of $250,000
- Pension defined benefit plan
- 401K Retirement Income Plan
- Four weeks vacation
- Paid holidays in accordance with Company policy
- Automobile allowance of $625.00 per month
<PAGE> 9
EXHIBIT B
TERMINATION FRINGE BENEFITS
---------------------------
- Medical Insurance including the Employee's spouse
- Long-term disability after 90 days
- Short-term disability - New Jersey and self-funded
- Life Insurance in the aggregate amount of $250,000
<PAGE> 1
Exhibit 10.13
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the 10th day of January, 1997 between
DIAMOND HOLDING CORPORATION, a Georgia corporation (the "Company"), and MAX
GYSIN (the "Employee").
RECITALS
--------
The Employee has been an executive employee of the Company prior to the
date hereof. The Company desires to continue the employment of the Employee, and
the Employee desires to continue working for the Company, upon the terms and
conditions hereinafter set forth.
WITNESSETH:
-----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. EMPLOYMENT.
The Company hereby continues the employment of the Employee as the
President and Chief Executive Officer of the Company, and the Employee hereby
accepts such continued employment, for the Employment Term specified in Section
3 (the "Employment Term"). During the Employment Term, the Employee shall
perform such reasonable and legal duties as are commensurate and consistent with
the position of President and Chief Executive Officer of the Company or such
duties assigned by the Board of Directors of the Company (the "Board") that are
consistent with the foregoing provision. In addition, upon the request of the
Board at any time during the second year or any renewal year of the Employment
Term, the Employee shall train someone to replace him as the Chief Executive
Officer of the Company.
2. PERFORMANCE.
The Employee shall devote his full-time business efforts to the
performance of his duties hereunder; provided, however, that the Employee may
engage in personal investment activities so long as they do not interfere with
the performance of his duties hereunder. The Employee may also engage in such
other business activities that may be approved by the Board from time to time.
3. TERM.
Unless otherwise terminated in accordance with Sections 5 or 6, the
Employment Term shall consist of an initial term beginning on the date hereof
and ending on December 31, 1998 and automatic successive one-year renewal terms
thereafter.
<PAGE> 2
4. COMPENSATION FOR EMPLOYMENT.
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company hereunder shall be $150,000 (the "Salary"),
which the Company shall pay to the Employee in equal installments in accordance
with the Company's payroll payment schedule in effect from time to time. The
Salary may be adjusted upward as the Board may approve, in its sole discretion,
from time to time, but the Salary shall not be decreased.
(b) Commencing as of January 1, 1997, the Employee shall be entitled to
a bonus or such other incentive compensation as may be provided under any plan
or program established from time to time by the Board, in its sole discretion.
For the period January 1 through December 31, 1997, the Board, in its reasonable
discretion, shall establish a budget for pre-tax income in accordance with
generally accepted accounting principles consistently applied and the Employee's
bonus will vary as a percentage of Salary in relation to the percentage
achievement of that budget as follows:
<TABLE>
<CAPTION>
Percentage of Percentage of Salary
Budget Attained Earned as Bonus
-------------------------------------------
<S> <C>
< 90% 0%
90% 10%
100% 20%
110% 30%
125% 35%
</TABLE>
For percentage of budget achievement between the benchmarks, the percentage of
Salary shall be linearly interpolated, provided that no bonus shall be paid for
achievement less than 90% of the budget and the maximum bonus shall be 35% of
Salary in any event. The bonus and other compensation under this Agreement shall
be separate from and in addition to the Contingent Purchase Price (as defined in
Section 2.2 of the Stock Purchase Agreement between Pamarco Technologies, Inc.
and the Employee of even date herewith), and the calculation of the bonus shall
not affect such Contingent Purchase Price.
(c) During the Employment Term, the Company shall provide, the Employee
with fringe benefits that are substantially equivalent to the fringe benefits
specified on Exhibit "A" (the "Fringe Benefits").
