<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1998
REGISTRATION STATEMENT NO. 333-38757
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
AMENDMENT NO. 4
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.
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<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 6, 1998
PROSPECTUS
2,800,000 SHARES
[LOGO] PAMARCO TECHNOLOGIES INC.
COMMON STOCK
Of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering"), 1,600,000 shares will be sold by
Pamarco Technologies Inc. (the "Company") and 1,200,000 shares will be sold by
certain non-management stockholders of the Company (the "Selling Stockholders").
The Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders.
Prior to this Offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $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) Certain of the Selling Stockholders have granted to the Underwriters an
option, exercisable for 45 days from the date of the initial public offering
of the Common Stock, to purchase up to an additional 420,000 shares of
Common Stock for the purposes of covering over-allotments, if any. If such
option is exercised in full, the total price to public, underwriting
discounts and commissions and proceeds to Selling Stockholders will be
$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."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements and the notes thereto included elsewhere in this
Prospectus. Unless otherwise indicated, all information presented in this
Prospectus (i) assumes no exercise of the over-allotment option granted by
certain Selling Stockholders to the Underwriters, (ii) reflects the conversion
of the Company's Class A Common Stock, Class B Common Stock and Class C Common
Stock into Common Stock 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% of net sales for the nine months ended
September 30, 1997.
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.
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,
3
<PAGE> 5
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 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.
4
<PAGE> 6
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
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<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 33.3% 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
8
<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 41.5% of the outstanding
Common Stock after completion of this Offering (35.1% if the Underwriters'
over-allotment option is exercised in full). Accordingly, should they decide to
act in concert with each other, the Principal Stockholders will continue to have
a substantial influence over the affairs of the Company, including the election
of the Company's directors, any amendment of the Company's Restated Certificate
of Incorporation (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 $8.0
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 $1.3 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 $43.2 million or $6.54 per share. This represents an immediate
increase in such pro forma net tangible book value of $1.61 per share to
existing stockholders and an immediate dilution of $6.46 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............................ 1.61
-----
Pro forma net tangible book value per share after Offering.................... 6.54
------
Per share dilution to new investors........................................... $ 6.46
======
</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 exclude 399,911 shares of Common Stock issuable upon
the exercise of options outstanding as of September 30, 1997 under the Stock
Option Plan at a weighted average exercise price of $4.39 per share and
305,089 shares reserved for future grants under the Stock Option Plan. See
"Management -- Stock Option Plan." Upon the completion of this Offering,
options to purchase a total of 222,047 shares of Common Stock will be
immediately exercisable. To the extent that these and other options are
exercised, there will be further dilution to new investors.
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 PREDECESSOR (1) THE COMPANY
------------------------------ ------------------------------------------------------------------
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% of net sales for the nine months ended
September 30, 1997.
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, the graphic
designs used to electronically engrave gravure rolls, the print needs to
determine the appropriate
18
<PAGE> 20
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 the Company, for $1.1 million in cash,
the issuance of 18,076 shares of Common Stock to Mr. Schneider and
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<PAGE> 21
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.
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<PAGE> 22
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 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 as a result of increased sales of new and existing products,
approximately $9.4 million of which was from 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 $4.4 million during the period, the Company's net
sales increased by $4.8 million, or 10.8% from $44.5 million to $49.3 million as
a result of increased sales of new and existing products. The Company completed
its acquisition of Armotek in April 1996 and its acquisition of Qualtech in June
1995.
GROSS PROFIT. The Company's gross profit increased by $3.0 million, or
23.1%, to $15.8 million for the year ended December 31, 1996 from $12.8 million
for the year ended December 31, 1995. As a percentage of net sales, gross profit
increased to 29.4% in 1996 compared to 28.8% in 1995. The Company generally
attributes this improvement in gross profit as a percentage of net sales to a
change in the Company's product mix, mainly from the inclusion of
higher-margined Qualtech products and from sales of the Company's newly
introduced single-width presses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $2.4 million, or 25.6%, to $11.6 million
for the year ended December 31, 1996 from $9.3 million for the year ended
December 31, 1995. The aggregate increase was primarily the result of the
continued growth of the Company's business and the inclusion of selling, general
and administrative expenses associated with acquired
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<PAGE> 23
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. 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 $14,014 $13,635 $22,990 $22,464 $23,112
Cost of sales....... 6,978 7,363 8,266 9,070 8,221 10,128 9,982 9,608 15,608 14,984 15,552
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........ 2,982 3,100 3,008 3,725 3,576 4,134 4,032 4,027 7,382 7,480 7,560
Selling, general,
administrative and
other expenses.... 1,940 2,110 2,437 2,782 2,754 2,783 2,870 3,238 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 1,649 1,019 2,596 1,906 2,251
Interest
expense -- net.... (217) (221) (268) (273) (283) (283) (270) (264) (405) (401) (431)
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before
taxes............. 825 769 599 1,674 1,339 2,872 1,379 755 2,191 1,505 1,820
Income taxes........ 439 410 352 345 553 1,081 610 357 868 580 683
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income.......... $ 386 $ 359 $ 247 $ 1,329 $ 786 $ 1,791 $ 769 $ 398 $ 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 71.2 70.5 67.9 66.7 67.3
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........ 30.0 29.6 26.7 29.1 30.3 29.0 28.8 29.5 32.1 33.3 32.7
Selling, general,
administrative and
other expenses.... 19.5 20.2 21.6 21.7 23.3 19.5 20.5 23.8 21.9 24.8 23.0
Gain on fire........ -- -- 2.6 7.8 6.8 12.6 3.5 1.7 1.1 -- --
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income.... 10.5 9.4 7.7 15.2 13.8 22.1 11.8 7.4 11.3 8.5 9.7
Interest
expense -- net.... (2.2) (2.1) (2.4) (2.1) (2.4) (2.0) (1.9) (1.9) (1.8) (1.8) (1.9)
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before
taxes............. 8.3 7.3 5.3 13.1 11.4 20.1 9.9 5.5 9.5 6.7 7.8
Income taxes........ 4.4 3.9 3.1 2.7 4.7 7.5 4.4 2.6 3.8 2.6 2.9
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income.......... 3.9 3.4 2.2 10.4 6.7 12.6 5.5 2.9 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
24
<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% of net sales for the nine months ended
September 30, 1997.
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 of four additional businesses
which offer products and services that complement those of Pamarco
26
<PAGE> 28
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 22.0% 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 15.8% 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 leases for the Anaheim facility (which expires in January
1998) and the Warrington, England facility (which expires in June 2000),
none of these leases expires before January 2002.
(2) Leased from Frederick and Patricia Lunt, the parents of Christopher J. Lunt,
an executive officer of the Company. See "Certain Transactions."
(3) Leased from Max Gysin, an executive officer of the Company. See "Certain
Transactions."
(4) Leased from 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 $76,923 $122,957
</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
"outside directors" as defined under section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), and two or more "non-employee directors" as
defined under Rule 16(b)(3) of the Exchange Act. Subject to the provisions of
the Stock Option Plan, the Committee has the authority to determine to whom
stock options will be granted and the terms of any such award, including the
number of shares subject to, and the vesting provisions of, the award. Subject
to the terms of the Stock Option Plan, the Committee may also amend the terms of
any outstanding award.
As of 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 also allow an option holder to elect to cash out the excess of the
fair market value over the option price of all or a portion of a stock option.
The Committee may also grant, in its sole discretion, a "cashless exercise"
feature for the exercise of stock options. For any one individual, the aggregate
fair market value of the Common Stock at the time of grant, with respect to
which ISOs are first exercisable in the same calendar year, shall not exceed
$100,000.
The Board of Directors may amend the terms of the Stock Option Plan,
subject to the requirement to obtain shareholder approval of certain amendments.
Unless sooner terminated, the Stock Option Plan will terminate in January 2005.
Under Section 162(m) of the Code, the Company may be precluded from
claiming a federal income tax deduction for total remuneration in excess of $1.0
million paid to the Chief Executive Officer or to any of the other four most
highly compensated officers in any one year. Total remuneration would include
amounts received upon the exercise of stock options granted under the Stock
Option Plan. An exception does exist, however, for "performance-based
compensation," including amounts received upon the exercise of stock options
pursuant to a plan approved by stockholders that meets certain requirements. The
Stock Option Plan is intended to meet the requirements of Treasury Regulation
section 1.162-27(f), and the options and other awards granted under the Stock
Option Plan are intended to meet the requirements of "performance-based
compensation."
41
<PAGE> 43
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.
42
<PAGE> 44
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>
43
<PAGE> 45
- ---------------
(1) Bradford, Bradford Investors and Overseas Equity Investors have granted the
Underwriters an over-allotment option to purchase up to an additional
420,000 shares of Common Stock. To the extent that the over-allotment option
is exercised, these stockholders will sell various amounts of Common Stock
in addition to the amounts shown in the above table. See "Underwriting."
(2) The address of these stockholders is 571 Central Avenue, Unit 119, New
Providence, New Jersey 07974.
(3) Includes 167,790 shares of Common Stock issuable pursuant to stock options
exercisable upon the completion of this Offering and 533,311 shares of
Common Stock owned by Greenbay, an Isle of Man corporation, the shares of
which are beneficially owned by members of Mr. Buckley's immediate family.
The address of Greenbay is Ragnall House, Peel Road, Douglas, Isle of Man.
(4) Includes (i) 5,875, (ii) 8,225 and (iii) 3,732 shares of Common Stock
issuable pursuant to stock options exercisable by Mr. Ford, Mr. Handeli and
Mr. Cook, respectively, upon completion of this Offering.
(5) The address of this stockholder is 44 Nassau Street, Suite 365, Princeton,
New Jersey 08542. Bradford is a limited partnership. Robert J. Simon, a
director of the Company, and Barbara M. Henagan are the general partners of
Bradford Associates, which is the sole general partner of Bradford and holds
a 1% interest in the partnership (which may increase upon the satisfaction
of certain contingencies related to the overall performance of the
investment portfolio of Bradford).
(6) The address of this stockholder is 1212 Avenue of Americas, New York, New
York 10036. Bradford Investors is a limited partnership. Robert J. Simon and
Thomas L. Ferguson, directors of the Company are two of the four members of
Bradford Management LLC, which is the sole general partner of Bradford
Investors.
(7) The address of this stockholder is Clarendon House, Church Street, Hamilton
5-31, Bermuda. Overseas Equity Investor is a general partnership with two
partners, Overseas Equity Investors Ltd., which is the managing corporate
partner and holds a 99% interest in the partnership, and Bradford
Associates, which holds a 1% interest in the partnership (which may increase
upon the satisfaction of certain contingencies related to the overall
performance of the investment portfolio of Overseas Equity Investor).
Overseas Equity Investors Ltd. is a foreign corporation with numerous
foreign stockholders. Robert J. Simon, a director of the Company, and
Barbara M. Henagan are the general partners of Bradford Associates, and Mr.
Simon and Ms. Henagan serve as co-chairs of the board of directors of
Overseas Equity Investors Ltd., BVL, an affiliate of Bradford Associates,
also acts as an investment advisor for Overseas Equity Investor.
(8) The address of these stockholders is c/o Bradford Venture Partners, L.P.,
1212 Avenue of the Americas, Suite 1802, New York, New York 10036.
44
<PAGE> 46
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
45
<PAGE> 47
wrongful acts. At present, there is no pending litigation or proceeding, and the
Company is not aware of any threatened litigation or proceeding, involving any
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.
46
<PAGE> 48
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."
47
<PAGE> 49
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.
Certain of the Selling Stockholders have granted to the Underwriters an
option to purchase up to an aggregate of 420,000 additional shares of Common
Stock at the price to the public set forth on the cover page of this Prospectus,
less underwriting discounts and commissions, solely to cover over-allotments, if
any. Such option may be exercised at any time until 45 days after the date of
this Prospectus. To the extent that the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase a number of option shares proportionate to such Underwriter's initial
commitment as indicated in the preceding table.
In the Underwriting Agreement, the Company, the Selling Stockholders and
the Underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Act.
Prior to this Offering there has been no public market for the Common
Stock. The initial public offering price for the Common Stock set forth on the
cover page of this Prospectus was determined by negotiations among the Company,
the Selling Stockholders and the Representatives. Among the factors considered
in determining the initial public offering price were the future prospects of
the Company and its industry in general, revenues, earnings and certain other
financial and operating information of the Company in recent periods and the
price-book ratios, price-earnings ratio, market prices of securities and certain
financial and operating information of companies engaged in activities similar
to those of the Company.
48
<PAGE> 50
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).
49
<PAGE> 51
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.
50
<PAGE> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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 470,000 pounds sterling, 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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
======================================================
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................. 42
Principal and Selling Stockholders... 43
Description of Capital Stock......... 45
Shares Eligible for Future Sale...... 47
Underwriting......................... 48
Legal Matters........................ 49
Experts.............................. 49
Additional Information............... 49
Available Information and Reports to
Security Holders................... 50
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> 83
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> 84
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> 85
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.
# To be filed by amendment.
II-3
<PAGE> 86
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> 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in New
Providence, New Jersey, on January 7, 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. 4 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 7, 1998
- --------------------------------------- and Director (principal executive
Maurice A. Buckley officer)
/s/ LARRY A. HANDELI Vice President and Chief Financial January 7, 1998
- --------------------------------------- Officer (principal financial and
Larry A. Handeli accounting officer)
* Chairman of the Board January 7, 1998
- ---------------------------------------
Thomas L. Ferguson
* Director January 7, 1998
- ---------------------------------------
Robert J. Simon
* Director January 7, 1998
- ---------------------------------------
Harry M. Cook
* Director January 7, 1998
- ---------------------------------------
Brian Kelly
* Director January 7, 1998
- ---------------------------------------
Harvey Share
*By: /s/ Maurice A. Buckley
----------------------------------
Maurice A. Buckley
as Attorney-in-fact
</TABLE>
II-5
<PAGE> 88
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> 89
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.
# To be filed by amendment.
<PAGE> 1
January 7, 1998
Pamarco Technologies Inc.
Murray Hill Officenter
571 Central Avenue, Unit 119
New Providence, NJ 07974
Re: Pamarco Technologies Inc.
Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to Pamarco Technologies Inc., a Delaware corporation
(the "Company"), in connection with the preparation of a registration statement
on Form S-1 (the "Registration Statement") filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act"),
relating to the public offering of an aggregate of 3,220,000 shares (the
"Shares") of the common stock, par value $.01 per share, of the Company (the
"Common Stock"), of which 1,600,000 shares of authorized but heretofore unissued
shares of Common Stock are being sold by the Company and 1,200,000 shares of
presently issued and outstanding shares of Common Stock are being sold severally
by the selling stockholders named in the Registration Statement (the "Selling
Stockholders"). We have assumed for the purposes of this opinion that an
Underwriting Agreement substantially in the form of that filed as Exhibit 1 to
the Registration Statement (the "Underwriting Agreement") has been duly executed
and delivered by the Company, the Selling Stockholders and EVEREN Securities,
Inc. and Janney Montgomery Scott Inc., as representatives of the several
underwriters named therein (the "Underwriters"). The Registration Statement also
relates to 420,000 shares of presently issued and outstanding shares of Common
Stock that may be sold by certain of the Selling Stockholders pursuant to the
Underwriters' over-allotment option pursuant to the terms of the Underwriting
Agreement (the "Option").
In this connection, we have reviewed (a) the Registration Statement; (b) the
Company's Restated Certificate of Incorporation and the Company's Bylaws; (c)
certain records of the Company's corporate proceedings as reflected in its
minute books; and (d) the form of Underwriting Agreement. In our examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity with the original of
all documents submitted to us as copies thereof. We have also assumed that the
Public Offering Committee of the Board of Directors of the Company has taken all
necessary action to authorize the issuance of the shares of Common Stock under
the Underwriting Agreement in accordance with the authority given to such
Committee by the Board of Directors of the Company.
Our opinion set forth below is limited to the General Corporation Law of the
State of Delaware.
<PAGE> 2
Pamarco Technologies Inc.
January 7, 1998
Page 2
Based upon the foregoing, we are of the opinion that:
1. the shares of Common Stock to be issued by the Company to the
Underwriters as described in the Registration Statement, when
and to the extent purchased by the Underwriters in accordance
with the Underwriting Agreement, will be legally issued, fully
paid and non-assessable; and
2. the shares of Common Stock to be sold by the Selling
Stockholders to the Underwriters as described in the
Registration Statement have been legally issued and are fully
paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the Registration
Statement and to all references to our firm in the Registration Statement. In
giving such consent, we do not thereby admit that we are acting within the
category of persons whose consent is required under Section 7 of the Act and the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Morgan, Lewis & Bockius
<PAGE> 1
Exhibit 10.15
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
as the Borrowers
and
CORESTATES BANK, N.A.
