<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1998
REGISTRATION STATEMENT NO. 333-38757
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
PAMARCO TECHNOLOGIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Delaware
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
3577, 3355
(PRIMARY STANDARD
INDUSTRIAL CLASSIFICATION CODE NUMBER)
22-3322829
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
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:
<TABLE>
<S> <C>
Thomas J. Sharbaugh, Esq. David S. Inglis, Esq.
Morgan, Lewis & Bockius LLP Benesch, Friedlander, Coplan & Aronoff LLP
2000 One Logan Square 200 Public Square
Philadelphia, PA 19103 2300 BP America Building
(215) 963-5000 Cleveland, OH 44114
(216) 363-4500
</TABLE>
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this 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]
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.
SUBJECT TO COMPLETION DATED JANUARY 28, 1998
PROSPECTUS
2,800,000 SHARES
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 $12.00 and $14.00 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 "PTIO."
------------------------
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.
<TABLE>
<CAPTION>
=============================================================================================================
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
Total(3).......................... $ $ $ $
=============================================================================================================
</TABLE>
(1) See "Underwriting" for a description of indemnification arrangements with
the several Underwriters.
(2) Before deducting estimated aggregate expenses for this Offering of $850,000
payable by the Company.
(3) 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 $41,860,000,
$2,930,200 and $19,585,800, 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 , 1998.
------------------------
EVEREN SECURITIES, INC. JANNEY MONTGOMERY SCOTT INC.
------------------------
The date of this Prospectus is , 1998
<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."
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<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 prior to the consummation of the Offering and (iii)
reflects a 2.35-for-1.0 split of the Common Stock prior to the consummation of
the Offering. 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. While no single
customer has accounted for more than five percent of the Company's total net
sales, the Company's current customers include companies such as Armstrong World
Industries, Inc., Baxter International Incorporated, Gannett Company, Jefferson
Smurfit Group, Knight-Ridder, Inc., Mobil Oil Corporation, RR Donnelley & Sons,
Inc., Ward Machinery Company and Weyerhauser, Inc. These particular customers
accounted for an aggregate of 7.2%, 12.4% and 11.6% of net sales for the nine
months ended September 30, 1997 and the years ended December 31, 1996 and 1995,
respectively.
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 known
in the industry. For the nine month period ended September 30, 1997,
approximately 63% 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 systems ranging from special run newspapers and inserts, to the development
of enhanced consumer packaging and 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 U.S. and Europe. For the nine month period ended
September 30, 1997, the Company generated approximately 28.4% of its net sales
from markets outside the U.S. 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 71.0% from $40.1 million for the
nine months ended September 30, 1996 to $68.6 million for the nine months ended
September 30, 1997. Excluding the effect of business acquisitions, the Company's
net sales increased 10.8% and 28.4%, respectively, over the same periods.
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<PAGE> 5
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 Pamarco 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 U.S.
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 the acquired
businesses:
<TABLE>
<CAPTION>
ACQUIRED ACQUISITION YEAR PRIMARY
BUSINESS DATE FOUNDED PRINCIPAL PRODUCTS GEOGRAPHIC TERRITORY
- --------- ------------- ------- ----------------------------------- -------------------------
<S> <C> <C> <C> <C>
Pamarco July 1994 1946 Engraver, re-engraver and North America and Western
manufacturer of anilox rolls for Europe.
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 of U.S.
rubber rolls primarily for offset
uses and manufacturer of envelope
printing presses and dampening
units.
</TABLE>
- ---------------
* Subsequently merged with the European subsidiary of Pamarco.
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
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<PAGE> 6
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, 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.
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.
THE OFFERING
<TABLE>
<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 bank debt. 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....... "PTIO"
</TABLE>
- ---------------
(1) Excludes 399,911 shares of Common Stock issuable upon the exercise of
options outstanding as of December 31, 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."
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT SHARE AND 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 nine months ended September
30, 1996 and 1997 have been derived from the Company's unaudited consolidated
financial statements. In the opinion of management, the unaudited consolidated
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly in all material respects the
financial position, results of operations and cash flows as of and for the nine
months ended September 30, 1996 and 1997. The results of operations for the nine
months ended September 30, 1997 are not necessarily indicative of the results of
operations that may be realized for the entire year.
<TABLE>
<CAPTION>
THE PREDECESSOR(1) THE COMPANY
----------------------------- ------------------------------------------------------------------
JAN. 1
THROUGH JULY 25
YEAR ENDED JULY THROUGH YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 24, DEC. 31, DECEMBER 31, SEPTEMBER 30,
------------------ ------- ---------- ------------------------ ------------------------
1992 1993 1994 1994 1995 1996 1996 1997
------- ------- ------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Net sales......... $24,492 $25,671 $14,518 $ 13,299 $ 44,492 $ 53,708 $ 40,098 $ 68,566
Gross profit...... 7,485 7,715 4,486 4,254 12,815 15,769 11,781 22,422
Gain on fire(2)... -- -- -- -- 1,300 3,321 3,091 255
Income from
operations....... 1,826 1,120 232 1,315 4,846 7,445 6,326 6,753
Income (loss)
before taxes..... 1,523 744 (25) 960 3,867 6,345 5,492 5,516
Net income
(loss)........... $ 901 $ 290 $ (15) $ 608 $ 2,321 $ 3,744 $ 3,373 $ 3,385
======= ======= ======= ========== ======= ========== ========== ==========
Net income per
share............ .27 .61 .85 .78 .68
Shares used in
computation of
net income per
share............ 2,260,655 3,800,610 4,427,775 4,349,789 4,995,649
Supplemental
earnings per
share(3)......... .78 .70 .62
Shares used in
calculating
supplemental
earnings per
share(3)......... 5,292,827 5,214,841 6,130,468
OTHER DATA:
Capital
expenditures..... $ 1,300 $ 1,275 $ 880 $ 941 $ 4,504 $ 7,095 $ 3,561 $ 5,270
Depreciation and
amortization..... 962 1,054 700 397 1,365 1,835 1,334 2,259
EBITDA(4)......... 2,788 2,174 932 1,712 6,211 9,280 7,660 9,012
Cash flows from:
Operating
activities..... 2,218 669 742 362 2,357 4,986 2,448 3,214
Investing
activities..... (1,921) (1,271) (880) (16,047) (9,221) (8,159) (4,644) (13,514)
Financing
activities..... (253) 527 171 15,812 7,012 4,279 2,641 10,380
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 SEPTEMBER 30, 1997
------------- ----------------------
AS
ACTUAL ADJUSTED(5)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................................................................. $ 783 $ 1,430 $ 1,430
Working capital...................................................................... 9,481 14,305 15,857
Total assets......................................................................... 48,838 83,251 83,251
Total long-term debt, less current portion........................................... 13,316 21,555 4,613
Total debt........................................................................... 15,269 24,999 6,505
Total liabilities.................................................................... 26,641 49,543 31,049
Total stockholders' equity........................................................... 22,197 33,708 52,202
</TABLE>
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(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 adjustments
affecting post-acquisition periods. Predecessor information is based on the
Predecessor's historical costs, whereas the Company's information reflects a
new cost basis as a result of the acquisition of the Predecessor.
(2) 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 in the third quarter of 1995 and each subsequent quarter through the
first quarter of 1997, as these amounts were settled with the Company's
insurance carrier. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."
(3) 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."
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<PAGE> 8
(4) "EBITDA" is defined by the Company as income from operations plus
depreciation and amortization. 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.
(5) 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."
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<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, the development of complementary products and
services and the execution of its acquisition strategy. 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.
Approximately 40.3% of the Company's growth in net sales for the nine month
period ended September 30, 1997 compared to the same prior year period was
generated from increased net sales of its single-width printing presses and
folders. The Company introduced its single-width printing presses in 1995 and
its folders in 1996. Accordingly, the Company's continued growth in net sales
from existing products would likely be materially and adversely affected by any
adverse developments associated with this product line. In addition, 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
the businesses 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 and credit
resources, if available, in order to continue its acquisition strategy. The
Company's line of credit, subject to certain conditions, permits the Company to
use up to an aggregate of $30 million of the total
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<PAGE> 10
proceeds available under such line to make acquisitions and purchase equipment.
Heavy reliance by the Company on its cash and debt resources as part of its
acquisition program could materially adversely affect its liquidity, results of
operations and financial condition. 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."
RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS ACTIVITIES
For the nine month period ended September 30, 1997 and the years ended
December 31, 1996 and 1995, the Company generated approximately 28.4%, 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 timing of the Company's shipments or installations of its
products (some of which require up to several months to produce, ship and
install) 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, shares of
Common Stock issuable upon exercise of outstanding stock options and any shares
of Common Stock issued in the future by the Company, including as part of its
acquisition program, 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 December 31, 1997, and any stock options granted
by the Company after December 31, 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,
10
<PAGE> 12
without regard to the volume or notice requirements 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
(the "180 Day Lockup") without the prior written consent of EVEREN Securities,
Inc.; provided, however, that 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
(the "90 Day Lockup"). Accordingly, of the 3,799,703 Restricted Shares,
approximately 2,379,452 Restricted Shares will be subject to the 180 Day Lockup
and 1,420,251 Restricted Shares will be subject to the 90 Day Lockup. 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 42.2% of the outstanding
Common Stock after completion of this Offering (36.2% 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 (the "Certificate of Incorporation") and Bylaws (the "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."
11
<PAGE> 13
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."
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, par value $.01 per share, of the Company (the
"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 under
"Risk Factors" 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 $13.00 per
share are estimated to be $18.5 million after deducting underwriting discounts
and commissions and estimated Offering expenses.
The Company intends to use all of the net proceeds from this Offering to
repay the entire outstanding balance under its revolving line of credit
(approximately $5.4 million as of November 30, 1997) and prepay an aggregate of
$13.1 million of term debt. As of November 30, 1997, the Company had an
aggregate of $18.6 million in outstanding term debt with its primary lender with
maturities ranging from September 2003 to January 2004. Of the term debt
expected to be repaid from the proceeds of this Offering, approximately $7.5
million bears interest at the rate of 6.7% and is due in September 2003,
approximately $1.7 million bears interest at the rate of 6.4% and is due in
September 2004, approximately $2.1 million bears interest at the rate of 6.4%
and is due in July 2004 and approximately $1.8 million bears interest at the
rate of 6.7% and is due in January 2004. Each of the foregoing variable rates
was as of December 5, 1997.
While the Company expects to use all of the net proceeds from this Offering
to repay debt, the Company is permitted to use its credit facility for a number
of purposes, including to finance acquisitions. In particular, the Company has
an aggregate of $45.0 million available under its revolving credit facility,
including a $15.0 million revolving line of credit available for working capital
purposes and a $30.0 million revolving line of credit available for acquisitions
and equipment purchases. See "Management's Discussion and Analysis of Financial
Condition and Operating Results -- Liquidity and Capital Resources."
Pending the proposed uses, the net proceeds of this Offering 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 September 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 $13.00 per share) and the
anticipated use of the net proceeds therefrom. This table should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Notes thereto and other financial information included elsewhere in this
Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
--------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
($ IN THOUSANDS)
<S> <C> <C>
Cash................................................................ $ 1,430 $ 1,430
======= =======
Long-term debt (2).................................................. $24,999 $ 6,505
------- -------
Stockholders' equity:
Preferred Stock, $.01 par value; 10,000,000 shares authorized,
no shares issued and outstanding............................... -- --
Common Stock, $.01 par value; 42,000,000 shares authorized,
4,999,703 shares issued and outstanding; 6,599,703 shares
issued and outstanding,
as adjusted (3)................................................ 50 66
Additional paid-in capital..................................... 24,838 43,316
Loans to stockholders............................................. (1,014) (1,014)
Foreign currency translation adjustment........................... (225) (225)
Retained earnings................................................. 10,059 10,059
------- -------
Total stockholders' equity........................................ 33,708 52,202
------- -------
Total capitalization........................................... $58,707 $ 58,707
======= =======
</TABLE>
- ---------------
(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 $13.00 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."
14
<PAGE> 16
DILUTION
As of September 30, 1997, the Company had a net tangible book value of
approximately $24.7 million or $4.93 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 September 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
September 30, 1997 after giving effect to this Offering, would have been
approximately $44.1 million or $6.47 per share. This represents an immediate
increase in such pro forma net tangible book value of $1.54 per share to
existing stockholders and an immediate dilution of $6.53 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)........................... $13.00
Net tangible book value per share before Offering........................... $4.93
Increase per share attributable to new investors............................ 1.54
-----
Pro forma net tangible book value per share after Offering.................... 6.47
------
Per share dilution to new investors........................................... $ 6.53
======
</TABLE>
- ---------------
(1) Before deduction of underwriting discounts and commissions and other
Offering expenses to be paid by the Company.
The following table sets forth, on an adjusted basis as of September 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>
Existing stockholders................... 4,999,703 75.8% $24,887,779 54.5% $ 4.98
New stockholders........................ 1,600,000 24.2% 20,800,000 45.5% 13.00
---------- ------ -------- ------ --------
Totals................................ 6,599,703 100.0% $45,687,779 100.0% $ 6.92
</TABLE>
- ---------------
(1) Sales by the existing stockholders in this Offering will reduce the number
of shares they hold 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.
(2) Before deduction of underwriting discounts and commissions and other
Offering expenses to be paid by the Company.
(3) The foregoing tables (i) include 222,047 shares of Common Stock that will
become obtainable upon the exercise of stock options that will become
exercisable upon the consummation of this Offering and assumes the payment
of the aggregate exercise price associated with the exercise thereof and
(ii) exclude 177,864 shares of Common Stock issuable upon the exercise of
options outstanding as of September 30, 1997 that will not become
exercisable upon the consummation of this Offering. All of these options
were granted under the Stock Option Plan at a weighted average exercise
price of $4.39 per share and there are 305,089 shares reserved for future
grants under the Stock Option Plan. See "Management -- Stock Option Plan."
To the extent that these and other options are exercised, there will be
further dilution to new investors.
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT SHARE AND 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 nine months ended September
30, 1996 and 1997 have been derived from the Company's unaudited consolidated
financial statements. In the opinion of management, the unaudited consolidated
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly in all material respects the
financial position, results of operations and cash flows as of and for the nine
months ended September 30, 1996 and 1997. The results of operations for the nine
months ended September 30, 1997 are not necessarily indicative of the results of
operations that may be realized for the entire year.
<TABLE>
<CAPTION>
THE COMPANY
THE PREDECESSOR (1) ------------------------------------------------------------------
------------------------------
JAN. 1 JULY 25
YEAR ENDED THROUGH THROUGH YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, JULY 24, DEC. 31, DECEMBER 31, SEPTEMBER 30,
------------------ -------- ---------- ------------------------ ------------------------
1992 1993 1994 1994 1995 1996 1996 1997
------- ------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
STATEMENT
DATA:
Net sales...... $24,492 $25,671 $ 14,518 $ 13,299 $ 44,492 $ 53,708 $ 40,098 $ 68,566
Cost of
sales......... 17,007 17,956 10,032 9,045 31,677 37,939 28,317 46,144
Gross profit... 7,485 7,715 4,486 4,254 12,815 15,769 11,781 22,422
Selling,
general,
administrative
and other
expenses...... 5,659 6,595 4,254 2,939 9,269 11,645 8,546 15,924
Gain on fire
(2)........... -- -- -- -- 1,300 3,321 3,091 255
Income from
operations.... 1,826 1,120 232 1,315 4,846 7,445 6,326 6,753
Interest income
(expense)
net........... (303) (376) (257) (355) (979) (1,100) (834) (1,237)
------- ------- ------- ---------- ---------- ---------- ---------- ----------
Income (loss)
before
taxes......... 1,523 744 (25) 960 3,867 6,345 5,492 5,516
Income taxes
(benefit)..... 622 454 (10) 352 1,546 2,601 2,119 2,131
------- ------- ------- ---------- ---------- ---------- ---------- ----------
Net income
(loss)........ $ 901 $ 290 $ (15) $ 608 $ 2,321 $ 3,744 $ 3,373 $ 3,385
======= ======= ======= ========== ========== ========== ========== ==========
Net income per
share......... .27 .61 .85 .78 .68
Shares used in
computation of
net income per
share......... 2,260,655 3,800,610 4,427,775 4,349,789 4,995,649
Supplemental
earnings per
share (3)..... .78 .70 .62
Shares used in
calculating
supplemental
earnings per
share(3)...... 5,292,827 5,214,841 6,130,468
OTHER DATA:
Capital
expenditures... $ 1,300 $ 1,275 $ 880 $ 941 $ 4,504 $ 7,095 $ 3,561 $ 5,270
Depreciation
and
amortization... 962 1,054 700 397 1,365 1,835 1,334 2,259
EBITDA(4)...... 2,788 2,174 932 1,712 6,211 9,280 7,660 9,012
Cash flows
from:
Operating
activities... 2,218 669 742 362 2,357 4,986 2,448 3,214
Investing
activities... (1,921) (1,271) (880) (16,047) (9,221) (8,159) (4,644) (13,514)
Financing
activities... (253) 527 171 15,812 7,012 4,279 2,641 10,380
</TABLE>
<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
------------------ -----------------------------
DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................................... $ 120 $ 46 $ 120 $ 260 $ 1,485 $ 783 $ 1,430
Working capital.................................... 121 1,082 1,806 5,605 10,324 9,481 14,305
Total assets....................................... 13,423 14,683 23,248 38,394 54,227 48,838 83,251
Total long-term debt, less current portion......... 919 2,260 8,706 10,420 15,014 13,316 21,555
Total debt......................................... 3,101 4,723 9,517 13,602 17,249 15,269 24,999
Total liabilities.................................. 8,605 9,590 16,191 23,391 31,376 26,641 49,543
Total stockholders' equity......................... 4,818 5,093 7,057 15,003 22,851 22,197 33,708
</TABLE>
- ---------------
(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 reflects a new cost basis as a result of the
acquisition of the Predecessor.
(2) 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 in the third quarter of 1995 and each subsequent
16
<PAGE> 18
quarter through the first quarter of 1997 as these amounts were settled with
the Company's insurance carrier. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations."
(3) 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."
(4) "EBITDA" is defined by the Company as income from operations plus
depreciation and amortization. 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.
17
<PAGE> 19
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 Statements 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. While no single
customer has accounted for more than five percent of the Company's total net
sales, the Company's current customers include companies such as Armstrong World
Industries, Inc., Baxter International Incorporated, Gannett Company, Jefferson
Smurfit Group, Knight-Ridder, Inc., Mobil Oil Corporation, RR Donnelley & Sons,
Inc., Ward Machinery Company and Weyerhauser, Inc. These particular customers
accounted for an aggregate of 7.2%, 12.4% and 11.6% of net sales for the nine
months ended September 30, 1997 and the years ended December 31, 1996 and 1995,
respectively.
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 known
in the industry. For the nine month period ended September 30, 1997,
approximately 63% 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 systems ranging from special run newspapers and inserts, to the development
of enhanced consumer packaging and 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. Pamarco 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 acquisition 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 September 30, 1997 were $82.2
million and $7.3 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,
18
<PAGE> 20
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 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 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 $1.3
million from a commercial bank.
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
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<PAGE> 21
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 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 and 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 acquisition
of four additional businesses with combined net sales of approximately $39.3
million in the applicable 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 nine month
period ended September 30, 1996 are gains of approximately $700,000, $1.1
million and $1.3 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
nine month periods ended September 30, 1996 and 1997 are gains of approximately
$600,000, $2.2 million, $1.8 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.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
NET SALES. The Company's net sales increased by $28.5 million, or 71.0%,
to $68.6 million for the nine months ended September 30, 1997 compared to $40.1
million for the same prior year period. Excluding the
20
<PAGE> 22
effects of acquisitions, which resulted in an increase of $17.1 million in net
sales during the period, the Company's net sales increased by $11.4 million, or
28.4% from $40.1 million to $51.5 million which was the result of increased
sales of single-width printing presses and folders. 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 $10.6 million, or
90.3%, to $22.4 million for the nine months ended September 30, 1997 compared to
$11.8 million for the same prior year period. As a percentage of net sales,
gross profit increased to 32.7% for the nine months ended September 30, 1997
compared to 29.4% 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 $7.4 million, or 86.3%, to $15.9 million in
the nine months ended September 30, 1997 compared to $8.5 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 23.2% from 21.3% which the
Company generally attributes to the higher selling and administrative cost
structure required for Diamond to serve seven regional markets.
INCOME FROM OPERATIONS. The Company's income from operations increased by
$428,000, or 6.8%, to $6.8 million in the nine months ended September 30, 1997
compared to $6.3 million for the same prior year period. The Company's income
from operations for the nine months ended September 30, 1996 included $3.1
million from gain on fire compared to $255,000 for the nine months ended
September 30, 1997.
NET INTEREST EXPENSE AND PROVISION FOR INCOME TAXES. Net interest expense
increased by $403,000, or 48.3%, to $1.2 million in the nine months ended
September 30, 1997 compared to $834,000 in the same prior year period, primarily
due to the acquisition financing of Diamond. The Company's effective tax rate
was 38.6% for the nine months ended September 30, 1997, compared to 38.6% 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 $4.6 million during the period, the Company's net
sales increased by $4.6 million, or 10.8% from $42.5 million to $47.1 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.
INCOME FROM OPERATIONS. The Company's income from operations increased by
$2.6 million, or 53.6%, to $7.4 million in the year ended December 31, 1996
compared to $4.8 million for the same prior year period.
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<PAGE> 23
The Company's income from operations for the year ended December 31, 1996
included $3.3 million from gain on fire compared to $1.3 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 U.S., which is taxed at a higher rate than in the United Kingdom.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO PERIOD JULY 25, 1994 TO DECEMBER
31, 1994
The Company believes that the absolute increases in the operating data
described below is almost entirely attributable to the fact that 1995 included a
complete year of results, and therefore a comparison of absolute data for these
periods may not be meaningful.