5. TERMINATION WITHOUT COMPENSATION.
(a) TOTAL DISABILITY. If the Employee becomes totally disabled (as
defined below), the Employment Term may be terminated by the Company, and the
Company shall have no further liability or obligation to the Employee under this
Agreement except as follows: the Employee shall
- 2 -
<PAGE> 3
receive (i) any unpaid Salary and Fringe Benefits that have accrued through the
date of termination; (ii) continued Salary for three months following the date
he is considered totally disabled and a proportionate share of any bonus
otherwise payable in accordance with the provisions of Section 4 for the
calendar year in which he is considered to be totally disabled and (iii)
whatever benefits that he may be entitled to receive under any then existing
disability benefit plans of the Company, including any such plans included in
the Fringe Benefits. For the purposes hereof, the Employee shall be deemed to be
"totally disabled" if the Employee is considered totally disabled under the
Company's group disability plan in effect at that time, if any, or in the
absence of any such plan, under applicable Social Security regulations. In the
event of any dispute as to the disability of the Employee under this Section
5(a), the Employee shall submit to a physical examination by a licensed
physician mutually satisfactory to the Company and the Employee, the cost of
such examination to be paid by the Company, and the determination of such
physician shall be determinative.
(b) DEATH. If the Employee dies, this Employment Agreement shall
terminate, and thereafter the Company shall not have any further liability or
obligation under this Agreement to the Employee, his executors, administrators,
heirs, assigns or any other person claiming under or through him except that the
Employee's estate shall receive any unpaid Salary and Fringe Benefits that have
accrued through the date of termination plus a proportionate share of any bonus
otherwise payable in accordance with the provisions of Section 4 for the
calendar year in which the Employee dies.
(c) CAUSE. The Company may terminate the Employment Term for "cause" by
giving the Employee 30 days' notice of the termination date, and thereafter the
Company shall not have any further liability or obligation to the Employee under
this Agreement, except that the Employee shall receive any unpaid Salary and
Fringe Benefits that have accrued through the date of termination, net of any
due and payable liabilities that the Employee may have to the Company. For
purposes of this Agreement, "cause" shall mean the intentional breach of (other
than by reason of illness, injury or incapacity) any of the material terms or
provisions of this Agreement, dishonesty that causes loss or harm to the
Company, willful misconduct as to any material Company business issue, material
neglect of the Company's business, conviction of a felony or other crime
involving moral turpitude, misappropriation of funds or habitual insobriety. If
the Company believes that the Employee's action or inaction constitutes "cause"
under this Section, the Company shall give the Employee notice thereof, and the
Employee shall have 30 days within which to cure the problem unless such "cause"
involves dishonesty that causes loss or harm to the Company, misappropriation of
funds or conviction of a crime.
6. NON-RENEWAL OF TERM AND TERMINATION BY EMPLOYEE.
The Employment Term may be terminated (i) by either party hereto as of
the end of the initial term or any renewal term then in effect by giving written
notice of the intention to terminate the Employment Term at least 90 days' prior
to the proposed termination date or (ii) unilaterally by the Employee at anytime
and for any reason whatsoever. Under either such circumstance, the Company shall
not have any further obligation under this Agreement to the Employee, his
executors,
- 3 -
<PAGE> 4
administrators, heirs, assigns or any other person claiming under or through him
other than to provide to the Employee any unpaid Salary and Fringe Benefits that
shall have accrued to him through the date of termination, plus any bonus
payable in accordance with the provisions of Section 4 for the calendar year in
which the termination occurs; provided, however, that if Employee terminates the
Employment Term, he shall not be entitled to any bonus payable in accordance
with the provisions of Section 4.
7. INVENTIONS, DESIGNS AND PRODUCT DEVELOPMENTS.
All inventions, innovations, designs, ideas and product developments
(collectively, the "Developments"), developed or conceived by the Employee,
solely or jointly with others, whether or not patentable or copyrightable, at
any time during the Employment Term or during any other period that he provided
services to the Company as an employee, independent contractor or otherwise, and
that directly relate to the actual or planned business activities of the Company
and all of the Employee's right, title and interest therein, shall be the
exclusive property of the Company. The Employee hereby assigns, transfers and
conveys to the Company all of his right, title and interest in and to any and
all such Developments. The Employee shall disclose fully, as soon as practicable
and in writing, all Developments to the Board. At any time and from time to
time, upon the request of the Company, the Employee shall execute and deliver to
the Company any and all instruments, documents and papers, give evidence and do
any and all other acts that, in the opinion of counsel for the Company, are or
may be necessary or desirable to document such transfer or to enable the Company
to file and prosecute applications for and to acquire, maintain and enforce any
and all patents, trademark registrations or copyrights under United States or
foreign law with respect to any such Developments or to obtain any extension,
validation, re-issuance, continuance or renewal of any such patent, trademark or
copyright. The Company will be responsible for the preparation of any such
instruments, documents and papers and for the prosecution of any such
proceedings and will reimburse the Employee for all reasonable expenses incurred
by him in compliance with the provisions of this Section.