as the Bank
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS........................................... 2
SECTION 1.1 Certain Defined Terms........................... 2
SECTION 1.2 Accounting Terms................................ 19
ARTICLE 2
THE LOANS.................................................................. 20
SECTION 2.1 The Revolving Credit............................ 20
SECTION 2.2 Making Advances under the Revolving
Credit.......................................... 22
SECTION 2.3 [INTENTIONALLY OMITTED]......................... 23
SECTION 2.4 [INTENTIONALLY OMITTED]......................... 23
SECTION 2.5 [INTENTIONALLY OMITTED]......................... 23
SECTION 2.6 Second Term Loan................................ 23
SECTION 2.7 Acquisition Loan................................ 24
SECTION 2.8 Making Equipment Advances and
Acquisition Advances............................ 27
SECTION 2.9 Fees............................................ 29
SECTION 2.10 Interest........................................ 29
SECTION 2.11 Computation of Interest and Fees................ 32
SECTION 2.12 Payments........................................ 32
SECTION 2.13 Payment on Non-Business Days.................... 33
SECTION 2.14 Reimbursement to the Bank for Cost
Increases Imposed by Law........................ 33
SECTION 2.15 Reimbursement to the Bank for
Increased Costs Due to Capital
Adequacy Requirements........................... 34
SECTION 2.16 Illegality...................................... 34
SECTION 2.17 Interest and Commissions After
Default......................................... 35
SECTION 2.18 Special Provisions for LIBOR Loans
and Offered Rate Loans.......................... 35
SECTION 2.19 Ineligible Interest Periods..................... 36
SECTION 2.20 Prepayment...................................... 36
SECTION 2.21 Availability of Rate Quotations................. 38
SECTION 2.22 Reimbursement for Funding Loss or Per
Diem Carry Loss on Fixed Rate Loans............. 39
SECTION 2.23 Currency Hedge Indemnification.................. 39
-i-
<PAGE> 3
Page
----
SECTION 2.24 Currency Provisions............................. 40
SECTION 2.25 Judgment Currency............................... 40
SECTION 2.26 Foreign Taxes................................... 40
SECTION 2.27 Letter of Credit Cash Collateral
Account......................................... 41
SECTION 2.28 Letters of Credit............................... 41
SECTION 2.29 Special Provisions Concerning Pamarco
Europe.......................................... 46
ARTICLE 3
COLLATERAL................................................................. 46
SECTION 3.1 Effectiveness of Article 3...................... 46
SECTION 3.2 Security Interests.............................. 47
SECTION 3.3 Financing Statements; Certificates of
Title........................................... 47
SECTION 3.4 Landlord's Waiver............................... 47
SECTION 3.5 The Bank's Rights With Respect to
Accounts, Chattel Paper, Instruments
and General Intangibles......................... 47
SECTION 3.6 Accounts........................................ 48
SECTION 3.7 Chattel Paper; Letters of Credit and
Instruments..................................... 49
SECTION 3.8 Equipment....................................... 49
SECTION 3.9 Condition of Equipment.......................... 50
SECTION 3.10 Access to Collateral and Books and
Records......................................... 50
SECTION 3.11 Expenses of the Bank............................ 50
SECTION 3.12 Notices......................................... 50
SECTION 3.13 Insurance; Discharge of Taxes, etc.............. 50
SECTION 3.14 Waiver and Release by the Borrowers............. 51
SECTION 3.15 Records and Reports............................. 51
SECTION 3.16 The Bank's Liens................................ 51
SECTION 3.17 Application of Proceeds of Collateral........... 52
SECTION 3.18 Continuing Collateral........................... 52
ARTICLE 4
CONDITIONS OF LENDING...................................................... 52
SECTION 4.1 Conditions Precedent to the Third
Closing Date.................................... 52
-ii-
<PAGE> 4
Page
----
SECTION 4.2 Conditions Precedent to All
Disbursements................................... 54
SECTION 4.3 Conditions to Issuance of Letters of
Credit.......................................... 55
SECTION 4.4 Special Conditions Precedent for
Acquisition Advances............................ 55
ARTICLE 5
REPRESENTATIONS AND WARRANTIES............................................. 57
SECTION 5.1 Existence....................................... 57
SECTION 5.2 Authorization................................... 58
SECTION 5.3 Validity........................................ 58
SECTION 5.4 Financial Information........................... 58
SECTION 5.5 Litigation...................................... 58
SECTION 5.6 Contingent Liabilities.......................... 58
SECTION 5.7 Taxes........................................... 59
SECTION 5.8 Place of Business; Locations of
Collateral...................................... 59
SECTION 5.9 Encumbrances.................................... 59
SECTION 5.10 Consents........................................ 59
SECTION 5.11 ERISA........................................... 59
SECTION 5.12 Ownership....................................... 60
SECTION 5.13 Subsidiaries and Ownership of Stock............. 60
SECTION 5.14 Margin Stock.................................... 60
SECTION 5.15 Environmental Matters........................... 60
SECTION 5.16 Debt............................................ 61
SECTION 5.17 Regulation U, Etc............................... 61
SECTION 5.18 Licenses, Permits, Etc.......................... 61
SECTION 5.19 Compliance with Laws............................ 61
SECTION 5.20 Labor Matters................................... 61
SECTION 5.21 Outstanding Judgments or Orders................. 61
SECTION 5.22 No Defaults on Other Agreements................. 61
SECTION 5.23 Full Disclosure................................. 62
ARTICLE 6
COVENANTS OF THE BORROWER.................................................. 62
SECTION 6.1 Use of Proceeds................................. 62
SECTION 6.2 Financial Information........................... 62
SECTION 6.3 Insurance....................................... 63
-iii-
<PAGE> 5
Page
----
SECTION 6.4 Taxes........................................... 63
SECTION 6.5 Encumbrances.................................... 63
SECTION 6.6 Compliance with Laws............................ 64
SECTION 6.7 Inspections and Audits by Bank.................. 64
SECTION 6.8 Reports......................................... 65
SECTION 6.9 ERISA........................................... 65
SECTION 6.10 Environmental Matters........................... 68
SECTION 6.11 Nature of Business.............................. 69
SECTION 6.12 Regulation U.................................... 69
SECTION 6.13 Disposal of Assets.............................. 69
SECTION 6.14 Guarantees and other Contingent
Liabilities..................................... 69
SECTION 6.15 Maintenance of Property......................... 69
SECTION 6.16 Merger; Corporate Structure;
Subsidiaries.................................... 70
SECTION 6.17 Transactions with Affiliates.................... 70
SECTION 6.18 Current Ratio................................... 70
SECTION 6.19 Leverage Ratio.................................. 70
SECTION 6.20 Cash Flow Coverage Ratio........................ 70
SECTION 6.21 Tangible Net Worth.............................. 70
SECTION 6.22 Capital Expenditures............................ 70
SECTION 6.24 Other Debt...................................... 71
SECTION 6.25 Licenses, Permits............................... 71
SECTION 6.26 Loans and Investments........................... 71
SECTION 6.27 Change of Control............................... 71
SECTION 6.28 RICO............................................ 71
SECTION 6.29 Primary Operating Accounts...................... 72
SECTION 6.30 Interest Rate Protection Contracts.............. 72
SECTION 6.31 Special Limitations With Respect To
Pamarco Europe.................................. 72
SECTION 6.32 Further Assurances.............................. 72
SECTION 6.33 Acquisitions.................................... 72
SECTION 6.34 Indemnification................................. 72
ARTICLE 7
DEFAULTS................................................................... 73
SECTION 7.1 Events of Default............................... 73
SECTION 7.2 Termination of the Commitment;
Acceleration.................................... 75
-iv-
<PAGE> 6
Page
----
SECTION 7.3 Remedies........................................ 76
ARTICLE 8
ADDITIONAL PROVISIONS...................................................... 77
SECTION 8.1 No Waiver; Cumulative Remedies.................. 77
SECTION 8.2 Notices......................................... 77
SECTION 8.3 Costs and Expenses.............................. 78
SECTION 8.4 Governing Law................................... 78
SECTION 8.5 Survival of Agreements and
Representations; JURY WAIVER; Consent
to Jurisdiction................................. 78
SECTION 8.6 Headings........................................ 79
SECTION 8.7 Amendments...................................... 79
SECTION 8.8 Usury........................................... 79
SECTION 8.9 Assignments; Participations..................... 80
SECTION 8.10 Termination Statements, etc..................... 81
SECTION 8.11 Counterparts.................................... 81
SECTION 8.12 Set-off......................................... 81
SECTION 8.13 Borrowers' Obligations.......................... 81
SECTION 8.14 Restatement..................................... 83
SECTION 8.15 Entire Agreement................................ 83
Exhibits:
1.1 London Reserve Asset Costs
2.1(E) Form of Revolving Credit Note
2.1(G) Form of Sublimit Change Request
2.6(D) Form of Second Term Loan Note
2.7(F) Form of Acquisition Loan Note
2.28 Letter of Credit Documents
5.8 Locations and Offices
5.11 Employee Benefits Plans
5.13 Subsidiaries and Stock Ownership
5.15 Environmental Matters
6.5 Security Interests
-v-
<PAGE> 7
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, dated as of
December 31, 1997 but effective as of the Third Closing Date (as such term is
defined herein), among PAMARCO TECHNOLOGIES, INC. (the "Company"), a Delaware
corporation, PAMARCO, INC. ("Pamarco"), a Maryland corporation, PAMARCO EUROPE
LTD ("Pamarco Europe"), an English company, ARMOTEK INDUSTRIES, INC.
("Armotek"), a New Jersey corporation, DAUPHIN GRAPHIC MACHINES, INC.
("Dauphin"), a Pennsylvania corporation, and DIAMOND HOLDING CORPORATION
("Diamond"), a Georgia corporation (the Company, Pamarco, Pamarco Europe,
Armotek, Dauphin, Diamond and any other Subsidiary of a Borrower which becomes a
party hereto are each hereinafter referred to individually as a "Borrower" and
collectively as the "Borrowers"), and CORESTATES BANK, N.A. (the "Bank"), a
national banking association.
BACKGROUND
----------
The Bank and the Borrowers (excluding Diamond) executed a certain Loan
and Security Agreement dated September 19, 1996 (the "Original Loan Agreement")
pursuant to which the Bank made available to Borrowers (A) a revolving credit
facility in the maximum principal amount of $8,500,000.00, (B) an equipment line
of credit/term loan in the amount of $2,000,000.00 (the "First Equipment Loan"),
and (C) a term loan in the principal amount of $9,000,000.00 (the "First Term
Loan").
The Original Loan Agreement was amended and restated pursuant to a
certain Amended and Restated Loan and Security Agreement among the Borrowers and
the Bank dated January 10, 1997 (the "Amended Loan Agreement") pursuant to which
(A) the maximum principal amount available under the revolving credit facility
was increased to $10,500,000, (B) the Bank agreed to issue Letters of Credit
under the revolving credit facility subject to the terms of the Amended Loan
Agreement, (C) Diamond was added as a Borrower, and (D) the Bank make available
to the Borrowers (1) a second equipment line of credit/term loan in the amount
$2,000,000.00 (the "Second Equipment Loan") and (2) an additional term loan in
the amount of $7,500,000.00. The Amended Loan Agreement was amended by a certain
Amendment to Amended and Restated Loan and Security Agreement dated August 27,
1997 among the Bank and the Borrowers (the "First Amendment") and a Second
Amendment to Amended and Restated Loan and Security Agreement
-1-
<PAGE> 8
dated as of September 30, 1997 among the Bank and the Borrowers (the "Second
Amendment") pursuant to which the Bank agreed to make available to the Borrowers
a third equipment line of credit/term loan in the amount of $2,000,000.00 (the
"Third Equipment Loan").
Prior to the effective date of this Second Amended and Restated Loan
and Security Agreement (but after execution hereof), the First Equipment Loan,
the Second Equipment and the First Term Loan will be repaid in full by the
Borrowers.
The Borrowers have requested that, among other things, (A) the Bank
increase the revolving credit facility to $15,000,000.00, and (B) the Bank
replace the Third Equipment Loan with an acquisition and equipment line/term
loan facility pursuant to which the Bank will (1) permit the funding of
Permitted Acquisitions (as such term is defined herein) and (2) increase the
amount available to the Borrowers to $30,000,000.00. Subject to the satisfaction
of the conditions precedent set forth herein, the Bank has agreed to increase
the revolving credit facility, to revise the Third Equipment Loan and to
otherwise amend the Amended Loan Agreement on the terms and conditions herein
contained.
Although this Agreement provides in general that all of the Borrowers
are jointly and severally liable for all Liabilities as co-borrowers, the
Company has advised the Bank that it would suffer certain unfavorable United
States income tax consequences if Pamarco Europe assumes liability for Loans to
the other Borrowers. Accordingly, the Bank has agreed to limit the liability of
Pamarco Europe as described in SECTION 2.29, in order to provide the Company and
all of its Subsidiaries the benefit of avoiding those tax consequences. That
limitation on the liability of the Pamarco Europe is not intended to limit the
liability of any other Borrower on account of Loans to Pamarco Europe.
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<PAGE> 9
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"ACCOUNT" means any right to payment for goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"ACQUISITION ADVANCE" has the meaning given to such term in SECTION
2.7.
"ACQUISITION CONVERSION DATE" has the meaning given to such term in
SECTION 2.7.
"ACQUISITION CREDIT LIMIT" means Thirty Million Dollars.
"ACQUISITION LOAN" has the meaning given to such term in the SECTION
2.7.
"ACQUISITION LOAN FIXED RATE TRANCHE" means any portion of the
Acquisition Loan to which the Adjusted Fixed Rate applies having the same Fixed
Rate Interest Period.
"ACQUISITION LOAN LIBOR TRANCHE" means any portion of the Acquisition
Loan to which the Adjusted LIBOR Rate applies having the same LIBOR Interest
Period and denominated in Dollars.
"ACQUISITION LOAN FACILITY FEE" has the meaning given to such term in
SECTION 2.9(B).
"ACQUISITION LOAN OFFERED RATE TRANCHE" means any portion of the
Acquisition Loan to which the Adjusted Offered Rate applies and denominated in
Sterling.
"ACQUISITION LOAN PRIME RATE TRANCHE" means any portion of the
Acquisition Loan to which the Adjusted Prime Rate applies.
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<PAGE> 10
"ACQUISITION LOAN STERLING TRANCHE" means any portion of the
Acquisition Loan to which the Adjusted LIBOR Rate applies having the same LIBOR
Interest Period and denominated in Sterling.
"ACQUISITION LOAN NOTE" has the meaning given to such term in SECTION
2.7.
"ADJUSTED FIXED RATE" has the meaning given to such term in SECTION
2.10.
"ADJUSTED LIBOR RATE" means an annual rate equal to the LIBOR Rate as
adjusted pursuant to the definition of the Applicable Margin.
"ADJUSTED OFFERED RATE" has the meaning given to such term in SECTION
2.10.
"ADJUSTED PRIME RATE" has the meaning given to such term in SECTION
2.10.
"AFFILIATE" of a Person (identified in this definition as "Z") means
any other Person, except for any Subsidiary of Z, directly or indirectly
controlling or controlled by or under direct or indirect common control with Z.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have the
meanings correlative to the foregoing.
"AGREEMENT" means the Amended Loan Agreement, as amended by the First
Amendment, the Second Amendment, as amended herein, and as further modified or
amended from time to time.
"AMENDED LOAN AGREEMENT" has the meaning given to such term in the
Background section hereof.
"AMOUNT OF UNFUNDED BENEFIT LIABILITIES" has the meaning given to such
term in Section 4001(a)(18) of ERISA.
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<PAGE> 11
"APPLICABLE LIBOR RATE" means the rate per annum for the offering to
leading banks in the London interbank market of Dollar deposits (or, if
applicable, deposits in Sterling) in immediately available funds for a period
comparable to the remaining Interest Period for the LIBOR Loan being prepaid
determined by the Bank on the basis of quotations published in the WALL STREET
JOURNAL (or comparable source) on the date of prepayment.
"APPLICABLE MARGIN" means, (A) with respect to Prime Rate Loans, the
Prime Rate minus 1.00%, (B) with respect to LIBOR Loans, the LIBOR Rate plus
0.75, (C) with respect to Fixed Rate Loans, the Fixed Rate plus 0.75%, and (D)
with respect to Offered Rate Loans, the Prevailing Sterling Offered Rate plus
0.75%, and (D) PROVIDED THAT from and after March 31, 1998, the foregoing shall
continue in effect unless otherwise specified in accordance with the table and
text below:
<TABLE>
<CAPTION>
If the Cash Flow Then the Applicable Margin is:
Coverage Ratio is: Prime Rate Loans: Libor Loans: Fixed Rate Loans:
- ------------------ ----------------- ------------ -----------------
<S> <C> <C> <C>
greater than or equal
to 2.5:1.0 Prime Rate minus 1.00% LIBOR Rate plus 0.75% Fixed Rate plus 0.75%
greater than or equal
to 1.3:1.0 but less than
2.5:1.0 Prime Rate minus 0.50% LIBOR Rate plus 1.25% Fixed Rate plus 1.75%
If the Cash Flow Then the Applicable Margin is:
Coverage Ratio Is: Offered Rate Loans:
greater than or equal
to 2.5:1.0 Prevailing Sterling Offered Rate plus 0.75%
greater than or equal
to 1.3:1.0 but less than
2.5:1.0 Prevailing Sterling Offered Rate plus 1.25%
</TABLE>
The calculation of the Applicable Margin pursuant to the above table shall be
made quarterly, commencing with the fiscal quarter ending March 31, 1998, and
shall be based upon the Consolidated financial statements of the Borrowers for
such period. In the event that the Applicable Margin changes, such change shall
become effective, for all Loans then existing or thereafter made, as of the
first day of the fiscal quarter immediately following the fiscal period measured
to determine the Applicable Margin.
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<PAGE> 12
The Applicable Margin, once reset, shall be effective for no less than ninety
(90) days. The parties hereto acknowledge that the foregoing will result in a
retroactive adjustment to the Interest Rates hereunder.
"APPLICABLE TREASURY BOND OBLIGATION(S)" means the debt obligation(s)
of the United States Treasury having a maturity date(s) nearest in time to the
maturity date(s) of the principal being prepaid and the maturity date(s) and
yield(s) to maturity of such Applicable Treasury Bond Obligation(s) shall be
determined by the Bank in its sole discretion on the basis of quotations
published in the WALL STREET JOURNAL (or comparable source) on the date of
prepayment.
"ARMOTEK" has the meaning given to such term in the introductory
paragraph hereof.
"ARMOTEK SUBLIMIT" means Five Hundred Thousand Dollars ($500,000.00).
"ASSESSMENT RATE" means, for any elected LIBOR Interest Period for any
LIBOR Loan, the actual rate (rounded upwards, if necessary, to the nearest 1/100
of 1%) at which premiums for deposit insurance (if any) are then charged during
such LIBOR Interest Period to the Bank for Dollar time deposits with the Bank at
its London branch.
"BANK" has the meaning given to such term in the introductory paragraph
hereof.
"BOOKS AND RECORDS" has the meaning given to such term in SECTION 3.2.
"BORROWER" and "BORROWERS" have the meanings given to such terms in the
introductory paragraph hereof.
"BORROWER'S SUBLIMIT" shall mean, with respect to Armotek, the Armotek
Sublimit, with respect to the Company, the Credit Limit, with respect to
Dauphin, the Dauphin Sublimit, with respect to Diamond, the Diamond Sublimit,
with respect to Pamarco, the Pamarco Sublimit, and, with respect to Pamarco
Europe, the Pamarco Europe Sublimit.
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<PAGE> 13
"BRADFORD VENTURES GROUP" means Bradford Venture Partners, L.P.,
Overseas Equity Investor Partners, L.P., and Bradford Special Situations, L.P.
"BUSINESS DAY" means any day other than a Saturday, Sunday, or other
day on which commercial banks in Middlesex County, New Jersey are authorized or
required to close under the laws of the State of New Jersey.
"CAPITAL ASSET" means any property or asset (real, personal or mixed,
tangible or intangible) which is of a kind subject to an allowance for
depreciation or amortization under GAAP.
"CAPITAL EXPENDITURES" means any expenditures made or cost incurred by
the Borrowers whether paid or due and owing, for the acquisition, purchase,
alteration or improvement of any Capital Asset and shall include, without
limitation, all capital expenditures within the meaning of Section 263 of the
Code and the regulations promulgated thereunder.
"CASH EQUIVALENTS" means at any date: (A) demand deposits, time
deposits or certificates of deposit at the Bank or at any commercial bank
organized under the laws of the United States of America or any state thereof,
having combined capital and surplus of not less than $500,000,000.00,; (B)
obligations backed by the full faith and credit of the United States of America
or an agency thereof maturing not in excess of one year from the date of
acquisition; and (C) commercial paper which is rated A-1 (or better) by Standard
& Poor's Corporation or P-1 (or better) by Moody's Investor Services, Inc.
"CASH FLOW COVERAGE RATIO" means the ratio of (A) Net Income plus
depreciation plus amortization minus dividends (if permitted to be deducted in
accordance with the proviso set forth below) plus interest expense to (B)
interest expense plus Current Maturities, all as calculated for the Borrowers on
a Consolidated basis for the immediately preceding four fiscal quarters
excluding Current Maturities which shall be calculated for the Borrowers on a
Consolidated basis for the immediately succeeding four fiscal quarters, PROVIDED
HOWEVER THAT, no such dividend or distribution shall be deducted for the
purposes of calculating this Cash Flow Coverage Ratio unless: (1) the Borrowers
were
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<PAGE> 14
permitted to make such dividend pursuant to this Agreement, and (2) such
dividend was paid in cash during the applicable period.
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation, and Liability Act, as amended from time to time.
"CHATTEL PAPER" means a writing or writings which evidence both a
monetary obligation and a security interest in or a lease of specific goods, but
a charter or other contract involving the use or hire of a vessel is not chattel
paper. When a transaction is evidenced both by a security agreement or a lease
and by an instrument or a series of instruments, the group of writings taken
together constitutes chattel paper.
"CLOSING DATE" means September 19, 1996.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COLLATERAL" means all property, assets and other interests of the
Borrowers which may serve as collateral under ARTICLE 3 hereof or otherwise.
"COMPANY" has the meaning given to such term in the introductory
paragraph hereof.
"CONSOLIDATED" refers to the consolidation of the accounts of the
Borrowers and their Subsidiaries in accordance with GAAP, including principles
of consolidation.
"CONSOLIDATING" refers to the separate entity reporting and
consolidation of the accounts of the Borrowers and their Subsidiaries in
accordance with GAAP.
"CONTROLLED GROUP" means a group of employers, of which a Borrower is a
member and which group constitutes:
(A) a controlled group of corporations (as defined in
ss.414(b) of the Code and the Department of the Treasury regulations
thereunder); or
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<PAGE> 15
(B) trades or businesses (whether or not incorporated) which
are under common control (as defined in Section 414(c) of the Code and the
Department of the Treasury regulations thereunder); or
(C) trades or businesses (whether or not incorporated) which
constitute an affiliated service group (as defined in Section 414(m) of the
Code and the Department of the Treasury regulations thereunder); or
(D) any other entity required to be aggregated with any
Borrower pursuant to Section 414(o) of the Code and the Department of the
Treasury regulations thereunder.
"CONVERTED ACQUISITION LOAN" has the meaning given to such term in
SECTION 2.7.
"CONVERTED ACQUISITION LOAN MATURITY DATE" has the meaning given to such
term in SECTION 2.7.
"CONVERTED EQUIPMENT LOAN" has the meaning given to such term in SECTION
2.7.
"CONVERTED EQUIPMENT LOAN MATURITY DATE" has the meaning given to such
term in SECTION 2.7.
"CREDIT LIMIT" means Fifteen Million Dollars ($15,000,000.00) less any
reduction of the unutilized principal of the Revolving Credit in accordance with
SECTION 2.1(D).
"CREDIT OBLIGATION" means any obligation for the payment of borrowed
money or the installment purchase price of property either individually or in
the aggregate in excess of $500,000.00.
"CURRENT ASSETS" means cash, Cash Equivalents, Accounts and Inventory,
PROVIDED THAT other GAAP defined current assets will be included herein at the
sole discretion of the Bank.
"CURRENT LIABILITIES" means all current liabilities of the Borrowers on
a Consolidated basis that would, in accordance with GAAP be classified as
current liabilities of the Borrowers on a Consolidated basis.
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<PAGE> 16
"CURRENT MATURITIES" means current maturities of long term debt
(including capitalized lease obligations).
"CURRENT RATIO" means, for the Borrowers on a Consolidated basis, the
ratio of (A) Current Assets to (B) Current Liabilities.
"DAUPHIN" has the meaning given to such term in the introductory
paragraph hereof.
"DAUPHIN SUBLIMIT" means Four Million Five Hundred Thousand Dollars
($4,500,000.00).
"DEFAULT" means and refers to any event, act or occurrence, which with
the passing of time or the giving of notice or both, would constitute an Event
of Default.