NET SALES. The Company's net sales increased by $31.2 million, or 234.5%,
to $44.5 million for the year ended December 31, 1995 from $13.3 million for the
period July 25, 1994 to 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 $17.2 million, or 129.3% from $13.3 million
to $30.5 million. 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 $8.6 million, or
201.2%, to $12.8 million for the year ended December 31, 1995 from $4.3 million
for the period July 25, 1994 to December 31, 1994. As a percentage of net sales,
gross profit decreased to 28.8% in 1995 compared to 32.0% 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 $6.3 million, or 215.4%, to $9.3 million
for the year ended December 31, 1995 from $2.9 million for the period July 25,
1994 to December 31, 1994. As a percentage of revenues, these expenses decreased
to 20.8% from 22.1% which the Company generally attributes to Dauphin's lower
selling, general and administrative cost structure.
INCOME FROM OPERATIONS. The Company's income from operations increased by
$3.5 million, or 268.7%, to $4.8 million in the year ended December 31, 1995
compared to $1.3 million for the period July 25, 1994 to December 31, 1994.
NET INTEREST EXPENSE AND PROVISION FOR INCOME TAXES. Net interest expense
increased by $624,000, or 175.8%, to $979,000 for the year ended December 31,
1995 from $355,000 for the period July 25, 1994 to December 31, 1994. The
Company's effective tax rate was 40.0% for the year ended December 31, 1995
compared to 36.6% in the period July 25, 1994 to December 31, 1994. This
increase is primarily attributable to a higher proportion of income in 1995 in
the U.S., which is taxed at a higher rate than in the United Kingdom.
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<PAGE> 24
UNAUDITED QUARTERLY RESULTS
Set forth below are selected unaudited financial statements of operations
data for the last eleven 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 SEP. 30
1995(1) 1995(2) 1995 1995 1996 1996(3) 1996 1996 1997(4) 1997 1997
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........... $9,960 $10,463 $11,274 $12,795 $11,797 $14,262 $14,039 $13,611 $22,990 $22,464 $23,112
Cost of sales....... 6,978 7,363 8,266 9,070 8,221 10,128 9,969 9,622 15,608 14,984 15,552
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........ 2,982 3,100 3,008 3,725 3,576 4,134 4,070 3,989 7,382 7,480 7,560
Selling, general,
administrative and
other expenses.... 1,940 2,110 2,437 2,782 2,754 2,783 3,009 3,099 5,041 5,574 5,309
Gain on fire........ -- -- 296 1,004 800 1,804 487 230 255 -- --
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income.... 1,042 990 867 1,947 1,622 3,155 1,548 1,120 2,596 1,906 2,251
Interest
expense -- net.... (217) (221) (268) (273) (283) (283) (268) (266) (405) (401) (431)
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before
taxes............. 825 769 599 1,674 1,339 2,872 1,280 854 2,191 1,505 1,820
Income taxes........ 439 410 352 345 553 1,081 484 483 868 580 683
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income.......... $ 386 $ 359 $ 247 $ 1,329 $ 786 $ 1,791 $ 796 $ 371 $ 1,323 $ 925 $ 1,137
====== ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
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% 100.0%
Cost of sales....... 70.0 70.4 73.3 70.9 69.7 71.0 71.0 70.7 67.9 66.7 67.3
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........ 30.0 29.6 26.7 29.1 30.3 29.0 29.0 29.3 32.1 33.3 32.7
Selling, general,
administrative and
other expenses.... 19.5 20.2 21.6 21.7 23.3 19.5 21.4 22.8 21.9 24.8 23.0
Gain on fire........ -- -- 2.6 7.8 6.8 12.6 3.4 1.7 1.1 -- --
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income.... 10.5 9.4 7.7 15.2 13.8 22.1 11.0 8.2 11.3 8.5 9.7
Interest
expense -- net.... (2.2) (2.1) (2.4) (2.1) (2.4) (2.0) (1.9) (2.0) (1.8) (1.8) (1.9)
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before
taxes............. 8.3 7.3 5.3 13.1 11.4 20.1 9.1 6.2 9.5 6.7 7.8
Income taxes........ 4.4 3.9 3.1 2.7 4.7 7.5 3.4 3.5 3.8 2.6 2.9
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income.......... 3.9 3.4 2.2 10.4 6.7 12.6 5.7 2.7 5.7 4.1 4.9
====== ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(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.
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<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
Cash was $1.4 million at September 30, 1997. Cash flow generated by
operations was $2.4 million in 1995, $5.0 million in 1996 and $3.2 million in
the nine months ended September 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 $8.3 million for the nine months
ended September 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 $7.4
million of Common Stock through August 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 $5.3 million for the nine months ended September
30, 1997. Capital expenditures in the first nine 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 does not believe that it will have to commit
any material resources to update its information systems in anticipation of the
year 2000, since a majority of its existing systems are compatible with the year
2000.
The Company currently has a $15.0 million revolving line of credit with its
primary lender available for working capital purposes, of which approximately
$5.4 million was outstanding as of November 30, 1997. This credit facility
expires on the third anniversary of the date of this Prospectus. The Company
intends to repay the entire outstanding amount under this facility with a
portion of the net proceeds of this Offering. The Company also has a $30.0
million revolving line of credit with its primary lender available for
acquisitions and equipment purchases. Amounts outstanding under these revolving
lines of credit bear interest on a variable basis, generally at the Company's
option, at the lender's prime rate or other short-term rates (6.7% as of
December 5, 1997). The Company may use this acquisition line to finance any
complementary acquisition it deems appropriate, provided that (i) no default or
event of default exists or would result from the consummation of such
acquisition, (ii) the Company demonstrates, on a pro forma basis, that it will
remain in compliance with all covenants under the credit facility during the two
year period following such consummation and (iii) satisfactory asset and
environmental audits are obtained. Each advance under the acquisition and
equipment line generally, at the Company's option, must be either repaid in full
prior to the first anniversary date of such advance or be converted to a term
loan having a fully-amortizing term of not greater than seven years. The Company
may select a fixed interest rate acceptable to the lender upon conversion of any
such advance to a term loan. The Company has no present commitments with respect
to any acquisition. The Company is required to comply with certain financial and
other covenants under both of its credit facilities. See "Use of Proceeds."
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 September 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 for the contingent purchase price. Such amounts are reflected in
the September 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
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<PAGE> 26
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.
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<PAGE> 27
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. While no single
customer has accounted for more than five percent of the Company's total net
sales, the Company's current customers include companies such as Armstrong World
Industries, Inc., Baxter International Incorporated, Gannett Company, Jefferson
Smurfit Group, Knight-Ridder, Inc., Mobil Oil Corporation, RR Donnelley & Sons,
Inc., Ward Machinery Company and Weyerhauser, Inc. These particular customers
accounted for an aggregate of 7.2%, 12.4% and 11.6% of net sales for the nine
months ended September 30, 1997 and the years ended December 31, 1996 and 1995,
respectively.
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 known
in the industry. For the nine month period ended September 30, 1997,
approximately 63% 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 systems ranging from special run newspapers and inserts, to the development
of enhanced consumer packaging and 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 U.S. and Europe. For the nine month period ended
September 30, 1997, the Company generated approximately 28.4% of its net sales
from markets outside the U.S. 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 71.0% from $40.1 million for the
nine months ended September 30, 1996, to $68.6 million for the nine months ended
September 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 U.S. and used in the printing trades for foreign and
domestic uses was approximately $3.2 billion in 1995. 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 acquisition
26
<PAGE> 28
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 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 1995. 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. The Company believes that the overall growth rate within its
current markets 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
27
<PAGE> 29
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.
- FIBERLYTE(TM). Recently, the Company developed a lightweight, ceramic
coated, laser engraved roll, trademarked "Fiberlyte," 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.
- 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 cannot 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
28
<PAGE> 30
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
the acquired businesses:
<TABLE>
<CAPTION>
ACQUIRED ACQUISITION YEAR PRIMARY
BUSINESS DATE FOUNDED PRINCIPAL PRODUCTS GEOGRAPHIC TERRITORY
- ---------- ------------- ------- ----------------------------------- -------------------------
<S> <C> <C> <C> <C>
Pamarco July 1994 1946 Engraver, re-engraver and North America and Western
manufacturer of anilox rolls for Europe.
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 of U.S.
rubber rolls primarily for offset
uses and manufacturer of envelope
printing presses and dampening
units.
</TABLE>
- ---------------
* Subsequently merged with the European subsidiary of Pamarco.
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
29
<PAGE> 31
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.
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. While
no single customer has accounted for more than five percent of the Company's
total net sales, the Company's current customers include companies such as
Armstrong World Industries, Inc., Baxter International Incorporated, Gannett
Company, Jefferson Smurfit Group, Knight-Ridder, Inc., Mobil Oil Corporation, RR
Donnelley & Sons, Inc., Ward Machinery Company and Weyerhauser, Inc. 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. The Company markets its products 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
30
<PAGE> 32
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 North America and Western
Agents Europe.
Dauphin Direct Sales, Exclusive Sales U.S. and Western Europe.
Agents
Armotek Direct Sales Mid-Atlantic States.
Diamond Direct Sales U.S.
</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.
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 75.0% of the Company's
net sales of anilox rolls represents either replacement or re-engraved rolls.
The Company's anilox rolls, which represented approximately 23.0% of net
sales for the nine months ended September 30, 1997, 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.
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<PAGE> 33
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
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 average 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, which represented
approximately 16.6% of net sales for the nine months ended September 30, 1997,
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
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<PAGE> 34
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, which represented approximately 26.6%
of net sales for the nine months ended September 30, 1997, 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.
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
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<PAGE> 35
these facilities contain the requisite 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
</TABLE>
- ---------------
(1) Other than the lease for 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 a Namulus Pension Fund, in which Terence W. Ford, an executive
officer of the Company, has a 50% interest. 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."
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.
34
<PAGE> 36
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.
35
<PAGE> 37
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,
President of Pamarco and Director
Larry A. Handeli.................. 42 Vice President, Chief Financial Officer
and Secretary
Max Gysin......................... 56 President and Chief Executive Officer 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
Robert J. Simon (1)(2)............ 39 Director
Brian Kelly(2)(3)................. 54 Director
Harvey Share...................... 66 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
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 Corporation, a printing press service
36
<PAGE> 38
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.
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 the President of Dauphin since January 1995.
From January 1995 through December 1997, Mr. Lunt was a director of the Company.
Prior to January 1995, 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. ("Holopak"), 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. and Overseas Private Investors Ltd.
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 Fitchburg Coated Products Company, a division of Technographics,
Inc., a manufacturer of paper and paper coatings and provider of printing
services. Mr. Kelly also serves as a director of Holopak. 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.
The Company currently has a vacancy in its board of directors, which
vacancy may be filled by the vote of a majority of the current directors. As of
the date of this Prospectus, there have been no nominations made to fill this
vacancy. Each director will hold office until the next annual meeting of the
Company's stockholders and until his successor is elected and qualified or until
his earlier resignation or removal. Each officer of the Company is elected by,
and serves at the pleasure of, the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1997, the members of the Compensation Committee were Thomas L. Ferguson,
Robert J. Simon and Brian Kelly. 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 1997 for certain management
services. See "Certain Transactions." There are currently no compensation
committee interlocks with other entities or insider participation on the
Compensation Committee.
37
<PAGE> 39
DIRECTOR COMPENSATION
Directors who are not currently receiving compensation as officers or
employees of the Company are entitled to receive fees of $3,500 for each meeting
of the Board of Directors that they attend in person or by telephone. All
directors are reimbursed for out of pocket expenses incurred in attending
meetings of the Board of Directors or Committees of the Board and for all other
expenses incurred in their capacity as directors. In addition, upon the
consummation of this Offering, the Board of Directors has determined to grant
non-qualified stock options exercisable for 23,500 shares of Common Stock with
an exercise price equal to the initial public offering price to each
non-employee member of the Board of Directors. The Board of Directors has also
adopted a policy whereby each non-employee director, will be granted, annually,
a non-qualified stock option exercisable for 7,500 shares of Common Stock with
an exercise price equal to the fair market value of the Common Stock on the date
of grant. The Board of Directors may cancel or amend this policy at any time.
EXECUTIVE COMPENSATION
The following table provides information concerning compensation paid or
accrued in fiscal 1997 with respect to the Company's Chief Executive Officer and
the four other most highly compensated executive officers for the year ended
December 31, 1997 (the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
----------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($)(2) COMPENSATION ($)(3)
- ------------------------------------ ---------- --------- ------------------- -------------------
<S> <C> <C> <C> <C>
Maurice A. Buckley
Chief Executive Officer and
President......................... $ 250,000 (4)(5) $21,000 $ 9,937
Larry A. Handeli
Vice President, Chief Financial
Officer and Secretary............. 135,700 (5) 13,000 2,569
Christopher J. Lunt
President of Dauphin.............. 135,000 (5) 12,000 6,663
Dennis E. Andersen
President of Armotek.............. 120,000 (5) 7,500 --
Harry M. Cook(6)
Vice President, Chief Operating
Officer and President of
Pamarco........................... 100,000 (5) 5,000 3,986
</TABLE>
- ---------------
(1) The annual compensation described in this table reflects actual salary and
bonus paid by the Company to such executive officers in 1997. 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 $3,860, $316 and
$6,663 for life insurance on behalf of Messrs. Buckley, Handeli and Lunt,
respectively, and (ii) premiums paid by the Company in the amount of $6,077,
$2,253 and $3,986 for disability insurance on behalf of Messrs. Buckley,
Handeli and Cook, 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."
38
<PAGE> 40
(5) Bonuses for fiscal 1997 have not been determined as of the date of this
Prospectus. In the year ended December 31, 1996, Messrs. Buckley, Handeli
and Lunt earned bonuses of $120,000, $33,907 and $34,500, respectively.
Certain of the Named Officers have certain contractual rights to receive
bonuses. See "-- Employment Agreements."
(6) Mr. Cook's employment with the Company commenced in July 1997.
STOCK OPTION INFORMATION
The following table sets forth certain information concerning an option
granted in 1997 to Harry M. Cook, the only Named Officer who was granted an
option in 1997. This table is presented solely for purposes of complying with
the Commission rules and does not necessarily reflect the amounts the optionee
will actually receive upon any sale of the shares acquired upon exercise of this
option.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
NUMBER OF PERCENT OF TOTAL OPTION TERM
SECURITIES UNDERLYING OPTIONS GRANTED TO EXERCISE OR EXPIRATION --------------------
NAME OPTIONS GRANTED EMPLOYEES IN 1997 BASE PRICE DATE 5% 10%
- --------------------- --------------------- ------------------ ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Harry M. Cook........ 7,461 38.8% $6.70 7/1/07 $76,550 $121,913
</TABLE>
The following table sets forth certain information concerning the number
and the hypothetical value of certain unexercised options of the Company held by
the Named Officers as of December 31, 1997. No options were exercised by any
Named Officer in 1997. 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.
AGGREGATED OPTION EXERCISES AND LAST FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997 (1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Maurice A. Buckley........................... 47,940 191,760 $ 418,996 $ 1,675,982
Larry A. Handeli............................. 2,350 9,400 20,539 82,156
Christopher J. Lunt.......................... -- 58,750 -- 513,475
Harry M. Cook................................ -- 7,461 -- 47,004
Dennis E. Andersen........................... -- -- -- --
</TABLE>
- ---------------
(1) Assumes, for presentation purposes only, a per share fair market value of
$13.00.
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.
39
<PAGE> 41
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. 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 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 or may terminate the employment of Mr. Andersen without cause at
any time by giving 30 days 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, Andersen 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 or
termination of the payment of the termination compensation, whichever is later.
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.
40
<PAGE> 42
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
"non-employee directors" as defined under Rule 16(b)(3) of the Exchange Act.
Upon the expiration of the reliance period described in Treasury Regulation
1.162-27(f)(2), the Committee will consist of two or more "outside directors" as
defined under Section 162(m) of the Code. 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 December 31, 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 December 31, 1997. As of December 31,
1997, the Company had an additional 305,089 shares of Common Stock available for
future grants under the Stock Option Plan.
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, in its sole discretion, upon receipt of the option holder's
written notice of exercise, 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.
In the event an option holder exercises an option using the "cashless
exercise" feature or using shares of common stock already owned by the option
holder, the Committee may, in its sole discretion, authorize the option holder
to automatically receive a replacement option. The replacement option may cover
the number of shares equal to the difference between the number of shares of the
original option prior to exercise and the number of shares delivered in the
payment of the exercise price.
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, no options will be granted under the Stock Option Plan
after December 31, 2004.
41
<PAGE> 43
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
options granted under the Stock Option Plan are currently intended to meet the
requirements of "performance-based compensation" by use of a "reliance period"
available to companies that become publicly held. In order for options to meet
the requirements of "performance-based compensation" after the end of the
reliance period, the stock option plan must be amended in a manner that complies
with Treasury Regulation Section 1.162-27.
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 by
providing written notice 120 days prior to the applicable termination date. 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, 923,157 shares and 533,311 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's predecessor 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 assumed by Dauphin in connection with the
acquisition of the assets 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 (which was subsequently assigned to a
Namulus Pension Fund) and Earthgrade Ltd., respectively in connection with the
acquisitions of Pamarco and Qualtech, respectively. Raye Investments Limited
was, and the Namulus Pension Fund 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."
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 arms-length transactions with unaffiliated third parties.
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 and director 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
December 31, 1997, the aggregate principal balance outstanding under these notes
was $680,000.
On September 15, 1997, the Company extended a short-term loan of $100,000
to Harry M. Cook, an executive officer and director of the Company. This loan,
which bore interest at the rate of five percent, was fully repaid on December 8,
1997.
43
<PAGE> 45
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of December 31, 1997, and as adjusted to
reflect the sale of 1,600,000 shares of Common Stock offered hereby (i) by each
executive officer and director of the Company, (ii) by each person known by the
Company to own beneficially 5% or more of the outstanding Common Stock, (iii) by
all executive officers and directors as a group and (iv) 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 NO. OF
SHARES PERCENT BEING SOLD(1) SHARES PERCENT
--------- ------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS(2)
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 2.87% 143,483 2.17%
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 *
Quentin Corporation (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, Trustee 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) The Selling Stockholders 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 42,000,000 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 Certificate of Incorporation and 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 General Corporation 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
46
<PAGE> 48
threatened litigation or proceeding, involving any 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 "Pre-Existing
Stockholders"). In particular, under certain circumstances and subject to
certain limitations, Bradford and Overseas Equity 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 December 31, 1997, and any stock options granted
by the Company after December 31, 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 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, 3,614,627 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. Accordingly, of the
3,799,703 Restricted Shares, approximately 2,379,452 Restricted Shares will be
subject to the 180 Day Lockup and 1,420,251 Restricted Shares will be subject to
the 90 Day Lockup. 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>
NUMBER
OF
UNDERWRITER 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.
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.
49
<PAGE> 51
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 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.
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 statements of operations and retained earnings and
cash flows for 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).
50
<PAGE> 52
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.
AVAILABLE INFORMATION AND REPORTS TO SECURITY HOLDERS
Upon completion of this Offering, the Company will become subject to the
informational requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended. 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 September
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 nine
months ended September 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 nine months ended September 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
nine months ended September 30, 1996 and 1997....................................... F-7
Notes to the Consolidated Financial Statements........................................ F-8
THE PREDECESSOR
Independent Auditors' Report.......................................................... F-24
Consolidated Statement of Operations and Retained Earnings for the Period from January
1, 1994 to July 24, 1994............................................................ F-25
Consolidated Statement of Cash Flows for the period from January 1, 1994 to July 24,
1994................................................................................ F-26
Notes to the Consolidated Financial Statements........................................ F-27
</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.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
April 16, 1997
(October 22, 1997 as to the first two paragraphs of Note 6)
F-2
<PAGE> 55
PAMARCO TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................................. $ 260,478 $ 1,485,221 $ 1,429,562
Cash held in escrow............................... 109,358 -- --
Accounts receivable, less allowance for doubtful
accounts of $105,271, $158,629, and $255,204,
respectively................................... 6,866,795 8,852,537 12,824,451
Inventories....................................... 4,966,307 9,308,105 18,557,734
Prepaid expenses.................................. 466,069 658,360 1,497,568
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 1,201,789
----------- ----------- ------------
Total current assets...................... 15,410,033 22,318,413 36,500,441
PROPERTY, PLANT AND EQUIPMENT -- Net................ 19,627,810 28,400,178 37,049,553
DEFERRED FINANCING COSTS -- Less accumulated
amortization of $60,046, $3,360, and $24,451,
respectively...................................... 156,240 89,991 113,091
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
ACQUIRED -- Less accumulated amortization of
$107,876, $230,058, and $452,938, respectively.... 2,811,010 2,796,268 8,924,098
OTHER ASSETS........................................ 389,101 622,242 663,811
----------- ----------- ------------
TOTAL ASSETS........................................ $38,394,194 $54,227,092 $ 83,250,994
=========== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 56
PAMARCO TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS -- CONTINUED
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................. $ 1,316,549 $ 759,307 $ 2,398,292
Current portion of capitalized lease obligation... 117,383 130,578 35,801
Accounts payable.................................. 5,635,644 5,074,871 6,926,986
Income taxes payable.............................. 323,088 199,963 2,048,387
Accrued vacation.................................. 434,153 683,248 1,110,829
Customer advances................................. 545,187 3,408,160 5,749,059
Current portion of contingent purchase price
payable........................................ -- -- 250,000
Other accrued liabilities......................... 1,432,988 1,738,358 3,676,021
----------- ----------- ------------
Total current liabilities................. 9,804,992 11,994,485 22,195,375
----------- ----------- ------------
LONG-TERM LIABILITIES:
Long-term debt, less current portion.............. 10,420,297 15,014,106 21,555,242
Subordinated notes payable issued in connection
with acquisitions.............................. 1,287,500 1,000,000 1,000,000
Capitalized lease obligations..................... 460,357 345,416 9,562
Contingent purchase price payable................. -- -- 750,000
Deferred income taxes............................. 361,159 1,824,413 2,761,265
Postretirement benefits........................... 974,798 1,028,798 1,064,798
Other............................................. 82,317 168,365 206,894
----------- ----------- ------------
Total long-term liabilities............... 13,586,428 19,381,098 27,347,761
----------- ----------- ------------
Total liabilities......................... 23,391,420 31,375,583 49,543,136
----------- ----------- ------------
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 -- 42,000,000 shares
authorized; 3,087,477 shares, 3,770,352 shares
and 4,999,703 shares issued and outstanding at
December 31, 1995, 1996 and September 30, 1997,
respectively................................... 30,875 37,704 49,997
Additional paid-in capital........................ 13,219,825 16,990,605 24,837,782
Retained earnings................................. 2,929,567 6,673,326 10,058,634
Loans to stockholders............................. (1,038,000) (1,014,260) (1,014,260)
Foreign currency translation adjustment........... (139,493) 164,134 (224,295)
----------- ----------- ------------
Total stockholders' equity................ 15,002,774 22,851,509 33,707,858
----------- ----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $38,394,194 $54,227,092 $ 83,250,994
=========== =========== ============
</TABLE>
See notes to consolidated financial statements.