8. CONFIDENTIAL INFORMATION.
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of, or other
facts relating to, prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer or product information or technical or business information of
the Company. All such information, other than any information that is in the
public domain through no act or omission of the Employee or which he is
authorized to disclose, is referred to collectively as the "Company
Information." During and after the Employment Term, the Employee shall not (I)
use or exploit in any manner the Company Information for himself or any person,
partnership, association, corporation or other entity other than the Company,
(ii) remove any Company Information, or any reproduction thereof, from
- 4 -
<PAGE> 5
the possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company or during any other
period that he provided services to the Company as an employee, independent
contractor or otherwise, and all Company Information maintained by the Employee
thereafter, shall remain at all times the exclusive property of the Company. The
Employee shall return to the Company all Company Information, and reproductions
thereof, whether prepared by him or others, that are in his possession
immediately upon request and in any event upon the completion of his employment
by the Company.
9. REMEDIES.
The Employee expressly acknowledges that the remedy at law for any
breach of Sections 7 and 8 will be inadequate and that upon any such breach or
threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. The rights conferred upon the
Company by the preceding sentence shall not be exclusive of, but shall be in
addition to, any other rights or remedies which the Company may have at law, in
equity or otherwise.
10. GENERAL.
(a) GOVERNING LAW. The terms of this Agreement shall be governed by the
laws of the State of Georgia.
(b) COMPANY. For purposes of Sections 7, 8 and 9, the term "Company"
shall be deemed to include any incorporated or unincorporated subsidiaries or
affiliates of the Company.
(c) BINDING EFFECT. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(d) NOTICES. All notices required to be given under this Agreement
shall be in writing and shall be sufficient if personally delivered or sent by
certified mail (return receipt requested), facsimile message or Federal Express
or other overnight delivery service. Any notices shall be deemed given upon the
earlier of the date when received at, or the third day after the date when sent
by registered or certified mail or the day after the date when sent by Federal
Express to, the address or fax number set forth below, unless the address or fax
number is changed by notice to the other party hereto:
- 5 -
<PAGE> 6
TO EMPLOYEE:
Max Gysin
1312 Marietta Country Club Drive
Kennesaw, Georgia 30144
TO THE COMPANY:
Diamond Holding Corporation
c/o Bradford Ventures, Ltd.
1212 Avenue of the Americas
New York, New York 10036
Fax: 212-764-3467
Attention: Thomas L. Ferguson
(e) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) DURATION. Notwithstanding the termination of the Employment Term
and of the Employee's employment by the Company, this Agreement shall continue
to bind the parties for so long as any obligations remain under the terms of
this Agreement.
(g) WAIVER. No waiver of any breach of this Agreement shall be
construed to be a waiver as to succeeding breaches.
(h) SEVERABILITY. If any provision of this Agreement or application
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement
- 6 -
<PAGE> 7
which can be given effect without the invalid or unenforceable provision or
application and shall not invalidate or render unenforceable such provision in
any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto duly executed this Agreement as of the day and year first written
above.
DIAMOND HOLDING CORPORATION
By:__________________________
_____________________________
MAX GYSIN
- 7 -
<PAGE> 8
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Medical, group life, and travel accident insurance coverage, all at
levels comparable to those provided to Gysin on the date hereof, if any.
(b) Participation in any 401(k) savings plans maintained by the Company
from time to time, all at levels comparable to those provided to Gysin on the
date hereof, if any.
(c) Reimbursement, in accordance with the policies of Pamarco
Technologies Inc., upon proper accounting, of reasonable expenses and
disbursements incurred by Gysin in the course of his duties.
(d) Paid holidays in accordance with the Company's policies.
(e) Paid vacation of four weeks per year.
(f) Participation in any bonus, profit-sharing or other additional
compensation plans that the Company makes generally available to senior
management employees of the Company from time to time.
(g) Exclusive use of an automobile that is substantially similar in
type to the Infinity used by the Employee on the date hereof.
- 8 -
<PAGE> 1
Exhibit 10.14
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the 1st day of July, 1997 between Pamarco
Technologies Inc., a Delaware corporation (the "Company"), and Harry M. Cook
(the "Employee").