"DEFAULT RATE" with respect to each Loan, means the higher of (A) 2%
plus the per annum Interest Rate in effect immediately prior to an Event of
Default, or (B) the Adjusted Prime Rate plus 2%.
"DEFINED BENEFIT PENSION PLAN" means a defined benefit plan (other than
a Multiemployer Plan) as defined in Section 3(35) of ERISA.
"DEFINED CONTRIBUTION PLAN" means an individual account plan as defined
in Section 3(34) of ERISA.
"DEP" means the Department of Environmental Protection of the State of
New Jersey.
"DIAMOND" has the meaning given to such term in the introductory
paragraph hereof.
"DIAMOND SUBLIMIT" means One Million Dollars ($1,000,000.00).
"DOCUMENT" means: (A) bills of lading, dock warrants, dock receipts,
warehouse receipts or orders for the delivery of goods, and also any other
document which in the regular course of business or financing is treated as
adequately evidencing that the person in possession of such document is entitled
to receive,
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<PAGE> 17
hold and dispose of the document and the goods it covers; and (B) a receipt of a
kind described in subsection (2) of 12A:7-201 of the UCC. To be a document of
title a document must purport to be issued by or addressed to a bailee and cover
goods in the bailee's possession which are either identified or fungible
portions of an identified mass.
"DOCUMENTARY LETTER OF CREDIT" means a documentary letter of credit
issued by the Bank at the request of any Borrower pursuant to SECTION 2.28 for
the sole purpose of securing such Borrower's payment obligation owed for the
purchase of Eligible Inventory.
"DOLLARS", "U.S. DOLLARS" and the symbols "$" and "U.S.$" mean lawful
currency of the United States of America.
"EFFECTIVE DATE" means, for a LIBOR Loan, the date a Borrower designates
as the date on which a LIBOR Interest Period is to commence pursuant to SECTIONS
2.2, 2.7 OR 2.10 hereof, for a Fixed Rate Loan, the date a Borrower designates
as the date on which a Fixed Rate Interest Period is to commence pursuant to
SECTION 2.10 hereof, and for an Offered Rate Loan, the date a Borrower
designates as the date on which an Offered Rate Interest Period is to commence
pursuant to SECTIONS 2.2, 2.7 OR 2.10 hereof.
"EMPLOYEE BENEFIT PLAN" has the meaning given to such term in
Section 3(3) of ERISA.
"ENVIRONMENTAL LAW" means any applicable law including without
limitation treaties, directives, statutes, ordinances, regulations, rules,
standards, permits or requirements, including but not limited to those statutes,
ordinances, laws, regulations, rules, standards, permits and requirements
promulgated under the laws of the United States of America or any other nation,
concerning or relating to the protection of health and the environment together
with any judicial or administrative interpretation thereof and the decisions,
resolutions and judgments of any court, tribunal or governmental authority in
connection therewith.
"EQUIPMENT" means goods used or bought for use primarily in business
(including farming or a profession) or by a debtor who
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<PAGE> 18
is a non-profit organization or a governmental subdivision or agency or if the
goods are not included in the definitions of inventory, farm products or
consumer goods.
"EQUIPMENT ADVANCE" has the meaning given to such term in SECTION 2.7.
"EQUIPMENT CONVERSION DATE" has the meaning given to such term in
SECTION 2.7.
"EQUIPMENT SUBLIMIT" means Two Million Dollars ($2,000,000.00).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations thereunder.
"EUROCURRENCY RESERVE REQUIREMENT" means, for any LIBOR Loan for any
LIBOR Interest Period or for any Offered Rate Loan for any Offered Rate Interest
Period relating thereto, the daily average of the stated maximum rate (expressed
as a decimal) at which reserves (including any marginal, supplemental, or
emergency reserves) are required to be maintained during such Interest Period
under Regulation D by a member bank of the Federal Reserve System against
"Eurocurrency liabilities" (as such term is used in Regulation D) but without
benefit of or credit for proration, exemptions, or offsets that might otherwise
be available to such member bank from time to time under Regulation D, PROVIDED
HOWEVER THAT with respect to any Loans denominated in Sterling the Eurocurrency
Reserve Requirement shall be calculated in accordance with EXHIBIT 1.1 hereof.
Without limiting the effect of the foregoing, the Eurocurrency Reserve
Requirement shall reflect any other reserves required to be maintained by such
member bank against (A) any category of liabilities which includes deposits by
reference to which the LIBOR Rate for LIBOR Loans of the Prevailing Sterling
Offered Rate for Offered Rate Loans is to be determined or (B) any category of
extension of credit or other assets that include LIBOR Loans or Offered Rate
Loans.
"EVENT OF DEFAULT" has the meaning given to such term in SECTION 7.1.
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<PAGE> 19
"FEES" means all payments except for interest and principal which the
Borrowers are required to make to the Bank hereunder and shall include, without
limitation, amounts owing in connection with any prepayment under any LIBOR Loan
or Fixed Rate Loan, the Revolving Credit Facility Fee, the Acquisition Loan
Facility Fee, and any amounts payable pursuant to SECTION 8.3.
"FIRST AMENDMENT" has the meaning given to such term in the Background
section hereof.
"FIRST EQUIPMENT LOAN" has the meaning given to such term in the
Background section hereof.
"FIRST TERM LOAN" has the meaning given to such term in the Background
section hereof.
"FIXED AND FLOATING CHARGE" means the Fixed and Floating Charge which
may be filed against the Equipment of Pamarco Europe located in England.
"FIXED RATE" means, for each Fixed Rate Loan, the rate per annum
determined by the Bank based on the obligations of the United States Treasury
having a maturity date nearest in time to the last day of the Fixed Rate
Interest Period for such Fixed Rate Loan as determined by the Bank in its sole
discretion on the basis of quotations published in the WALL STREET JOURNAL (or
comparable source) on or about the date the rate is to be determined.
"FIXED RATE INTEREST PERIOD" for a Fixed Rate Loan means a period of
time, beginning on an Effective Date, of one, two, three, four, five, six or
seven years, selected by a Borrower by telephone or in writing (and if by
telephone, confirmed by such Borrower the same day by facsimile), during which
period the Interest Rate for such Fixed Rate Loan is to be the Adjusted Fixed
Rate.
"FIXED RATE LOAN" means any Second Term Loan Fixed Rate Tranche and any
Acquisition Loan Fixed Rate Tranche.
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<PAGE> 20
"FIXTURES" means goods which become so related to particular real estate
that an interest in them arises under real estate law.
"FUNDING LOSS" has the meaning given to such term in SECTION 2.22.
"GAAP" means generally accepted accounting principles, consistently
applied.
"GENERAL INTANGIBLE" means any personal property (including things in
action) other than goods, Accounts, Chattel Paper, Documents, Instruments and
money.
"GOVERNMENTAL APPROVALS" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to all
governmental bodies, domestic or foreign.
"INSTRUMENT" means a negotiable instrument (defined in 12A:3-104 of the
UCC) or a certificated security (defined in 12A:8-102 of the UCC) or any other
writing which evidences a right to the payment of money and is not itself a
security agreement or lease and is of a type which is in the ordinary course of
business transferred by delivery with any necessary indorsement or assignment.
"INTEREST PERIOD" means a LIBOR Interest Period or any period during
which the Interest Rate is the Adjusted Prime Rate or any Fixed Rate Interest
Period or any Offered Rate Interest Period, as appropriate.
"INTEREST RATE" means the Adjusted LIBOR Rate, the Adjusted
Prime Rate, the Adjusted Fixed Rate, the Adjusted Offered Rate or the Default
Rate, as appropriate.
"INTEREST RATE PROTECTION CONTRACTS" means all contracts and agreements
entered into by the Borrowers which provide the Borrowers with an interest rate
cap on, or an interest rate swap for LIBOR Loans having a LIBOR Interest Period
of one year or more and Fixed Rate Loans.
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<PAGE> 21
"INVENTORY" means goods held by a person who holds them for sale or
lease or to be furnished under contracts of service or if he has so furnished
them, or raw materials, work in process or materials used or consumed in a
business.
"LANDLORD'S WAIVER" has the meaning given to such term in SECTION 3.4.
"LETTER OF CREDIT" means any Letter of Credit issued by the Bank
pursuant to SECTION 2.28.
"LETTER OF CREDIT CASH COLLATERAL ACCOUNT" has the meaning given to such
term in SECTION 2.27.
"LETTER OF CREDIT LIABILITY" means, at any date of determination, the
sum of (A) the maximum aggregate amount which is or at any time thereafter may
become available for drawing under all Letters of Credit then outstanding PLUS
(B) the aggregate amount of all drawings under Letters of Credit which have not
theretofore been reimbursed by Borrowers. For purposes hereof, Letters of Credit
on which a draw has not been received shall be deemed outstanding for a period
of 30 Business Days after the expiration date thereof.
"LETTER OF CREDIT SUBLIMIT" means Seven Million Five Hundred Thousand
Dollars ($7,500,000.00).
"LEVERAGE RATIO" means the ratio of (A) Total Debt to (B) the sum of
Tangible Net Worth plus Subordinated Debt.
"LIABILITIES" means all of the Borrowers' joint and several obligations
under this Agreement and/or any of the other Loan Documents and the payment of
all other liabilities of the Borrowers or any of them to the Bank, whether
absolute or contingent, matured or unmatured, direct or indirect, similar or
dissimilar, due or to become due or heretofore or hereafter contracted or
acquired, however and wherever arising and whether or not arising hereunder,
under any of the other Loan Documents, or in connection with any of the
transactions described herein or therein, subject with respect to Pamarco Europe
to the limitations contained in SECTION 2.29 hereof.
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<PAGE> 22
"LIBOR INTEREST PERIOD" for a LIBOR Loan means a period of time,
beginning on an Effective Date, of 30, 60, 90 or 180 days, one year, two years,
three years, four years or five years, or 7 days for a Revolving Credit Sterling
Tranche only, in length selected by a Borrower by telephone or in writing (and
if by telephone, confirmed by such Borrower the same day by facsimile), during
which the Interest Rate for such LIBOR Loan is the Adjusted LIBOR Rate. If a
LIBOR Interest Period would otherwise end on a day that is not a Business Day,
such LIBOR Interest Period shall be extended to the next Business Day, unless
such Business Day would fall in the next calendar month, in which event such
LIBOR Interest Period shall end on the immediately preceding Business Day.
"LIBOR LOAN" means any Revolving Credit LIBOR Advance, any Revolving
Credit Sterling Advance, any Second Term Loan LIBOR Tranche, any Acquisition
Loan LIBOR Tranche, or any Acquisition Loan Sterling Tranche.
"LIBOR RATE" means, for each LIBOR Loan, the rate per annum (rounded
upwards, if necessary, to the nearest 1/16th of 1%) determined by the Bank
according to the following formula:
R = X + Z
-----
1-Y
where R = LIBOR Rate
X = London Interbank Offered Rate for such LIBOR
Loan for the applicable LIBOR Interest Period
Y = Eurocurrency Reserve Requirement for such LIBOR
Loan for the applicable LIBOR Interest Period
Z = the Assessment Rate (if applicable).
"LOAN" means any Revolving Credit Advance, the Second Term Loan, any
Acquisition Advance, any Equipment Advance, any Converted Acquisition Loan or
any Converted Equipment Loan.
"LOANS" means, collectively, the Revolving Credit, the Second Term Loan
and the Acquisition Loan.
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<PAGE> 23
"LOAN DOCUMENTS" means this Agreement, the Notes, after the occurrence
of a Trigger Event, the Security Documents, and all other documents executed and
delivered by the Borrowers in connection herewith.
"LONDON BUSINESS DAY" means any Business Day on which commercial banks
are open for international business (including dealing in Dollar deposits) in
London, England, and Philadelphia, Pennsylvania.
"LONDON INTERBANK OFFERED RATE" applicable to any elected LIBOR Interest
Period for a LIBOR Loan means
(A) for LIBOR Loans (excluding Revolving Credit Sterling
Advances) the rate per annum (rounded upwards, if necessary, to the nearest
1/16th of 1%) quoted by the principal London branch of the Bank two London
Business Days prior to the first day of such LIBOR Interest Period for the
offering from leading banks in the London interbank market of Dollar deposits in
immediately available funds for a period, and in an amount, comparable to the
LIBOR Interest Period and principal amount of the LIBOR Loan which shall be made
by the Bank and/or be outstanding during such LIBOR Interest Period, or
(B) in the case of a Revolving Credit Sterling Advance, the
rate per annum (rounded upwards, if necessary, to the nearest 1/16th of 1%)
quoted by the principal London branch of the Bank two London Business Days prior
to the first day of such LIBOR Interest Period for the offering from leading
banks in the London interbank market of deposits in Sterling in immediately
available funds for a period, and in an amount, comparable to the LIBOR Interest
Period and principal amount of the Revolving Credit Sterling Advance which shall
be made by the Bank and/or be outstanding during such LIBOR Interest Period.
"MARGIN STOCK" has the same meaning that Regulation U of the Board of
Governors of the Federal Reserve System gives to that term.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the assets,
properties, financial condition, operations, or business of the Borrowers, taken
as a whole, or on the ability of
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<PAGE> 24
the Borrowers to comply with their obligations under any of the Loan Documents.
"MULTIEMPLOYER PLAN" has the meaning given to such term in
Section 4001(a)(3) of ERISA.
"NET INCOME" means net profit after taxes.
"NOTES" means, collectively, the Revolving Credit Note, the Second Term
Loan Note and the Acquisition Loan Note.
"OFFERED RATE INTEREST PERIOD" for an Offered Rate Loan means a period
of time, beginning on an Effective Date, of 1 through 6 days in length selected
by a Borrower by telephone or in writing (and if by telephone, confirmed by such
Borrower the same day by facsimile), during which the Interest Rate for such
Offered Rate Loan is the Adjusted Offered Rate.
"OFFERED RATE LOAN" means any Revolving Credit Offered Rate Advance, any
Equipment Advance Offered Rate Tranche and any Acquisition Loan Offered Rate
Tranche.
"OPERATING ACCOUNT" has the meaning given to such term in SECTION 2.2.
"ORIGINAL LOAN AGREEMENT" has the meaning given to such term in the
Background section hereof.
"PAMARCO" has the meaning given to such term in the introductory
paragraph hereof.
"PAMARCO SUBLIMIT" means Two Million Five Hundred Thousand Dollars
($2,500,000.00).
"PAMARCO EUROPE" has the meaning given to such term in the introductory
paragraph hereof.
"PAMARCO EUROPE SUBLIMIT" means Two Million Dollars ($2,000,000.00).
"PARTICIPANT" has the meaning given to such term in SECTION 8.9.
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<PAGE> 25
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PER DIEM CARRY LOSS" has the meaning given to such term in SECTION
2.20.
"PERMITTED ACQUISITION" means the acquisition of substantially all of
the assets or capital stock or other equity interests of a business which is
engaged in substantially the same line of business as a Borrower or a business
complementary to the business of a Borrower as reasonably determined by the
Bank.
"PERMITTED ENCUMBRANCES" means those liens or encumbrances on the assets
of the Borrowers permitted pursuant to SECTION 6.5.
"PERSON" means any individual, corporation, partnership, joint venture,
joint-stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"PLAN" means an Employee Benefit Plan or other plan maintained for
employees of a Borrower or any member of any Borrower's Controlled Group and
covered by ERISA.
"PREVAILING STERLING OFFERED RATE" means, for each Offered Rate Loan,
the rate per annum (rounded upwards, if necessary, to the nearest 1/16th of 1%)
quoted by the principal London branch of the Bank on the first day of such
Offered Rate Interest Period based on rates quoted by brokers of recognized
standing or the clearing banks in the United Kingdom contacted by the London
branch of the Bank for funds transactions for a period, and in an amount,
comparable to the Offered Rate Interest Period and principal amount of the
Offered Rate Loan which shall be made by the Bank and/or be outstanding during
such Offered Rate Interest Period divided by a number equal to 1 minus the
Eurocurrency Reserve Requirement (if any).
"PRIME RATE" means for each day, the lending rate set by the Bank from
time to time for purposes of fixing interest rates on various categories of
loans which the Bank determines are to be tied to such Prime Rate. The Prime
Rate is not necessarily the
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<PAGE> 26
lowest rate of interest which the Bank charges any of its customers.
"PRIME RATE LOAN" means any Revolving Credit Prime Rate Advance, the
Second Term Loan Prime Rate Tranche and the Acquisition Loan Prime Rate Tranche.
"PROCEEDS" means whatever is received upon the sale, exchange,
collection or other disposition of collateral or proceeds. Insurance payable by
reason of loss or damage to the collateral is proceeds.
"PROHIBITED TRANSACTION" has the meaning given to such term in Section
406 of ERISA, Section 4975(c) of the Code and any Treasury regulations issued
thereunder.
"PURCHASER" means a buyer of goods from any Borrower or a customer for
whom services have been rendered or materials furnished by any Borrower.
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System as amended or supplemented from time to time.
"REIMBURSEMENT DATE" has the meaning given to such term in SECTION
2.28(C).
"REORGANIZATION" has the meaning given to such term in Section 4241 of
ERISA.
"REPORTABLE EVENT" has the meaning given to such term in Section 4043(b)
of ERISA.
"REVOLVING CREDIT" has the meaning given to such term in the SECTION
2.1(A).
"REVOLVING CREDIT ADVANCE" has the meaning given to such term in SECTION
2.1(A).
"REVOLVING CREDIT FACILITY FEE" has the meaning given to such term in
SECTION 2.9.
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<PAGE> 27
"REVOLVING CREDIT LIBOR ADVANCE" means any portion of the Revolving
Credit Advances to which the Adjusted LIBOR Rate applies having the same LIBOR
Interest Period and denominated in Dollars.
"REVOLVING CREDIT NOTE" has the meaning given to such term in SECTION
2.1.
"REVOLVING CREDIT OFFERED RATE ADVANCE" means any portion of the
Revolving Credit Advances to which the Adjusted Offered Rate applies having the
same Offered Rate Interest Period and denominated in Sterling.
"REVOLVING CREDIT PRIME RATE ADVANCE" means any portion of the Revolving
Credit Advances to which the Adjusted Prime Rate applies.
"REVOLVING CREDIT STERLING ADVANCE" means any portion of the Revolving
Credit Advances to which the Adjusted LIBOR Rate applies having the same LIBOR
Interest Period and denominated in Sterling.
"RICO" means the Racketeer Influenced and Corrupt Organization Act, as
amended by the Comprehensive Act of 1984, 18 U.S.C. Sections 1961-68.
"SECOND AMENDMENT" has the meaning given to such term in the Background
section hereof.
"SECOND CLOSING DATE" means January 10, 1997.
"SECOND EQUIPMENT LOAN" has the meaning given to such term in the
Background Section hereof.
"SECOND TERM LOAN" has the meaning given to such term in the Background
Section hereof.
"SECOND TERM LOAN FIXED RATE TRANCHE" means any portion of the Second
Term Loan to which the Adjusted Fixed Rate applies having the same Fixed Rate
Interest Period.
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<PAGE> 28
"SECOND TERM LOAN LIBOR TRANCHE" means any portion of the Second Term
Loan to which the Adjusted LIBOR Rate applies having the same LIBOR Interest
Period.
"SECOND TERM LOAN MATURITY DATE" means January 10, 2004.
"SECOND TERM LOAN NOTE" has the meaning given to such term in SECTION
2.6.
"SECOND TERM LOAN PRIME RATE TRANCHE" means any portion of the Second
Term Loan to which the Adjusted Prime Rate applies.
"SECURITY DOCUMENTS" means the Fixed and Floating Charge and the Uniform
Commercial Code financing statements executed by Borrowers, together with any
other document, including without limitation any other document for filing or
otherwise, necessary to perfect the Bank's security interest in the Collateral
upon the occurrence of a Trigger Event.
"STANDBY LETTER OF CREDIT" means a standby letter of credit issued by
the Bank at the request of a Borrower pursuant to SECTION 2.28.
"STERLING" means the lawful currency of the United Kingdom of Great
Britain and Northern Ireland.
"STOCK PURCHASE AGREEMENT" means that certain Stock Purchase Agreement
dated January 10, 1997 among the Company, Max Gysin and Diamond.
"SUBORDINATED DEBT" means all indebtedness for borrowed money of the
Borrowers or any of them now or hereafter owed which indebtedness is
subordinated to the Liabilities.
"SUBSIDIARY" of a Person means any corporation or other entity, more
than 50% of the voting capital stock or other ownership interests of which is
owned, directly or indirectly, by such Person or, in the case of a Subsidiary
located in England, shall mean a subsidiary as that term is defined and
explained by Section 73b of the Companies Act 1995.
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<PAGE> 29
"TANGIBLE ASSETS" means all assets of the Borrowers on a Consolidated
basis that would, in accordance with GAAP, be classified as tangible assets of
the Borrowers on a Consolidated basis less any amount due from Subsidiaries or
Affiliates not otherwise eliminated by such consolidation.