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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
PERIOD
JULY 25, 1994 NINE MONTHS ENDED
TO YEARS ENDED DECEMBER 31, -----------------------------
DECEMBER 31, ------------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1997
--------------- ----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES...................... $13,299,402 $44,492,012 $53,708,447 $ 40,097,779 $ 68,566,258
----------- ----------- ----------- ------------ ------------
COSTS AND EXPENSES:
Cost of sales................ 9,045,536 31,676,547 37,939,367 28,317,343 46,144,297
Selling expenses............. 1,658,743 4,519,832 5,837,574 4,381,712 9,124,155
General and administrative
expenses.................. 1,280,542 4,507,964 5,807,459 4,163,972 6,799,353
Plant closure costs.......... -- 241,177 -- -- --
Gain on fire................. -- (1,299,785) (3,321,315) (3,091,021) (255,000)
----------- ----------- ----------- ------------ ------------
Total costs and
expenses........... 11,984,821 39,645,735 46,263,085 33,772,006 61,812,805
----------- ----------- ----------- ------------ ------------
INCOME FROM OPERATIONS......... 1,314,581 4,846,277 7,445,362 6,325,773 6,753,453
OTHER INCOME (EXPENSE):
Interest and other income.... 23,357 115,019 83,487 63,488 88,766
Interest expense............. (377,970) (1,094,174) (1,183,550) (897,692) (1,325,863)
----------- ----------- ----------- ------------ ------------
INCOME BEFORE INCOME TAXES..... 959,968 3,867,122 6,345,299 5,491,569 5,516,356
PROVISION FOR INCOME TAXES..... 351,489 1,546,034 2,601,540 2,118,463 2,131,048
----------- ----------- ----------- ------------ ------------
NET INCOME..................... $ 608,479 $ 2,321,088 $ 3,743,759 $ 3,373,106 $ 3,385,308
=========== =========== =========== ============ ============
EARNINGS PER SHARE............. .27 .61 .85 .78 .68
=========== =========== =========== ============ ============
WEIGHTED AVERAGE SHARES........ 2,260,655 3,800,610 4,427,775 4,349,789 4,995,649
=========== =========== =========== ============ ============
</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 NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FOREIGN
CAPITAL STOCK ADDITIONAL LOANS CURRENCY TOTAL
-------------------- PAID-IN RETAINED TO TREASURY TRANSLATION STOCKHOLDERS'
PREFERRED COMMON CAPITAL EARNINGS STOCKHOLDERS STOCK ADJUSTMENT EQUITY
--------- ------- ----------- ----------- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Proceeds from
sale of
stock......... $-- $16,356 $ 6,943,644 $ -- $ -- $ -- $ -- $ 6,960,000
Issuance of
stockholder
loans......... -- -- -- -- (530,000) -- -- (530,000)
Net income...... -- -- -- 608,479 -- -- -- 608,479
Translation
adjustment.... -- -- -- -- -- -- 18,075 18,075
---- ------- ----------- ---------- ----------- -------- --------- -----------
BALANCE, DECEMBER
31, 1994........ -- 16,356 6,943,644 608,479 (530,000) -- 18,075 7,056,554
Net income...... -- -- -- 2,321,088 -- -- -- 2,321,088
Proceeds from
sale of
stock......... -- 12,756 5,415,444 -- (1,083,000) -- -- 4,345,200
Stock issued for
business
acquired...... -- 1,763 860,737 -- -- -- -- 862,500
Repayment of
stockholder
loans......... -- -- -- -- 575,000 -- -- 575,000
Translation
adjustment.... -- -- -- -- -- -- (157,568) (157,568)
---- ------- ----------- ---------- ----------- -------- --------- -----------
BALANCE, DECEMBER
31, 1995........ -- 30,875 13,219,825 2,929,567 (1,038,000) -- (139,493) 15,002,774
Net income...... -- -- -- 3,743,759 -- -- -- 3,743,759
Proceeds from
sale of
stock......... -- 6,129 3,384,002 -- -- -- -- 3,390,131
Stock issued for
business
acquired...... -- 181 99,815 -- -- -- -- 99,996
Stock issued for
conversion of
debt.......... -- 519 286,963 -- -- -- -- 287,482
Repayment of
stockholder
loans......... -- -- -- -- 23,740 -- -- 23,740
Translation
adjustment.... -- -- -- -- -- -- 303,627 303,627
---- ------- ----------- ---------- ----------- -------- --------- -----------
BALANCE, DECEMBER
31, 1996........ -- 37,704 16,990,605 6,673,326 (1,014,260) -- 164,134 22,851,509
(Unaudited)
Net income...... -- -- -- 3,385,308 -- -- -- 3,385,308
Proceeds from
sale of
stock......... -- 11,510 7,347,960 -- -- 15,000 -- 7,374,470
Stock issued for
business
acquired...... -- 783 499,217 -- -- -- -- 500,000
Purchase of
stock for
treasury...... -- -- -- -- -- (15,000) -- (15,000)
Translation
adjustment.... -- -- -- -- -- -- (388,429) (388,429)
---- ------- ----------- ---------- ----------- -------- --------- -----------
BALANCE, SEPTEMBER
30, 1997........ $-- $49,997 $24,837,782 $10,058,634 $ (1,014,260) $ -- $ (224,295) $ 33,707,858
==== ======= =========== ========== =========== ======== ========= ===========
</TABLE>
See notes to consolidated financial statements.
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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED NINE MONTHS ENDED
JULY 25, 1994 TO DECEMBER 31, ------------------------------
DECEMBER 31, -------------------------- SEPTEMBER 30, SEPTEMBER 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 $ 3,373,106 $ 3,385,308
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 397,021 1,365,109 1,835,459 1,333,701 2,259,271
(Gain) loss on disposal of property, net
of related proceeds................... 16,400 384,943 7,935 6,294 (25,647)
Deferred income taxes................... 50,911 986,967 1,494,815 723,805 633,389
Interest income on cash held in
escrow................................ -- (14,032) -- -- --
Adjustments to intangible assets........ -- (54,097) -- -- --
Write-off of deferred financing costs... -- -- 133,913 133,913 --
Changes in assets and liabilities:
Cash held in escrow................... -- -- -- 109,358 --
Accounts receivable................... (881,716) (851,712) (933,047) (1,587,951) (2,450,777)
Due from insurance company............ -- (1,088,394) 485,128 545,202 603,266
Inventories........................... 328,837 (178,791) (4,109,557) (1,580,188) (5,366,588)
Prepaid expenses...................... (178,992) 77,188 (106,140) (406,960) (821,281)
Other assets -- current............... (149,522) (903,284) 516,847 (131,004) (210,845)
Other assets -- noncurrent............ (71,555) (140,320) (288,676) (1,200,858) (1,001,074)
Accounts payable...................... 438,481 1,635,069 (1,173,753) (1,987,631) 983,908
Accrued expenses...................... (218,504) (1,168,919) 3,308,228 3,080,177 5,186,120
Other liabilities..................... 21,873 (14,306) 71,240 36,764 38,530
------------ ----------- ----------- ------------- -------------
Net cash provided by operating
activities........................ 361,713 2,356,509 4,986,151 2,447,728 3,213,580
------------ ----------- ----------- ------------- -------------
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 September
30, 1997, respectively.................... (14,911,247) (5,422,706) (1,088,549) (1,088,549) (8,306,193)
Purchases of property, plant and
equipment................................. (941,270) (4,504,408) (7,095,382) (3,561,165) (5,269,576)
Proceeds from sale -- leaseback............. -- 500,000 -- -- --
Proceeds from sale of property, plant and
equipment................................. -- 13,960 24,486 5,756 61,551
Equipment deposits.......................... (194,814) 191,684 -- -- --
------------ ----------- ----------- ------------- -------------
Net cash used in investing activities..... (16,047,331) (9,221,470) (8,159,445) (4,643,958) (13,514,218)
------------ ----------- ----------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under term loans.................. 6,800,000 2,050,000 1,951,321 9,500,000 7,500,000
Repayments of term loans.................... (250,000) (1,059,671) (2,975,970) (10,325,512) (5,860,414)
Borrowings under revolving lines of
credit.................................... 2,839,236 1,187,300 739,196 224,239 188,970
Common stock issued......................... 6,960,000 4,345,200 3,390,127 3,390,127 7,374,470
Acquisition of treasury shares.............. -- -- -- -- (15,000)
Stockholder loan (issuance) repayments...... (530,000) 575,000 23,740 25,000 --
Repayment of subordinated note payable...... -- -- -- -- (1,000,000)
Borrowing under equipment line of credit.... -- -- 1,346,050 -- 2,626,604
Principal payments under capital lease
obligations............................... (7,734) (49,862) (101,746) (79,250) (430,631)
Payments of deferred financing costs........ -- (36,200) (93,351) (93,351) (3,829)
------------ ----------- ----------- ------------- -------------
Net cash provided by financing
activities.......................... 15,811,502 7,011,767 4,279,367 2,641,253 10,380,170
------------ ----------- ----------- ------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH....... (5,419) (6,793) 118,670 77,505 (135,191)
------------ ----------- ----------- ------------- -------------
NET INCREASE (DECREASE) IN CASH............... 120,465 140,013 1,224,743 522,528 (55,659)
CASH, BEGINNING OF PERIOD..................... -- 120,465 260,478 260,478 1,485,221
------------ ----------- ----------- ------------- -------------
CASH, END OF PERIOD........................... $ 120,465 $ 260,478 $ 1,485,221 $ 783,006 $ 1,429,562
============ =========== =========== ============= =============
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE> 60
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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 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, which was repaid in August
of 1997. 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 September 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 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
F-8
<PAGE> 61
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
In August 1997, the Company issued an additional 268,981 shares of common
stock (including 2,350 shares previously held in treasury) to existing investors
and certain employees and new investors for an aggregate purchase price of
$1,716,900 or $6.38 per share.
In September 1997, the Company issued an additional 29,375 shares of common
stock to an officer of the Company for an aggregate purchase price of $200,044
or $6.81 per share.
The following unaudited pro forma results of operations assume the
acquisitions of Pamarco, Incorporated, Dauphin and Qualtech had occurred as of
January 1, respectively of the following periods which included, for the period
January 1, 1994 to July 24, 1994, the operating results of the Predecessor
Company:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Net sales............................................... $ 39,547,016 $ 46,166,343
Net income.............................................. 1,431,847 2,377,315
Earnings per common share............................... .63 .63
</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, 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-9
<PAGE> 62
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
ASSETS LIFE
- ------------------------------ ---------------
<S> <C>
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
</TABLE>
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.
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
F-10
<PAGE> 63
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 nine months ended September 30, 1997
were approximately $208,000, $23,000 and $11,200, 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 September 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 September 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.
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
F-11
<PAGE> 64
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, SEPTEMBER
----------------------- 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Work in process........................................... $1,914,261 $2,695,385 $ 8,049,445
Raw materials............................................. 2,813,992 4,976,602 7,942,789
Finished goods............................................ 238,054 1,636,118 2,565,500
---------- ---------- -----------
Total................................................ $4,966,307 $9,308,105 $18,557,734
========== ========== ===========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
------------------------- 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 7,144,656
Leasehold improvements.................................. 1,138,291 1,455,112 1,555,131
Machinery and equipment................................. 15,263,927 22,296,824 29,656,074
Furniture and fixtures.................................. 83,029 391,957 968,936
Tooling................................................. 1,876,126 2,343,119 2,789,247
Construction in progress................................ -- -- 139,019
----------- ----------- -----------
Total.............................................. 21,936,744 32,480,073 42,909,265
Less accumulated depreciation and amortization.......... (2,308,934) (4,079,895) (5,859,712)
----------- ----------- -----------
Net..................................................... $19,627,810 $28,400,178 $37,049,553
=========== =========== ===========
</TABLE>
F-12
<PAGE> 65
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
Long-Term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
------------------------- 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 $15,015,383
U.S. revolving loan payable on September 19, 1999....... -- 4,776,496 4,965,496
U.S. equipment line of credit, interest only payments
until term loan conversion was elected................ -- 1,346,050 3,972,655
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 L40,000 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 23,953,534
Less current maturities................................. 1,316,549 759,307 2,398,292
----------- ----------- -----------
Total long-term debt.................................... $10,420,297 $15,014,106 $21,555,242
=========== =========== ===========
</TABLE>
Long-term debt payments due in years subsequent to December 31, 1996 are as
follows:
<TABLE>
<S> <C>
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
===========
</TABLE>
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.
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.
F-13
<PAGE> 66
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. During September 1997 the Company
elected conversion of the entire outstanding balance under its equipment line of
credit to a term loan, payable over a seven year term. The Company also elected
a LIBOR based interest rate for this loan. At September 30, 1997 the interest
rate was 6.53%.
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, $1,269,231 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. Under the most restrictive covenant, the
amount of retained earnings available for dividends at December 31, 1996 was
approximately $4.6 million. 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 L470,000, 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%.
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
F-14
<PAGE> 67
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 common shares to 10,000,000 and 42,000,000,
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.
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................................................. 19,211 6.50
-------- ------
Outstanding, September 30, 1997......................... 399,911 $ 4.39
======== ======
Exercisable at December 31, 1995........................ 29,845
========
Exercisable at December 31, 1996........................ 60,278
========
Exercisable at September 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.
F-15
<PAGE> 68
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average fair value of the stock options granted during 1995,
1996, and the period ended September 30, 1997 was $1.67, $1.07 and $0.83,
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 September 30, 1997, respectively; risk-free interest rate of 6.02% to
6.49%, expected life of 2.00 to 8.04 years, and no expected dividend yield.
Stock options generally expire ten years from the grant date.
7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
PERIOD
JULY 25, YEARS ENDED NINE MONTHS ENDED
1994 TO DECEMBER 31, -----------------------------
DECEMBER 31, ----------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1997
------------ ---------- ---------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income taxes paid.................. $360,730 $ 927,778 $ 706,330 $ 619,200 $ 973,915
Interest paid...................... 294,357 1,019,114 1,253,630 1,024,101 1,247,793
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 -- -- 1,000,000
Capital lease obligation......... -- 500,000 -- -- --
Common stock issued in conversion
of subordinated note
payable....................... -- -- 287,482 -- --
Accrual of contingent purchase
price......................... -- -- -- -- 1,000,000
</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 September 30, 1996 and 1997 totaled $2.3 million, $4.6 million,
$3.4 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 nine month period ended September 30, 1996 gains
of approximately $700,000, $1.1 million and $1.3 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 nine month periods ended September 30, 1996 and September 30, 1997 was
approximately $600,000, $2.2 million, $1.8 million and $255,000, respectively,
related to business interruption coverage.
F-16
<PAGE> 69
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 continued to repay the lease in
accordance with the repayment terms. Were the bank to have called the lease the
Company had sufficient availability on its term and revolving credit loans to
repay the remaining amount due under this capital lease which approximated
$400,000 at December 31, 1996. In September of 1997, the Company repaid the
lease in full.
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 nine months ended September 30,
1996 and 1997 were $1,103,058 and $1,823,446, respectively, which included
amounts paid to related parties of $188,334 and $729,769, respectively.
F-17
<PAGE> 70
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
The components of income before income taxes and the provision for income
taxes are as follows:
<TABLE>
<CAPTION>
PERIOD
JULY 25, YEARS ENDED
1994 TO 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>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
JULY 25, YEARS ENDED
1994 TO 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-18
<PAGE> 71
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Current:
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.
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 DECEMBER 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>
F-19
<PAGE> 72
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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, $223,000, $170,000 and $166,000 for
the period July 25, 1994 to December 31, 1994 and for the years ended December
31, 1995 and 1996, and the nine months ended September 30, 1996 and 1997,
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, $35,700,
$26,000 and $39,000 for the period July 25, 1994 to December 31, 1994 and for
the years ended December 31, 1995 and 1996, and the nine months ended September
30, 1996 and 1997, 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
F-20
<PAGE> 73
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, $103,000, $76,000 and $103,000 for the period from January 23, 1995 to
December 31, 1995, the year ended December, 1996 and the nine months ended
September 30, 1996 and 1997, respectively.
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.
Diamond has a salary reduction 401(k) plan for the benefit of all full-time
employees age 21 or older. Diamond contributes $.25 for every dollar the
employees contribute, up to 8% of wages. Diamond's matching contribution and
earnings thereon will vest ratably over a five-year period. Diamond's
contribution to this plan was approximately $48,000 for the nine months ended
September 30, 1997.
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 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
F-21
<PAGE> 74
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
The postretirement cost consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
PERIOD DECEMBER 31,
JULY 25, 1994 TO -------------------
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 September 30, 1996 and
September 30, 1997 was $41,000 and $36,000, 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 range 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-22
<PAGE> 75
PAMARCO TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
December 31, 1994........................ $22.4 $ 0.9 $ -- $23.3
December 31, 1995........................ 33.3 5.1 -- 38.4
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 September
30, 1997 and for the nine-month periods ended September 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 September 30, 1997 and its results of operations and cash flows for the nine
months ended September 30, 1996 and 1997. The unaudited results of operations
for the nine months ended September 30, 1997 are not necessarily indicative of
the results that may be expected for the entire year ending December 31, 1997.
******
F-23
<PAGE> 76
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Pamarco, Incorporated and Subsidiary
We have audited the accompanying consolidated statement of operations 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.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
September 25, 1997
F-24
<PAGE> 77
PARMARCO, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
PERIOD FROM JANUARY 1, 1994 TO JULY 24, 1994
<TABLE>
<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 LOSS....................................................................... (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-25
<PAGE> 78
PAMARCO, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1994 TO JULY 24, 1994
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
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-26
<PAGE> 79
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.
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..................................... $ 4.0 $ 0.5 -- $ 4.5
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.
F-27
<PAGE> 80
PAMARCO, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
ASSETS LIFE
---------------------------------------------------------------------
<S> <C>
Buildings and improvements........................... 40 years
Leasehold improvements............................... Leasehold term
Machinery and equipment.............................. 10-20 years
Furniture and fixtures............................... 10 years
Tooling.............................................. 5 years
</TABLE>
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.
INVENTORIES -- Inventories are stated at the lower of cost, determined on a
first-in, first-out (FIFO) basis, or market.
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>
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.
F-28
<PAGE> 81
PAMARCO, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
The components of loss before taxes and the income tax benefit 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 loss before income taxes................................................. $ (25,103)
==========
</TABLE>
The income tax benefit for the period from January 1, 1994 through July 24,
1994 consisted of the following:
<TABLE>
<S> <C>
Current:
Federal........................................................................... $ --
State............................................................................. 925
Foreign........................................................................... 61,665
--------
62,590
--------
Deferred:
Federal........................................................................... $ 9,081
State............................................................................. (81,662)
Foreign........................................................................... --
--------
(72,581)
--------
Total............................................................................. $ (9,991)
========
</TABLE>
The following is a reconciliation of the expected income tax benefit
determined at the statutory rates and the actual income tax benefit at July 24,
1994:
<TABLE>
<S> <C>
Loss before income taxes........................................................ $ (25,103)
Statutory federal income tax rate............................................... 34%
---------
Expected income tax benefit..................................................... (8,535)
Income of foreign subsidiary taxed at different rate............................ (1,532)
State taxes, net of federal benefit............................................. (1,130)
Nondeductible items............................................................. 1,206
---------
Income tax benefit.............................................................. $ (9,991)
=========
</TABLE>
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.
F-29
<PAGE> 82
PAMARCO, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 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.
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 July 24, 1994, the nature and amount of these and any
additional environmental costs are uncertain, and management believes that
environmental matters will be resolved without any material adverse effect on
the Company's financial position.
7. RELATED PARTY TRANSACTIONS
Pamarco's parent, Amir Investments Corp. ("Amir"), is a wholly-owned
subsidiary of Smurfit Holdings B.V., which is affiliated with Jefferson Smurfit
Corporation ("JSC"). The Company engaged JSC to install and program computer
software during the period from January 1, 1994 through July 24, 1994, and the
Company leased hardware and software from JSC. Additionally, the Company obtains
business insurance and other limited services from JSC. Amounts paid to JSC
during the period from January 1, 1994 through July 24, 1994 were approximately
$64,000. In addition, sales to JSC and its affiliates and subsidiaries
approximated $510,000 during the period from January 1, 1994 through July 24,
1994. Management fees paid to Amir approximated $65,000.
Smurfit International B.V., an affiliate of JSC, is guarantor of a letter
of credit provided by the Company in connection with the contingency as
discussed in Note 6.
F-30
<PAGE> 83
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 8
Use of Proceeds...................... 13
Dividend Policy...................... 13
Capitalization....................... 14
Dilution............................. 15
Selected Consolidated Financial
Data............................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 18
Business............................. 26
Management........................... 36
Certain Transactions................. 43
Principal and Selling Stockholders... 44
Description of Capital Stock......... 46
Shares Eligible for Future Sale...... 48
Underwriting......................... 49
Legal Matters........................ 50
Experts.............................. 50
Additional Information............... 50
Available Information and Reports to
Security Holders................... 51
Index to Financial Statements........ F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
2,800,000 SHARES
[PAMARCO TECHNOLOGIES LOGO]
COMMON STOCK
----------------------
PROSPECTUS
----------------------
EVEREN SECURITIES, INC.