RECITALS
--------
The Employee is currently providing consulting services to the Company
and its affiliates pursuant to a Consulting Agreement dated as of April 1, 1997
(the "Consulting Agreement"). The Company and the Employee desire to (i)
terminate the Consulting Agreement and (ii) enter into this Employment Agreement
whereby the Employee shall provide services to the Company and its affiliates
upon the terms and conditions hereinafter set forth.
WITNESSETH:
-----------
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
each intending to be legally bound hereby, agree as follows:
1. EMPLOYMENT.
The Company hereby employs the Employee, and the Employee hereby
accepts employment by the Company upon the terms and conditions set forth in
this Agreement. During the term of employment under this Agreement (the
"Employment Term"), the Employee shall perform such duties as are assigned by
the Board of Directors of the Company, and will initially serve as the Chief
Operating Officer of the Company.
2. PERFORMANCE.
The Employee shall devote his entire business efforts to the
performance of his duties hereunder; provided, however, that the Employee may
engage in personal investment activities so long as they do not interfere with
the performance of his duties hereunder.
3. TERM.
Unless otherwise terminated in accordance with Sections 6 or 7, the
Employment Term shall be for two years from the date of this Agreement.
<PAGE> 2
4. COMPENSATION FOR EMPLOYMENT.
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company and its affiliates hereunder shall be
$200,000 (the "Salary"), in accordance with the Company's payroll payment
schedule in effect from time to time, which the Company shall pay to the
Employee in equal installments every two weeks. The Salary may be adjusted
upward on an annual basis as the Board of Directors of the Company (the "Board")
may approve, in its sole discretion, from time to time, but the Salary shall not
be decreased.
(b) Commencing January 1, 1997, the Employee shall be entitled to a
bonus or such other incentive compensation as may be provided under any plan or
program established from time to time by the Board, in its sole discretion.
(i) For the period January 1 through December 31, 1997, the
Employee shall be eligible to earn a bonus of up to a maximum of
$15,600 based upon the achievement of the following levels of pre-tax
income of Pamarco, Incorporated for the fiscal year ended December 31,
1997:
<TABLE>
<CAPTION>
1997 pre-tax income of
Pamarco, Incorporated Aggregate Bonus Amount
--------------------- ----------------------
<S> <C>
$ 1,581,164 $7,800
$ 1,739,280 $15,600
</TABLE>
(ii) For the period July 1 through December 31, 1997, the
Board, in its sole discretion, shall establish a budget for pre-tax
income of the Company (excluding Pamarco Europe) in accordance with
generally accepted accounting principles consistently applied and the
Employee's bonus will vary as a percentage of Salary in relation to the
percentage achievement of that budget as follows:
<TABLE>
<CAPTION>
Percentage of Percentage of Salary
Budget Attained Earned as Bonus
-------------------------------------------
<S> <C>
<90% 0%
90% 5%
100% 10%
110% 15%
125% 17.5%
</TABLE>
2
<PAGE> 3
(iii) For the period January 1 through December 31, 1998, the
Board, in its sole discretion, shall establish a budget for pre-tax
income of the Company (excluding Pamarco Europe) in accordance with
generally accepted accounting principles consistently applied and the
Employee's bonus will vary as a percentage of Salary in relation to the
percentage achievement of that budget as follows:
<TABLE>
<CAPTION>
Percentage of Percentage of Salary
Budget Attained Earned as Bonus
-------------------------------------------
<S> <C>
<90% 0%
90% 10%
100% 20%
110% 30%
125% 35%
</TABLE>
(iv) For the period January 1 through June 30, 1999, the
Board, in its sole discretion, shall establish a budget for pre-tax
income of the Company (excluding Pamarco Europe) in accordance with
generally accepted accounting principles consistently applied and the
Employee's bonus will vary as a percentage of Salary in relation to the
percentage achievement of that budget as follows:
<TABLE>
<CAPTION>
Percentage of Percentage of Salary
Budget Attained Earned as Bonus
<S> <C>
<90% 0%
90% 5%
100% 10%
110% 15%
125% 17.5%
</TABLE>
For percentage of budget achievement between the benchmarks, the percentage of
Salary shall be linearly interpolated, provided that no bonus shall be paid for
achievement of less than the minimum budget goals set forth above and the
maximum bonus shall be as set forth above in any event.