"TANGIBLE NET WORTH" means the amount by which Tangible Assets exceed
Total Liabilities.
"TERMINATION DATE" means the earlier of (A) the third anniversary of the
Third Closing Date or (B) the date on which the Bank's obligation to make
Revolving Credit Advances, Equipment Advances and Acquisition Advances hereunder
is terminated in whole pursuant to the terms of this Agreement.
"THIRD CLOSING DATE" means the Business Day on which all of the
conditions precedent contained in SECTION 4.1 are satisfied.
"THIRD EQUIPMENT LOAN" has the meaning given to such term in the
Background section hereof.
"TOTAL DEBT" means Total Liabilities minus Subordinated Debt.
"TOTAL LIABILITIES" means the sum of (A) all liabilities of the
Borrowers on a Consolidated basis that would, in accordance with GAAP, be
classified as liabilities of the Borrowers on a Consolidated basis plus (B) all
obligations of the Borrowers on a Consolidated basis with respect to contingent
liabilities not otherwise classified as liabilities pursuant to (A), above,
including without limitation, the Letter of Credit Liability.
"TRIGGER EVENT" has the meaning given to such term in SECTION 3.1.
"UCC" means the New Jersey Uniform Commercial Code as in effect from
time to time.
"WITHDRAWAL LIABILITY" has the meaning given to such term in Section
4201 of ERISA.
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<PAGE> 30
SECTION 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed, and all financial data submitted pursuant to this
Agreement shall be prepared, in accordance with GAAP.
ARTICLE 2
THE LOANS
SECTION 2.1 THE REVOLVING CREDIT. (A) Subject to the terms and conditions set
forth in this Agreement, the Bank shall extend to the Borrowers a revolving
credit facility in the maximum principal amount of Fifteen Million Dollars
($15,000,000.00) (the "Revolving Credit") pursuant to which the Bank shall
advance to the Borrowers, from time to time during the period from the Third
Closing Date to and including the Termination Date, such sums as the Borrowers
may request (each such sum, a "Revolving Credit Advance"); PROVIDED THAT, (1)
the Revolving Credit Advances (including the Dollar equivalent of any Revolving
Credit Sterling Advances and Revolving Credit Offered Rate Advances) to Pamarco
Europe plus any Letter of Credit Liability relating to Letters of Credit issued
for the account of Pamarco Europe shall at no time exceed the Pamarco Europe
Sublimit; (2) Revolving Credit Advances to Pamarco plus any Letter of Credit
Liability relating to Letters of Credit issued for the account of Pamarco shall
at no time exceed the Pamarco Sublimit; (3) Revolving Credit Advances to Armotek
plus any Letter of Credit Liability relating to Letters of Credit issued for the
account of Armotek shall at no time exceed the Armotek Sublimit; (4) Revolving
Credit Advances to Dauphin plus any Letter of Credit Liability relating to
Letters of Credit issued for the account of Dauphin shall at no time exceed the
Dauphin Sublimit; (5) Revolving Credit Advances to Diamond plus any Letter of
Credit Liability relating to Letters of Credit issued for the account of Diamond
shall at no time exceed the Diamond Sublimit; and (6) the total Revolving Credit
Advances (including the Dollar equivalent of any Revolving Credit Sterling
Advances and Revolving Credit Offered Rate Advances, if any) plus the Letter of
Credit Liability shall not at any time exceed the Credit Limit. If the total
Revolving Credit Advances (including the Dollar equivalent of any Revolving
Credit Sterling Advances and Revolving Credit Offered Rate
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<PAGE> 31
Advances, if any) plus the Letter of Credit Liability at any time exceeds the
Credit Limit, the Borrowers shall immediately repay the amount of the excess,
together with accrued interest thereon and any amount which may be due pursuant
to SECTION 2.20 on account of such payment. If, at any time, the aggregate
Letter of Credit Liability exceeds the Letter of Credit Sublimit, the Borrowers
shall pledge to the Bank cash collateral in an amount equal to the amount by
which such Letter of Credit Liability exceeds the Letter of Credit Sublimit,
which cash collateral shall be deposited and held by Lender in the Letter of
Credit Cash Collateral Account. The Borrowers shall use the Revolving Credit for
working capital purposes.
(B) The Borrowers have commenced paying and shall continue to pay
interest on the principal amount of the Revolving Credit outstanding from time
to time at the Interest Rate applicable to each Revolving Credit Advance in
accordance with SECTION 2.10 hereof. On the Termination Date, the Borrowers
shall repay all Revolving Credit Advances plus any drawings under Letters of
Credit which have not been previously reimbursed by the Borrowers plus all
accrued and unpaid interest thereon, the accrued and unpaid Revolving Credit
Facility Fee and any other amount due in connection with the Revolving Credit.
On the Termination Date, if there remain any unexpired Letters of Credit on such
date, the Borrowers shall deposit into the Letter of Credit Cash Collateral
Account an amount equal to such Letter of Credit Liability as determined by
Lender in its sole discretion.
(C) Each Revolving Credit Advance shall be in an aggregate amount of
Twenty Thousand Dollars ($20,000.00) (or the equivalent in Sterling with respect
to Revolving Credit Sterling Advances or Revolving Credit Offered Rate Advances)
or integral multiples of Five Thousand Dollars ($5,000.00) in excess thereof (or
the equivalent in Sterling with respect to Revolving Credit Sterling Advances or
Revolving Credit Offered Rate Advances).
(D) At any time and from time to time, upon at least three (3) Business
Days written notice to the Bank, the Borrowers may reduce by Fifty Thousand
Dollars ($50,000.00) or integral multiples of Five Thousand Dollars ($5,000.00)
in excess of such amount, or terminate entirely, the unutilized portion of the
Revolving Credit, PROVIDED HOWEVER THAT, while any Letters of
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<PAGE> 32
Credit remain outstanding the Borrowers shall not be permitted to terminate the
Revolving Credit in whole or reduce the Revolving Credit below the aggregate
amount of Letter of Credit Liability then outstanding. Each such written notice
shall specify the date on which the reduction or termination is to become
effective. Each such notice shall be irrevocable. Upon the effective date of any
such reduction or termination pursuant to this SECTION 2.1(D), the Borrowers
shall pay to the Bank the full amount of any Revolving Credit Facility Fee then
accrued on the amount of any such reduction or termination. Any such reduction
or termination of the Revolving Credit shall be permanent. If the Credit Limit
as reduced pursuant to this SECTION 2.1(D) is less than a Borrower's Sublimit,
such Borrower's Sublimit shall be reduced to an amount not in excess of the
Revolving Credit as so reduced.
(E) The joint and several obligation of the Borrowers to repay the
Revolving Credit, subject with respect to Pamarco Europe to the limitations
contained in SECTION 2.29 hereof, shall be evidenced by a promissory note of the
Borrowers (the "Revolving Credit Note"), dated as of the date hereof, payable to
the order of the Bank in the principal amount of Fifteen Million Dollars
($15,000,000.00) and otherwise substantially in the form of EXHIBIT 2.1(E)
attached hereto.
(F) Revolving Credit Advances may be repaid, prepaid or reborrowed by
the Borrowers at any time prior to the Termination Date.
(G) The Borrowers may request that the Bank change any Borrower's
Sublimit no more often than four times in any twelve (12) month period. Such
request shall be submitted on the form attached hereto as EXHIBIT 2.1(G). The
Bank may approve or reject such request in its reasonable discretion.
SECTION 2.2 MAKING ADVANCES UNDER THE REVOLVING CREDIT. Provided that there is
not then existing an Event of Default or a Default hereunder, and subject to the
other terms and conditions hereof, any Borrower shall notify the Bank, by
telephone or in writing, by 12:00 noon on the date of each proposed Revolving
Credit Prime Rate Advance, specifying the date, the amount of the proposed
Revolving Credit Prime Rate Advance, and the directions
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for making such Revolving Credit Prime Rate Advance if it is not to be deposited
into an Operating Account. Any Borrower shall notify the Bank, by telephone or
in writing, by 11:00 A.M. at least three London Business Days before each
proposed Revolving Credit LIBOR Advance, specifying the date and the amount of
the proposed Revolving Credit LIBOR Advance, whether the Revolving Credit
Advance is to be denominated in Sterling, the length of the proposed LIBOR
Interest Period, and the directions for making such Revolving Credit Advance if
it is not to be deposited into an Operating Account. Any Borrower shall notify
the London branch of the Bank, by telephone or in writing, by 12:00 noon London
time on the London Business Day of each proposed Revolving Credit Offered Rate
Advance, specifying the date and the amount of the proposed Revolving Credit
Offered Rate Advance, the length of the proposed Offered Rate Advance Interest
Period, and the directions for making such Revolving Credit Advance if it is not
to be deposited into an Operating Account. Such Borrower will confirm any
telephonic notice of a proposed Revolving Credit Advance the same day by
facsimile copy. Each such notice (whether or not actually confirmed by facsimile
copy) shall constitute a representation by all of the Borrowers that, at the
time thereof and giving effect to the Revolving Credit Advance requested
thereby: (A) no Event of Default or Default has occurred hereunder; (B) the
representations and warranties contained in this Agreement are reaffirmed and
are correct in all material respects as of the date of such notice, excluding
any representations which speak only of a date certain; (C) the total
outstanding Revolving Credit Advances plus the requested Revolving Credit
Advance will not exceed the Credit Limit; (D) the total outstanding Revolving
Credit Advances to the Borrower requesting the Revolving Credit Advance plus the
requested Revolving Credit Advance will not exceed such Borrower's Sublimit; and
(E) the conditions precedent for such Revolving Credit Advance as set forth in
SECTION 4.2 hereof have all been satisfied. The Bank shall make Revolving Credit
Advances by depositing the amount thereof into an operating account which each
Borrower (excluding Pamarco Europe) shall maintain with the Bank (the "Operating
Accounts") or in accordance with such Borrower's directions. The Borrowers agree
to hold the Bank harmless from any liability for any loss resulting from the
Bank's reliance on any writing, facsimile copy or telephonic notice purportedly
made by an officer of a Borrower, provided
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<PAGE> 34
that the Bank has acted in good faith in doing so. The Bank may assume that
telephonic notice of a request for a Revolving Credit Advance is from an
authorized officer of a Borrower, absent manifest error.
SECTION 2.3 [INTENTIONALLY OMITTED]
SECTION 2.4 [INTENTIONALLY OMITTED]
SECTION 2.5 [INTENTIONALLY OMITTED]
SECTION 2.6 SECOND TERM LOAN. (A) On the Second Closing Date, the Bank made
available to the Borrowers a term loan in the amount of Seven Million Five
Hundred Thousand Dollars ($7,500,000.00) (the "Second Term Loan"). The Second
Term Loan was used by the Borrowers to acquire Diamond.
(B) The Borrowers have commenced to repay and shall continue to repay
the principal amount of the Second Term Loan in monthly installments in the
amounts set forth below and continuing on the last day of each month thereafter
and on the Second Term Loan Maturity Date, on which date the Borrowers shall
repay the outstanding principal balance of the Second Term Loan plus all accrued
and unpaid interest and all other amounts due hereunder, under the Second Term
Loan Note or under any other document executed and delivered in connection
herewith:
<TABLE>
<CAPTION>
Monthly
Period Principal Repayment
- ------ -------------------
<S> <C>
August 31, 1997 through and including
January 31, 1998 $ 57,692.30
February 28, 1998 through and including
January 31, 2000 $ 76,923.07
February 29, 2000 through and including
January 31, 2002 $105,769.22
February 28, 2002 through and including
December 31, 2003 $115,384.60
</TABLE>
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<PAGE> 35
Amounts prepaid and repaid on the Second Term Loan may not be reborrowed.
(C) The Borrowers have commenced paying and shall continue to pay
interest on the principal amount of the Second Term Loan outstanding at the
Interest Rate applicable to each portion of the Second Term Loan in accordance
with SECTION 2.10 hereof.
(D) The joint and several obligation of Borrowers to repay the Second
Term Loan, subject with respect to Pamarco Europe to the limitations contained
in SECTION 2.29 hereof, is evidenced by a promissory note dated as of the Second
Closing Date, payable to the order of the Bank, in the amount of Seven Million
Five Hundred Thousand Dollars ($7,500,000.00) and otherwise substantially in the
form of EXHIBIT 2.6(D) attached hereto (the "Second Term Loan Note").
SECTION 2.7 ACQUISITION LOAN. (A) Subject to the terms and conditions set forth
in this Agreement, on the Third Closing Date, the Bank shall extend to the
Borrowers an acquisition and equipment line/term loan facility in the maximum
principal amount of the Acquisition Credit Limit (the "Acquisition Loan"),
pursuant to which the Bank shall advance to the Borrowers, from time to time
during the period from the Third Closing Date to and including the Termination
Date, such sums as the Borrowers may request; PROVIDED HOWEVER THAT, (1)
Equipment Advances and Acquisition Advances shall not exceed the Acquisition
Credit Limit, (2) Equipment Advances (including the Dollar equivalent of any
Equipment Advance denominated in Sterling, but excluding any Converted Equipment
Loans) shall not exceed the Equipment Sublimit, (3) Equipment Advances
(including the Dollar equivalent of any Equipment Advance denominated in
Sterling) made in any fiscal year shall not exceed the Equipment Sublimit, and
(4) Acquisition Advances (including the Dollar equivalent of any Acquisition
Advance denominated in Sterling) made to any Domestic Borrower to fund Permitted
Acquisition of Foreign assets or businesses, and made to any Foreign Borrower
shall not exceed $8,000,000.00. If the Acquisition Advances (including the
Dollar equivalent of any Acquisition Advance denominated in Sterling) plus the
Equipment Advances (including the Dollar equivalent of any Sterling Equipment
Advances) at any time exceeds the Acquisition Credit Limit, the Borrowers shall
immediately repay the amount of the excess,
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<PAGE> 36
together with accrued interest thereon and any amount which may be due pursuant
to SECTION 2.20 on account of such payment. If the total Equipment Advances at
any time exceeds the Equipment Sublimit, the Borrowers shall immediately repay
the amount of the excess together with accrued interest thereon and any amount
which may be due pursuant to SECTION 2.20 on account of such payment. If the
Acquisition Advances (including the Dollar equivalent of any Acquisition Advance
denominated in Sterling) made to any Domestic Borrower to fund Permitted
Acquisition of Foreign assets or businesses, and made to any Foreign Borrower at
any time exceeds $8,000,000.00, the Borrowers shall immediately repay the amount
of the excess together with accrued interest thereon and any amount which may be
due pursuant to SECTION 2.20 on account of such payment. The Borrowers shall use
the Acquisition Loan to purchase Equipment (each such advance to purchase
Equipment, excluding Equipment acquired in a Permitted Acquisition, an
"Equipment Advance") and finance Permitted Acquisitions (each such advance to
finance permitted Acquisition, an "Acquisition Advance"). Each Equipment Advance
shall not exceed the invoice price (excluding transportation, taxes and
handling) of the Equipment being purchased with such Equipment Advance.
(B) The Borrowers shall pay interest on the principal amount of the
Acquisition Loan outstanding at the Interest Rate applicable to each portion of
the Acquisition Loan in accordance with SECTION 2.10 hereof, PROVIDED THAT no
Equipment Advance (excluding a Converted Equipment Loan) or Acquisition Advance
(excluding a Converted Acquisition Loan) shall bear interest at a Fixed Rate or
have a LIBOR Interest Period which will expire after the earlier of (1) the
first anniversary of such Equipment or Acquisition Advance, or (2) the
Termination Date. The Borrowers shall repay each Equipment Advance (excluding
any Converted Equipment Loan) on the earlier of (a) the Termination Date, or (b)
the first anniversary of such Equipment Advance. The Borrowers shall repay each
Acquisition Advance (excluding any Converted Acquisition Loan) on the earlier of
(i) the Termination Date, or (ii) the first anniversary of such Acquisition
Advance. The Borrowers shall repay the principal balance of each Converted
Equipment Loan in consecutive installments commencing on the last day of the
month in which such Equipment Conversion Date takes place and on the last day of
each month thereafter and on such Loan's Converted Equipment Loan Maturity Date.
Each monthly installment shall be in an amount
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which would fully amortize the principal balance of such Converted Equipment
Loan in the number of installments due from such Loan's Equipment Conversion
Date through such Loan's Converted Equipment Loan Maturity Date. The final
installment of each Converted Equipment Loan shall be in an amount equal to the
then outstanding principal balance of such Converted Equipment Loan, all accrued
and unpaid interest thereon and any fees and costs due in connection with such
Converted Equipment Loan. The Borrowers shall repay the principal balance of
each Converted Acquisition Loan in consecutive installments commencing on the
last day of the month in which such Acquisition Conversion Date takes place and
on the last day of each month thereafter and on such Loan's Converted
Acquisition Loan Maturity Date. Each monthly installment shall be in an amount
which would fully amortize the principal balance of such Converted Acquisition
Loan in the number of installments due from such Loan's Acquisition Conversion
Date through such Loan's Converted Acquisition Loan Maturity Date. The final
installment of each Converted Acquisition Loan shall be in an amount equal to
the then outstanding principal balance of the Converted Acquisition Loan, all
accrued and unpaid interest thereon and any fees and costs due in connection
with such Converted Acquisition Loan.
(C) Provided no Default or Event of Default has occurred and is
continuing hereunder, the Borrowers may convert Equipment Advance(s) aggregating
in excess of $100,000.00 to a term loan (each such term loan, a "Converted
Equipment Loan") by written notice to the Bank delivered five (5) days prior to
the date on which such Equipment Advance(s) will be converted (such date with
respect to such Converted Equipment Loan, the "Equipment Conversion Date") which
notice shall set forth the maturity date of such Converted Equipment Loan (such
maturity date with respect to such Converted Equipment Loan, a "Converted
Equipment Loan Maturity Date"), PROVIDED THAT no Converted Equipment Loan
Maturity Date shall be later than the seventh anniversary of such Equipment
Conversion Date, PROVIDED HOWEVER THAT, in any one year period, the Borrower
shall not be permitted to convert Equipment Advances into more than the number
of Converted Equipment Loans equal to the number of the Borrowers hereunder
during such period (currently, there can only be six (6) Converted Equipment
Loans in any one year period).
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<PAGE> 38
(D) Provided no Default or Event of Default has occurred and is
continuing hereunder, the Borrowers may convert an Acquisition Advance to a term
loan (each such term loan, a "Converted Acquisition Loan") by written notice to
the Bank delivered five (5) days prior to the date on which such Acquisition
Advance will be converted (such date with respect to such Converted Acquisition
Loan, the "Acquisition Conversion Date") which notice shall set forth the
maturity date of such Converted Acquisition Loan (such maturity date with
respect to such Converted Acquisition Loan, a "Converted Acquisition Loan
Maturity Date"), PROVIDED THAT no Converted Acquisition Loan Maturity Date shall
be later than the earlier of (1) the seventh anniversary of such Acquisition
Conversion Date, or (2) eight anniversary of the Third Closing Date.
(E) Each Equipment Advance shall be in the minimum amount of Fifty
Thousand Dollars ($50,000.00) (or the equivalent thereof in Sterling) or in
multiples of Five Thousand Dollars ($5,000.00) (or the equivalent thereof in
Sterling) in excess thereof.
(F) The joint and several obligation of the Borrowers to repay the
Acquisition Loan, subject with respect to Pamarco Europe to the limitations
contained in SECTION 2.29 hereof, shall be evidenced by a promissory note of the
Borrowers (the "Acquisition Loan Note"), dated as of the Third Closing Date,
payable to the order of the Bank in the principal amount of Thirty Million
Dollars ($30,000,000.00) and otherwise substantially in the form of EXHIBIT
2.7(F) attached hereto.
(G) The Acquisition Loan may be repaid, prepaid or reborrowed by the
Borrowers from the Third Closing Date to the Termination Date.