JANNEY MONTGOMERY SCOTT INC.
, 1998
======================================================
<PAGE> 84
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, in connection with the issuance and
distribution of the shares of Common Stock being registered, all of which are
being borne by the Company:
<TABLE>
<S> <C>
Registration fee......................................................... $ 13,661
NASD filing fee.......................................................... 5,008
Transfer agent and registrar fees........................................ 20,000
Printing and engraving................................................... 200,000
Legal fees............................................................... 200,000
Blue Sky fees and expenses............................................... 5,000
Nasdaq National Market listing fee....................................... 50,000
Accounting fees.......................................................... 300,000
Miscellaneous............................................................ 56,331
--------
Total.................................................................. $850,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
1. Section 145 of the Delaware General Corporation Law ("Section 145")
permits indemnification of directors, officers, agents and controlling persons
of a corporation under certain conditions and subject to certain limitations.
Section 145 empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer or agent of the corporation or another enterprise if serving at the
request of the corporation. Depending on the character of the proceeding, a
corporation may indemnify against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such action, suit or proceeding if the person indemnified
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful. In the case of an action by or in the right of the
corporation, no indemnification may be made with respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the court of chancery or the
court in which such action or suit was brought shall determine that despite the
adjudication of liability such person is fairly and reasonably entitled to
indemnity for such expenses that the court shall deem proper. Section 145
further provides that to the extent a director or officer of a corporation has
been successful in the defense of any action, suit or proceeding referred to
above or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually or reasonably
incurred by such person in connection therewith.
2. As permitted by the Delaware General Corporation Law, the Company has
included a provision in its Restated Certificate of Incorporation that, subject
to certain limitations, eliminates the ability of the Company and its
stockholders to recover monetary damages from a director of the Company for
breach of fiduciary duty as a director. Article VII of the Company's Bylaws
provides for indemnification of the Company's directors and officers and
advancement of expenses to the extent otherwise permitted by Section 145.
3. Reference is made to Section 7 of the Underwriting Agreement (Exhibit 1
hereto).
4. As authorized by Section 145 of the Delaware General Corporation Law and
Article VII of the Company's Bylaws, the Company has obtained, on behalf of its
directors and officers, insurance protection against certain liabilities arising
out of the discharge of their duties, as well as insurance covering the Company
II-1
<PAGE> 85
for indemnification payments made to its directors and officers for certain
liabilities. The premiums for such insurance are paid by the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since July 25, 1994, the date the Registrant was incorporated, the
Registrant has issued and sold the following unregistered securities:
1. On July 25, 1994, the Registrant issued 1,635,600 shares of Common
Stock, respectively, to private investors and certain members of management of
Pamarco, Incorporated for an aggregate price of $6,960,000 or $4.26 per share.
2. In January 1995, the Registrant issued an additional 1,275,627 shares of
Common Stock to existing investors, employees, and certain management of Dauphin
Graphic Machines, Inc. ("Dauphin") for an aggregate price of $5,428,200 or $4.26
per share. On January 23, 1995, in connection with the acquisition of
substantially all of the assets and certain liabilities of Dauphin, the
Registrant issued to the seller options to purchase 58,750 shares of Common
Stock of the Registrant 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.
3. In June 1995, in connection with Pamarco's European subsidiary's
acquisition of all of the issued and outstanding stock of Qualtech Holdings
Limited ("Qualtech"), the Registrant issued to the owners an aggregate of
176,250 shares of Common Stock (valued at $4.89 per share), paid approximately
$1,156,100 in cash and delivered subordinated notes payable to the sellers
totaling approximately $289,000.
4. In April 1996, the Registrant issued an additional 612,831 shares of
Common Stock to existing investors and certain employees for an aggregate
purchase price of $3,390,000 or $5.53 per share. On April 19, 1996, in
connection with the acquisition of all of the issued and outstanding capital
stock of Armotek Industries, Inc. ("Armotek"), the Registrant issued to the
owners 18,076 shares of the Registrant's Common Stock (valued at $5.53 per
share) and paid approximately $1,100,000 in cash.
5. In August 1996, the former owners of Qualtech converted approximately
$289,000 of subordinated notes payable, issued in connection with the purchase
of Qualtech, for 51,968 shares of the Registrant's Common Stock, at a share
price of $5.53.
6. In January 1997, the Registrant issued an additional 855,019 shares of
Common Stock to existing investors and certain employees for an aggregate
purchase price of $5,457,570 or $6.38 per share. On January 10, 1997, in
connection with the acquisition of all of the issued and outstanding capital
stock of Diamond, the Registrant issued to the owner 78,333 shares of Common
Stock (valued at $6.38 per share), paid approximately $8.5 million in cash, and
delivered a $1,000,000 subordinated note.
7. In August 1997, the Registrant issued an additional 268,981 shares of
Common Stock to existing investors and certain employees and new investors for
an aggregate purchase price of $1,716,900 or $6.38 per share.
8. In September 1997, the Registrant issued an additional 29,375 shares of
Common Stock to an officer of the Registrant for an aggregate purchase price of
$200,044 or $6.81 per share.
The Registrant believes that the transactions described in paragraphs 1
through 8 above were exempt from registration under Section 4(2) of the Act
because the subject securities were sold to a limited group of persons, each of
whom was believed to have been a sophisticated investor or had a pre-existing
business or personal relationship with the Registrant or its management and was
purchasing for investment without a view to further distribution. Restrictive
legends were placed on stock certificates evidencing the shares and/or
agreements relating to the right to purchase such shares described above.
II-2
<PAGE> 86
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following is a list of exhibits filed as part of this Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Restated Certificate of Incorporation of the Company.**
3.2 Bylaws of the Registrant.**
5.1 Opinion of Morgan, Lewis & Bockius LLP regarding legality of the shares of Common
Stock being registered.**
10.1 Registration Rights Agreement, dated July 25, 1994, among the Registrant and
certain shareholders of the Registrant.**
10.2 Stock Purchase Agreement, dated July 25, 1994, among the Registrant, Pamarco
Acquisition Co., Amir Investments Corporation, and Smurfit International B.V.**
10.3 Asset Purchase Agreement, dated January 23, 1995, among Dauphin Graphic Machines,
Inc., the Registrant, Ashcon, Inc., and Christopher J. Lunt.**
10.4 Stock Purchase Agreement, dated March 5, 1996, among the Registrant, Pamarco
Incorporated, Dennis Anderson and Hugh Schneider, as amended (Armotek Industries,
Inc.).**
10.5 Share Purchase Agreement, dated June 22, 1995, between the Registrant, Pamarco
Europe Ltd., and the shareholders of Qualtech Holdings Limited.**
10.6 Stock Purchase Agreement, dated January 10, 1997, between the Registrant and Max
Gysin (Diamond Holding Corporation).**
10.7 Amended and Restated 1995 Stock Option Plan.*
10.8 Employment Agreement between Maurice A. Buckley and the Registrant, dated as of
August 1, 1994, as amended on April 1, 1997.**
10.9 Employment Agreement between Larry A. Handeli and the Registrant, dated as of
January 1, 1995, as amended on April 1, 1997.**
10.10 Employment Agreement between Christopher J. Lunt and the Registrant, dated as of
January 23, 1995.**
10.11 Employment Agreement between Terence W. Ford and the Registrant, dated as of June
22, 1995.**
10.12 Employment Agreement between Dennis Andersen and the Registrant, dated as of April
15, 1996.**
10.13 Employment Agreement between Max Gysin and the Diamond Holding Corporation, dated
as of January 10, 1997.**
10.14 Employment Agreement between Harry M. Cook and the Registrant, dated as of July 1,
1997.**
10.15 Form of Second Amended and Restated Loan and Security Agreement dated December 31,
1997 among Pamarco Technologies Inc., Pamarco, Inc., Pamarco Europe Ltd., Armotek
Industries, Inc., Dauphin Graphic Machines, Inc., Diamond Holding Corporation and
Core States Bank, N.A.**
11.1 Statement re: Computation of Per Share Earnings (as amended).**
21.1 Subsidiaries of the Registrant.**
23.1 Consent of Deloitte & Touche LLP (as amended).*
23.2 Consent of Morgan, Lewis & Bockius LLP (included in its opinion filed as Exhibit 5
hereto).**
24.1 Power of Attorney (included on signature page to this Registration Statement).**
27.1 Financial Data Schedule.**
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
II-3
<PAGE> 87
ITEM 17. UNDERTAKINGS.
(i) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(ii) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(iii) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 88
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 5 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in New
Providence, New Jersey, on January 28, 1998.
PAMARCO TECHNOLOGIES, INC.
By: /s/ MAURICE A. BUCKLEY
------------------------------------
Maurice A. Buckley,
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 5 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
- --------------------------------------- --------------------------------------------------------
<S> <C> <C>
/s/ MAURICE A. BUCKLEY Chief Executive Officer, President January 28, 1998
- --------------------------------------- and Director (principal executive
Maurice A. Buckley officer)
/s/ LARRY A. HANDELI Vice President and Chief Financial January 28, 1998
- --------------------------------------- Officer (principal financial and
Larry A. Handeli accounting officer)
* Chairman of the Board January 28, 1998
- ---------------------------------------
Thomas L. Ferguson
* Director January 28, 1998
- ---------------------------------------
Robert J. Simon
* Director January 28, 1998
- ---------------------------------------
Harry M. Cook
* Director January 28, 1998
- ---------------------------------------
Brian Kelly
* Director January 28, 1998
- ---------------------------------------
Harvey Share
*By: /s/ Maurice A. Buckley
----------------------------------
Maurice A. Buckley
as Attorney-in-fact
</TABLE>
II-5
<PAGE> 89
VALUATION AND QUALIFYING ACCOUNTS
FOR YEARS ENDED DECEMBER 31, 1996, 1995
AND THE PERIOD JULY 25, 1994 TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------ ------------ ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1996
Allowances for doubtful accounts
and sales returns.............. 105,271 89,637 7,197 43,476 158,629
1995
Allowances for doubtful accounts
and sales returns.............. 74,267 75,700 -- 44,696 105,271
1994
Allowances for doubtful accounts
and sales returns.............. 68,042 16,219 -- 9,994 74,267
</TABLE>
S-1
<PAGE> 90
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ------------------------------------------------------------------------ ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement.*
3.1 Restated Certificate of Incorporation of the Company.**
3.2 Bylaws of the Registrant.**
5.1 Opinion of Morgan, Lewis & Bockius LLP regarding legality of the shares
of Common Stock being registered.**
10.1 Registration Rights Agreement, dated July 25, 1994, among the Registrant
and certain shareholders of the Registrant.**
10.2 Stock Purchase Agreement, dated July 25, 1994, among the Registrant,
Pamarco Acquisition Co., Amir Investments Corporation, and Smurfit
International B.V.**
10.3 Asset Purchase Agreement, dated January 23, 1995, among Dauphin Graphic
Machines, Inc., the Registrant, Ashcon, Inc., and Christopher J. Lunt.**
10.4 Stock Purchase Agreement, dated March 5, 1996, among the Registrant,
Pamarco Incorporated, Dennis Anderson and Hugh Schneider, as amended
(Armotek Industries, Inc.).**
10.5 Share Purchase Agreement, dated June 22, 1995, between the Registrant,
Pamarco Europe Ltd., and the shareholders of Qualtech Holdings
Limited.**
10.6 Stock Purchase Agreement, dated January 10, 1997, between the Registrant
and Max Gysin (Diamond Holding Corporation).**
10.7 Amended and Restated 1995 Stock Option Plan.*
10.8 Employment Agreement between Maurice A. Buckley and the Registrant,
dated as of August 1, 1994, as amended on April 1, 1997.**
10.9 Employment Agreement between Larry A. Handeli and the Registrant, dated
as of January 1, 1995, as amended on April 1, 1997.**
10.10 Employment Agreement between Christopher J. Lunt and the Registrant,
dated as of January 23, 1995.**
10.11 Employment Agreement between Terence W. Ford and the Registrant, dated
as of June 22, 1995.**
10.12 Employment Agreement between Dennis Andersen and the Registrant, dated
as of April 15, 1996.**
10.13 Employment Agreement between Max Gysin and the Diamond Holding
Corporation, dated as of January 10, 1997.**
10.14 Employment Agreement between Harry M. Cook and the Registrant, dated as
of July 1, 1997.**
10.15 Form of Second Amended and Restated Loan and Security Agreement dated as
of December 31, 1997 among Pamarco Technologies Inc., Pamarco, Inc.,
Pamarco Europe Ltd., Armotek Industries, Inc., Dauphin Graphic Machines,
Inc., Diamond Holding Corporation and Core States Bank, N.A.**
11.1 Statement re: Computation of Per Share Earnings (as amended).**
21.1 Subsidiaries of the Registrant.**
23.1 Consent of Deloitte & Touche LLP (as amended).*
23.2 Consent of Morgan, Lewis & Bockius LLP (included in its opinion filed as
Exhibit 5 hereto).**
24.1 Power of Attorney (included on signature page to this Registration
Statement).**
27.1 Financial Data Schedule.**
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
<PAGE> 1
EXHIBIT 1.1
2,800,000 Shares
PAMARCO TECHNOLOGIES INC.
COMMON STOCK
UNDERWRITING AGREEMENT
EVEREN Securities, Inc.
Janney Montgomery Scott Inc.
<PAGE> 2
2,800,000 Shares
PAMARCO TECHNOLOGIES INC.
Common Stock
(par value $.01 per share)
UNDERWRITING AGREEMENT
, 1998
EVEREN Securities, Inc.
Janney Montgomery Scott Inc.
As Representatives of
the Several Underwriters
c/o EVEREN Securities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601-1994
Ladies and Gentlemen:
Pamarco Technologies, Inc., a Delaware corporation (the "Company"), and
the stockholders of the Company set forth on Schedule I attached hereto
(collectively referred to as the "Selling Stockholders") confirm their agreement
with each other and the several underwriters listed on Schedule II attached
hereto (the "Underwriters"), for whom EVEREN Securities, Inc. and Janney
Montgomery Scott Inc. (collectively, the "Representatives") have been duly
authorized to act as representatives, as follows:
SECTION 1. The Shares. Subject to the terms and conditions set forth in
this agreement (the "Agreement"), the Company proposes to issue and sell
1,600,000 shares of its authorized but unissued common stock, par value $.01 per
share (the "Common Stock"), to the several Underwriters and the Selling
Stockholders propose to sell an aggregate of 1,200,000 shares of issued and
outstanding Common Stock to the several Underwriters in the amounts set forth on
Schedule I. Such 2,800,000 shares of Common Stock proposed to be sold by the
Company and the Selling Stockholders are hereinafter referred to as the "Firm
Shares." Certain of the Selling Stockholders also propose to grant to the
Underwriters an option to purchase up to an aggregate of 420,000 additional
shares of Common Stock (the "Additional Shares") if requested by the
Underwriters as provided in Section 3 hereof. The Firm Shares and the Additional
Shares are herein collectively called the "Shares."
The Company and each of the Selling Stockholders hereby confirm their
agreements with the Underwriters as follows:
<PAGE> 3
SECTION 2. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission promulgated
thereunder (collectively, the "Act"), a registration statement on Form S-1 (File
No. 333-38757) including a prospectus, relating to the Shares. To the extent
the registration statement has been amended, each such amendment has been
prepared and duly filed. The registration statement, as amended at the time when
it became or becomes effective, including all financial schedules and exhibits
thereto and all of the information (if any) deemed to be part of the
registration statement at the time of its effectiveness pursuant to Rule 430A
under the Act ("Rule 430A), is hereinafter referred to as the "Registration
Statement"; the prospectus in the form first provided to the Underwriters by the
Company in connection with the offering and sale of the Shares (whether or not
required to be filed pursuant to Rule 424(b) under the Act ("Rule 424(b)")) is
hereinafter referred to as the "Prospectus," except that if any revised
prospectus shall be provided to the Underwriters by the Company for use in
connection with the offering of the Shares that differs from the Prospectus
(whether or not any such revised prospectus is required to be filed by the
Company pursuant to Rule 424(b) under the Act), the term "Prospectus" shall
refer to the revised prospectus from and after the time it is first provided to
the Underwriters for such use; and each preliminary prospectus included in the
Registration Statement prior to the time it became or becomes effective is
herein referred to as a "Preliminary Prospectus."
SECTION 3. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this Agreement, and subject to the
terms and conditions hereof, (i) the Company agrees to issue and sell to the
Underwriters, at a price of $____ per Share (the "Purchase Price"), 1,600,000
Firm Shares; (ii) each Selling Stockholder agrees to sell to the Underwriters,
at the Purchase Price, the number of Firm Shares set forth next to such Selling
Stockholder's name on Schedule I; and (iii) each Underwriter agrees, severally
and not jointly, to purchase from the Company and the Selling Stockholders, at
the Purchase Price, the aggregate number of Firm Shares set forth opposite the
name of such Underwriter in Schedule II hereto. The number of Firm Shares to be
purchased by each Underwriter from the Company and each Selling Stockholder
shall be as nearly as practicable in the same proportion as the number of Firm
Shares being sold by the Company and the Selling Stockholders bears to the total
number of Firm Shares to be sold hereunder.
On the basis of the representations and warranties contained in this
Agreement, and subject to the terms and conditions hereof, (i) the Selling
Stockholders indicated on Schedule I hereto agree to sell to the Underwriters,
at the Purchase Price, up to an aggregate of 420,000 Additional Shares; and (ii)
the Underwriters shall have the right to purchase, severally and not jointly,
from time to time, up to an aggregate of 420,000 Additional Shares at the
Purchase Price. Additional Shares may be purchased as provided in Section 4
hereof solely for the purpose of covering over allotments made in connection
with the offering of the Firm Shares. If any Additional Shares are to be
purchased, (i) each such Selling Stockholder agrees to sell the number of
Additional Shares (subject to adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Additional Shares to be purchased as the maximum number
2
<PAGE> 4
of Additional Shares set forth opposite the name of such Selling Stockholder on
Schedule I bears to the maximum number of Additional Shares to be sold by all
such Selling Stockholders, and (ii) each Underwriter, severally and not jointly,
agrees to purchase the number of Additional Shares (subject to such adjustments
to eliminate fractional shares as the Representatives may determine) that bears
the same proportion to the total number of Additional Shares to be purchased as
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II bears to the total number of Firm Shares.
For a period of 180 days from the date this Agreement becomes
effective, the Company will not, without the prior written consent of EVEREN
Securities, Inc. on behalf of the Underwriters (1) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock,
or (2) enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise;
provided, however, that this clause shall not apply to the transactions
involving the Shares expressly contemplated hereby and the granting of options
exercisable for shares of Common Stock under those benefit plans described in
the Prospectus (the "Option Plan") and the sales of shares of Common Stock
pursuant to the exercise of options granted under the Option Plan and provided
further, however, that the Company may issue shares of Common Stock
("Acquisition Shares") during such period in connection with acquisitions of
businesses so long as the purchaser of such Acquisition Shares agrees to be
bound by a lock-up letter in form and substance satisfactory to you pursuant to
which such purchaser agrees with the Company not to sell, offer to sell, solicit
an offer to buy, contract to sell, grant any option to purchase, or otherwise
transfer or dispose of, any such Acquisition Shares at any time before the
expiration of such 180 day period and the certificates evidencing such
Acquisition Shares bear a legend to such effect.
For a period of 180 days from the date this Agreement becomes
effective, the Company will not, without the prior written consent of EVEREN
Securities, Inc. on behalf of the Underwriters, file a registration statement
relating to shares of capital stock (including the Common Stock) or securities
convertible into or exercisable or exchangeable for, capital stock or warrants,
options or rights to purchase or acquire, capital stock, with the exception of
the filing of Registration Statements on Form S-8 with respect to the Option
Plan.
For a period of 180 days from the date this Agreement becomes
effective, the Selling Stockholders will not, without the prior written consent
of EVEREN Securities, Inc. on behalf of the Underwriters (1) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or (2) enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery
3
<PAGE> 5
of Common Stock or such other securities, in cash or otherwise; provided,
however, that this clause shall not apply to the transactions involving the
Shares expressly contemplated hereby or the sale of Shares of Common Stock
purchased on the open market.
The Company has furnished or will furnish to you "lock-up" letters, in
form and substance satisfactory to you, signed by each stockholder of the
Company who is also an employee or director of the Company.
SECTION 4. Delivery and Payment. The Company and each of the Selling
Stockholders agree with each Underwriter as follows:
(a) Delivery to the Underwriters of and payment for the Firm
Shares shall be made at 10:00 A.M., New York City time, on the third
full business day (such time and date being referred to as the "Closing
Date") following the date of the initial public offering of the Firm
Shares as advised to you by the Company, at such place as you shall
designate.
(b) Delivery to the Underwriters of and payment for any
Additional Shares to be purchased by the Underwriters shall be made at
such place as the Representatives shall designate, at 10:00 A.M., New
York City time, on such date or dates (individually, an "Option Closing
Date" and collectively, the "Option Closing Dates"), which may be the
same as the Closing Date but shall in no event be earlier than the
Closing Date, as shall be specified in a written notice from the
Representatives to the Selling Stockholders of the Underwriters'
determination to purchase a number, specified in said notice, of
Additional Shares. Any such notice may be given at any time on or prior
to the 45th day after the date of this Agreement.
(c) Certificates for the Shares shall be registered in such
names and issued in such denominations as you shall request in writing
not later than two business days prior to the Closing Date or the
applicable Option Closing Date, as the case may be, and shall be made
available for inspection not later than 9:30 A.M., New York City time,
on the business day next preceding the Closing Date or the applicable
Option Closing Date, as the case may be, with any transfer taxes
payable upon initial issuance or the transfer thereof duly paid by the
Company for the respective accounts of the Underwriters against payment
of the Purchase Price therefor by certified or official bank check or
checks payable in New York Clearing House or similar next-day funds to
the order of the Company or the Selling Stockholders, as the case may
be.