(c) During the Employment Term, the Company shall provide, the Employee
with fringe benefits that are substantially equivalent to the fringe benefits
specified on Exhibit "A" (the "Fringe Benefits").
3
<PAGE> 4
5. AGREEMENT NOT TO COMPETE.
During the Non-Competition Period (defined below), the Employee shall
not, within the United States, directly or indirectly, in any capacity, render
his services, engage or have a financial interest in, any business that shall be
competitive with any of those business activities in which the Company has been
or shall be engaged during his employment by the Company, including the
manufacture of anilox rolls, embossing rolls, offset rubber rolls and offset
printing presses; nor shall the Employee assist any person or entity that shall
be engaged in such business, including by making Company Information (defined
below) available to any such person or entity. If a court determines that the
foregoing restrictions are too broad or otherwise unreasonable under applicable
law, including with respect to time or space, the court is hereby requested and
authorized by the parties hereto to revise the foregoing restriction to include
the maximum restrictions allowable under applicable law. The "Non-Competition
Period" means the period during which the Employee is either employed by the
Company or being paid the Salary despite his termination under Section 7, plus
an additional one year after the termination of such employment or payments,
whichever is later.
6. TERMINATION WITHOUT COMPENSATION.
(a) TOTAL DISABILITY. If the Employee becomes totally disabled (as
defined below), the Employment Term may be terminated by the Company, and the
Company shall have no further liability or obligation to the Employee hereunder
except as follows: the Employee shall receive (i) any unpaid Salary and Fringe
Benefits that have accrued through the date of termination; (ii) continued
Salary for three months following the date he is considered totally disabled and
a proportionate share of any bonus otherwise payable in accordance with the
provisions of Section 4 for the calendar year in which he is considered to be
totally disabled, determined in the same manner as in Section 7 and (iii)
whatever benefits that he may be entitled to receive under any then existing
disability benefit plans of the Company, including any such plans included in
the Fringe Benefits. For the purposes hereof, the Employee shall be deemed to be
"totally disabled" if the Employee is considered totally disabled under the
Company's group disability plan in effect at that time, if any, or in the
absence of any such plan, under applicable Social Security regulations. In the
event of any dispute as to the disability of the Employee under this Section
6(a), the Employee shall submit to a physical examination by a licensed
physician mutually satisfactory to the Company and the Employee, the cost of
such examination to be paid by the Company, and the determination of such
physician shall be determinative.
(b) DEATH. If the Employee dies, this Employment Agreement shall
terminate, and thereafter the Company shall not have any further liability or
obligation to the Employee, his executors, administrators, heirs, assigns or any
other person claiming under or through him except that the Employee's estate
shall receive any unpaid Salary and Fringe Benefits that have accrued through
the date of termination.
4
<PAGE> 5
(c) CAUSE. The Company may terminate the Employment Term for "cause" by
giving the Employee 30 days' notice of the termination date, and thereafter the
Company shall not have any further liability or obligation to the Employee,
except that the Employee shall receive any unpaid Salary and Fringe Benefits
that have accrued through the date of termination, net of any liabilities that
the Employee may have to the Company. For purposes of this Agreement, "cause"
shall mean the failure of the Employee to observe or perform (other than by
reason of illness, injury or incapacity) any of the material terms or provisions
of this Agreement, dishonesty, willful misconduct, material neglect of the
Company's business, conviction of a felony or other crime involving moral
turpitude, misappropriation of funds or habitual insobriety.
7. TERMINATION WITH COMPENSATION.
The Company shall have the right to terminate the Employment Term
without cause at any time by giving the Employee 30 days' notice of the
termination date. Under such circumstances, the Employee's Salary under Section
4(a) then in effect hereunder and the Fringe Benefits specified on Exhibit "B"
will continue for the duration of the Employment Term unless a different term is
specified on Exhibit "B"; provided, however, that such Fringe Benefits shall not
continue in effect for any period during which the Company is precluded from
continuing the Employee's participation in the plan or program under which any
such Fringe Benefit is provided by reason of any applicable law or regulation,
including the Federal tax law regarding discrimination. In addition, for the
calendar year in which the termination occurs, the Employee shall be entitled to
a proportionate bonus under Section 4(b) by assuming that he remained employed
for the full year and multiplying the bonus that otherwise would have been due
by a fraction the numerator of which is the number of full months the Employee
was actually employed by the Company during such calendar year and the
denominator of which is 12. Such payment shall be made at the same time as the
Company pays bonuses to other executives for that year. The Employee shall not
be entitled to any compensation under this Section 7 unless the Employee
executes and delivers to the Company after a notice of termination a release in
a form satisfactory to the Company in its sole discretion by which the Employee
releases the Company from any obligations and liabilities of any type
whatsoever, except for the Company's obligation to provide the Salary and Fringe
Benefits specified in this Section 7. The parties hereto acknowledge that the
Salary and Fringe Benefits to be provided under this Section 7 are to be
provided in consideration for the above-specified release.