SECTION 2.8 MAKING EQUIPMENT ADVANCES AND ACQUISITION ADVANCES. (A) Any Borrower
shall notify the Bank, in writing or by facsimile copy, by 12:00 noon on the
date of each proposed Equipment Advance which will bear interest at the Adjusted
Prime Rate, specifying the date and the amount of the proposed Equipment
Advance. Any Borrower shall notify the Bank, in writing or by facsimile copy, by
11:00 A.M. at least three London Business Days before each proposed Equipment
Advance which will bear interest at the Adjusted LIBOR Rate, specifying the date
and the amount of the proposed Equipment
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<PAGE> 39
Advance, whether the Equipment Advance is to be denominated in Sterling and the
length of the proposed LIBOR Interest Period. Any Borrower shall notify the
London branch of the Bank, in writing or by facsimile copy, by 12:00 noon London
time on the London Business Day of each proposed Equipment Advance which will
bear interest at the Adjusted Offered Rate, specifying the date and the amount
of the proposed Equipment Advance and the length of the proposed Offered Rate
Interest Period. Each such notice (whether or not actually confirmed by
facsimile copy) shall constitute a representation by all of the Borrowers that,
at the time thereof and giving effect to the Equipment Advance requested
thereby: (1) (a) no Event of Default or Default has occurred hereunder or will
arise as a result of the requested Equipment Advance; (b) the representations
and warranties contained in this Agreement are reaffirmed and are correct in all
material respects as of the date of such request, excluding any representations
which speak only of a date certain; (c) (i) the total outstanding principal
amount of the Equipment Advances (including the Dollar equivalent of any
Equipment Advances denominated in Sterling but excluding the Converted Equipment
Loans) will not exceed the Equipment Sublimit, (ii) the total Equipment Advances
(including the Dollar equivalent of any Equipment Advances denominated in
Sterling) made in such fiscal year do not exceed the Equipment Sublimit, and
(iii) the total outstanding principal amount of the Acquisition Advances
(including the Dollar equivalent of any Acquisition Advances denominated in
Sterling) plus the total outstanding principal amount of Equipment Advances
(including the Dollar equivalent of any Equipment Advances denominated in
Sterling) will not exceed the Acquisition Credit Limit; and (d) the conditions
precedent for such Equipment Advance as set forth in SECTION 4.2 hereof have all
been satisfied; and (2) each notice requesting an Equipment Advance shall be
accompanied by (a) a copy of the appropriate invoices and bills of sale for the
Equipment being purchased, (b) a certification of an officer of such Borrower
representing that the invoices and bills of sale presented are for Equipment
actually delivered and installed or to be delivered and installed, and (c) if
the Equipment being purchased is not going to be located at a location listed on
EXHIBIT 5.8, financing statements, executed by the Borrowers covering Equipment
owned by the Borrowers at such other location and landlord's waiver(s) in form
and substance acceptable to the Bank executed by the owner of such other
location. The Bank shall make Equipment Advances to the Borrower
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<PAGE> 40
requesting such Equipment Advance by depositing the amount thereof into such
Borrower's Operating Account or, if the Bank receives a written request by such
Borrower, directly to the manufacturer or supplier of such Equipment, or in
accordance with such Borrower's directions.
(B) Any requests for an Acquisition Advances shall be submitted to the
Bank in writing or by facsimile copy followed by submission of the original
written request by 11:00 A.M. no later than 21 days prior to the date on which
the requested Acquisition Advance is to be made, signed by an officer of a
Borrower previously authorized in writing and stating the amount of the proposed
Acquisition Advance. A Borrower will deliver to the Bank with such Acquisition
Advance request all of the documents and information required under SECTION
4.4(A) hereof. Each such notice (whether or not actually confirmed by facsimile
copy) shall constitute a representation by all of the Borrowers that, at the
time thereof and giving effect to the Acquisition Advance requested thereby: (a)
no Event of Default or Default has occurred hereunder or will arise as a result
of the requested Acquisition Advance; (b) the representations and warranties
contained in this Agreement are reaffirmed and are correct as of the date of
such request, excluding any representations which speak only of a date certain;
(c) (i) the total outstanding principal amount of the Acquisition Advances
(including the Dollar equivalent of any Acquisition Advances denominated in
Sterling) plus the total outstanding principal amount of Equipment Advances
(including the Dollar equivalent of any Equipment Advances denominated in
Sterling) will not exceed the Acquisition Credit Limit, and (ii) the total
outstanding principal amount of Acquisition Advances (including the Dollar
equivalent of any Acquisition Advance denominated in Sterling) made to any
Domestic Borrower to fund Permitted Acquisition of Foreign assets or businesses,
and made to any Foreign Borrower will not exceed $8,000,000.00; and (d) the
conditions precedent for such Acquisition Advance as set forth in SECTIONS 4.2
AND 4.4(A) hereof have all been satisfied. Upon satisfaction of all of the
conditions to such Acquisition Advance set forth in SECTION 4.4 hereof, the Bank
shall make Acquisition Advances to the Borrower requesting such Acquisition
Advance by depositing the amount thereof into such Borrower's Operating Account
or, if the Bank receives a written request by such
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Borrower, directly to the seller of such assets being acquired, or in accordance
with such Borrower's directions.
(C) The Borrowers agree to hold the Bank harmless from any liability for
any loss resulting from the Bank's reliance on any writing or facsimile copy
purportedly made by an officer of a Borrower, provided that the Bank has acted
in good faith in doing so.
SECTION 2.9 FEES. (A) The Borrowers shall pay to the Bank a facility fee (the
"Revolving Credit Facility Fee") computed at the rate of, prior to the Third
Closing Date, .25% per year, and from and after the Third Closing Date, .125%
per year, on the average daily unused portion of the Revolving Credit which
Revolving Credit Facility Fee shall be due and payable (1) quarterly in arrears
on the last day of March, June, September and December in each year, commencing
March 31, 1998 and (2) on the Termination Date. Each installment of the
Revolving Credit Facility Fee shall be deemed fully earned and non-refundable
when due.
(B) From and after the Third Closing Date, the Borrowers shall pay to
the Bank a facility fee (the "Acquisition Loan Facility Fee") computed at the
rate of .125% per year, on the average daily unused portion of the Acquisition
Loan, which Acquisition Loan Facility Fee shall be due and payable (1) quarterly
in arrears on the last day of March, June, September and December in each year,
commencing March 31, 1998 and (2) on the Termination Date. Each installment of
the Acquisition Loan Facility Fee shall be deemed fully earned and
non-refundable when due.
SECTION 2.10 INTEREST. (A) PRIME RATE LOANS. The Borrowers shall pay interest in
arrears on the unpaid principal amount of each Prime Rate Loan at an annual rate
(the "Adjusted Prime Rate") equal to the Prime Rate adjusted pursuant to the
definition of Applicable Margin, from the date on which such Prime Rate Loan is
disbursed until such principal amount has been repaid in full, or converted to a
LIBOR Loan or, if applicable, a Fixed Rate Loan, as the case may be, (1) monthly
on the last day of each month commencing January 31, 1998, (2) with respect to
the Revolving Credit Prime Rate Advances, if any, on the Termination Date, (3)
with respect to the Second Term Loan Prime Rate Tranche, if any, on
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the Second Term Loan Maturity Date, (4) with respect to an Acquisition Loan
Prime Rate Tranche, if any, on the date the applicable Equipment Advance or
Acquisition Advance must be repaid in full, (5) with respect to each Converted
Equipment Loan, if any, on such Loan's Converted Equipment Loan Maturity Date,
and (6) with respect to each Converted Acquisition Loan, if any, on such Loan's
Converted Acquisition Loan Maturity Date. The Adjusted Prime Rate shall change
(a) simultaneously with each change in the Prime Rate and (b) with each change
in the Applicable Margin in accordance with the definition thereof.
(B) OFFERED RATE LOANS. The Borrowers shall pay interest in arrears on
the unpaid principal amount of each Offered Rate Loan at an annual rate (the
"Adjusted Offered Rate") equal to the Prevailing Sterling Offered Rate adjusted
pursuant to the definition of Applicable Margin, (1) with respect to Interest
Periods of less than one year in length, quarterly on the last day of each
quarter commencing March 31, 1998 and on the last day of each December, March,
June and September thereafter, (2) with respect to Interest Periods of more than
one year in length, semi-annually commencing on June 30, 1998 and on the last
day of each June and December thereafter, (3) with respect to the Revolving
Credit Offered Rate Advances, if any, on the Termination Date, (4) with respect
to any Acquisition Loan Offered Rate Tranche, if any, on the date the applicable
Equipment Advance or Acquisition Advance must be repaid in full, (5) with
respect to a Converted Equipment Loan, if any, on such Loan's Converted
Equipment Loan Maturity Date, and (6) with respect to a Converted Acquisition
Loan, if any, on such Loan's Converted Acquisition Loan Maturity Date.
(C) LIBOR LOANS DENOMINATED IN DOLLARS. The Borrowers shall pay interest
in arrears on the unpaid principal amount of each LIBOR Loan denominated in
Dollars at the Adjusted LIBOR Rate, (1) monthly on the last day of each month,
(2) with respect to the Revolving Credit LIBOR Advances, on the Termination
Date, (3) with respect to the Second Term Loan LIBOR Tranches, if any, on the
Second Term Loan Maturity Date, (4) with respect to the Acquisition Loan LIBOR
Rate Tranches, if any, on the date the applicable Equipment Advance or
Acquisition Advance must be repaid in full, (5) with respect to a Converted
Equipment Loan, if any, on such Loan's Converted Equipment Loan Maturity Date,
and (6) with respect
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to a Converted Acquisition Loan, if any, on such Loan's Converted Acquisition
Loan Maturity Date.
(D) LIBOR LOANS DENOMINATED IN STERLING. The Borrowers shall pay
interest in arrears on the unpaid principal amount of each LIBOR Loan
denominated in Sterling at the Adjusted LIBOR Rate, (1) with respect to Interest
Periods of less than one year in length, quarterly on the last day of each
quarter commencing March 31, 1998 and on the last day of each December, March,
June and September thereafter, (2) with respect to Interest Periods of more than
one year in length, semi-annually commencing on June 30, 1998 and on the last
day of each December and June thereafter, (3) with respect to the Revolving
Credit Sterling Advances, if any, on the Termination Date, (4) with respect to
any Acquisition Loan LIBOR Tranche denominated in Sterling, if any, on the date
the applicable Equipment Advance or Acquisition Advance must be repaid in full,
(5) with respect to a Converted Equipment Loan, if any, on such Loan's Converted
Equipment Loan Maturity Date, and (6) with respect to a Converted Acquisition
Loan, if any, on such Loan's Converted Acquisition Loan Maturity Date.
(E) FIXED RATE LOANS. The Borrowers shall pay interest in arrears on the
unpaid principal amount of each Fixed Rate Loan at an annual rate (the "Adjusted
Fixed Rate") equal to the Fixed Rate adjusted pursuant to the definition of
Applicable Margin from the date on which such Fixed Rate Loan is disbursed until
such principal amount has been repaid in full, (1) monthly on the last day of
each month, (2) with respect to the Second Term Loan Fixed Rate Tranches, if
any, on the Second Term Loan Maturity Date and (3) with respect to a Converted
Equipment Loan, if any, on such Loan's Converted Equipment Loan Maturity Date,
and (4) with respect to a Converted Acquisition Loan, if any, on such Loan's
Converted Acquisition Loan Maturity Date.
(F) CONVERSIONS TO LIBOR LOANS, OFFERED RATE LOANS OR FIXED RATE LOANS.
(1) By notifying the Bank at least three London Business Days
prior to an Effective Date and subject to the limitations set forth herein, the
Borrowers may convert into a LIBOR Loan any Prime Rate Loan, Offered Rate Loan
or Fixed Rate Loan at the end of the existing Fixed Rate Interest Period, if
applicable, in an aggregate
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principal amount of Fifty Thousand Dollars ($50,000.00) (or, with respect to
Offered Rate Loans, the equivalent in Sterling) or integral multiples of Five
Thousand Dollars ($5,000.00) in excess thereof (or, with respect to Offered Rate
Loans, the equivalent in Sterling). At the end of the applicable LIBOR Interest
Period, the LIBOR Loan will convert back to a Prime Rate Loan unless the
Borrowers notify the Bank at least two London Business Days before the end of
the existing LIBOR Interest Period that the Borrowers are electing to continue
the LIBOR Loan as a LIBOR Loan and are selecting a new LIBOR Interest Period or,
if and only if denominated in Dollars, notify the Bank that the Borrowers are
converting to a Fixed Rate Loan in accordance with the following sentence. By
notifying the Bank at least 12:00 noon London time on the Effective Date and
subject to the limitations set forth herein, the Borrowers may convert into an
Offered Rate Loan any LIBOR Loan denominated in Sterling in an aggregate
principal amount of the Sterling equivalent of Fifty Thousand Dollars
($50,000.00) or integral multiples of the Sterling equivalent of Five Thousand
Dollars ($5,000.00) in excess thereof. By notifying the Bank at least two
Business Days prior to an Effective Date and subject to the limitations set
forth herein, the Borrowers may convert into a Fixed Rate Loan any Second Term
Loan Prime Rate Tranche, any Second Term Loan LIBOR Tranche at the end of the
applicable LIBOR Interest Period, and with respect to any Converted Equipment
Loan or Converted Acquisition Loan, an Acquisition Loan Prime Rate Tranche, an
Acquisition Loan LIBOR Tranche (excluding any Acquisition Loan LIBOR Tranche
denominated in Sterling) at the end of the applicable LIBOR Interest Period, in
an aggregate principal amount of Fifty Thousand Dollars ($50,000.00) or integral
multiples of Five Thousand Dollars ($5,000.00) in excess thereof. At the end of
the applicable Fixed Rate Interest Period, the Fixed Rate Loan will convert back
to a Prime Rate Loan unless the Borrowers notify the Bank at least two Business
Days before the end of the existing Fixed Rate Interest Period that the
Borrowers are electing to continue the Fixed Rate Loan as a Fixed Rate Loan and
are selecting a new Fixed Rate Interest Period or notify the Bank that the
Borrowers are converting to a LIBOR Loan in accordance with the first sentence
of this subsection. Any Loan denominated in Sterling must be repaid at the end
of the applicable Interest Period unless converted to a LIBOR Loan denominated
in Sterling or an Offered Rate Loan, as applicable, or continued as a LIBOR Loan
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denominated in Sterling or an Offered Rate Loan, as applicable, in
accordance with the foregoing.
(2) Notwithstanding anything to the contrary contained herein,
at no time shall the aggregate principal amount of (a) LIBOR Loans with LIBOR
Interest Periods of one year or more and (b) Fixed Rate Loans exceed fifty
percent (50%) of the then aggregate principal amounts outstanding under the
Second Term Loan any Converted Equipment Loan and any Converted Acquisition
Loan.
(G) RESTRICTIONS WITH RESPECT TO LIBOR LOANS AND FIXED RATE LOANS. No
Revolving Credit Advance, Equipment Advance (excluding any Converted Equipment
Loan, or Acquisition Advance (excluding any Converted Acquisition Loan) shall
earn interest at an Adjusted Fixed Rate. At any one time, the number of LIBOR
Loans shall not exceed the number of the Borrowers hereunder at such time
multiplied by two (currently, there can only be twelve (12) LIBOR Loans at any
one time). There shall be no more than 10 Fixed Rate Loans at any one time. No
portion of the Second Term Loan shall be denominated in Sterling at any time.
SECTION 2.11 COMPUTATION OF INTEREST AND FEES. All interest on calculated on the
basis of the Adjusted LIBOR Rate and the Fixed Rate, the Revolving Credit
Facility Fee, the Acquisition Facility Fee and other sums payable hereunder
shall be computed on the basis of a year of 360 days for the actual number of
days elapsed. All interest calculated on the basis of the Adjusted Prime Rate or
the Adjusted Offered Rate shall be computed on the basis of a year of 365 or 366
days, as applicable, for the actual number of days elapsed.
SECTION 2.12 PAYMENTS. (A) The Borrowers hereby authorize the Bank to charge
directly any concentration account (i.e. any account other than an account
designated as an operating account), maintained by the Borrowers or any of them
for any payments of principal of the Revolving Credit Advances, the First and
Second Equipment Loans, the First and Second Term Loans, the Acquisition Loan,
interest and any other amounts owing under this Agreement, under the Revolving
Credit Note, the First and Second Equipment Loan Notes, the First and Second
Term Loan Notes and the Acquisition Loan Note, or under any of the Loan
Documents, as and when due. In the event that the Borrowers maintain
insufficient
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funds in such account(s) to meet the Borrowers' obligations hereunder when due
and with respect to any payments due from Pamarco Europe who does not maintain
an account with the Bank, the Borrowers will make each payment under this
Agreement and under the Notes, other than payments on account of Loans
denominated in Sterling, in immediately available funds, in Dollars, not later
than 1:00 p.m., on the day such payment is due, at the office of the Bank at 120
Albany Street Plaza, New Brunswick, New Jersey. Each payment under this
Agreement or the Notes on account of a Loan denominated in Sterling shall be
made in immediately available funds, in Sterling, not later than 11:30 a.m.,
London time, on the day such payment is due, at the London branch of the Bank at
Centurion House, 24 Monument Street, London, England EC3R 8AJ.
(B) After the occurrence of an Event of Default and the acceleration of
the Loans as set forth in SECTION 7.2 hereof, the Bank shall apply all payments
and collections received by it as follows: FIRST, to all of the Bank's costs and
expenses incurred in connection with the collection of such payments (including,
without limitation, reasonable attorneys' fees and expenses); SECOND, to accrued
and unpaid portion of the Facility Fee; THIRD, to all other amounts (other than
principal or interest) which shall have come due hereunder and/or under any of
the Loan Documents; FOURTH, to accrued and unpaid interest; FIFTH, to the
principal amount of the outstanding Loans; and SIXTH, to the Letter of Credit
Cash Collateral Account.
SECTION 2.13 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made
hereunder or under the Notes or Loan Documents shall be stated to be due on a
day that is not a Business Day, such payment shall be made on the next
succeeding Business Day, and, except as otherwise specifically provided herein,
such extension of time shall in such case be included in the computation of
payment of interest hereunder or under the Notes or the Facility Fee, as the
case may be.
SECTION 2.14 REIMBURSEMENT TO THE BANK FOR COST INCREASES IMPOSED BY LAW. If any
change in existing law or regulation, any new law, change in regulatory
interpretation or a change in any other factor having the force of law
applicable to banks in general shall impose or change any tax (other than taxes
on income in general), reserve, insurance, special deposit or similar
requirements or charges with
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respect to funds obtained by the Bank to make or maintain any Loan during any
Interest Period, and the result is to increase the cost to the Bank of obtaining
or maintaining such funds or to reduce the return to the Bank on the Loan to
which such Interest Period applies, then the Bank shall so notify the Borrowers
in writing, certifying the amount of and reasons for such increased costs or
reduced return and showing the calculation of such amount, and the Borrowers
shall immediately pay to the Bank an amount sufficient to compensate the Bank in
full for such increased costs or such reduced return.
SECTION 2.15 REIMBURSEMENT TO THE BANK FOR INCREASED COSTS DUE TO CAPITAL
ADEQUACY REQUIREMENTS. If any law or regulation or the interpretation thereof by
any court or administrative or governmental authority charged with the
administration thereof, or compliance by the Bank with any request or directive
(whether or not having the force of law) of any such authority, applicable from
time to time now or after the date hereof to banks in general, shall (A) impose,
modify, deem applicable or result in the application of any capital maintenance,
capital ratio or similar requirements against loan commitments or other
facilities made by the Bank and the result thereof shall be to impose upon the
Bank a fee or a requirement to increase any capital requirement applicable as a
result of the making or maintenance of the Loans (which imposition of or
increase in capital requirements may be determined by the Bank's reasonable
allocation of the aggregate of such capital impositions or increases), or (B)
subject the Bank to any tax, duty or other charge with respect to the Loans, the
Notes, or its obligation to advance the Revolving Credit or the Acquisition
Loan, or change the basis of taxation of payments to the Bank of the principal
of or interest on the Loans or any other amounts due under this Agreement in
respect of the Loans or its obligation to advance the Revolving Credit or the
Acquisition Loan (except for changes in the rate of tax on the overall net
income of the Bank imposed by any jurisdiction in which the Bank is obligated to
pay taxes), then, upon demand by the Bank, the Borrowers shall immediately pay
to the Bank from time to time as specified by the Bank, such additional amounts
or fees which shall be sufficient to compensate the Bank for such impositions of
or increases in capital requirements or taxes from the date of such change,
together with interest on each such amount from the date demanded until payment
in full thereof at the Default Rate with respect to amounts or fees
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not paid when due. Upon the occurrence of any event referred to above, a
certificate setting forth in reasonable detail the amounts necessary to
compensate the Bank as a result of an imposition of or increase in capital
requirements or taxes submitted by the Bank to the Borrowers shall be
conclusive, absent manifest error or bad faith, as to the amount thereof. For
purposes of the application of this Section, and in calculating the amount
necessary to compensate the Bank for any imposition of or increase in capital
requirements or taxes hereunder, the Bank shall determine the applicability of
this provision and calculate the amount payable to it hereunder in a manner
consistent with the manner in which it shall apply and calculate similar
compensation payable to it by other borrowers having provisions in their credit
agreements comparable to this Section.
SECTION 2.16 ILLEGALITY. Notwithstanding any other provision in this Agreement,
if the adoption of any applicable law, rule, or regulation, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank (or its
lending office) with any request or directive (whether or not having the force
of law) of any such authority, central bank, or comparable agency shall make it
unlawful or impossible for the Bank (or its lending office) to maintain the
Revolving Credit or the Acquisition Loan, then upon notice to the Borrower by
the Bank, such Loans shall terminate.