SECTION 5. Agreements of the Company. The Company agrees with each
Underwriter that:
(a) it will, if the Registration Statement has not heretofore
become effective under the Act, file an amendment to the Registration
Statement or, if necessary pursuant to Rule 430A under the Act, a
post-effective amendment to the Registration Statement, as soon as
practicable after the execution and delivery of this Agreement, and
will use its reasonable
4
<PAGE> 6
commercial efforts to cause the Registration Statement or such
post-effective amendment to be declared effective at the earliest
possible time; and the Company will comply fully and in a timely manner
with the applicable provisions of Rule 424(b), Rule 430A and the other
rules under the Act;
(b) it will advise you promptly and, if requested by you,
confirm such advice in writing, (i) when the Registration Statement has
become effective, if and when the Prospectus is sent for filing
pursuant to Rule 424 under the Act and when any post-effective
amendment to the Registration Statement becomes effective, (ii) of the
receipt of any comments from the Commission that relate to the
Registration Statement or requests by the Commission for amendments to
the Registration Statement or amendments or supplements to the
Prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement, or of the suspension of qualification of the
Shares for offering or sale in any jurisdiction, or the initiation or,
to the knowledge of the Company, threat of any proceedings for such
purpose by the Commission or any state securities commission or other
regulatory authority, and (iv) of the happening of any event or
information becoming known during the period referred to in paragraph
(e) below that makes any statement of a material fact made in the
Registration Statement untrue or that requires the making of any
additions to or changes in the Registration Statement (as amended or
supplemented from time to time) in order to make the statements therein
not misleading or that makes any statement of a material fact made in
the Prospectus (as amended or supplemented from time to time) untrue or
that requires the making of any additions to or changes in the
Prospectus (as amended or supplemented from time to time) in order to
make the statements therein, not misleading; if at any time the
Commission shall issue or institute proceedings (or threaten to
institute any such proceedings) to issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue or institute
proceedings (or threaten to institute proceedings) to issue an order
suspending the qualification or exemption of the Shares under any state
securities or Blue Sky laws, the Company shall use its reasonable
commercial efforts to obtain the withdrawal or lifting of such order at
the earliest possible time;
(c) it will furnish to you without charge four (4) signed
copies of the Registration Statement as first filed with the Commission
and of each amendment to it, including all exhibits filed therewith,
and will furnish to you and each Underwriter designated by you such
number of conformed copies of the Registration Statement as so filed
and of each amendment to it, without exhibits, as you may reasonably
request;
(d) it will not file any amendment or supplement to the
Registration Statement, whether before or after the time when it
becomes effective, or make any amendment or supplement to the
Prospectus of which you shall not previously have been advised and
provided a copy a reasonable period of time prior to the filing thereof
or to which you or your counsel shall reasonably object; and it will
prepare and file with the Commission,
5
<PAGE> 7
promptly upon your reasonable request, any amendment to the
Registration Statement or supplement to the Prospectus that may be
necessary or advisable in connection with the distribution of the
Shares by you in your or your counsel's opinion, and will use its
reasonable commercial efforts to cause the same to become effective as
promptly as possible;
(e) promptly after the Registration Statement becomes
effective, and from time to time thereafter for such period as a
prospectus is required by the Act to be delivered in connection with
the sales by an underwriter or a dealer (in the reasonable opinion of
your counsel), it will furnish to each Underwriter and dealer without
charge as many copies of the Prospectus (and any amendment or
supplement of the Prospectus) as such Underwriter or dealer may
reasonably request for the purposes contemplated by the Act; the
Company consents to the use of the Prospectus and any amendment or
supplement thereto by any Underwriter or any dealer, both in connection
with the offering or sale of the Shares and for such period of time
thereafter as the Prospectus is required by the Act to be delivered in
connection therewith;
(f) if during the period specified in paragraph (e) any event
shall occur or information become known as a result of which in the
reasonable opinion of your counsel it becomes necessary to amend or
supplement the Prospectus in order to make the statements therein, in
light of the circumstances existing as of the date the Prospectus is
delivered to a purchaser, not misleading, or it is necessary to amend
or supplement the Prospectus to comply with any law, forthwith to
prepare and, subject to paragraph 5(d) above, it will file with the
Commission at the sole expense of the Company an appropriate amendment
or supplement to the Prospectus so that the statements of any material
facts in the Prospectus, as so amended and supplemented, will not in
light of the circumstances when it is so delivered, be misleading, or
so that the Prospectus will comply with law and it will furnish to the
Underwriters and to such dealers as the Underwriters shall specify, at
the sole expense of the Company, such number of copies thereof as such
Underwriters or dealers may reasonably request;
(g) prior to any public offering of the Shares, it will
cooperate with you and counsel for the Underwriters in connection with
the registration or qualification, if necessary, of the Shares for
offer and sale by the several Underwriters and by dealers under the
state securities or Blue Sky laws of such jurisdictions as you may
request (provided, that the Company shall not be obligated to qualify
as a foreign corporation in any jurisdiction in which it is not so
qualified or to take any action which would subject it to general
consent to service of process in any jurisdiction in which it is not
now so subject); the Company will continue such qualification in effect
so long as required by law for the distribution of the Shares and will
file such consents to service of process or other documents as may be
necessary in order to effect such registration or qualification
(provided, that the Company shall not be obligated to take any action
that would subject it to general consent to service of process in any
jurisdiction in which it is not now so subject);
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<PAGE> 8
(h) it will not, prior to the exercise in full or termination
or expiration of the option to purchase the Additional Shares, incur
any liability or obligation, direct or contingent, or enter into any
material transaction, other than in the ordinary course of business,
except as contemplated by the Prospectus;
(i) it will not acquire any capital stock of the Company prior
to the exercise in full or termination or expiration of the option to
purchase the Additional Shares nor will the Company declare or pay any
dividend or make any other distribution upon the Common Stock payable
to stockholders of record on a date prior to the exercise in full or
termination or expiration of the option to purchase the Additional
Shares, except in either case as contemplated by the Prospectus;
(j) it will make generally available to its security holders
and furnish to the Underwriters as soon as reasonably practicable a
consolidated earnings statement covering a period of at least 12 months
beginning after the "effective date" (as defined in Rule 158 under the
Act) of the Registration Statement (but in no event commencing later
than 90 days after such date) that will satisfy the provisions of
Section 11(a) of the Act and Rule 158 thereunder and to advise you in
writing when such statement has been made so available;
(k) during the period of five years after the date of this
Agreement, it will furnish to you a copy (i) as soon as practicable
after the filing thereof, of each report filed by the Company with the
Commission, any securities exchange or the National Association of
Securities Dealers, Inc. ("NASD"); (ii) as soon as practicable after
the release thereof, of each material press release in respect of the
Company; (iii) as soon as available, of each report of the Company
mailed to stockholders; and (iv) as soon as available, such other
publicly available information concerning the Company as you may
reasonably request;
(l) whether or not the transactions contemplated hereby are
consummated or this Agreement becomes effective as to all of its
provisions or is terminated, to pay all costs, fees, expenses and taxes
incident to the performance by the Company of its obligations
hereunder, including (i) the preparation, printing, filing and
distribution under the Act of the Registration Statement (including
financial statements and exhibits), each Preliminary Prospectus and all
amendments and supplements to any of them prior to or during the period
specified in paragraph (e) above of this Section 5, (ii) the word
processing, reproduction and distribution of this Agreement, the Blue
Sky Survey and any other agreements, memoranda, correspondence and
other documents prepared and delivered by the Underwriters or their
counsel in connection with the offering of the Shares (including in
each case any disbursements of counsel for the Underwriters relating to
such preparation and delivery), (iii) the registration or qualification
of the Shares for offer and sale under the securities or Blue Sky laws
of the several states, including in each case the fees and
disbursements of counsel for the Underwriters, relating to such
registration or qualification and memoranda relating thereto, (iv)
filings and clearance with the NASD in connection with the offering and
sale of the Shares, (v) the approval for quotation of the Shares on the
Nasdaq National Market,
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<PAGE> 9
(vi) furnishing such copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus and all amendments and
supplements thereto as may be requested for use in connection with the
offering or sale of the Shares by the Underwriters or by dealers to
whom the Shares may be sold, (vii) obtaining the opinions to be
provided pursuant to Section 8(g) of this Agreement and (viii) the
performance by the Company of all of its other obligations under this
Agreement; if the sale of the Shares provided for herein is not
consummated because the Underwriters exercise their right to terminate
this Agreement pursuant to Section 9 hereof and any of the following
have occurred during the term of this Agreement: (a) there has been any
material adverse change in the condition (financial or otherwise),
earnings, affairs, business or prospects of the Company, or (b) the
United States has engaged in hostilities which resulted in the
declaration of a national emergency or war, (c) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market has been suspended or materially limited
or (d) a moratorium on commercial banking activities has been declared
by federal or New York state authorities, the effect of any of which in
the reasonable judgment of the Underwriters made it impracticable or
inadvisable to proceed with the offering and sale of the Shares on the
terms set forth in the Prospectus, the Company will promptly reimburse
the Underwriters upon demand for all reasonable out-of-pocket expenses
(including the fees and disbursements of counsel for the Underwriters)
that shall have been incurred by the Underwriters in connection with
the proposed purchase and sale of the Shares;
(m) it will use the net proceeds received by it from the sale
of the Shares being sold by it in the manner specified in the
Prospectus and it will report the application of the proceeds therefrom
as may be required in accordance with Rule 463 under the Act;
(n) if, at the time of effectiveness of the Registration
Statement, any information shall have been omitted therefrom in
reliance upon Rule 430A, then immediately following the execution and
delivery of this Agreement, it will prepare, and file or transmit for
filing with the Commission in accordance with such Rule 430A and Rule
424(b), copies of an amended Prospectus, or, if required by such Rule
430A, a post-effective amendment to the Registration Statement
(including an amended Prospectus), containing all information so
omitted;
(o) it will cause the Shares to be approved for quotation,
subject to notice of issuance or sale, on the Nasdaq National Market;
it will comply with all registration, filing and reporting requirements
of the Securities Exchange Act of 1934, as amended, (the "Exchange
Act") and the Nasdaq National Market; and
(p) it will use its reasonable commercial efforts to do and
perform all things required to be done and performed under this
Agreement by it prior to or after the Closing Date or any Option
Closing Date, as the case may be, and to satisfy all conditions
precedent to the delivery of the Shares.
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<PAGE> 10
SECTION 6. Representations and Warranties.
(a) The Company represents and warrants to each Underwriter as
of the date hereof, the Closing Date and each Option Closing Date that:
(i) the Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus
relating to the proposed offering of the Shares nor instituted
or threatened any proceedings for that purpose. The
Registration Statement, on the date it became or becomes
effective, each Preliminary Prospectus, on the date of the
filing thereof with the Commission, and the Prospectus and any
amendment or supplement thereto, on the date of filing thereof
with the Commission (or if not filed, on the date provided by
the Company to the Underwriters in connection with the
offering and sale of the Shares) and at the Closing Date and
each Option Closing Date conformed or will conform in all
material respects with the requirements of the Act and the
rules and regulations promulgated thereunder ("Rules and
Regulations"); the Registration Statement, on the date it
became or becomes effective, did not or will not contain an
untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading; each Preliminary
Prospectus, on the date of the filing thereof with the
Commission, and the Prospectus and any amendment or supplement
thereto, on the date of filing thereof with the Commission (or
if not filed, on the date provided by the Company to the
Underwriters in connection with the offering and sale of the
Shares) and at the Closing Date and each Option Closing Date
did not and will not include an untrue statement of material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not
misleading; the foregoing shall not apply to statements in or
omissions from the Registration Statement and the Prospectus
made or omitted in reliance upon, and in conformity with,
information relating to the Underwriters furnished in writing
to the Company by or on behalf of the Underwriters with your
consent expressly for use therein; the Company hereby
acknowledges for all purposes under this Agreement that the
statements set forth under the caption "Underwriting" in the
Prospectus constitute the only written information furnished
to the Company by or on behalf of the Underwriters for use in
the preparation of the Registration Statement or the
Prospectus or any amendment or supplement thereto;
(ii) the Company has been duly incorporated and is a
validly existing corporation in good standing under the laws
of Delaware, with full corporate power and authority to own or
lease its properties and assets and to conduct its business as
described in the Registration Statement and the Prospectus and
is duly qualified to do business in each jurisdiction in which
it owns or leases real property or in which the conduct of its
business or the ownership or leasing of property requires such
qualification, except where the failure to be so qualified,
either individually or in the
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<PAGE> 11
aggregate, would not have a material adverse effect on the
condition (financial or otherwise), business, assets,
prospects, net worth or results of operations of the Company
and the Subsidiaries (as defined below) taken as a whole (a
"Material Adverse Effect");
(iii) all of the Company's subsidiaries
(collectively, the "Subsidiaries") are identified in an
exhibit to the Registration Statement. Each Subsidiary is a
corporation duly organized, validly existing and in good
standing in the jurisdiction of its incorporation, with full
corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Registration Statement and the Prospectus, and is duly
registered and qualified to conduct its business and is in
good standing in each jurisdiction or place where the nature
of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to
register or qualify does not have a Material Adverse Effect;
all the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validity issued,
are fully paid and nonassessable, and are owned by the Company
directly or indirectly through one of the other Subsidiaries,
free and clear of any lien, adverse claim, security interest,
equity or other encumbrance. Other than with respect to the
Subsidiaries, the Company does not have, directly or
indirectly, any ownership interest or agreement or agreement
in principal to acquire any ownership interest which is
material to the Company in consideration of its consolidated
assets, in any corporation, partnership, joint venture,
association or other business organization;
(iv) the capitalization of the Company is, and upon
consummation of the transactions contemplated hereby and by
the Prospectus will be, as set forth in the Registration
Statement and the Prospectus under the caption
"Capitalization;" all of the outstanding shares of capital
stock of the Company have been duly authorized and are validly
issued, are fully paid and nonassessable and conform to the
description thereof in the Registration Statement and the
Prospectus and were not issued in violation of any preemptive
rights or other rights to subscribe for or purchase
securities; and, except (A) as set forth in the Registration
Statement and the Prospectus, and (B) for the Company's
agreement with Amir Investments Corporation and Smurfit
International B.V. (the "Sellers") to issue shares of Common
Stock to the Sellers upon Pamarco, Incorporated and Pamarco
Europe, Ltd.'s achievement of certain aggregate pre-tax
earnings during the period from January 1, 1995 to December
31, 1999 and the Sellers' election to take such shares in lieu
of cash, no options, warrants or other rights to purchase from
the Company, agreements or other obligations of the Company to
issue or other rights to convert any obligation into, or
exchange any securities for, shares of capital stock of or
ownership interests in the Company are outstanding; the
description of the Option Plan and the other options or rights
granted and exercised thereunder, as set forth in the
Registration Statement and the Prospectus, accurately and
fairly presents the
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<PAGE> 12
information required to be shown under the Act with respect to
such options and rights;
(v) subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, and except as described therein, (A) neither the
Company nor any of the Subsidiaries has incurred any material
liabilities or obligations, direct or contingent, or entered
into any material transactions not in the ordinary course of
business, (B) neither the Company nor any of the Subsidiaries
has purchased any of its outstanding capital stock or
declared, paid or otherwise made any dividend or distribution
of any kind on its capital stock or otherwise, and (C) there
has not been any material adverse change in the Company's or
any of the Subsidiaries' condition (financial or otherwise),
business, assets, prospects or results of operations or any
change in the Company's or any of the Subsidiaries' capital
stock, short-term debt or long-term debt that is material to
the Company and the Subsidiaries, taken as a whole;
(vi) the Shares to be sold by the Company pursuant to
this Agreement have been duly and validly authorized and, when
issued, delivered and paid for pursuant to this Agreement,
will be validly issued, fully paid and nonassessable, and will
conform to the description thereof contained in the
Prospectus;
(vii) this Agreement has been duly authorized,
executed and delivered by the Company and is a legal, valid
and binding agreement of the Company enforceable in accordance
with its terms;
(viii) neither the Company nor any of the
Subsidiaries is in violation of its certificate or articles of
incorporation or by-laws, or other organizational documents;
neither the Company nor any of the Subsidiaries is in
violation of or in breach of or in default in (nor has any
event occurred that with notice or lapse of time, or both,
would be a breach of or a default in) the performance of any
obligation, agreement or condition contained in any agreement,
lease, contract, permit, license, franchise agreement,
mortgage, loan agreement, debenture, note, deed of trust,
bond, indenture or other evidence of indebtedness or any other
instrument or obligation (collectively, "Obligations and
Instruments") to which the Company or any of the Subsidiaries
is a party or by which the Company or any of the Subsidiaries
or any of their respective properties or assets is bound or
affected (except, in each case, for such contravention or
default as would not have a Material Adverse Effect); neither
the Company, nor any of the Subsidiaries, is in violation of
any statute, judgment, decree, order, Rule or regulation
(collectively, "Laws") applicable to the Company or any of its
Subsidiaries or any of their respective properties or assets
and, to the knowledge of the Company, no other party under any
contract or other agreement to which the Company or any of its
Subsidiaries is a party is in material default thereunder
except
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<PAGE> 13
for such defaults as would not individually or in the
aggregate result in a Material Adverse Effect;
(ix) the execution, delivery and performance of this
Agreement and delivery of the Shares by the Company and
compliance by the Company with all the provisions hereof and
the consummation of the transactions contemplated hereby will
not, alone or upon notice or the passage of time or both (A)
require any consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other
governmental body or third party (except such as may be
required under the Act and the securities or Blue Sky laws of
the various states or by the NASD), (B) result in the creation
or imposition of any lien, charge or encumbrance upon any of
the properties or assets of the Company or any of the
Subsidiaries pursuant to the terms and provisions of any
Obligation or Instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties or assets
is bound, (C) conflict with or constitute a breach or default
under the certificate or articles of incorporation or by-laws,
or other organizational documents, of the Company or any of
the Subsidiaries, (D) conflict with or constitute a breach or
default under any Obligation or Instrument to which the
Company or any of the Subsidiaries is a party or by which the
Company or any of the Subsidiaries or any of their respective
properties or assets is bound (except for such creation,
conflict, breach or default as would not have a Material
Adverse Effect), or (E) assuming compliance with the Act and
all applicable state securities or Blue Sky laws, violate or
conflict with any Laws applicable to the Company or any of the
Subsidiaries or any of their respective properties or assets,
(except for such violation or conflict as would not have a
Material Adverse Effect);
(x) except as set forth in the Prospectus, there is
no action, suit, proceeding, inquiry or investigation,
governmental or otherwise, before any court, arbitrator or
governmental agency or body (collectively, "Proceedings")
pending to which the Company or any of the Subsidiaries is a
party or to which any of their respective properties or assets
are subject, that, if determined adversely to the Company,
would result in a Material Adverse Effect, or that might
materially and adversely affect the properties or assets
thereof, or that seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge the issuance or sale of
any of the Shares to be sold hereunder, and to the knowledge
of the Company, no such Proceedings are threatened or
contemplated; and there is no contract, document, agreement or
transaction to which the Company or any of the Subsidiaries is
a party, or that involved or involves the Company or any of
the Subsidiaries or any of their respective properties or
assets that are required to be described in or filed as
exhibits to the Registration Statement or the Prospectus by
the Act or the Rules and Regulations that have not been so
described or filed; no action has been taken with respect to
the Company or any of the Subsidiaries, and no statute, Rule
or regulation or order has been enacted, adopted or issued by
any governmental agency that
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suspends the effectiveness of the Registration Statement,
prevents or suspends the use of any Preliminary Prospectus or
the Prospectus or suspends the sale of the Shares in any
jurisdiction referred to in Section 5(g) hereof; no
injunction, restraining order or order of any nature by a
federal or state court of competent jurisdiction has been
issued with respect to the Company or any of the Subsidiaries
that might prevent the issuance of the Shares, suspend the
effectiveness of the Registration Statement, prevent or
suspend the use of any Preliminary Prospectus or the
Prospectus or suspend the sale of the Shares in any
jurisdiction referred to in Section 5(g) hereof; and every
request made to the Company of the Commission, or any
securities authority or agency of any jurisdiction, for
additional information (to be included in the Registration
Statement or the Prospectus or otherwise) has been complied
with in all material respects;
(xi) neither the Company nor any of the Subsidiaries
has violated any foreign, federal, state or local law or
regulation relating to the protection of human health and
safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), or
any foreign, Federal, state or local law relating to
discrimination in the hiring, promotion or pay of employees or
any applicable foreign, Federal or state wages and hours laws,
or any provisions of the Employee Retirement Income Security
Act of 1974, as amended or the rules and regulations
promulgated thereunder or similar foreign laws, that, in each
case or in the aggregate, might result in a Material Adverse
Effect; none of the real property owned or leased by the
Company or any of the Subsidiaries is contaminated with any
waste or hazardous substances, and neither the Company nor any
of the Subsidiaries may be deemed an "owner or operator" of a
"facility" or "vessel" which owns, possesses, transports,
generates, discharges or disposes of a "hazardous substance"
as those terms are defined in 601 of the Comprehensive
Response Compensation and Liability Act of 1980, U.S.C. 601 et
seq.;
(xii) the Company and each of the Subsidiaries has
such permits, licenses, franchises and authorizations of
governmental or regulatory authorities or third parties
("Permits"), including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease
and operate their respective properties and assets and to
conduct their respective businesses, except where the failure
to have any such Permit would not have a Material Adverse
Effect; the Company and each of the Subsidiaries has fulfilled
and performed all of their respective material obligations
with respect to such Permits and no event has occurred that
allows, or after notice or lapse of time, or both would allow,
revocation or termination thereof or result in any other
material impairment of the rights of the holder of any such
Permit, except where such revocation or impairment would not
have a Material Adverse Effect; and except as described in the
Prospectus, such Permits contain no restrictions that are
materially burdensome to the Company or any of the
Subsidiaries;
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(xiii) the Company is not, and after the sale of the
Shares contemplated hereunder will not be, and does not intend
to conduct its business in a manner in which it would become,
an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "Investment Company