8. INVENTIONS, DESIGNS AND PRODUCT DEVELOPMENTS.
All inventions, innovations, designs, ideas and product developments
(collectively, the "Developments"), developed or conceived by the Employee,
solely or jointly with others, whether or not patentable or copyrightable, at
any time during the Employment Term and that relate to the actual or planned
business activities of the Company and all of the Employee's right, title and
interest therein, shall be the exclusive property of the Company. The Employee
hereby assigns, transfers and conveys to the Company all of his right, title and
interest in and to any and all such Developments. The Employee shall disclose
fully, as soon as practicable and in writing, all Developments to the Board. At
any time and from time to time, upon the request of the Company,
5
<PAGE> 6
the Employee shall execute and deliver to the Company any and all instruments,
documents and papers, give evidence and do any and all other acts that, in the
opinion of counsel for the Company, are or may be necessary or desirable to
document such transfer or to enable the Company to file and prosecute
applications for and to acquire, maintain and enforce any and all patents,
trademark registrations or copyrights under United States or foreign law with
respect to any such Developments or to obtain any extension, validation,
re-issue, continuance or renewal of any such patent, trademark or copyright. The
Company will be responsible for the preparation of any such instruments,
documents and papers and for the prosecution of any such proceedings and will
reimburse the Employee for all reasonable expenses incurred by him in compliance
with the provisions of this Section.
9. CONFIDENTIAL INFORMATION.
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer or product information or technical or business information of
the Company. All such information, other than any information that is in the
public domain through no act or omission of the Employee or which he is
authorized to disclose, is referred to collectively as the "Company
Information." During and after the Employment Term, the Employee shall not (i)
use or exploit in any manner the Company Information for himself or any person,
partnership, association, corporation or other entity other than the Company,
(ii) remove any Company Information, or any reproduction thereof, from the
possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company, and all Company
Information maintained by the Employee thereafter, shall remain at all times the
exclusive property of the Company. The Employee shall return to the Company all
Company Information, and reproductions thereof, whether prepared by him or
others, that are in his possession immediately upon request and in any event
upon the completion of his employment by the Company.
10. REMEDIES.
The Employee expressly acknowledges that the remedy at law for any
breach of Sections 5, 8 and 9 will be inadequate and that upon any such breach
or threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 10, the rights conferred upon the Company
6
<PAGE> 7
by the preceding sentence shall not be exclusive of, but shall be in addition
to, any other rights or remedies which the Company may have at law, in equity or
otherwise.
11. GENERAL.
(a) GOVERNING LAW. The terms of this Agreement shall be governed by the
laws of the State of New Jersey.
(b) COMPANY. For purposes of Sections 5, 8, 9 and 10, the term
"Company" shall be deemed to include any incorporated or unincorporated
subsidiaries or affiliates of the Company, including Pamarco Europe Ltd. and any
majority-owned subsidiaries thereof.
(c) BINDING EFFECT. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(d) NOTICES. All notices required to be given under this Agreement
shall be in writing and shall be deemed to have been given when personally
delivered or when mailed by registered or certified mail, postage prepaid,
return receipt requested, or when sent by Federal Express or other overnight
delivery service, addressed as follows:
TO EMPLOYEE:
Harry M. Cook
---------------------
---------------------
TO THE COMPANY:
Pamarco Technologies Inc.
571 Central Avenue
Suite 119
New Providence, NJ 07974
Attn: Chairman of the Board
7
<PAGE> 8
With a copy to:
Thomas J. Sharbaugh, Esq.
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
and
Bradford Ventures Ltd.