SECTION 2.17 INTEREST AND COMMISSIONS AFTER DEFAULT. After the occurrence of any
Event of Default, (A) the Interest Rate then in effect on each outstanding Loan
shall be immediately converted to the Default Rate, and (B) any Loans made or
other money advanced hereunder after the occurrence of an Event of Default
(unless and until cured or waived in writing by the Bank) shall earn interest at
a per annum rate equal to the Adjusted Prime Rate plus 2%.
SECTION 2.18 SPECIAL PROVISIONS FOR LIBOR LOANS AND OFFERED RATE LOANS.
(A) UNAVAILABILITY OF FUNDS AND INDETERMINATE INTEREST RATES. If on or
before the date the Bank is to make any LIBOR Loan, any Offered Rate Loan or on
or before any Effective Date (1) the Bank
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determines in good faith that it is unable to obtain funds at the LIBOR Rate or
the Prevailing Sterling Offered Rate for the elected Interest Period for any
reason, including, but not limited to the unavailability of funds at such rate,
any change in existing law, any new law, the length of such Interest Period, or
otherwise or (2) the Bank determines in good faith that no adequate means exists
to determine the LIBOR Rate or the Prevailing Sterling Offered Rate for such
Interest Period, then, at the Bank's option, the Borrowers shall be deemed to
have requested a Loan at the Adjusted Prime Rate or shall be required to elect
an Interest Period of a length for which the Bank may obtain funds at the rate
the adjustment of which determines the LIBOR Rate or the Prevailing Sterling
Offered Rate.
(B) CHANGES AFFECTING ABILITY TO MAINTAIN FUNDS. If, during any Interest
Period, any change in existing law, any new law, or any other factor beyond the
control of the Bank prevents the Bank in its good faith determination from
maintaining funds at the rate the adjustment of which determines the LIBOR Rate
or Prevailing Sterling Offered Rate for such Interest Period and requires the
Bank to cease so maintaining funds actually so maintained prior to termination
of such Interest Period, then on the date of such required cessation, the
Borrowers shall be required to specify a different Interest Rate for such
Interest Period or, in the alternative, to elect an Interest Period of a length
for which the Bank may maintain funds at the rate the adjustment of which
determines the LIBOR Rate or the Prevailing Sterling Offered Rate. In addition,
within five days after the Bank notifies the Borrowers of such required
conversion, the Borrowers shall reimburse the Bank for any loss or expense the
Bank has certified in writing to the Borrowers that the Bank has incurred as a
result of any such required cessation.
SECTION 2.19 INELIGIBLE INTEREST PERIODS. If, on any date the Bank is to make a
LIBOR Loan, an Offered Rate Loan, a Fixed Rate Loan or on any Effective Date,
the period of time from such date or such Effective Date to the Termination Date
or final repayment date is less than an Interest Period which the Borrowers
could otherwise elect, the Borrowers will elect a LIBOR Loan, Offered Rate Loan
or Fixed Rate Loan whose Interest Period will end on or before the Termination
Date or the final repayment date, as necessary. If an appropriate Interest
Period is not available, then the Loan shall be made in Dollars at the Adjusted
Prime Rate.
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SECTION 2.20 PREPAYMENT. (A) The Borrowers may prepay the Prime Rate Loans in
whole or in part at any time and from time to time.
(B) The Borrowers may, at any time prepay the principal balance of any
Fixed Rate Loan in whole or in part, provided that the Borrowers simultaneously
therewith pay to the Bank all accrued and unpaid interest on the principal so
prepaid plus, upon the request of the Bank, such amount or amounts as shall be
sufficient (in the reasonable opinion of the Bank) to compensate it for any
loss, cost or expense which the Bank determines is attributable to:
(1) any payment, prepayment, conversion or renewal of a Fixed
Rate Loan made by the Bank on a date other than the last day
of an Interest Period for such Fixed Rate Loan (whether by
reason of acceleration or otherwise); or
(2) any failure by the Borrowers to borrow, convert into or
renew a Fixed Rate Loan to be made, converted into or renewed
by the Bank on the date specified therefor pursuant to a
Borrowers' prior election including without limitation, any
funding loss or negative carry loss.
Without limiting the foregoing, such compensation shall include
prepayment compensation equal to the amount, if any, by which (a) the principal
being prepaid plus the installments of interest which would have been payable
thereon when discounted to a present value at a rate per annum rate equal to the
yield to maturity of the Applicable Treasury Bond Obligation(s) exceed(s) (b)
the principal amount being prepaid. The Borrowers agree to pay prepayment
compensation as calculated in the foregoing sentence upon any prepayment of the
Fixed Rate Loan, whether voluntary, required by the Bank in connection with any
acceleration of the indebtedness hereunder upon the occurrence of an Event of
Default, or as otherwise required under this Agreement. A determination of the
Bank as to the amounts payable pursuant to this Section shall be conclusive
absent manifest error.
(C) The Borrowers agree not to prepay any LIBOR Loan prior to the
expiration of its Interest Period unless otherwise expressly required hereunder
or after acceleration by the Bank pursuant to SECTION 7.2. In the event that the
Borrowers prepay any LIBOR Loan prior to the expiration of its Interest Period,
whether in
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violation of the previous sentence, or with the consent of the Bank, or in
compliance with the express requirement of this Agreement, or otherwise, the
Borrowers shall pay to the Bank, upon the request of the Bank, such amount or
amounts as shall be sufficient (in the reasonable opinion of the Bank) to
compensate it for any loss, cost or expense which the Bank determines is
attributable to:
(1) any payment, prepayment, conversion or renewal of a LIBOR
Loan made by the Bank on a date other than the last day of an
Interest Period for such LIBOR Loan (whether by reason of
acceleration or otherwise); or
(2) any failure by the Borrowers to borrow, convert into or
renew a LIBOR Loan to be made, converted into or renewed by
the Bank on the date specified therefor pursuant to a
Borrowers' prior election.
Without limiting the foregoing, such compensation shall include
prepayment compensation equal to the amount, if any, by which (a) the principal
being prepaid plus the installments of interest which would have been payable
thereon when discounted to a present value at the Applicable LIBOR Rate
exceed(s) (b) the principal amount being prepaid. The Borrowers agree to pay
prepayment compensation as calculated in the foregoing sentence upon any
prepayment of the LIBOR Loan, whether voluntary, required by the Bank in
connection with any acceleration of the indebtedness hereunder upon the
occurrence of an Event of Default, or as otherwise required under this
Agreement. A determination of the Bank as to the amounts payable pursuant to
this Section shall be conclusive absent manifest error.
(D) The Borrowers agree not to prepay any Offered Rate Loan prior to the
expiration of its Interest Period unless otherwise expressly required hereunder
or after acceleration by the Bank pursuant to SECTION 7.2. In the event that the
Borrowers prepay any Offered Rate Loan prior to the expiration of its Interest
Period, whether in violation of the previous sentence, or with the consent of
the Bank, or in compliance with the express requirement of this Agreement, or
otherwise, the Borrowers shall pay to the Bank, upon the request of the Bank,
such amount or amounts as shall be sufficient (in the reasonable opinion of the
Bank) to compensate
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it for any loss, cost or expense which the Bank determines is attributable to:
(1) any payment, prepayment, conversion or renewal of an
Offered Rate Loan made by the Bank on a date other than the
last day of an Interest Period for such Offered Rate Loan
(whether by reason of acceleration or otherwise); or
(2) any failure by the Borrowers to borrow, convert into or
renew an Offered Rate Loan to be made, converted into or
renewed by the Bank on the date specified therefor pursuant to
a Borrowers' prior election.
Without limiting the foregoing, such compensation shall include
prepayment compensation determined by the Bank. The Borrowers agree to pay
prepayment compensation upon any prepayment of an Offered Rate Loan, whether
voluntary, required by the Bank in connection with any acceleration of the
indebtedness hereunder upon the occurrence of an Event of Default, or as
otherwise required under this Agreement. A determination of the Bank as to the
amounts payable pursuant to this Section shall be conclusive absent manifest
error.
(E) Provided that the Borrowers have not given the Bank written
instructions to the contrary, the Bank shall apply any voluntary principal
prepayment FIRST, to repayment of the Prime Rate Loans then outstanding, SECOND,
to repayment of any Fixed Rate Loans, Offered Rate Loans and LIBOR Loans in such
a manner as to minimize the Borrowers' obligation to pay prepayment compensation
under this Section. Any prepayment with respect to the First or Second Converted
Equipment Loan or the First or Second Term Loan shall be applied to payments in
inverse order of maturity.
(F) The Borrowers shall prepay the Second Term Loan in an amount equal
to any amount received by the Company under Section 2.3 of the Stock Purchase
Agreement. Such prepayment shall be made within ten (10) days of the receipt of
such amounts from the Escrow Agent (as such term is defined in the Stock
Purchase Agreement.
SECTION 2.21 AVAILABILITY OF RATE QUOTATIONS. Notwithstanding anything herein to
the contrary, if the Bank reasonably determines (which determination shall be
conclusive) that quotations of
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interest rates for the relevant deposits referred to in the definition used to
calculate the LIBOR Rate or the quotations for the Prevailing Sterling Offered
Rate are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining the rate of interest on a LIBOR Loan or
an Offered Rate Loan as provided in this Agreement, then the Bank shall
forthwith give notice thereof to the Borrowers. From and after the date on which
such notice is given, (A) the obligation of the Bank to make LIBOR Loans or
Offered Rate Loans shall be suspended; and (B) the Borrowers shall repay in full
the then outstanding principal amount of each LIBOR Loan or Offered Rate Loan,
together with accrued interest thereon, on the last day of the then current
Interest Period applicable to such Loan by remitting sufficient funds to the
Bank or, if denominated in Dollars, by conversion to an Prime Rate Loan or any
other conversion to another Interest Rate permitted at such time.
SECTION 2.22 REIMBURSEMENT FOR FUNDING LOSS OR PER DIEM CARRY LOSS ON FIXED RATE
LOANS. If Borrowers do not accept any Fixed Rate Loan within one Business Day of
notifying the Bank of such Fixed Rate Loan, Borrowers acknowledge, accept and
agree that there may exist a funding loss ("Funding Loss") caused by a lower
interest rate environment forcing the Bank to reinvest the funds reserved for
such Fixed Rate Loan at a lower rate. In such event, the Borrowers agree to
reimburse the Bank on demand for such Funding Loss calculated pursuant to
SECTION 2.20(B) hereof as if Borrowers had accepted and immediately prepaid such
Fixed Rate Loan. If on or prior to the funding of any Fixed Rate Loan requested
by the Borrowers, the Borrowers notify the Bank that the Borrowers desire to
postpone the funding date of such Fixed Rate Loan, the Borrowers agree to
reimburse the Bank on demand for any per diem loss caused by the temporary
reinvestment of the held funds into the overnight money market at a rate lower
than the Fixed Rate applicable to such Fixed Rate Loan ("Per Diem Carry Loss"),
calculated based on the difference between the Fixed Rate applicable to the
requested Fixed Rate Loan and the applicable overnight interest yield the Bank
could earn on a temporary basis.
SECTION 2.23 CURRENCY HEDGE INDEMNIFICATION. (A) The Borrowers shall pay to the
Bank, upon its request, such amount or amounts as shall be sufficient (in the
reasonable opinion of the Bank) to compensate the Bank for any loss, cost, or
expense (including,
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without limitation, costs or losses associated with closing hedge transactions
in respect of Revolving Credit Sterling Advances, Revolving Credit Offered Rate
Advances, Acquisition Loan Sterling Tranches, and Acquisition Loan Offered Rate
Tranches incurred as a result of:
(1) Any payment of a Revolving Credit Sterling Advance,
Revolving Credit Offered Rate Advance, Acquisition Loan
Sterling Tranche, or Acquisition Loan Offered Rate Tranche on
a date other than the last day of the Interest Period
pertaining to such Loan including, but not limited to, any
such payment made in violation hereof or made as a result of
any Event of Default occasioning a change in applicable
interest rate and/or of acceleration by the Bank; or
(2) Any failure by the Borrowers to borrow a Revolving Credit
Sterling Advance, a Revolving Credit Offered Rate Advance, a
Second Equipment Loan Sterling Tranche, a Second Equipment
Loan Offered Rate Tranche, Acquisition Loan Sterling Tranche,
or Acquisition Loan Offered Rate Tranche or to convert to, as
the case may be, a Revolving Credit Sterling Advance, a
Revolving Credit Offered Rate Advance, Acquisition Loan
Sterling Tranche, or Acquisition Loan Offered Rate Tranche on
the date for borrowing or conversion, as the case may be,
specified in the relevant notice under SECTION 2.10.
(B) The Bank's determination of the amount so due, and a description of
the calculation thereof, shall be set forth in the request for such amount or
amounts; such determination and calculation shall be conclusive absent manifest
error.
SECTION 2.24 CURRENCY PROVISIONS. (A) For purposes of the provisions of this
Agreement, (1) the equivalent in Dollars of Sterling shall be determined by
using the commercial market rate of exchange, as determined by the Bank for the
exchange of Dollars for Sterling, in London, England at 9:00 a.m. London time
two London Business Days prior to the date on which such equivalent is to be
determined and (2) the equivalent in Sterling of Dollars shall be determined by
using the commercial market rate of exchange, as determined by the Bank for the
exchange of Sterling for Dollars in
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London at 9:00 a.m. London time two London Business Days prior to the date on
which such equivalent is to be determined.
(B) The Bank's determination of the rate of exchange pursuant to this
Agreement shall be conclusive in the absence of manifest error.
SECTION 2.25 JUDGMENT CURRENCY. The currency in which each Loan made hereunder
is denominated and the place of payment designated therefor is of the essence.
The payment obligation of each Borrower hereunder in any designated currency and
designated place of payment shall not be discharged by an amount paid in another
currency or in another place, whether pursuant to a judgment or otherwise, to
the extent that the amount so paid on prompt conversion to the currency in which
the Loan is denominated and transfer to the designated place of payment under
normal banking procedures does not yield the amount owing hereunder at the
designated place of payment. In the event that any payment by any Borrower,
whether pursuant to a judgment or otherwise, upon such conversion and transfer
does not result in payment of such amount in the currency in which such Loan is
denominated at the designated place of payment, the Bank shall be entitled to
demand immediate payment of, and shall have a cause of action against the
Borrowers for, the additional amount necessary to yield the amount of such
currency owing hereunder.
SECTION 2.26 FOREIGN TAXES. All payments on account of the Notes and the
principal of, and interest on, the Loans and all other amounts payable by each
Borrower under this Agreement shall be made without any set-off or counterclaim
and free and clear of and without reduction by reason of all present and future
income, stamp and other taxes and levies, imposts, deductions, charges,
compulsory loans and withholding whatsoever imposed, assessed, levied or
collected by any country (other than taxes imposed on the overall income of the
Bank or of its applicable lending office by the jurisdiction in which the Bank's
principal office or lending office is located) or any political subdivision or
taxing authority thereof or therein.
SECTION 2.27 LETTER OF CREDIT CASH COLLATERAL ACCOUNT. Cash collateral pledged
by the Borrowers pursuant to this Agreement shall be maintained in a deposit
account of Borrowers to be
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established with the Bank at the time such cash collateral is first created,
over which the Bank shall have sole control (the "Letter of Credit Cash
Collateral Account"). The Borrowers hereby grant, bargain, convey and set over
to the Bank for the benefit of the Bank a security interest in and lien upon the
Letter of Credit Cash Collateral Account and all cash and any other assets at
any time hereafter contained therein as security for the payment and performance
of all of the Borrowers' obligations now or hereafter incurred hereunder, under
the Notes or otherwise in connection herewith. The Borrowers shall take such
action and execute and deliver such documents, including financing statements,
as the Bank may determine necessary or desirable to further the security
interest hereby created. After the occurrence of an Event of Default and
acceleration of the Loans as set forth in SECTION 7.2 hereof, or if the
Borrowers shall have failed to pay all amounts which have come due on or prior
to such applicable due date, the Bank shall apply all funds held in the Letter
of Credit Cash Collateral Account in the manner provided in SECTION 2.12. On the
Termination Date, all monies in the Letter of Credit Cash Collateral Account in
excess of the amount required to repay Loans, the Letter of Credit Liability,
and any other amount then owing hereunder shall be returned to the Borrowers.
SECTION 2.28 LETTERS OF CREDIT.
(A) LETTERS OF CREDIT. In addition to the Borrowers requesting that the
Bank make Revolving Credit Advances pursuant to SECTION 2.1, the Borrowers may
request, in accordance with the provisions of this Section, that on and after
the date on which all of the conditions set forth in Section 4.1 are satisfied
to and excluding the Termination Date, the Bank issue and the Bank shall issue,
subject to the terms and conditions hereof, Letters of Credit for the account of
the Borrowers or any Borrower in an aggregate amount up to the Letter of Credit
Sublimit; PROVIDED, that (a) in no event shall any Letter of Credit have an
expiration date later than the Termination Date, (b) in no event shall any
Documentary Letter of Credit have an expiration date later than one year from
its issue date, (c) in no event shall any Standby Letter of Credit have an
expiration date later than one (1) year after its issue date, (d) Standby
Letters of Credit requested by a Borrower shall be issued at the discretion of
the Bank and the Bank shall not be obligated to issue Standby Letters of Credit
or cause them
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to be issued even if all the conditions for issuance have otherwise been
satisfied, and (e) Borrowers shall not request any Letter of Credit if, after
giving effect to such issuance, the Letter of Credit Liability would exceed the
Letter of Credit Sublimit. The issuance of any Letter of Credit in accordance
with the provisions of this Section shall require the satisfaction of each
condition set forth in SECTIONS 4.2 AND 4.3.
(B) NOTICE OF ISSUANCE OR AMENDMENT. Whenever the Borrowers desire the
issuance of a Letter of Credit or the amendment of a Letter of Credit, they
shall deliver to the Bank a written notice no later than 11:00 A.M. at least two
(2) Business Days, or in each case such shorter period as may be agreed to by
the Bank in any particular instance, in advance of the proposed date of
issuance. That notice shall specify (1) the proposed date of issuance (which
shall be a Business Day), (2) the face amount of the Letter of Credit, (3) the
expiration date of the Letter of Credit, (4) the purpose of the Letter of Credit
and (5) the name and address of the beneficiary. On the proposed date of
issuance of any Letter of Credit, the Bank shall determine to the best of its
knowledge whether the proposed Letter of Credit, when added to the then
outstanding Letter of Credit Liability, would be within the Letter of Credit
Commitment and, when added to the then outstanding Letter of Credit Liability
and Revolving Credit Advances, would be within the Credit Limit. Unless both
such criteria are satisfied, the Bank shall not issue or cause to be issued the
requested Letter of Credit. The Borrowers shall hold the Bank harmless for any
miscalculations or other errors in making such determinations. In the event
that, upon issuance of such proposed Letter of Credit, (a) the Letter of Credit
Sublimit is exceeded, the Borrowers shall immediately establish with the Bank,
if not already so established, and deposit into the Letter of Credit Cash
Collateral Account the amount of such excess; and (b) the Credit Limit is
exceeded, the Borrowers shall immediately repay to the Bank the amount of such
excess first for application against the Revolving Credit Advances, together
with accrued interest thereon and any amount which may be due pursuant to
SECTION 2.22 on account of such payment and then for deposit into the Letter of
Credit Cash Collateral Account. Prior to the date of issuance, the Borrowers
shall deliver to the Bank an executed application for such Letter of Credit in
the form customarily required by the Bank for the issuance of letters of credit
(the current version of such form is attached hereto as
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EXHIBIT 2.28), and specify a precise description of the documents and the
verbatim text of any certificate to be presented by the beneficiary which, if
presented by the beneficiary prior to the expiration date of the Letter of
Credit, would require the Bank to make payment under the Letter of Credit;
PROVIDED, that the Bank, in its reasonable judgment, may require changes in any
such documents and certificates; and PROVIDED, FURTHER, that no Letter of Credit
shall require payment against a conforming draft to be made hereunder on the
same Business Day that such draft is presented if such presentation is made
after 11:00 A.M. on such Business Day. In determining whether to pay under any
Letter of Credit, the Bank shall be responsible only to determine that the
documents and certificates required to be delivered under the Letter of Credit
have been delivered and that they comply on their face with the requirements of
that Letter of Credit.
(C) PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT. In the event of
any request for drawing under any Letter of Credit by the beneficiary thereof,
the Bank shall notify the Borrowers and the Borrowers shall reimburse the Bank
on the day on which such drawing is honored in an amount in same day funds equal
to the amount of such drawing; PROVIDED that (1) if sufficient funds are then in
the Letter of Credit Cash Collateral Account to reimburse the Bank in full for
the amount of such drawing, the Bank shall reimburse itself by debiting such
amount necessary to reimburse the Bank from the Letter of Credit Cash Collateral
Account, (2) if the funds then in the Letter of Credit Cash Collateral Account
are insufficient to reimburse the Bank in full for the amount of such drawing,
the Bank shall debit the Letter of Credit Cash Collateral Account in the amount
thereof and the unreimbursed balance of such drawing shall be reimbursed in
accordance with clause (3) below, and (3) if there are no funds then in the
Letter of Credit Cash Collateral Account then unless the Borrowers shall have
notified the Bank prior to 11:00 A.M. on the date of such drawing that the
Borrowers intend to reimburse the Bank for the amount of such drawing with funds
other than the proceeds of the Revolving Credit Advances, the Borrowers shall be
deemed to have given notice to the Bank requesting it to make a Revolving Credit
Prime Rate Advance in accordance with SECTIONS 2.1 AND 2.2 on the day on which
such drawing is honored (the "Reimbursement Date") in an aggregate amount equal
to the amount of such drawing less the amount, if any, remitted to the Bank
pursuant to clause (2) above.