Act");
(xiv) except as otherwise set forth in the
Prospectus, each of the Company and the Subsidiaries has good
title (marketable title with respect to its real property),
free and clear of all liens, claims, encumbrances and
restrictions (except liens for taxes not yet due and payable)
to all property and assets described in the Registration
Statement as being owned by it; all leases to which the
Company or any of the Subsidiaries is a party are subsisting,
valid and binding and no default has occurred or is continuing
thereunder that would result in a Material Adverse Effect; and
each of the Company and the Subsidiaries enjoys peaceful and
undisturbed possession under all such leases to which the
Company or any of the Subsidiaries is a party as lessee and
which are material to the Company and the Subsidiaries taken
as a whole with such exceptions as do not materially interfere
with the use made thereof by the Company or any of the
Subsidiaries;
(xv) each of the Company and the Subsidiaries
maintains reasonably adequate insurance for the conduct of its
business in accordance with prudent business practices with
solvent and reputable third-party insurers;
(xvi) Deloitte & Touche LLP, the accounting firm that
has certified or reviewed, or shall certify or review, the
financial statements and supporting schedules filed or to be
filed with the Commission as part of the Registration
Statement and the Prospectus, is an independent public
accounting firm with respect to the Company as required by the
Act;
(xvii) the financial statements of the Company and
the Subsidiaries, together with the related notes and
schedules of the Company and the Subsidiaries included in the
Registration Statement and the Prospectus, are consistent with
the books and records of the Company and present fairly in all
material respects the consolidated financial position, results
of operations and cash flows of the Company and the
Subsidiaries at the indicated dates and for the indicated
periods; such financial statements have been prepared in
accordance with generally accepted accounting principles
("GAAP") consistently applied throughout the periods involved,
and all adjustments necessary for a fair presentation of
results for such periods have been made and any unaudited
financial statements have been prepared on a basis
substantially consistent with that of the audited financial
statements included in the Registration Statement and the
Prospectus;
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(xviii) all rights of securityholders of the Company
to require registration of shares of Common Stock (a
"registration right") or any other security of the Company
because of the filing of the Registration Statement or
consummation of the transactions contemplated by this
Agreement or to receive notification of such filing or
consummation have been duly waived with respect to the public
offering contemplated hereby. There are no preemptive rights
with respect to the offering being made by the Prospectus;
(xix) except as disclosed in the Registration
Statement and the Prospectus, no labor dispute with the
employees of the Company or of any of the Subsidiaries exists,
or to the knowledge of the Company, is imminent, that would
result in a Material Adverse Effect; and neither the Company
nor any of the Subsidiaries has received notice of any
existing or imminent labor disturbance by the employees of any
of their respective principle suppliers, customers,
manufacturers or contractors that would result in any Material
Adverse Effect;
(xx) the Company and each of the Subsidiaries have
filed or caused to be filed, or have properly filed extensions
for, all foreign, federal, state and local income, value added
and franchise tax returns and have paid all taxes and
assessments shown thereon as due, except for such taxes and
assessments as are disclosed or adequately reserved against
and that are being contested in good faith by appropriate
proceedings, promptly instituted and diligently conducted; all
material tax liabilities are adequately provided for on the
books of the Company and the Subsidiaries, and there is no
material tax deficiency that has been or might be asserted
against the Company that is not so provided for;
(xxi) the Company and each of the Subsidiaries own or
possess, or can acquire on reasonable terms, the patents,
patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and or
unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks and trade names
(collectively, "Patents and Proprietary Rights") currently
employed by them in connection with the businesses now
operated by them except where the failure to so own, possess
or acquire such Patent and Proprietary Rights would not have a
Material Adverse Effect; and the Company has not received any
notice and is not otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any
Patent or Proprietary Rights that, if the subject of any
unfavorable decision, ruling or finding, singly or in the
aggregate, would result in a Material Adverse Effect;
(xxii) each of the Company and the Subsidiaries is
conducting and intends to conduct its business so as to comply
in all material respects with applicable federal, state, local
and foreign government Laws, except where the failure to
comply would not have a Material Adverse Effect; and except as
set forth in the Registration
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<PAGE> 17
Statement and the Prospectus, neither the Company nor any of
the Subsidiaries has been charged with or, to the Company's
knowledge, is under investigation with respect to, any
material violation of any such Laws;
(xxiii) the statistical and market related data
included in the Registration Statement and the Prospectus are
based on or derived from sources the Company reasonably and in
good faith believes to be accurate, reasonable and reliable;
(xxiv) the Company has not taken and will not take,
directly or indirectly, any action designed to stabilize or
manipulate or which has constituted or that might reasonably
be expected to cause or result in, under the Exchange Act or
otherwise, the stabilization or manipulation of, the price of
any security of the Company to facilitate the sale or resale
of the Shares;
(xxv) neither the Company nor any Subsidiary nor, to
the Company's knowledge, any employee or agent of the Company
or any of the Subsidiaries has made any payment of funds or
received or retained any funds in violation of any law, Rule
or regulation (including, without limitation, the Foreign
Corrupt Practices Act) or of a character required to be
disclosed in the Prospectus; neither the Company nor any of
the Subsidiaries has, at any time during the past five years,
(1) made any unlawful contributions to any candidate for any
political office, or failed fully to disclose any contribution
in violation of law, or (2) made any unlawful payment to
state, federal or foreign government officer or officers, or
other person charged with similar public or quasi-public duty;
(xxvi) each of the Company and the Subsidiaries
maintains a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with
respect to any differences;
(xxvii) there is no material document of a character
required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration
Statement that is not described or filed as required;
(xxviii) no transaction has occurred between or among
the Company or any of the Subsidiaries and any of the
Company's or the Subsidiaries' officers or directors or any
affiliate or affiliates of any such officer or director that
is required
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<PAGE> 18
to be described in and is not described in the Registration
Statement and the Prospectus; and
(xxix) the Company confirms as of the date hereof
that each of the Company and the Subsidiaries is in compliance
with all provisions of Section I of Florida Statutes, Section
517.075, An Act Relating to Disclosure of Doing Business with
Cuba; the Company further agrees that if the Company or any of
the Subsidiaries commences engaging in business with the
government of Cuba or with any person or affiliate located in
Cuba after the date the Registration Statement becomes or has
become effective with the Commission or with the Florida
Department of Banking and Finance (the "Department"),
whichever date is later, or if the information reported in the
Prospectus, if any, concerning the Company's business with
Cuba or with any person or affiliate located in Cuba changes
in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form
acceptable to the Department.
(b) Each Selling Stockholder severally and not jointly
represents and warrants to, and agrees with, the Underwriters that:
(i) such Selling Stockholder has all requisite power
to enter into this Agreement and to sell, assign, transfer and
deliver to the Underwriters the Shares to be sold by such
Selling Stockholder hereunder in accordance with the terms of
this Agreement. This Agreement has been duly executed and
delivered by such Selling Stockholder and constitutes and will
constitute the legal, valid and binding obligation of such
Selling Stockholder enforceable against such Selling
Stockholder in accordance with its terms;
(ii) such Selling Stockholder has duly executed and
delivered a power of attorney and custody agreement (with
respect to such Selling Stockholder, the "Power-of-Attorney"
and the "Custody Agreement," respectively), each in the form
heretofore delivered to the Representatives, appointing each
of _________________ and _____________________ individually,
as such Selling Stockholder's attorney-in-fact (in each case,
the "Attorney-in-Fact"), with authority to execute, deliver
and perform this Agreement on behalf of such Selling
Stockholder and appointing _____________________, as custodian
thereunder (the "Custodian"); certificates in negotiable form,
endorsed in blank or accompanied by blank stock powers duly
executed, with signatures appropriately guaranteed,
representing the Shares to be sold by such Selling Stockholder
hereunder have been deposited with the Custodian pursuant to
the Custody Agreement for the purpose of delivery pursuant to
this Agreement; such Selling Stockholder has full power to
enter into the Custody Agreement and the Power-of-Attorney and
to perform its obligations under the Custody Agreement; the
Custody Agreement and Power-of-Attorney have been duly
executed and delivered by such Selling Stockholder and are the
legal, valid, binding
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<PAGE> 19
and enforceable instruments of such Selling Stockholder; such
Selling Stockholder agrees that each of the Shares represented
by the certificates on deposit with the Custodian is subject
to the interests of the Underwriters hereunder, that the
arrangements made for such custody, the appointment of the
Attorneys-in-Fact and the right, power and authority of the
Attorneys-in-Fact to execute and deliver this Agreement and to
carry out the terms of this Agreement are to that extent
irrevocable and that the obligations of such Selling
Stockholder hereunder shall not be terminated, except as
provided in this Agreement or the Custody Agreement, by any
act of such Selling Stockholder, by operation of law or
otherwise, whether in the case of any individual Selling
Stockholder by the death or incapacity of such Selling
Stockholder, in the case of a trust or estate by the death of
the trustee or trustees or the executor or executors or the
termination of such trust or estate, or in the case of a
corporate or partnership Selling Stockholder by its
liquidation or dissolution or by the occurrence of any other
event; if any individual Selling Stockholder, trustee or
executor should die or become incapacitated or any such trust
should be terminated, or if any corporate or partnership
Selling Stockholder shall liquidate or dissolve, or if any
other event should occur, before the delivery of such Shares
hereunder, the certificates for such Shares deposited with the
Custodian shall be delivered by the Custodian in accordance
with the respective terms and conditions of this Agreement as
if such death, incapacity, termination, liquidation or
dissolution or other event had not occurred, regardless of
whether or not the Custodian or the Attorneys-in-Fact shall
have received notice thereof;
(iii) such Selling Stockholder is the lawful record
owner of the Shares to be sold by such Selling Stockholder
hereunder; upon sale and delivery of, and payment for, such
Shares, as provided herein, such Selling Stockholder will
convey good and marketable title to such Shares, free and
clear of any security interests, liens, encumbrances,
equities, claims, options, rights of third parties or other
defects;
(iv) such Selling Stockholder has reviewed the
Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) and the Registration
Statement, and the information regarding such Selling
Stockholder set forth therein under the caption "Principal and
Selling Stockholders' is complete and accurate;
(v) the sale by such Selling Stockholder of Shares
pursuant hereto is not prompted by any material adverse
information concerning the Company or any Subsidiary that is
not set forth in the Registration Statement or the Prospectus
(or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus);
(vi) the sale of the Shares to the Underwriters by
such Selling Stockholder pursuant to this Agreement, the
compliance by such Selling Stockholder with the other
provisions of this Agreement, the Custody Agreement and the
consummation
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<PAGE> 20
of the other transactions herein contemplated do not (A)
require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except
such as have been obtained, such as may be required under
state and foreign Blue Sky laws and, if the Registration
Statement is not effective under the Act as of the time of
execution hereof, such as may be required (and shall be
obtained as provided in this Agreement) under the Act and the
Exchange Act, or (B) result in a breach or violation of any of
the terms and provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, lease or other
agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any of such
Selling Stockholder's properties are bound, or any statute or
any judgment, decree, order, rule or regulation of any court
or other governmental authority or any arbitrator applicable
to such Selling Stockholder;
(vii) neither such Selling Stockholder, nor, if such
Selling Stockholder is a trust, any trustee or beneficiary of
such Selling Stockholder, is affiliated as a director,
officer, partner, stockholder, or otherwise with any
securities broker or dealer which is a member of the NASD or
any other organization that owns or controls any member of the
NASD; and
(viii) such Selling Stockholder has not taken, nor
will such Selling Stockholder take, directly or indirectly,
any action designed to, or that might reasonably be expected
to, cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or
resale of the Shares pursuant to the distribution contemplated
by this Agreement and, other than as permitted by the Act, no
Selling Stockholder has distributed, nor will such Selling
Stockholder distribute, any prospectus or other offering
material in connection with the offering and sale of the
Shares.
(c) Any certificate signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty made by the Company to each Underwriter as
to the matters covered thereby and shall be deemed incorporated herein
in its entirety and shall be effective as if such representation and
warranty were made herein; and any certificate signed by the Selling
Stockholders as such and delivered to you or to counsel for the
Underwriters shall also be deemed a representation and warranty
severally and not jointly made by such Selling Stockholder to each
Underwriter as to the matters covered thereby and shall also be deemed
incorporated herein in its entirety and shall be effective as if such
representation and warranty were made herein.
SECTION 7. Indemnification.
(a) The Company and the Selling Stockholders, jointly and
severally, shall indemnify and hold harmless each of the Underwriters
and each person, if any, who controls each of the Underwriters within
the meaning of Section 15 of the Act or Section 20 of the
19
<PAGE> 21
Exchange Act (the "indemnified parties") from and against any and all
losses, claims, damages, liabilities and judgments caused by, arising
out of, related to or based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement
(as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), including the information deemed to
be part of the Registration Statement at the time of effectiveness
pursuant to Rule 430A, if applicable, or the Prospectus or any
Preliminary Prospectus or caused by 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; provided,
however, that neither the Company nor the Selling Stockholders shall be
liable in any such case to the extent that such losses, claims,
damages, liabilities or judgments are caused by an untrue statement or
omission made or omitted in reliance upon, and in conformity with,
information relating to the Underwriters furnished in writing to the
Company by or on behalf of the Underwriters with your consent expressly
for use therein; and provided further, however, that the
indemnification contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such
Underwriter) on account of any such loss, claim, damage, liability or
judgment arising from the sale of the Shares by such Underwriter to any
person if a copy of the Prospectus shall not have been delivered or
sent to such person within the time required by the Act, and the untrue
statement or alleged untrue statement or omission or alleged omission
of a material fact contained in such Preliminary Prospectus was
corrected in the Prospectus, provided that the Company has delivered
the Prospectus to the several Underwriters in requisite quantity on a
timely basis to permit such delivery or sending.
(b) In case any action shall be brought against any of the
indemnified parties, based upon any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment or supplement
thereto and with respect to which indemnity may be sought against the
Company or the Selling Stockholders, such indemnified parties shall
promptly notify the Company or the Selling Stockholders, as the case
may be, in writing. No indemnification provided for in this Section 7
shall be available to any indemnified party who shall fail to give such
notice if the indemnifying party does not have knowledge of such claim
for indemnification, but only to the extent that such indemnifying
party has been materially prejudiced by the failure to give such
notice. The omission to so notify the indemnifying party shall not
relieve the indemnifying party otherwise than under this Section 7. The
Company or the Selling Stockholders, as the case may be, shall promptly
assume the defense thereof, including the employment of counsel
reasonably satisfactory to such indemnified party (which may include,
among others, Morgan, Lewis & Bockius LLP) and payment of all fees and
expenses. The indemnifying parties shall not agree to settle any such
action without the consent of EVEREN Securities, Inc., which such
consent shall not unreasonably be withheld. The indemnified parties
shall each have the right to employ separate counsel in any such action
and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such indemnified parties unless
(i) the employment of such counsel shall have been specifically
authorized by the Company, (ii) the
20
<PAGE> 22
Company or the Selling Stockholders, as the case may be, shall have
failed to assume promptly the defense or to employ counsel reasonably
satisfactory to such indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the
indemnified parties and the Company or the Selling Stockholders, and an
indemnified party shall have been advised by counsel that there may be
one or more legal defenses available to one or more of the indemnified
parties that are different from or additional to those available to the
Company or the Selling Stockholders (in which case the Company and the
Selling Stockholders shall not have the right to assume the defense of
such action on behalf of such indemnified party, it being understood,
however, that the Company and the Selling Stockholders shall not, in
connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the
same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys (in
addition to any required local counsel) for the indemnified parties,
which firm shall be designated in writing by EVEREN Securities, Inc.,
and that all such reasonable fees and expenses of such counsel shall be
reimbursed promptly as they are incurred). Neither the Company nor the
Selling Stockholders shall be liable for any settlement of any such
action effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with the written consent of the
Company or the Selling Stockholders, as the case may be, the Company
and the Selling Stockholders shall indemnify and hold harmless the
indemnified parties from and against any and all loss or liability by
reason of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement
of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional and complete release in writing of
such indemnified party from any and all liability on claims that are
the subject matter of such proceeding, which such settlement shall be
in form and substance satisfactory to the indemnified party. The
indemnification provided in this Section 7 will be in addition to any
liability which the Company and the Selling Stockholders may otherwise
have.
(c) The Underwriters agree, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers
who sign the Registration Statement, each Selling Stockholder, and any
person controlling the Company or a Selling Stockholder within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, to
the same extent as the foregoing indemnity from the Company and the
Selling Stockholders to the Underwriters but only with reference to
information stated in or omitted from the Registration Statement, the
Prospectus or any Preliminary Prospectus in reliance upon, and in
conformity with, information relating to the Underwriters furnished in
writing to the Company by or on behalf of the Underwriters with your
consent expressly for use therein. In case any action shall be brought
against the Company, any of the Selling Stockholders, any of the
Company's directors, any such officers or any person controlling the
Company based on the Registration Statement, the Prospectus or any
Preliminary Prospectus and in respect of which indemnity may be sought
against the Underwriters, the Underwriters shall
21
<PAGE> 23
have the rights and duties given to the Company and the Selling
Stockholders by Section 7(b) hereof (except that if the Company and the
Selling Stockholders shall have assumed the defense thereof, such
Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such Underwriter),
and the Selling Stockholders, the Company, its directors, any such
officers and any person controlling the Company shall have the rights
and duties given to the "indemnified parties" by Section 7(b) hereof.
(d) If the indemnification provided for in this Section 7 is
for any reason unavailable to an indemnified party or insufficient to
hold such indemnified party harmless in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities and
judgments (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders
on the one hand and the Underwriters on the other from the offering of
the Shares or (ii) if the allocation provided in clause (i) above is
not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling
Stockholders on the one hand and the Underwriters on the other in
connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders
on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering and
sale of the Shares (before deducting expenses) received by the Company
and the Selling Stockholders on the one hand, and the total
underwriting discounts and commissions received by the Underwriters on
the other, bears to the total price to the public of the Shares, in
each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company, the Selling Stockholders
and the Underwriters shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission or the alleged omission to state a material fact
relates to information supplied by the Company, the Selling
Stockholders or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(e) The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant
to this Section 7 were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably
incurred by
22
<PAGE> 24
such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this
Section 7, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has
otherwise paid or been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no
Selling Stockholder shall be required to contribute, more in the
aggregate than the Maximum Amount (as defined below). No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this Section 7 to contribute are several in proportion
to the respective amount of Shares purchased hereunder by each
Underwriter and not joint.
(f) Notwithstanding anything set forth to the contrary herein,
the liability of each Selling Stockholder under this Section 7,
together with any liability for any breach of any representation,
warranty, covenant or other provisions of this Agreement, shall be
limited to the proceeds received by such Selling Stockholder from the
sale of such Selling Stockholder's Shares pursuant to this Agreement,
net of underwriting discounts and commissions paid by such Selling
Stockholder to the Underwriters in connection with such sale. The
foregoing limitation for each Selling Stockholder is referred to as the
"Maximum Amount."
(g) In addition, the liability of each Selling Stockholder
under this Section 7, together with any liability for any breach of any
representation, warranty, covenant or other provision of this
Agreement, shall be proportional based on the ratio that the number of
Shares being sold by such Selling Stockholder bears to the total number
of Shares being sold by all Selling Stockholders; provided, however,
that with respect to the breach of any representation or warranty in
Section 6(b), such liability shall not be so proportional, no Selling
Stockholder shall be liable for the breach of any such representation
or warranty by any other Selling Stockholder, and each Selling
Stockholder shall be liable in full (not to exceed the Maximum Amount)
with respect to any breach thereof by such Selling Stockholder.
SECTION 8. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm Shares
on the Closing Date and the Option Shares on any Option Closing Date are subject
to the fulfillment of each of the following conditions on or prior to the
Closing Date and each Option Closing Date:
(a) All the representations and warranties of the Company and
the Selling Stockholders contained in this Agreement and in any
certificate delivered hereunder shall be true and correct in all
material respects on the Closing Date and each Option Closing Date with
the same force and effect as if made on and as of the Closing Date or
Option Closing Date, as applicable. The Company and the Selling
Stockholders shall not have failed at or
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<PAGE> 25
prior to the Closing Date or Option Closing Date, as applicable, to
perform or comply in all material respects with any of the agreements
herein contained and required to be performed or complied with by the
Company at or prior to the Closing Date.
(b) If the Registration Statement is not effective at the time
of the execution and delivery of this Agreement, the Registration
Statement shall have become effective (or, if a post-effective
amendment is required to be filed pursuant to Rule 430A under the Act,
such post-effective amendment shall have become effective) not later
than 9:30 A.M., New York City time, on the date of this Agreement or
such later time as you may approve in writing or, if the Registration
Statement has been declared effective prior to the execution and
delivery hereof in reliance on Rule 430A, the Prospectus shall have
been filed as required hereby, if necessary; and at the Closing Date
and each applicable Option Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been commenced or shall be
pending before or threatened by the Commission; every request for
additional information on the part of the Commission shall have been
complied with to the Underwriters' reasonable satisfaction; no stop
order suspending the sale of the Shares in any jurisdiction referred to
in Section 5(g) shall have been issued and no proceeding for that
purpose shall have been commenced or shall be pending or threatened.
(c) The Shares shall have been qualified for sale under the
Blue Sky laws of such states as shall have been specified by the
Representatives where such qualification is required by applicable law.