1212 Avenue of the Americas
Suite 1802
New York, NY 10036
Attn: Mr. Thomas L. Ferguson
(e) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements or understandings of the parties regarding
these matters, including the Consulting Agreement. This Agreement may not be
modified or amended in any way except in writing by the parties hereto.
(f) DURATION. Notwithstanding the termination of the Employment Term
and of the Employee's employment by the Company, this Agreement shall continue
to bind the parties for so long as any obligations remain under the terms of
this Agreement.
(g) WAIVER. No waiver of any breach of this Agreement shall be
construed to be a waiver as to succeeding breaches.
(h) SEVERABILITY. If any provision of this Agreement or application
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto duly executed this Agreement as of the day and year first written
above.
PAMARCO TECHNOLOGIES INC.
By:
--------------------------
Name:
Title:
8
<PAGE> 9
-----------------------------
HARRY M. COOK
9
<PAGE> 10
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Medical, dental, term life, disability and travel accident
insurance coverage, all at levels comparable to those provided to other senior
officers of the Company.
(b) Participation in all pension and 401(k) savings plans, all at
levels comparable to those provided to other senior officers of the Company..
(c) Provision to Employee of a late model automobile comparable to that
provided to other senior officers of the Company, including all related fuel,
maintenance, repair, insurance and other costs.
(d) Reimbursement, in accordance with the Company's policies, upon
proper accounting, of reasonable expenses and disbursements incurred by Employee
in the course of his duties.
(e) Paid holidays in accordance with the Company's policies.
(f) Paid vacation of four weeks per year.
A-1
<PAGE> 11
EXHIBIT B
FRINGE BENEFITS
---------------
(a) Medical, dental, term life, disability and travel accident
insurance coverage, all at levels comparable to those provided to other senior
officers of the Company.
(b) Participation in all pension and 401(k) savings plans, all at
levels comparable to those provided to other senior officers of the Company.
B-1
<PAGE> 1
Exhibit 11.1
<TABLE>
<CAPTION>
COMPUTATIONS OF EARNINGS PER SHARE
July 25
through Year ended Six months ended
Dec. 31, December 31, June 30,
---------- --------------------- --------------------
1994 1995 1996 1998 1997
<S> <C> <C> <C> <C> <C>
Weighted Average Number of shares
Outstanding before Adjustments(1) 2,260,655 3,548,812 4,172,401 3,962,122 4,800,877
Dilutive Effect of Common Stock
Equivalents -- 251,996 255,374 251,998 261,357
Weighted Average Number of Common
Stock and Common Stock Equivalents
Outstanding During the Year 2,260,655 3,800,610 4,427,775 4,214,120 5,062,234
Net Income Applicable to Common
Stock $ 608,479 $2,321,088 $3,743,739 $2,577,302 $2,248,412
Net Income Per Common
Stock and Common Stock Equivalent
Shares $ 0.27 $ 0.61 $ 0.85 $ 0.61 $ 0.44
</TABLE>
(1) Weighted average shares was calculated assuming that all shares issued
within one year prior to the original filing of the Registration Statement were
outstanding for all periods presented.
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Pamarco Technologies,
Inc. on Form S-1 of our report dated April 16, 1997, except for the first two
paragraphs of Note 6 as to which the date is October 22, 1997, and our report
dated September 25, 1997 appearing in the Prospectus, which is part of this
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned reports also included the financial statement schedule of the
Company. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
October 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,419,231
<SECURITIES> 0
<RECEIVABLES> 12,098,714
<ALLOWANCES> 237,730
<INVENTORY> 16,471,420
<CURRENT-ASSETS> 34,313,834
<PP&E> 41,255,248
<DEPRECIATION> 5,268,525
<TOTAL-ASSETS> 80,205,404
<CURRENT-LIABILITIES> 20,778,539
<BONDS> 0
0
0
<COMMON> 47,037
<OTHER-SE> 30,723,837
<TOTAL-LIABILITY-AND-EQUITY> 80,205,404
<SALES> 45,453,899
<TOTAL-REVENUES> 45,453,899
<CGS> 30,591,562
<TOTAL-COSTS> 40,951,825
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,183,550
<INCOME-PRETAX> 6,345,299
<INCOME-TAX> 2,601,540
<INCOME-CONTINUING> 3,743,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,743,759
<EPS-PRIMARY> .85
<EPS-DILUTED> .85
</TABLE>