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(D) COMPENSATION. The Borrowers agree to pay the following amounts to
the Bank:
(1) with respect to each Letter of Credit issued by the Bank,
a fee to be negotiated between the Bank and the Borrowers at the time the
Borrowers request the issuance of such Letter of Credit;
(2) with respect to drawings made under any Letter of Credit,
interest, payable on demand, on the amount paid by the Bank in respect of each
such drawing from the date of the drawing to the date such amount is reimbursed
by the Borrowers (including any such reimbursement out of the proceeds of
Revolving Credit Advances or out of the Letter of Credit Cash Collateral
Account) at a rate equal to the Adjusted Prime Rate for the period from the date
of such drawing to and including the first Business Day after the date of such
drawing and thereafter at a rate which is at all times equal to the Default
Rate; and
(3) with respect to the issuance, amendment, transfer,
administration, cancellation or conversion of each Letter of Credit and each
drawing made thereunder, documentary and processing charges in accordance with
the Bank's standard schedule for such charges in effect at the time of such
issuance, amendment, transfer, administration, cancellation or drawing, as the
case may be, or as otherwise agreed to by the Bank.
(E) OBLIGATIONS ABSOLUTE. The obligation of the Borrowers to reimburse
the Bank for drawings made under the Letters of Credit issued by it shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances including, without limitation,
the following circumstances:
(1) any lack of validity or enforceability of any Letter
of Credit;
(2) the existence of any claim, set-off, defense or other
right which any Borrower may have at any time against a beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any such
transferee may be acting), the Bank, any Affiliate of the Bank, or any other
Person, whether
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in connection with this Agreement, the transactions contemplated herein or any
unrelated transaction (including any underlying transaction between any Borrower
or one of its Subsidiaries and the beneficiary for which the Letter of Credit
was procured);
(3) any draft, demand, certificate or any other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(4) payment by the Bank under any Letter of Credit against
presentation of a demand, draft or certificate or other document which does not
comply with the terms of such Letter of Credit; PROVIDED, that such payment does
not constitute willful misconduct or gross negligence on the part of the Bank;
(5) any breach of this Agreement or any document delivered in
connection herewith by any party hereto or thereto; and
(6) the fact that an Event of Default or an event which, but
for the giving of notice, the passage of time or both, would constitute an Event
of Default shall have occurred and be continuing.
(F) INDEMNIFICATION; NATURE OF THE BANK'S DUTIES. In addition to amounts
payable as elsewhere provided in this SECTION 2.28, the Borrowers hereby agree
to protect, indemnify and save the Bank harmless from and against any and all
claims, demands, liabilities, damages, losses, costs, charges and expenses
(including reasonable attorneys' fees and allocated costs of internal counsel)
which the Bank may incur or be subject to as a consequence, direct or indirect,
to the extent not caused by the gross negligence, bad faith or willful
misconduct of the Bank, its directors, officers, employees, agents or attorneys,
of (1) the issuance of any Letter of Credit, or (2) the failure of the Bank to
honor a drawing under any Letter of Credit as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de facto
government or governmental authority. Without limiting the foregoing, the Bank
shall not have any obligation to ascertain whether the stated purpose of any
requested Letter of Credit is permitted by this Agreement and shall not be
liable for
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any Borrower's use of a Letter of Credit issued pursuant to the terms hereof in
violation of the Borrowers' covenants contained herein.
As among the Borrowers on one hand and the Bank on the other hand, the
Borrowers assume all risks of the acts and omissions of, or misuse of the
Letters of Credit issued by the Bank by the respective beneficiaries of such
Letters of Credit. In furtherance and not in limitation of the foregoing, the
Bank shall not be responsible for: (a) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any party in
connection with the application for and issuance of such Letters of Credit, even
if it should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (b) the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
such Letter of Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, which may prove to be invalid or ineffective for any
reason; (c) failure of the beneficiary of any such Letter of Credit to comply
fully with conditions required in order to draw upon such Letter of Credit,
unless (i) such failure is material and substantive, and (ii) the Bank's payment
on such Letter of Credit constitutes gross negligence or willful misconduct; (d)
errors, omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not they be
in cipher; (e) errors in interpretation of technical terms; (f) any loss or
delay in the transmission or otherwise of any document required in order to make
a drawing under any such Letter of Credit or of the proceeds thereof; (g) the
misapplication by the beneficiary of any such Letter of Credit; or (h) any
consequences arising from causes beyond the control of the Bank. None of the
above shall affect, impair, or prevent the vesting of any of the Bank's rights
or powers hereunder.
In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by the Bank under
or in connection with the Letters of Credit issued by it or the related
certificates, if (i) taken or omitted in good faith and (ii) substantially in
accordance with the terms thereof, shall not put the Bank under any resulting
liability to the Borrowers.
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It is expressly understood and agreed that the obligations of the Bank
hereunder are only those expressly set forth in this Agreement and that the Bank
shall be entitled to assume that no Event of Default, and no event that with
notice of lapse of time or both would, if unremedied, constitute an Event of
Default, has occurred and is continuing unless the Bank has actual knowledge of
such fact or has received notice from a Borrower that such Borrower considers
that an Event of Default or such event has occurred and is continuing and
specifying the nature thereof.
SECTION 2.29 SPECIAL PROVISIONS CONCERNING PAMARCO EUROPE. Notwithstanding the
joint and several liability of the Borrowers' liability in respect of the
Liabilities, the liability of Pamarco Europe on account of the principal and
interest on the Loans shall be limited to the principal amount advanced to
Pamarco Europe and interest thereon.
ARTICLE 3
COLLATERAL
SECTION 3.1 EFFECTIVENESS OF ARTICLE 3. In the event that, at the end of any
fiscal quarter, the Borrowers' Cash Flow Coverage Ratio is equal to or less than
2.0:1.0 (the "Trigger Event") then the foregoing provisions contained in this
ARTICLE 3 shall immediately become effective and shall remain in effect until
(A) the Loans are repaid in full and (B) the Termination Date has occurred. The
Borrowers have executed and delivered to the Bank Security Documents and, may,
in accordance with this Agreement, execute and deliver to the Bank additional
Security Documents to be held by the Bank in escrow unless and until a Trigger
Event shall occur. Upon the occurrence of a Trigger Event, the Bank shall have
the right to and, at any time thereafter, may, file the Fixed Charge and the
financing statements and any other Security Document required to be filed to
perfect the lien created hereby or thereby. Prior to the occurrence of a Trigger
Event, this ARTICLE 3 shall be of no force or effect, excluding this SECTION
3.1.
SECTION 3.2 SECURITY INTERESTS. Effective immediately upon the occurrence of a
Trigger Event, as security for the performance of this Agreement and of the
other Loan Documents, the payment of
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principal, interest and fees under the Loans and the payment of all Liabilities
of the Borrowers to the Bank, the Borrowers hereby grant, pledge, and assign to
the Bank a security interest in all assets of the Borrowers or any of them now
owned or hereafter acquired including, without limitation, (A) all Accounts,
Chattel Paper, Equipment (whether or not constituting fixtures), Documents,
Instruments, General Intangibles (including, but not limited to, any and all
interests in trademarks, service marks, patents, licenses, permits, and
copyrights), (B) all Inventory, if any, held by any Borrower for sale or lease
or to be furnished under contracts of service, (C) all Equipment and Fixtures,
(D) all books, records, tapes, information, data, stored material, computer
media, passwords, access codes arising or related to the Borrowers' business,
now existing or hereafter acquired (collectively, "Books and Records"), (E) any
account maintained by any Borrower with the Bank and all cash held therein, and
(F) all proceeds and products of the foregoing, including casualty insurance
thereon, now owned or hereafter acquired by the Borrowers.
SECTION 3.3 FINANCING STATEMENTS; CERTIFICATES OF TITLE. The Borrowers will join
with the Bank in executing such additional financing statements and amendments
(in form satisfactory to the Bank) under the Uniform Commercial Code as the Bank
may specify, and will pay the cost of filing the same in such public offices as
the Bank shall designate. If requested by the Bank after the occurrence of a
Trigger Event, the Borrowers shall have noted on the certificate of title of any
Collateral the liens created hereby and shall deliver to the Bank the originals
of each such certificate of title. After the occurrence of a Trigger Event, the
Borrowers agree to take whatever action the Bank reasonably requests to perfect
and to continue perfection of the Bank's security interest in the Collateral.
SECTION 3.4 LANDLORD'S WAIVER. The Borrowers shall use all commercially
reasonable efforts to cause the owners of the locations identified on EXHIBIT
5.8 to execute and deliver to the Bank an instrument (in form satisfactory to
the Bank) by which each such owner waives its right to distrain on any of the
Collateral, and by which such owner grants to the Bank the right (but not the
obligation) to cure any default by the Borrowers under the applicable lease
(each, a "Landlord's Waiver").
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SECTION 3.5 THE BANK'S RIGHTS WITH RESPECT TO ACCOUNTS, CHATTEL PAPER,
INSTRUMENTS AND GENERAL INTANGIBLES. With respect to any Account, Chattel Paper,
Instrument and General Intangible that becomes Collateral hereunder, upon the
occurrence and during the continuance of a Default or an Event of Default, the
Bank shall have the right at any time and from time to time, with notice to the
Borrowers (which may be oral or written), to: (A) endorse in the name of the
Borrowers all proceeds of the Accounts, Chattel Paper, Instruments and General
Intangibles payable to the Borrowers that may come to the Bank; (B) notify
Purchasers under the Borrowers' Accounts, Chattel Paper, Instruments and General
Intangibles that such Accounts, Chattel Paper, Instruments and General
Intangibles have been assigned to the Bank, forward invoices to such Purchasers
directing them to make payments to the Bank, collect all Accounts, Chattel
Paper, Instruments and General Intangibles of the Borrowers in the Bank's or the
Borrowers' name, and take control of any cash or non-cash proceeds of the
Borrowers' Accounts, Chattel Paper, any Instruments and General Intangibles; (C)
compromise, extend, or renew any Account, Chattel Paper, Instrument or General
Intangible of the Borrowers or deal with the Borrowers' Accounts, Chattel Paper,
Instruments and General Intangibles as the Bank may deem advisable; (D) make
exchanges, substitutions, or surrenders of Collateral; and (E) take control of
any cash or non-cash proceeds of any Collateral.
SECTION 3.6 ACCOUNTS. With respect to each Account (A) the Borrowers represent
that: (1) such Account is not evidenced by a judgment, an Instrument or Chattel
Paper or secured by a letter of credit (except (a) such judgment as has been
assigned, (b) such Instrument or Chattel Paper as has been endorsed and
delivered to the Bank and (c) such letter of credit as has been assigned and
delivered to the Bank) and represents a bona fide completed transaction; (2) the
amount shown on the Borrowers' Books and Records and on any list, invoice or
statement furnished to the Bank is owing to the Borrowers; (3) the title of the
Borrowers to the Account and, except for the Purchaser, to any goods represented
thereby is absolute; (4) the Account has not been transferred to any other
Person, and, at the time such Account is created, no person except the Borrowers
or Purchaser has any claim thereto or, to the goods or services represented
thereby, provided that the Bank acknowledges that the Borrowers may owe standard
advertising commissions to third parties relating to such Accounts; (5) no
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partial payment against any Account has been made by anyone other than as noted
on the Borrowers' Books and Records; and (6) no set-off or counter-claim to such
Account exists, and no agreement has been made with any person under which any
deduction or discount may be claimed.
(B) The Borrowers will immediately notify the Bank if any Account arises
out of contracts with the United States or any department, agency or
instrumentality thereof, furnish the Bank with copies of each such contract and
execute any instruments and take any steps reasonably required by the Bank in
order that all moneys due and to become due under any such contract shall be
assigned to the Bank and notice given under the Federal Assignment of Claims
Act.
(C) The Borrowers will (1) if requested by the Bank, furnish to the Bank
copies, with such duplicate copies as the Bank may request, of any invoice
applicable to each of its Accounts; (2) inform the Bank immediately of the
rejection of any goods represented by any Account of the Borrowers equal to or
in excess of $100,000.00, any material delay in delivery or performance by the
Borrowers or claims made in regard to any Account equal to or in excess of
$100,000.00; (3) furnish the Bank upon the Bank's request with all information
received by any Borrower affecting the financial standing of any Purchaser; (4)
mark the Borrowers' records concerning each of its Accounts in a manner
satisfactory to the Bank so as to show that each Account has been assigned to
the Bank; and (5) furnish the Bank with such other reports as the Bank may from
time to time request.
(D) The Bank shall have the right, with or without notice to the
Borrowers after the occurrence and during the continuance of a Default or an
Event of Default, to: (1) endorse in the name of the Borrowers all Instruments
for the payment of money representing the proceeds of any Borrower's Account
that may come into the possession of the Bank; (2) take control of any cash or
non-cash proceeds of the Borrowers' Accounts; (3) compromise, extend or renew
any Account or deal with the Borrowers' Accounts as the Bank may deem advisable;
and (4) make exchanges, substitutions or surrenders of Collateral at any time
and from time to time.
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SECTION 3.7 CHATTEL PAPER; LETTERS OF CREDIT AND INSTRUMENTS. The Borrowers
covenant that each will deliver to the Bank promptly on receipt all originals of
(A) letters of credit securing Accounts, (B) Chattel Paper, and/or (C)
Instruments, each properly assigned and/or endorsed over to the Bank, which
letters of credit, Chattel Paper and Instruments shall be held by the Bank as
security hereunder. The Borrowers shall remain solely responsible for the
observance and performance of all of the Borrowers' covenants and obligations
under all Chattel Paper and Instruments, and the Bank shall not be required to
observe or perform any such covenants or obligations.
SECTION 3.8 EQUIPMENT. The Borrowers represent, warrant and agree that, except
for those security interests described on EXHIBIT 6.5 (A) each Borrower is the
absolute owner of its Equipment, subject only to the security interests created
hereby; (B) all of each Borrower's Equipment is of a type in which a security
interest is to be perfected solely by filing a financing statement under the
Uniform Commercial Code, as adopted in the various states and executing in favor
of the Bank fixed and floating charges in England and delivering particulars of
the same in accordance with Part XII of the Companies Act 1985, and if in the
future a Borrower acquires any motor vehicles, aircraft, ships or boats or other
Equipment of a type in which a security interest is to be perfected in a manner
other than by or in addition to filing a financing statement under the Uniform
Commercial Code, as adopted in the various states, such Borrower shall promptly
notify the Bank thereof and take such steps as are necessary to perfect the
Bank's security interest therein.
SECTION 3.9 CONDITION OF EQUIPMENT. The Borrowers will immediately notify the
Bank of any casualty or similar event which results in a decline in the value of
any portion of a Borrower's Equipment individually or in the aggregate in excess
of $100,000.00.
SECTION 3.10 ACCESS TO COLLATERAL AND BOOKS AND RECORDS. Upon demand by the Bank
after the occurrence of an Event of Default which is continuing, each Borrower
shall assemble its Equipment and make it available to the Bank at such
Borrower's place or places of business. At the request of the Bank, after the
occurrence of an Event of Default which is continuing, each Borrower shall
provide
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warehousing space in its own premises at its own cost to the Bank for the
purpose of taking Equipment into the custody of the Bank without removal thereof
from such premises and will post such signs as the Bank may reasonably require
in order to place such Equipment under the exclusive control of the Bank.
SECTION 3.11 EXPENSES OF THE BANK. The Borrowers will reimburse the Bank on
demand for all expenses (including the reasonable fees and expenses of legal
counsel for Lender) in connection with the enforcement of the Bank's rights to
file any Security Documents, take possession of the Collateral and the proceeds
thereof and to hold, collect, render in compliance with applicable Environmental
Laws and regulations, prepare for sale, sell and dispose of the Collateral.
SECTION 3.12 NOTICES. If notice of sale, disposition or other intended action by
the Bank with respect to the Collateral is required by the Uniform Commercial
Code or other applicable law, any notice thereof sent to the Borrowers at their
address listed below or such other address of the Borrowers as may from time to
time be shown on the records of the Bank at least five days prior to such
action, shall constitute reasonable notice to the Borrowers.
SECTION 3.13 INSURANCE; DISCHARGE OF TAXES, ETC. The Bank shall have the right
at any time and from time to time, with or without notice to the Borrowers, to
(A) obtain insurance covering any of the Collateral if the Borrowers fail to do
so, (B) discharge taxes, liens, security interests or other encumbrances at any
time levied or placed on any of the Collateral which the Borrowers have failed
to discharge as required by any Loan Document and (C) pay for the maintenance
and preservation of any of the Collateral. The Borrowers will reimburse the
Bank, on demand, with interest thereon at the Default Rate for any payment the
Bank makes, or any expense the Bank incurs under this authorization. The
Borrowers assign to the Bank all right to receive the proceeds of insurance
covering the Collateral, direct any insurer to pay all such proceeds directly to
the Bank, authorize the Bank to endorse in the name of the Borrowers any draft
for such proceeds, and authorize the Bank to apply such proceeds, at the Bank's
discretion, as a prepayment against the Loans in the same manner and order as a
prepayment under SECTION 2.20 hereof, PROVIDED HOWEVER THAT, so long as no
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Default or Event of Default has occurred and is continuing hereunder, the
Borrowers shall be permitted to retain insurance proceeds not to exceed
$500,000.00 which shall be used by the Borrowers to repair or replace the
Collateral covered by such insurance or to prepay the Loans. After the
occurrence of a Trigger Event, the Borrowers shall notify all insurers covering
any of the Collateral that the Bank is loss payee and will obtain a certificate
from such insurers showing the Bank's security interest therein in such manner
that all payments for damage or loss will be paid to the Bank as lender loss
payee. The Borrowers will furnish the Bank with satisfactory evidence of
compliance with this Section and upon request of the Bank, will deliver a
certified copy of each policy to be held by the Bank, and the original of each
loss payee endorsement.
SECTION 3.14 WAIVER AND RELEASE BY THE BORROWERS. The Borrowers (A) waive
protest of all commercial paper at any time held by the Bank on which the
Borrowers are in any way liable, notice of nonpayment at maturity of any and all
Accounts of the Borrowers and, except where required hereby or by law, notice of
action taken by the Bank, and (2) release the Bank from all claims for loss or
damage caused by any failure to collect any Account or by any act or omission on
the part of the Bank or its officers, agents and employees, except willful
misconduct.
SECTION 3.15 RECORDS AND REPORTS. The Borrowers shall keep accurate and complete
records of its Accounts (and the collection thereof), General Intangibles,
Chattel Paper, Instruments, Documents and Inventory and furnish the Bank such
information about the Borrowers' Accounts, General Intangibles, Chattel Paper,
Instruments, Documents, and Inventory as the Bank may reasonably request. The
Bank shall have the right to conduct periodic examinations and verifications of
the Borrowers' Books and Records, which examination may include, without
limitation, verifications of Accounts by contacting Purchasers. The Borrowers
agree to make their Books and Records available to the Bank at the Borrowers'
principal place of business for purposes of such examination. The Borrowers
shall reimburse the Bank for the costs and expenses (whether internal or
external) of any such examination.
SECTION 3.16 THE BANK'S LIENS. Upon the occurrence of a Trigger Event, the
Bank's liens and security interests in the Collateral
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will be duly perfected first priority liens and security interests therein upon
filing of Uniform Commercial Code financing statements, or the Bank's taking
possession of the Collateral or certificates of title as appropriate, excluding
Permitted Encumbrances, if any.
SECTION 3.17 APPLICATION OF PROCEEDS OF CONTINGENT COLLATERAL. All proceeds of
Collateral shall be applied (A) to the costs of preservation and, after the
occurrence of an Event of Default, liquidation of such Collateral and the Bank's
exercise of its rights under ARTICLES 3 AND 6 hereof, then (B) as set forth in
ARTICLE 2, then (C) to all other Liabilities.
SECTION 3.18 CONTINUING COLLATERAL. The Bank shall be under no obligation to
proceed first against any part of the Collateral before proceeding against any
other part of the Collateral. It is expressly agreed that all of the Collateral
stands as equal security for all Liabilities and the Bank shall have the right
to proceed against or sell any and/or all of the Collateral in any order, or
simultaneously, as it, in its sole discretion, shall determine.