(d) The legality and sufficiency of the authorization,
issuance and sale or transfer and sale of the Shares hereunder, the
validity and form of the certificates representing the Shares, the
execution and delivery of this Agreement and all corporate proceedings
and other legal matters incident thereto, and the form of the
Registration Statement and the Prospectus (except financial statements)
shall have been approved by counsel for the Underwriters exercising
reasonable judgment, and no Underwriter shall have advised the Company
that the Registration Statement or the Prospectus, or any amendment or
supplement thereto, contains an untrue statement of material fact, or
omits to state a fact that in your opinion is material and is required
to be stated therein or is necessary to make the statements therein not
misleading.
(e) You shall have received an agreement from each of the
officers and directors who are not Selling Stockholders of the Company
(the "Additional Stockholders"), whereby each such officer or director
agrees to be bound by an agreement to the same effect as the covenants
set forth in the last paragraph of Section 3 of this Agreement (the
"Lock-Up Agreements").
(f) You shall have received signed opinions (reasonably
satisfactory to you and your counsel) dated the Closing Date or the
Option Closing Date, as the case may be, of
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<PAGE> 26
counsel for the Company, its Subsidiaries (but not Pamarco Europe,
Ltd.) and the Selling Stockholders to the effect that:
(i) the Company is a validly existing corporation in
good standing under the laws of the State of Delaware, with
all necessary corporate power and authority to own, lease and
operate its properties and assets and to conduct its business
as described in the Prospectus;
(ii) the Company is in good standing as a foreign
corporation in the states of ______________ and
________________ which, to our knowledge, are the only states
where the Company owns or leases real property.
(iii) Each of the Subsidiaries is a validly existing
corporation in good standing under the laws of the
jurisdiction of its organization, with all necessary corporate
power and authority to own, lease, and operate its properties
and assets and to conduct its business as described in the
Registration Statement and the Prospectus and is in good
standing as a foreign corporation in the states of
_________________ and _____________________ which, to our
knowledge, are the only states where the Subsidiaries own or
lease real property; and all the outstanding shares of capital
stock of each of the Subsidiaries are owned of record by the
Company directly, or indirectly through one of the other
Subsidiaries, free and clear of any adverse claim.
(iv) the Company has all requisite corporate power
and authority to enter into and perform this Agreement and the
performance of the Company's obligations hereunder has been
duly authorized by all necessary corporate action; this
Agreement has been duly executed and delivered by and on
behalf of the Company, and constitutes a legal, valid and
binding agreement of the Company, enforceable in accordance
with its terms, except as enforceability of the same may be
limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally;
no approval, consent, order, authorization, declaration or
filing by or with any regulatory, administrative or other
governmental body or, to such counsel's knowledge, third
party, is necessary in connection with the execution and
delivery of this Agreement and the consummation of the
transactions contemplated herein (other than as may be
required by the NASD or as required by state securities or
Blue Sky laws, as to which such counsel need express no
opinion) except as have been obtained and made under the Act
and such other as have been obtained or made, with counsel
specifying the same;
(v) the authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under
"Capitalization;" and all of the shares of capital stock of
the Company outstanding immediately prior to the Closing Date
have been duly authorized and validly issued, are fully paid
and non-assessable and were not
25
<PAGE> 27
issued in violation of any statutory or, to our knowledge,
other preemptive rights or other rights to subscribe for or
purchase securities; and, to our knowledge, except as set
forth in the Prospectus, there are no outstanding options,
warrants or other rights to convert any obligation into, or
exchange any securities for, shares of capital stock or
ownership interests in the Company;
(vi) the Registration Statement has become effective
under the Act, the Prospectus has been filed as required by
Rule 424(b) under the Act, if necessary, and, to our
knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose are pending or have been initiated or threatened
by the Commission; and the Registration Statement (including
the information deemed to be part of the Registration
Statement at the time of effectiveness pursuant to Rule 430A,
if applicable), the Prospectus and each amendment or
supplement thereto, as of their respective effective or issue
dates, (except for the financial statements and other
statistical or financial data included therein, as to which
such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act and the
Rules and Regulations;
(vii) the statements made in the Registration
Statement under the captions, "Description of Capital Stock,"
"Management-Stock Option Plan," "Management-Employment
Agreements" and "Shares Eligible for Future Sale" to the
extent that they constitute summaries of documents referred to
therein or matters of law or legal conclusions, have been
reviewed by such counsel and are accurate and fairly present
the information disclosed therein;
(viii) the certificates for the Shares to be
delivered hereunder are in proper legal form under, and
conform in all respects to the requirements of the DGCL, and
when duly countersigned by the Company's transfer agent and
delivered to you or upon your order against payment of the
agreed consideration therefor in accordance with the
provisions of this Agreement, the Shares sold by the Company
hereunder and represented thereby will be duly authorized and
validly issued, fully paid and nonassessable; and will not
have been issued in violation of any statutory preemptive or,
to the knowledge of such counsel after reasonable inquiry,
other similar rights that entitle or will entitle any person
to acquire any shares upon issuance thereof by the Company;
(ix) the execution and delivery of this Agreement,
the issuance and sale of the Shares by the Company as
contemplated herein and the fulfillment of the terms hereof by
the Company will not result in the creation of any lien,
charge or encumbrance upon any of the properties or assets of
the Company or any of the Subsidiaries pursuant to the terms
and provisions of, or conflict with, or violate or constitute
a breach of or default under (or an event which with notice or
lapse or time, or both, would constitute a breach of or a
default under) or otherwise give any
26
<PAGE> 28
other party the right to terminate, the certificate or
articles of incorporation or by-laws or other organizational
documents of the Company or any of the Subsidiaries or the
terms and provisions of any Obligations and Instruments, known
to us, to which the Company or any of the Subsidiaries is a
party or by which the Company or any of its Subsidiaries, or
any of their respective properties or assets may be bound or
affected, which such conflict, violation, breach or default
would have a Material Adverse Effect, or violate any Laws of
any government or governmental agency, instrumentality or
court, domestic or foreign, having jurisdiction over the
Company or any of the Subsidiaries or any of their respective
properties or assets;
(x) to such counsel's knowledge and except as
described in the Prospectus, there is no Proceeding pending or
threatened, to which the Company or any of the Subsidiaries is
or may be a party or to which the business or property of the
Company or any of the Subsidiaries is or may be the subject
that would result in any Material Adverse Effect; or that
seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance or sale of the Shares to the
Underwriters;
(xi) the descriptions in the Registration Statement
and Prospectus of contracts, instruments and other documents
filed as exhibits to the Registration Statement are accurate
in all material respects; such counsel does not know of any
Proceedings required to be described in the Prospectus that
are not described, or of any contracts or documents of a
character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that were not described or filed as
required;
(xii) the Company is not an "investment company"
subject to registration or regulation under the Investment
Company Act or a company controlled by an "investment company"
subject to registration or regulation under the Investment
Company Act;
(xiii) with respect to each Selling Stockholder, this
Agreement has been duly executed and delivered by or on behalf
of each such Selling Stockholder and has been duly authorized
in the case of all corporate, partnership, trust or other
non-human Selling Stockholders; and, to such counsel's
knowledge, the performance of this Agreement and the
consummation of the transactions contemplated herein by such
Selling Stockholder will not result in a breach or violation
of any of the terms and provisions of, or constitute a default
under any Obligations and Instruments known to such counsel to
which any such Selling Stockholder is a party or by which it
is bound or to which any of the Shares are bound or any Laws
of any government or governmental agency, instrumentality or
court, domestic or foreign, having jurisdiction over the
Selling Stockholders;
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(xiv) this Agreement is the legal, valid and binding
agreement of each Selling Stockholder enforceable in
accordance with its terms, except as enforceability of the
same may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights
generally;
(xv) each Lock-Up Agreement has been duly executed
and delivered by or on behalf of each Additional Stockholder
and is a legal, valid and binding agreement of each Additional
Stockholder enforceable in accordance with its terms, except
as enforceability of the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally; and
(xvi) Upon delivery of the Shares pursuant to this
Agreement and payment therefor as contemplated herein, the
Underwriters will acquire good and marketable title to the
Shares free and clear of any adverse claim.
In addition, such counsel shall state that they have
participated in conferences with officers and other representatives of
the Company, representatives of the independent public accountants of
the Company and representatives of the Underwriters and their counsel,
at which the contents of the Registration Statement and the Prospectus
and related matters were discussed and, although such counsel is not
passing upon, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the
Registration Statement and the Prospectus (except as set forth above)
and has not made any independent check or verification thereof, on the
basis of the foregoing (relying as to materiality to a large extent
upon the statements of officers and other representatives of the
Company), no facts have come to such counsel's attention that lead such
counsel to believe that either the Registration Statement or any
amendment (including any post-effective amendment) thereto at the time
such Registration Statement or amendment became effective, and as of
the Closing Date and any applicable Option Closing Date, contained or
contains an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements herein not misleading, or that the Prospectus or any
amendment or supplement thereto as of their respective issue dates and
as of the Closing Date and any applicable Option Closing Date contained
or contains an untrue statement of a material fact or omitted or omits
to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading, except that such counsel need express
no comment with respect to the financial statements, schedules and
other financial and statistical data included in the Registration
Statement or the Prospectus.
In rendering his opinion as aforesaid, counsel may rely upon
an opinion or opinions, each dated the Closing Date or the Option
Closing Date, as the case may be, of other counsel retained by him or
the Company as to laws of any jurisdiction other than the United
States, the Commonwealth of Pennsylvania or the State of Delaware,
provided that (1) each such
28
<PAGE> 30
local counsel is acceptable to the Representatives, (2) such reliance
is expressly authorized by each opinion so relied upon and a copy of
each such opinion is addressed and delivered to the Representatives and
is, in form and substance, satisfactory to them and their counsel, and
(3) counsel shall state in his opinion that he believes that he and the
Underwriters are justified in relying thereon.
(g) You shall have received an opinion of counsel for Pamarco
Europe, Ltd. dated the Closing Date or the Option Closing Date, as the
case may be, in form and substance reasonably satisfactory to you.
(h) You shall have received an opinion of Benesch,
Friedlander, Coplan & Aronoff LLP, counsel for the Underwriters, dated
the Closing Date or the Option Closing Date, as the case may be, in
form and substance reasonably satisfactory to you.
(i) You shall have received, in connection with the execution
of this Agreement and on the Closing Date and each Option Closing Date,
a "cold comfort" letter from Deloitte & Touche LLP, dated as of each
such date in form and substance satisfactory to you with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(j) You shall have received from the Company a certificate,
signed by Maurice A. Buckley and Larry A. Handeli in their capacities
as Chief Executive Officer and Chief Financial Officer of the Company,
respectively, addressed to the Underwriters and dated the Closing Date
or Option Closing Date, as applicable to the effect that:
(i) such officer does not know of any Proceedings
instituted, threatened or contemplated against the Company of
a character required to be disclosed in the Prospectus which
is not so disclosed; such officer does not know of any
material contract required to be filed as an exhibit to the
Registration Statement which is not so filed;
(ii) such officer has carefully examined the
Registration Statement and the Prospectus and all amendments
or supplements thereto and, in such officer's opinion, such
Registration Statement or such amendment as of its effective
date and as of the Closing Date, and the Prospectus or such
supplement as of its date and as of the Closing Date, did not
contain an untrue statement of material fact or omit to state
a material fact required to be stated therein or necessary in
order to make the statements therein not misleading and, in
such officer's opinion, since the effective date of the
Registration Statement, no event has occurred or information
become known which should have been set forth in an amendment
to the Registration Statement or a supplement to the
Prospectus which has not been so set forth in such amendment
or supplement;
29
<PAGE> 31
(iii) the representations and warranties of the
Company set forth in Section 6(a) of this Agreement are true
and correct in all material respects as of the date of this
Agreement and as of the Closing Date or the Option Closing
Date, as the case may be, and the Company has complied with
all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to such Closing
Date; and
(iv) the Commission has not issued an order
preventing or suspending the use of the Prospectus or any
preliminary prospectus filed as a part of the Registration
Statement or any amendment thereto; no stop order suspending
the effectiveness of the Registration Statement has been
issued; and to the knowledge of the respective signers, no
proceedings for that purpose have been instituted or are
pending or threatened under the Act.
The delivery of the certificate provided for in this subparagraph shall
be and constitute a representation and warranty of the Company as to
the facts required in the immediately foregoing clauses (iii) and (iv)
of this subparagraph to be set forth in said certificate.
(k) You shall have received a certificate of each Selling
Stockholder dated the Closing Date or the Option Closing Date, as the
case may be, to the effect that the representations and warranties of
such Selling Stockholder set forth in Sections 6(a) and 6(b) of this
Agreement are true and correct as of such date and the Selling
Stockholder has complied with all the agreements and satisfied all the
conditions on the part of such Selling Stockholder to be performed or
satisfied at or prior to such date.
(l) You and Benesch, Friedlander, Coplan & Aronoff LLP,
counsel for the Underwriters, shall have received on or before the
Closing Date or the Option Closing Date, as the case may be, such
further documents, opinions, certificates and schedules or instruments
relating to the business, corporate, legal and financial affairs of the
Company as you and they shall have reasonably requested from the
Company.
SECTION 9. Effective Date of Agreement, Termination and Defaults. This
Agreement shall become effective upon, and shall not be deemed delivered until,
the later of (i) execution of this Agreement and (ii) when notification of the
effectiveness of the Registration Statement has been released by the Commission.
This Agreement may be terminated at any time prior to the Closing Date
and any exercise of the option to purchase Additional Shares may be canceled at
any time prior to any Option Closing Date by the Underwriters by written notice
to the Company if any of the following has occurred: (i) since the respective
dates as of which information is given in the Registration Statement and the
Prospectus, any material adverse change or development involving a prospective
material adverse change in the condition, financial or otherwise, of the Company
and the Subsidiaries taken as a whole or the earnings, affairs, management, or
business of the Company and the Subsidiaries taken
30
<PAGE> 32
as a whole, whether or not arising in the ordinary course of business, that
would, in the Representatives' sole judgment, make it impracticable to market
the Shares on the terms and in the manner contemplated in the Prospectus, (ii)
any outbreak or escalation of hostilities or other national or international
calamity or crisis or change in economic conditions or in the financial markets
of the United States or elsewhere that, in the Representatives' sole judgment,
is material and adverse and would, in the Representatives' sole judgment, make
it impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus, (iii) the suspension or material limitation of
trading in securities on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market or limitation on prices for securities on
either such exchange or the Nasdaq National Market, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, Rule or order of any court or other governmental authority that in
the Representatives' sole opinion materially and adversely affects, or will
materially and adversely affect, the business or operations of the Company and
the Subsidiaries, (v) the declaration of a banking moratorium by either federal
or New York state authorities, (vi) the taking of any action by any Federal,
state or local government or agency in respect of its monetary or fiscal affairs
that in the Representatives' sole opinion has a material adverse effect on the
financial markets in the United States or (vii) there shall be any change in
financial markets or in political, economic or financial conditions which, in
the opinion of the Representatives, either renders it impracticable or
inadvisable to proceed with the offering and sale of the Shares on the terms set
forth in the Prospectus or materially adversely affects the market for the
Shares,
If on the Closing Date or on any Option Closing Date, as the case may
be, any of the Underwriters shall fail or refuse to purchase the Firm Shares or
Additional Shares, as the case may be, which it has agreed to purchase hereunder
on such date, and the aggregate number of Firm Shares or Additional Shares, as
the case may be, that such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed, in the aggregate, 10% of the
total number of Shares that all Underwriters are obligated to purchase on such
date, each non-defaulting Underwriter shall be obligated, in the proportion
which the number of Firm Shares set forth opposite its name in Schedule II
hereto bears to the total number of Firm Shares or Additional Shares, as the
case may be, that all the non-defaulting Underwriters have agreed to purchase,
or in such other proportion as you may specify, to purchase the Firm Shares or
Additional Shares, as the case may be, that such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
Closing Date or on the Option Closing Date, as the case may be, any of the
Underwriters shall fail or refuse to purchase the Firm Shares or Additional
Shares, as the case may be, in an amount that exceeds, in the aggregate, 10% of
the total number of the Shares, and arrangements satisfactory to you and the
Company for the purchase of such Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability on the part of the
non-defaulting Underwriters, the Company and the Selling Stockholders, except as
otherwise provided in this Section 9. In any such case that does not result in
termination of this Agreement, either you or the Company may postpone the
Closing Date or the Option Closing Date, as the case may be, for not longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under
31
<PAGE> 33
this paragraph shall not relieve a defaulting Underwriter from liability in
respect of any default of any such Underwriter under this Agreement.
The indemnity and contribution provisions and other agreements,
representations and warranties of the Company, the Selling Stockholders and the
Company's officers and directors set forth in or made pursuant to this Agreement
shall remain operative and in full force and effect, and will survive delivery
of and payment for the Shares, regardless of (i) any investigation, or statement
as to the results thereof, made by or on behalf of any of the Underwriters or by
or on behalf of the Company or any Selling Stockholder or the officers or
directors of the Company or any controlling person of the Company, (ii)
acceptance of the Shares and payment therefor hereunder or (iii) termination of
this Agreement. Notwithstanding any termination of this Agreement, the Company
shall be liable for and shall pay all expenses it has agreed to pay pursuant to
Section 5(l).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of, and shall be binding upon, the Company, the Selling
Stockholders, the Underwriters, any indemnified person referred to herein and
their respective successors and assigns, all as and to the extent provided in
this Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The terms "successors and assigns" shall not include a
purchaser of any of the Shares from any of the several Underwriters merely
because of such purchase.
SECTION 10. Effectiveness of Registration Statement. You, the Company
and the Selling Stockholders will use your, its and their reasonable commercial
efforts to cause the Registration Statement to become effective, if it has not
yet become effective, and to prevent the issuance of any stop order suspending
the effectiveness of the Registration Statement and, if such stop order be
issued, to obtain as soon as possible the lifting thereof.
SECTION 11. Information Furnished by the Underwriters. The statements
set forth in the last paragraph on the cover page, the stabilization legend on
the inside cover page, and the statements in the first paragraph, the third
paragraph, the third sentence of the sixth paragraph and the eighth paragraph
under the caption "Underwriting" in any preliminary prospectus and in the
Prospectus, constitute the only information furnished by or on behalf of the
Underwriters through you as such information is referred to in Sections 6(b) and
7 hereof.
SECTION 12. Miscellaneous. All communications hereunder will be in
writing and, if sent to the Underwriters will be mailed, delivered or
telegraphed and confirmed to you c/o EVEREN Securities, Inc., 77 West Wacker
Drive, Chicago, Illinois 60601-1994, Attention: Syndicate Department, with a
copy to Benesch, Friedlander, Coplan & Aronoff LLP, 2300 BP Tower, 200 Public
Square, Cleveland, Ohio 44114, Attention: David S. Inglis; if sent to the
Company will be mailed, delivered or telegraphed and confirmed to the Company at
its corporate headquarters with a copy to Morgan, Lewis & Bockius LLP, 2000 One
Logan Square, Philadelphia, Pennsylvania 19103-6993, Attention: Thomas J.
Sharbaugh; and if sent to the Selling Stockholders will be mailed, delivered or
telegraphed care of the Company, with a copy to Morgan, Lewis & Bockius LLP,
2000
32
<PAGE> 34
One Logan Square, Philadelphia, Pennsylvania 19103-6993, Attention: Thomas J.
Sharbaugh, or in any case to such other address as the person to be notified may
have requested in writing.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW THEREOF.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Underwriters,
including you.
Very truly yours,
PAMARCO TECHNOLOGIES, INC.
By: _______________________________
Name: _______________________________
Title: _______________________________
SELLING STOCKHOLDERS
By: _______________________________
Attorney-in-Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.
EVEREN Securities, Inc.
Janney Montgomery Scott Inc.
Acting as Representatives of the several
Underwriters named in Schedule II
By: EVEREN Securities, Inc.
By: _______________________________
Maury J. Bell, Managing Director
33
<PAGE> 35
SCHEDULE I
<TABLE>
<CAPTION>
MAXIMUM NO.
NO. OF FIRM OF ADDITIONAL
SHARES SHARES
SELLING STOCKHOLDER BEING SOLD TO BE SOLD
------------------- ----------- -------------
<S> <C> <C>
Bradford Venture Partners, L.P. 526,666 184,333
Bradford Investors, L.P. 309,485 108,320
Overseas Equity Investors Partners, L.P. 298,765 104,568
Bradford Venture Partners Special Situations, L.P. 8,653 3,028
Barbara M. Henagan 7,621 2,667
Bradford Mills Revocable Trust No. 1 U/D/T 12/3/91 6,131 2,146
Bradford Mills Revocable Trust No. 2 U/D/T 12/3/91 6,131 2,146
Quentin Corporation (Ward Woods) 4,591 1,607
Charles L. Jaffin 3,926 1,374
David W. Jaffin 3,759 1,316
Thomas J. Sharbaugh, Trustee U/A/D 3/17/69 3,566 1,248
Bradford Alan Mills 3,277 1,147
Belisarius Corporation (Robert D. Lindsay) 2,966 1,038
Richard R. Davis 2,923 1,023
Elizabeth M. Hardie 2,227 779
Bradford Alan Mills, Trustee U/A/D 11/4/78
F/B/O Ross D. Mills 1,574 551
Barbara L. Mills, Trustee U/A/D 12/26/84
F/B/O Frances Lee Hardie 1,504 526
Barbara L. Mills, Trustee U/A/D/ 2/26/88
F/B/O Kenneth Ian Hardie 1,337 468
Adam P. Godfrey 1,278 447
Rodney A. Cohen 1,079 378
Neil H. Brownstein 788 276
Cheryl A. Mills U/A/D 3/28/89
F/B/O Bradford Taybrook Mills 650 228
Thomas F. Ruhm 473 166
Erwin Hosono 394 138
David Cowan 236 82
--------- -------
TOTAL: 1,200,000 420,000
</TABLE>
34
<PAGE> 36
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF
FIRM SHARES
TO BE
UNDERWRITER PURCHASED
- ----------- -----------
<S> <C>
EVEREN Securities, Inc.............................
Janney Montgomery Scott Inc........................
---------
TOTAL: 2,800,000
=========
</TABLE>
35
<PAGE> 37
UNDERWRITING AGREEMENT - DRAFT OF 1/12/98
36
<PAGE> 1
EXHIBIT 10.7
PAMARCO TECHNOLOGIES INC.
1995 STOCK OPTION PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Pamarco Technologies Inc. 1995 Stock Option Plan
(the "Plan") is to enable key employees, officers, Eligible Directors (as
hereinafter defined), and Eligible Independent Contractors (as hereinafter
defined) of Pamarco Technologies Inc. (the "Company") to (i) own shares of stock
in the Company, (ii) participate in the stockholder value which has been
created, (iii) have a mutuality of interest with other stockholders and (iv)
enable the Company to attract, retain and motivate key employees, officers,
non-employee directors and independent contractors.
For the purposes of the Plan, the following terms shall be defined as
set forth below:
a. "Board" means the Board of Directors of the Company.
b. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
c. "Committee" means the Committee designated by the Board to
administer the Plan. The Committee may be a subcommittee of another committee of
the Board.
d. "Company" means Pamarco Technologies Inc., its Subsidiaries or any
successor organization.
e. "Disability" means permanent and total disability within the meaning
of Section 22(e)(3) of the Code.
f. "Eligible Director" means any member of the Board who is not an
employee of the Company, its consolidated Subsidiaries or the Company's
Affiliates (which for purposes of this definition shall mean the Company's
parent corporation and any consolidated Subsidiary or affiliated partnership
company of such parent corporation, which shall include any entity controlled by
such parent, either directly or indirectly, through one or more intermediaries
or through management of any venture capital fund).
g. "Eligible Independent Contractor" means an independent contractor
hired by the Company to provide consulting services on a regular basis for the
Company; provided, that the independent contractor renders bona fide services
and such services are not in connection with the offer or sale of securities in
a capital-raising transaction.
h. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
i. "Fair Market Value" means the fair market value of the Stock as
determined by the Committee in good faith based on the best available facts and
circumstances at the time; provided, however, that where there is a public
market for the Stock and the Stock is registered under the
-1-
<PAGE> 2
Exchange Act, Fair Market Value shall mean the per share or aggregate value of
the Stock as of any given date, as determined by reference to the price of the
last traded share of Stock on the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ")
System for such date or the next preceding date that Stock was traded on such
market, or, in the event the Stock is listed on a stock exchange, the closing
price per share of Stock as reported on such exchange for such date.
j. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
k. "Insider" means a Participant who is subject to Section 16 of the
Exchange Act.
l. "Non-Employee Director" shall have the meaning set forth in the
Rules.
m. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
n. "Participant" means a key employee, officer, Eligible Director or
Eligible Independent Contractor to whom an award is granted pursuant to the
Plan.
o. "Plan" means the Pamarco Technologies Inc. 1995 Stock Option Plan,
as hereinafter amended from time to time.
p. "Rules" means Rule 16b-3 and any successor provisions promulgated by
the Securities and Exchange Commission under Section 16 of the Exchange Act.
q. "Securities Act" shall mean the Securities Act of 1933, as amended.
r. "Securities Broker" means the registered securities broker
acceptable to the Company who agrees to effect the cashless exercise of an
Option pursuant to Section 5(d) hereof.
s. "Stock" means the Class A Common Stock of the Company, par value
$.01 per share.
t. "Stock Option" or "Option" means any option to purchase shares of
Stock (including Restricted Stock, if the Committee so determines) granted
pursuant to Section 5 below.
u. "Subsidiaries" means Pamarco, Incorporated and any other
subsidiaries of the Company.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Committee; provided, however,
that if the Company registers the Stock or any class of equity securities of the
Company pursuant to Section 12 of the Exchange Act, from the effective date of
such registration until six months after the termination of all such
registrations, grants of Options shall only be made by a Committee of not less
than two Directors who shall be Non-Employee Directors appointed by the Board
and who shall serve at the
-2-
<PAGE> 3
pleasure of the Board; provided further, however, that the Plan shall be
administered to the extent required by the Rules.
The Committee shall have the authority to grant pursuant to the terms
of the Plan: Stock Options to key employees and officers of the Company,
Eligible Directors and Eligible Independent Contractors. In particular, the
Committee shall, subject to the limitations and terms of the Plan, have the
authority:
(i) to select the officers and other key employees of the Company, the
Eligible Directors and the Eligible Independent Contractors to whom Stock
Options may from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock Options
are to be granted hereunder;
(iii) to determine the number of shares to be covered by each such
award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder, including the option or
exercise price and any restriction or limitations, based upon such factors as
the Committee shall determine, in its sole discretion;
(v) to determine whether and under what circumstances a Stock Option
may be exercised and settled in cash or Stock or without a payment of cash;
(vi) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an award under this Plan shall
be deferred either automatically or at the election of the Participant; and
(vii) to amend the terms of any outstanding award (with the consent of
the Participant) to reflect terms not otherwise inconsistent with the Plan,
including amendments concerning vesting acceleration or forfeiture wavier
regarding any award or the extension of a Participant's right with respect to
awards granted under the Plan, as a result of termination of employment or
service or otherwise, based on such factors as the Committee shall determine, in
its sole discretion.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan.
No member of the Board or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Stock Option
granted under it. Nothing herein shall be deemed to expand the personal
liability of a member of the Board or Committee beyond that which may arise
under any applicable standards set forth in the Company's by-laws and Delaware
law, nor shall anything herein limit any rights to indemnification or
advancement of expenses to which any member of the Board or the Committee may be
entitled under any by-law, agreement, vote of the stockholders or directors, or
otherwise.
-3-
<PAGE> 4
All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and Plan
Participants.
SECTION 3. STOCK SUBJECT TO THE PLAN
(a) The aggregate number of shares of Stock that may be issued or
transferred under the Plan is 705,000 (300,000 at time of original adoption of
Plan taking into account a ____ to ____ stock split on _____ and a _____% stock
dividend on ____ ), subject to adjustment pursuant to Section 3(b) below. Such
shares may be authorized but unissued shares or reacquired shares. If the number
of shares of Stock issued under the Plan and the number of shares of Stock
subject to outstanding awards (taking into account the share counting
requirements established under the Rules) equals the maximum number of shares of
Stock authorized under the Plan, no further awards shall be made unless the Plan
is amended in accordance with Section 6 or additional shares of Stock become
available for further awards under the Plan. If and to the extent that Options
granted under the Plan terminate, expire or are canceled without having been
exercised, such shares shall again be available for subsequent awards under the
Plan.
(b) If any change is made to the Stock (whether by reason of merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination of shares, or exchange of shares or any other change in capital
structure made without receipt of consideration), then unless such event or
change results in the termination of all outstanding awards under the Plan, the
Board or the Committee shall preserve the value of the outstanding awards by
adjusting the maximum number and class of shares issuable under the Plan to
reflect the effect of such event or change in the Company's capital structure,
and by making appropriate adjustments to the number and class of shares subject
to an outstanding award and/or the option price of each outstanding Option,
except that any fractional shares resulting from such adjustments shall be
eliminated by rounding any portion of a share equal to .500 or greater up, and
any portion of a share equal to less than .500 down, in each case to the nearest
whole number.
SECTION 4. ELIGIBILITY; PARTICIPANT LIMITATIONS CONCERNING ISSUANCES; STOCK
SUBJECT TO AWARDS
Officers, key employees and Eligible Independent Contractors who are
responsible for or contribute to the management, growth and/or profitability of
the business of the Company are eligible to be granted awards under the Plan.
Eligible Directors, including members of the Committee, shall be eligible for
awards under the Plan, subject to Section 5(l) hereof.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve. Stock Options granted under the Plan
may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock
Options.
The Committee shall have the authority to grant Incentive Stock
Options, Non-Qualified Stock Options or both types of Stock Options. To the
extent that any Stock Option does not qualify as an Incentive Stock Option, it
shall constitute a Non-Qualified Stock Option.
-4-
<PAGE> 5
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the optionee(s) affected, to disqualify any Incentive
Stock Option under Section 422.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
appropriate:
(a) OPTION PRICE. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Committee at the time of grant;
provided, however, that the option price per share for any Incentive Stock
Option shall be not less than 100% of the Fair Market Value of the Stock at the
time of grant.
Any Incentive Stock Option granted to any optionee who, at the
time the Option is granted, owns more than 10% of the voting power of all
classes of stock of the Company or of a Parent or Subsidiary corporation (within
the meaning of Section 424 of the Code), shall have an exercise price no less
than 110% of Fair Market Value per share on date of the grant.
(b) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten years after
the date the Stock Option is granted. However, any Incentive Stock Option
granted to any optionee who, at the time the Option is granted, owns more than
10% of the voting power of all classes of stock of the Company or of a Parent or
Subsidiary corporation may not have a term of more than five years. No Option
may be exercised by any person after expiration of the term of the Option.
(c) EXERCISABILITY. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee at or after grant. If the Committee provides, in its discretion, that
any Stock Option is exercisable only in installments, the Committee may waive
such installment exercise provisions at any time at or after grant in whole or
in part, based on such factors as the Committee shall determine, in its sole
discretion.
(d) METHOD OF EXERCISE. Subject to whatever installment exercise
provisions apply under Section 5(c), Stock Options may be exercised in whole or
in part at any time and from time to time during the Option period, by giving
written notice of exercise to the Company specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of the purchase
price, either by cash, check, or such other instrument as the Committee may
accept. As determined by the Committee, in its sole discretion, at or after
grant, payment in full or in part may also be made in the form of unrestricted
Stock already owned by the optionee (based upon the Fair Market Value of a share
of Stock on the business date preceding tender if received prior to the close of
the stock market and at the Fair Market Value on the date of tender if received
after the stock market closes); provided, however, that, (i) in the case of an
Incentive Stock Option, the right to make a payment in the form of unrestricted
Stock already owned by the optionee may be authorized only at the time the
Option is granted and (ii) the Company may require that the Stock has been owned
by the Participant for a minimum period of time specified by the Committee. In
addition, if such unrestricted Stock was acquired through exercise of an
Incentive Stock Option,
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such Stock shall have been held by the optionee for a period of not less than
the holding period described in Section 422(a)(1) of the Code on the date of
exercise, or if such Stock was acquired through exercise of a Non-Qualified
Stock Option or of an option under a similar plan of the Company, such Stock
shall have been held by the optionee for a period of more than one year on the
date of exercise, and further provided that the optionee shall not have tendered
Stock in payment of the exercise price of any other Option under the Plan or any
other stock option plan of the Company within six calendar months of the date of
exercise.
If specified by the Committee in the agreement governing a
Stock Option at the time of grant, the Committee may, in its sole discretion,
upon receipt of such optionee's written notice to exercise, elect to cash out
all or part of the portion of the Stock Option to be exercised by paying the
optionee an amount, in cash or Stock, equal to the excess of the Fair Market
Value of the Stock over the option price on the effective date of such cash-out.
To the extent permitted under the applicable laws and
regulations, at the request of the Participant, and with the consent of the
Committee, the Company shall cooperate in a "cashless exercise" of an Option.
The cashless exercise shall be effected by the Participant delivering to the
Securities Broker instructions to sell a sufficient number of shares of Stock to
cover the cost and expenses associated therewith.
No shares of Stock shall be issued until full payment therefor
has been made. An optionee shall not have any right to dividends or other rights
of a stockholder with respect to shares subject to the Option until such time as
Stock is issued in the name of the optionee following exercise of the Option in
accordance with the Plan.
(e) STOCK OPTION AGREEMENT. Each Option granted under this Plan shall
be evidenced by an appropriate Stock Option agreement, which agreement shall
expressly specify whether such Option is an Incentive Stock Option or a
Non-Qualified Stock Option and shall be executed by the Company and the
optionee. The agreement shall contain such terms and provisions, not
inconsistent with the Plan, as shall be determined by the Committee. Such terms
and provisions may vary between optionees or as to the same optionee to whom
more than one Option may be granted.
(f) REPLACEMENT OPTIONS. If an Option granted pursuant to the Plan may
be exercised by an optionee by means of a stock-for-stock swap method of
exercise as provided in 5(d) above, then the Committee may, in its sole
discretion and at the time of the original option grant, authorize the
Participant to automatically receive a replacement Option pursuant to this part
of the Plan. This replacement option shall cover a number of shares determined
by the Committee, but in no event more than the number of shares equal to the
difference between the number of shares of the original option exercised and the
net shares received by the Participant from such exercise. The per share
exercise price of the replacement option shall equal the then current Fair
Market Value of a share of Stock, and shall have a term extending to the
expiration date of the original Option.
The Committee shall have the right, in its sole discretion and
at any time, to discontinue the automatic grant of replacement options if it
determines the continuance of such grants to no longer be in the best interest
of the Company.
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(g) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be
transferable by the optionee other than by will, by the laws of descent and
distribution, pursuant to a qualified domestic relations order, or as permitted
under the Rules, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(h) TERMINATION OF EMPLOYMENT BY REASON OF DEATH. Unless otherwise
determined by the Committee at or after grant, if any optionee's employment by
the Company terminates by reason of death, any Stock Option held by such
optionee may thereafter be exercised, to the extent then exercisable or on such
accelerated basis as the Committee may determine at or after grant, by the legal
representative of the estate or by the legatee of the optionee under the will of
the optionee, for a period of one year (or such shorter period as the Committee
may specify at grant) from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is shorter.
(i) TERMINATION OF EMPLOYMENT BY REASON OF DISABILITY. Unless otherwise
determined by the Committee at or after grant, if an optionee's employment by
the Company terminates by reason of Disability, any Stock Option held by such
optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of termination, or on such accelerated basis as the
Committee may determine at or after grant, for a period of one year (or such
shorter period as the Committee may specify at grant) from the date of such
termination of employment or until the expiration of the stated term of such
Stock Option, whichever period is shorter; provided, however, that, if the
optionee dies within such one-year period (or such shorter period as the
Committee shall specify at grant), any unexercised Stock Option held by such
optionee shall thereafter be exercisable to the extent it was exercisable at the
time of death for a period of twelve months from the date of such death or until
the expiration of the stated term of such Stock Option, whichever period is
shorter. In the event of termination of employment by reason of Disability, if
an Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purposes of Section 422 of the Code, such Stock Option
will thereafter be treated as a Non-Qualified Stock Option.
(j) OTHER TERMINATION OF EMPLOYMENT. Unless otherwise determined by the
Committee at or after grant, in the event of termination of employment
(voluntary or involuntary) for any reason other than death or Disability, any
Stock Option held by such optionee may thereafter be exercised by the optionee,
to the extent it was exercisable at the time of such termination or on such
accelerated basis as the Committee may determine at or after grant, for a period
of three months (or such shorter period as Committee may specify at grant) from
the date of such termination of employment or the expiration of the stated term
of such Stock Option, whichever period is shorter; provided, however, that, if
the optionee dies within such three-month period, any unexercised Stock Option
held by such optionee shall thereafter be exercisable, to the extent to which it
was exercisable at the time of death, for a period of twelve months from the
date of such death or until the expiration of the stated term of such Stock
Option, whichever period is shorter.
(k) INCENTIVE STOCK OPTION LIMITATION. The aggregate Fair Market Value
(determined as of the time of grant) of the Stock with respect to which
Incentive Stock Options are exercisable for the first time by the optionee
during any calendar year under the Plan and/or any other stock option plan of
the Company shall not exceed $100,000.
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<PAGE> 8
(l) OPTION GRANTS TO ELIGIBLE DIRECTORS. An Eligible Director shall be
entitled to receive Options hereunder with such terms as shall be established by
the Committee that are not inconsistent with the terms of the Plan.
(m) WITHHOLDING AND USE OF SHARES TO SATISFY TAX OBLIGATIONS. The
obligation of the Company to deliver Stock upon the exercise of any Option shall
be subject to applicable federal, state and local tax withholding requirements.
No later than the date an amount first becomes includable in the gross income of
the Participant for federal income tax purposes with respect to any award under
the Plan, the Participant shall pay to the Company, or make arrangements
satisfactory to the Committee regarding the payment of, any federal, state, or
local taxes of any kind required by law to be withheld with respect to such
amount. The Committee, in its sole discretion, may permit that the withholding
obligations may be settled with Stock, including Stock that is part of the award
that gives rise to the withholding requirement. Stock shall be valued, for this
purpose, at its Fair Market Value on the date the amount of tax required to be
withheld is determined (the "Determination Date"). If Stock acquired under the
exercise of an Incentive Stock Option is used to satisfy such withholding
requirement, such Stock must have been held by the optionee for a period of not
less than the holding period described in Section 422(a)(1) of the Code on the
Determination Date. If Stock acquired through the exercise of a Non-Qualified
Stock Option or of an option under a similar plan is delivered by the optionee
to the Company to satisfy such withholding requirement, such Stock must have
been held by the optionee for a period of more than one year on the
Determination Date. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the Participant.
(n) ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES ACTS. Within a
reasonable time after exercise of an Option, the Company shall cause to be
delivered to the optionee a certificate for the Stock purchased pursuant to the
exercise of the Option.
SECTION 6. AMENDMENTS AND TERMINATION
The Board may amend or terminate the Plan at any time; provided,
however, that the Board shall not amend the Plan without shareholder approval if
such approval is required by section 422 of the Code or, after a public
offering, section 162(m) of the Code. No amendment, alteration or
discontinuation shall be made which would impair the rights of an optionee or
Participant under a Stock Option award theretofore granted, without the
optionee's or Participant's consent
The Committee may amend the terms of any Stock Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any holder without the holder's consent.
SECTION 7. FUNDING OF THE PLAN
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any grants under this Plan.
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SECTION 8. GENERAL PROVISIONS
(a) The Committee may require each person purchasing shares pursuant to
a Stock Option to represent to and agree with the Company in writing that the
Participant is acquiring the shares without a view to distribution thereof. The
certificates for such shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer under the Securities Act or
any state securities law.
All certificates for shares of Stock or other securities
delivered under the Plan shall be subject to such stock-transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities Act, the Exchange Act, any
stock exchange or over-the-counter market upon which the Stock is then listed,
and any applicable federal or state securities law, and the Committee may cause
a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required, and such arrangements may be either
generally applicable or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any Participant any
right to continued employment with the Company nor shall it interfere in any way
with the right of the Company to terminate its relationship with any of its
employees, directors or independent contractors at any time.
(d) At the time of grant, the Committee may provide in connection with
any grant made under this Plan that (i) the shares of Stock received as a result
of such grant shall be subject to a right of first refusal, pursuant to which
the Participant shall be required to offer to the Company any shares that the
Participant wishes to sell, with the price being the then Fair Market Value of
the Stock, subject to such other terms and conditions as the Committee may
specify at the time of grant; and (ii) the shares of Stock received or to be
received as a result of such grant shall be subject to repurchase by the Company
upon termination of employment, subject to a repurchase price and such other
terms and conditions as the Committee may specify at the time of grant.
(e) The Committee shall establish such procedures as it deems
appropriate for a Participant to designate a beneficiary to whom any amounts
payable in the event of the Participant's death are to be paid.
(f) The Plan shall be governed by and subject to all applicable laws
and to the approvals by any governmental or regulatory agency as may be
required.
SECTION 9. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall be effective as of January 1, 1995, subject to the
consent or approval of the Company's stockholders as provided below. No Stock
Option award shall be granted pursuant to the Plan on or after January 1, 2005,
but Stock Options granted prior to such tenth anniversary may be exercised after
such date. If the Plan is not approved by a majority of the votes cast at a duly
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held meeting at which a quorum representing a majority of all outstanding voting
stock of the Company is, either in person or by proxy, present and voting on the
Plan, within 12 months after such effective date, any Incentive Stock Options
that have been granted shall automatically become Non-Qualified Stock Options.
SECTION 10. INTERPRETATION.
A determination of the Committee as to any question which may arise
with respect to the interpretation of the provisions of this Plan or any Options
shall be final and conclusive, and nothing in this Plan, or in any regulation
hereunder, shall be deemed to give any Participant, his legal representatives,
assigns or any other person any right to participate herein except to such
extent, if any, as the Committee may have determined or approved pursuant to
this Plan. The Committee may consult with legal counsel who may be counsel to
the Company and shall not incur any liability for any action taken in good faith
in reliance upon the advice of such counsel.
SECTION 11. GOVERNING LAW.
With respect to any Incentive Stock Options granted pursuant to the
Plan and the agreements thereunder, the Plan, such agreements and any Incentive
Stock Options granted pursuant thereto shall be governed by the applicable Code
provisions to the maximum extent possible. Otherwise, the laws of the State of
Delaware shall govern the operation of, and the rights of Participants under,
the Plan, the agreements and any Options granted thereunder.
SECTION 12. COMPLIANCE WITH THE RULES.
(a) Unless an Insider could otherwise transfer shares of Stock issued
hereunder without incurring liability under Section 16(b) of the Exchange Act,
at least six months must elapse from the date of grant of an Option to the date
of disposition of the Stock issued upon exercise of such Option.
(b) It is the intent of the Company that this Plan comply in all
respects with the Rules in connection with any grant of Options to, or other
transaction by, an Insider. Accordingly, if any provision of this Plan or any
agreement relating to an Option does not comply with the Rules as then
applicable to any such Insider, such provision will be construed or deemed
amended to the extent necessary to conform to such requirements with respect to
such person. In addition, the Committee shall have no authority to make any
amendment, alteration, suspension, discontinuation, or termination of the Plan
or any agreement hereunder, or take other action if such authority would cause
an Insider's transactions under the Plan not to be exempt under the Rules.
(c) Certain restrictive provisions of the Plan have been implemented to
facilitate the Company's and Insiders' compliance with the Rules. The Committee,
in its discretion, may waive certain of these restrictions, provided the waiver
does not relate in any way to an Insider and, provided further, such waiver or
amendment is carried out in accordance with Section 6 hereof.
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Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 5 to the Registration Statement
No. 333-38757 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 such Registration Statement, and 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
January 28, 1998