ARTICLE 4
CONDITIONS OF LENDING
SECTION 4.1 CONDITIONS PRECEDENT TO THE THIRD CLOSING DATE. The obligations of
the Bank to enter into this Third Amended and Restated Loan and Security
Agreement, to increase the availability under the Revolving Credit and to make
the Acquisition Loan available to the Borrowers is subject to the conditions
precedent that the Bank shall have received on or before the Third Closing Date
all of the following, in form and substance satisfactory to the Bank:
(A) a copy, certified in writing as of the Third Closing Date by the
Secretary or Assistant Secretary of each Borrower, of (1) resolutions of the
Board of Directors of such Borrower evidencing approval of this Agreement, the
Notes and the other Loan Documents and other matters contemplated hereby, the
execution and delivery of the Loan Documents, the performance of each of the
transactions
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contemplated by the Loan Documents and authorizing specific officers of such
Borrower to execute and deliver such Loan Documents, and (2) each document
evidencing any other necessary corporate action and any Governmental Approvals
for each Borrower with respect to this Agreement, the Notes and the Loan
Documents;
(B) a favorable opinion of outside counsel for the Borrowers dated as of
the Third Closing Date on such matters as the Bank shall require and in form and
substance satisfactory to the Bank;
(C) a favorable opinion of English counsel for the Borrowers dated as of
the Third Closing Date on such matters as the Bank shall require and in form and
substance satisfactory to the Bank;
(D) a certificate dated the date hereof by the Secretary or an Assistant
Secretary of each Borrower as to the names and signatures of the officers of
such Borrower authorized to sign this Agreement, the Notes and the Loan
Documents and the other documents or certificates of such Borrower to be
executed and delivered pursuant hereto;
(E) this Agreement executed by the Borrowers;
(F) the Revolving Credit Note and the Acquisition Loan Note executed by
the Borrowers;
(G) delivery of the executed Security Documents to be held in escrow by
the Bank in accordance with ARTICLE 3 hereof, including without limitation:
(1) the Fixed and Floating Charge executed by Pamarco Europe;
(2) the Uniform Commercial Code financing statements executed
by Borrowers, together with any other document which the Bank may reasonably
request, including without limitation any other document for filing or
otherwise, in order to perfect the Bank's security interest in the Collateral
upon the occurrence of a Trigger Event;
(H) certificate of each Borrower that the Certificate of Incorporation,
Memoranda and Articles of Association and/or Bylaws
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of each Borrower delivered on the Closing Date have not been amended, modified
or supplemented in any way;
(I) a certificate of an officer of the Borrowers dated the Third Closing
Date (with supporting evidence if required by the Bank) representing to the Bank
that (1) each Borrower has complied in all material respects with all applicable
federal, state and local laws and regulations, including without limitation all
Environmental Laws; (2) there is no pending or, to any Borrower's knowledge,
threatened litigation, action, proceeding or investigation which in the
aggregate, if decided against a Borrower, would result in a Material Adverse
Effect; (3) no material adverse change has occurred in the financial condition
of any Borrower since September 30, 1997; and (4) the representations and
warranties of the Borrowers contained in this Agreement and in the other Loan
Documents to which the Borrowers are a party are correct and accurate in all
material respects on and as of the Third Closing Date as though made on and as
of the Third Closing Date, excluding any representations which speak only of a
date certain;
(J) a copy of each and every Governmental Approval which is required to
be obtained or made by the Borrowers for the due execution, delivery and
performance of this Agreement, the other Loan Documents, or a certificate of an
officer of each Borrower dated the Third Closing Date that no such Governmental
Approvals are required;
(K) payment of all fees, costs and expenses required under SECTION 8.3
hereof;
(L) evidence that the Company shall have completed its initial public
offering of equity and received net proceeds therefrom of no less than Fifteen
Million Dollars ($15,000,000.00);
(M) satisfactory completion of the Bank's due diligence;
(N) the First Term Loan, the First Equipment Loan and the Second
Equipment Loan plus all accrued but unpaid interest thereon shall have been
repaid in full;
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(O) evidence that all stockholder agreements and related funding or
voting control agreements executed by or relating to any Borrower and such
Borrower's stockholders have been terminated; and
(P) such other documents as may be reasonably requested by the Bank.
THIS AGREEMENT SHALL NOT BECOME EFFECTIVE AND SHALL BE NULL AND VOID UNLESS THE
THIRD CLOSING DATE TAKES PLACE ON OR BEFORE FEBRUARY 28, 1998.
SECTION 4.2 CONDITIONS PRECEDENT TO ALL DISBURSEMENTS. The obligation of the
Bank to make any Revolving Credit Advance or any Equipment Advance or
Acquisition Advance and the rights of the Borrower to select Interest Rates
under SECTION 2.10 are subject to the further conditions precedent that:
(A) the representations and warranties contained in ARTICLE 5 hereof
shall be true and accurate on and as of the date of such disbursement or
selection as though made on and as of such date, excluding any representation
which speaks only of a date certain;
(B) no Event of Default or Default shall have occurred and be continuing
or will result from the making of such disbursement or selection;
(C) there shall have occurred no material adverse change in the
financial condition, value or utility of assets, operations or prospects of the
Borrowers, taken as a whole, since the most recent financial statements reviewed
and approved by the Bank;
(D) there shall not have occurred any casualty or condemnation that has
a Material Adverse Effect on any property of the Borrowers; and
(E) there shall be no pending or threatened litigation which if decided
against a Borrower would have a Material Adverse Effect on such Borrower.
SECTION 4.3 CONDITIONS TO ISSUANCE OF LETTERS OF CREDIT. The obligation of the
Bank to issue any Letter of Credit hereunder is
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subject to the prior or concurrent satisfaction of all of the following
conditions:
(A) On or before the date of issuance of the initial Letter of Credit,
each of the conditions set forth in SECTION 4.1 shall have been satisfied or
waived;
(B) On or before the date of issuance of each Letter of Credit, the Bank
in respect of such Letter of Credit shall have received in accordance with the
provisions of SECTION 2.28, a notice requesting the issuance of such Letter of
Credit, an executed application for such Letter of Credit in the form
customarily required by the Bank for the issuance of letters of credit, all
other information specified in SECTION 2.28, and such other documents as the
Bank may reasonably require in connection with the issuance of such Letter of
Credit;
(C) On the date of issuance of each Letter of Credit, all conditions
precedent described in SECTION 4.2 shall be satisfied to the same extent as
though the issuance of such Letter of Credit were the making of a Revolving
Credit Advance, and each request by Borrowers to the Bank to issue a Letter of
Credit shall constitute a representation by the Borrowers that at the time
thereof (1) all conditions precedent described in SECTION 4.2 have been
satisfied and (2) the sum of the proposed Letter of Credit plus the Letter of
Credit Liability plus the Revolving Credit Advances then outstanding would not
exceed the Credit Limit; and
(D) On or before the date of issuance of such Letter of Credit, the
Borrowers shall have paid the fee therefor required under SECTION 2.28.
SECTION 4.4 SPECIAL CONDITIONS PRECEDENT FOR ACQUISITION ADVANCES. The
obligation of the Bank hereunder to make an Acquisition Advance requested by
Borrowers is subject to the further conditions precedent that:
(A) The Borrowers deliver to Bank with the written request to be
submitted in accordance with SECTION 2.8(B) each of the following, in form and
substance satisfactory to the Bank:
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(1) the annual financial statements, including a balance sheet
and profit and loss statement and interim statements for the business being
acquired with the proceeds of such Acquisition Advance, which annual financial
statements, if available or if required by Regulation S-X under the Securities
Act of 1933, as amended, shall be audited and unqualifiedly certified by a firm
of independent certified public accountants acceptable to the Bank; PROVIDED
HOWEVER THAT, in the event the Borrowers deliver financial statements which have
not been audited, the Borrowers shall also deliver to the Bank within ninety
(90) days of the closing of such Permitted Acquisition, an opening balance sheet
reviewed by an accounting firm acceptable to the Bank;
(2) a PRO FORMA balance sheet and cash flow projections for
the Borrowers after giving effect to the proposed acquisition and demonstrating
to the satisfaction of the Bank PRO FORMA compliance with the covenants set
forth in SECTIONS 6.18 THROUGH 6.22 hereof for the two (2) year period following
such proposed acquisition certified by Borrowers' management to the effect that
such PRO FORMA balance sheet and projections have been prepared on the basis of
historical results and projected assumptions believed to be reasonable and that
management has no reason to believe they are incorrect or misleading in any
respect; and
(3) a copy of a fully executed agreement of sale for the
purchase of the assets and/or business being financed with the requested
Acquisition Advance, certified by Borrowers as a true, correct and complete copy
of the agreement of sale for the purchase of such business for which the
requested Acquisition Advance is being made with terms and conditions acceptable
to the Bank.
(B) The Bank shall have received on or before the day which is ten (10)
Business Days prior to the date on which such Acquisition Advance is to be made
all of the following, in form and substance satisfactory to the Bank:
(1) an appraisal of the assets of the business to be acquired
performed by an appraiser reasonably satisfactory to the
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Bank and evidencing a value for such acquired assets which the Bank determines
in its sole discretion is sufficient; and
(2) an environmental audit of each property owned or leased by
the business proposed to be acquired performed by an auditor satisfactory to the
Bank, in form and substance satisfactory to the Bank, together with such other
more detailed environmental assessments as the Bank may require after review of
such audit.
(C) The Borrowers shall have delivered not less than three (3) Business
Days prior to the date such Acquisition Advance is to be made all of the
following in form and substance satisfactory to the Bank:
(1) a lien search against the assets or business the Borrowers
propose to acquire showing no liens against the assets or business being
acquired except (after a Trigger Event) in favor of the Bank and those which
will be released in connection with such purchase or are otherwise permitted
hereunder; and
(2) UCC-1 Financing Statements, mortgages, pledge agreements,
stock certificates with powers signed in blank, or any other instrument or
document needed to grant the Bank, effective upon the occurrence of a Trigger
Event, a lien in the business and/or all of the assets being acquired in such
Permitted Acquisition, all of which shall be in form and substance satisfactory
to the Bank, shall be executed, witnessed, and where appropriate, acknowledged
and otherwise in a form acceptable for recordation.
(D) The Borrowers shall deliver to Lender no later than 11:00 A.M. of
the Business Day on which such requested Acquisition Advance is to be made (1) a
certification that all conditions precedent to the proposed Permitted
Acquisition have been satisfied in full or provisions for their satisfaction on
such day have been made, and that all liens on the assets or business being
acquired (excluding Permitted Encumbrances) have been satisfied or that
satisfactions have been placed in escrow pending disbursement of funds and
representing and warranting that upon making such requested Acquisition Advance,
together with such evidence as the Bank may reasonably require supporting the
representations,
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warranties and covenants contained in such certification; and (2) any other
certificate, report, instrument, legal opinion or study as Lender may have
required.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to the Bank as follows:
SECTION 5.1 EXISTENCE. Each Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of its state of incorporation. Each
Borrower has all requisite power and authority, corporate and otherwise, to
conduct its business and to own its properties and assets and is duly qualified
as a foreign corporation in good standing in all jurisdictions in which it is
required to so qualify.
SECTION 5.2 AUTHORIZATION. The execution, delivery and performance by each
Borrower of this Agreement, the Notes and the Loan Documents, including without
limitation, the Security Documents, have been duly authorized by all necessary
corporate action, and do not and will not violate any current provision of any
law, government regulation or statute, or of the charter, Memorandum or Articles
of Association, or by-laws of such Borrower or result in a breach of or
constitute a default under any instrument, deed, mortgage or other material
agreement to which such Borrower is a party or by which it or its properties are
bound or affected.
SECTION 5.3 VALIDITY. This Agreement constitutes, and the Notes and the Loan
Documents, including without limitation, the Security Documents, when duly
executed and delivered will constitute, valid and legally binding obligations of
such Borrower, enforceable in accordance with their respective terms, except as
such enforceability may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally.
SECTION 5.4 FINANCIAL INFORMATION. The audited Consolidated and Consolidating
balance sheet and statements of cash flows and
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operations of the Borrowers as of and for the fiscal year ended December 31,
1996, copies of all of which have been furnished to the Bank prior to the Third
Closing Date, show all material liabilities, direct and contingent, and present
fairly the financial positions, the results of operations and cash flows at such
date and for the period ended on such date, all in accordance with GAAP. Since
September 30, 1997, there has been no material adverse change either in the
financial positions or in the results of operations of any Borrowers.
SECTION 5.5 LITIGATION. There are no actions, suits or proceedings pending or,
to the knowledge of the Borrowers, threatened against a Borrower, or any of
their respective properties before any court or governmental department,
commission, board, bureau, agency or instrumentality (domestic or foreign)
which, if decided against Borrowers, would have a Material Adverse Effect.
SECTION 5.6 CONTINGENT LIABILITIES. There are no suretyship agreements,
guarantees or other contingent liabilities of a Borrower that are not disclosed
on the financial statements mentioned in SECTION 5.4, in this Agreement or in an
Exhibit hereto.
SECTION 5.7 TAXES. Each Borrower has filed all tax returns and reports required
to be filed before the date of this Agreement and has paid all taxes,
assessments and charges imposed upon it or its property, or that it is required
to withhold and pay over, to the extent that they were required to be paid
before the date of this Agreement.
SECTION 5.8 PLACE OF BUSINESS; LOCATIONS OF COLLATERAL. The Borrowers represent
that the properties listed on Part A of EXHIBIT 5.8 hereto are each Borrower's
chief places of business and chief executive office where each Borrower keep its
Books and Records, that the properties listed on Part B of EXHIBIT 5.8 hereto
are all other places of business of the Borrowers, and that Parts A and B of
EXHIBIT 5.8 hereto constitutes all of the locations where any of the Collateral
is located.
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SECTION 5.9 ENCUMBRANCES. None of the properties or assets of a Borrower are
subject to any lien, encumbrance or security interest except for Permitted
Encumbrances.
SECTION 5.10 CONSENTS. No authorization, consent, approval, license, exemption
by or filing or registration with any court or governmental department,
commission, board (including the Board of Governors of the Federal Reserve
System), bureau, agency or instrumentality, domestic or foreign, is or will be
necessary for the valid execution, delivery or performance by a Borrower of this
Agreement, the Notes or any of the Loan Documents, including without limitation,
the Security Documents, other than the filing of financing statements and the
Fixed and Floating Charge. Further, each Borrower has all Governmental Approvals
necessary for the conduct of such Borrower's business, and the conduct of the
Borrower's business is not and has not been in violation of any such
Governmental Approval or any applicable federal or state law, rule or
regulation.
SECTION 5.11 ERISA. Each Borrower and the members of its Controlled Groups
maintain only those Defined Benefit Pension Plans and Defined Contribution Plans
listed on EXHIBIT 5.11 attached hereto. No Borrower contributes to any
Multiemployer Plans. All such Defined Benefit Pension Plans and Defined
Contribution Plans, as of the date hereof, meet the minimum funding standards of
ss.302 of ERISA without regard to any funding waiver and no Prohibited
Transaction has occurred with respect to any such plan. No Reportable Event has
occurred with respect to any such Defined Benefit Pension Plan. No such Defined
Benefit Pension Plan sponsored by a Borrower has any amount of "unfunded benefit
liabilities" (as such term is defined in ss.4001(a)(18) of ERISA). No
liabilities (whether or not such liability is being litigated) have been
asserted against a Borrower or any Controlled Group member in connection with
any such Defined Benefit Pension Plan by the PBGC or by a trustee appointed
pursuant to ss.4042(b) or (c) of ERISA, and no lien has been attached and no
person has threatened to attach a lien on any property of a Borrower as a result
of any failure to comply with the Code or ERISA with respect to any such Defined
Benefit Plan. Except for the Diamond plan listed on EXHIBIT 5.11, each such
Defined Benefit Pension Plan and Defined Contribution Plan, as most recently
amended, including, without limitation, amendments to any trust agreement, group
annuity, or
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insurance contracts, or other governing instrument, is the subject of a
favorable determination letter by the Internal Revenue Service with respect to
its qualification under Section 401(a) of the Code or an application for such
determination within the applicable remedial amendment period has been filed and
such plans (including the Diamond plan listed on EXHIBIT 5.11) comply (A) in
operation with the requirements of the Code and ERISA, and (B) in form with
those requirements of the Code and ERISA which must be met on the date hereof.
SECTION 5.12 OWNERSHIP. The Borrowers have title to, or valid leasehold
interests in, all of their properties and assets, real and personal, including
the properties and assets, and leasehold interests reflected on the financial
statements referred to in SECTION 5.4 hereof.
SECTION 5.13 SUBSIDIARIES AND OWNERSHIP OF STOCK. EXHIBIT 5.13 is a complete and
accurate list of the Borrowers (excluding the Company), and shows (A) the
jurisdiction of incorporation or organization of each Borrower, and (B) the
ownership of the outstanding stock or other interest of each Borrower (excluding
the Company). All of the outstanding capital stock or other interest of each
Borrower has been validly issued and is fully paid and nonassessable. No
Borrower has any Subsidiaries or Affiliates except for other Borrowers and those
Persons shown on EXHIBIT 5.13.
SECTION 5.14 MARGIN STOCK. No Borrower engages in the business of making loans
for the purchase of Margin Stock.
SECTION 5.15 ENVIRONMENTAL MATTERS. Each Borrower is in possession of and in
material compliance with all required permits and Environmental Laws relating to
the discharge or release of liquids, gases or solids into the air, water, and
soil. Each Borrower which refines, processes, generates, stores, recycles,
transports, disposes of, or releases into the environment any "hazardous
substance" as that term is defined under Section 101(14) of CERCLA or any
hazardous or toxic substances as those terms are defined by the provisions of
any environmental law, treaty, statute, directive or regulation does so in
accordance with all applicable Environmental Laws. Except as indicated on
EXHIBIT 5.15 attached hereto, no Borrower has received: (A) notice from any
governmental agency that it is a potentially responsible party in
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any proceeding under CERCLA or any similar state or local environmental statute
or regulation, or (B) any notice of violation, citation, complaint, request for
information, order, directive, compliance schedule, notice of claim, proceeding
or litigation from any party concerning such entity's compliance with any
Environmental Law.
SECTION 5.16 DEBT. No Borrower has any debt except the Liabilities, trade
payables, capitalized or finance lease obligations and Subordinated Debt.
SECTION 5.17 REGULATION U, ETC. The Loans will not constitute a violation of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System.
No part of the proceeds of the Loans will be used for any purposes which violate
or are inconsistent with the provisions of any of such regulations.
SECTION 5.18 LICENSES, PERMITS, ETC. Each Borrower is in possession of and
operating in compliance with all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders required for the conduct
of its business now conducted, and all of them are valid and in full force and
effect.
SECTION 5.19 COMPLIANCE WITH LAWS. Each Borrower is in compliance in all
material respects with all laws, rules, regulations, and orders of all Federal,
state and governmental agencies and courts (domestic and foreign) which are
applicable to it, to the conduct of its business, or to the ownership and use of
its properties.
SECTION 5.20 LABOR MATTERS. There are no existing, or to the knowledge of
Borrowers, threatened, or contemplated, strikes, slowdowns, picketing or work
stoppages by any employees against a Borrower, any lockouts by a Borrower of any
of its employees or any labor trouble or other occurrence, event or condition of
a similar character affecting, or which may materially affect the financial
condition or results of operations of a Borrower.
SECTION 5.21 OUTSTANDING JUDGMENTS OR ORDERS. Each Borrower has satisfied all
judgments against it and no Borrower is in default with respect to any judgment,
writ, injunction, decree, rule or
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regulation of any court, arbitrator or commission, board bureau, agency or
instrumentality, domestic or foreign, pertaining to such Borrower.
SECTION 5.22 NO DEFAULTS ON OTHER AGREEMENTS. No Borrower is a party to any
indenture, loan or credit agreement or any lease or other agreement or
instrument or subject to any charter or corporate restriction which is likely to
have a Material Adverse Effect. No Borrower is in default in any respect in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument material to its business to
which it is a party.
SECTION 5.23 FULL DISCLOSURE. No representation or warranty by the Borrowers in
this Agreement and no information in any statement, certificate, schedule or
other document furnished or to be furnished to the Bank pursuant hereto, or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading. Except as disclosed in this Agreement and the Exhibits attached
hereto, there is no fact known to any Borrower which it has not disclosed to the
Bank in writing which materially adversely affects, or, so far as the Borrowers
can now foresee, may materially adversely affect, the business, financial
condition or results of operations of any Borrower.
ARTICLE 6
COVENANTS OF THE BORROWER
So long as any amount due the Bank hereunder remains outstanding, or the
Bank shall have any obligation to make Loans hereunder, unless the Bank shall
otherwise consent in writing, each Borrower agrees that:
SECTION 6.1 USE OF PROCEEDS. The proceeds of the Loans will be used for the
purposes set forth in ARTICLE 2 hereof.
SECTION 6.2 FINANCIAL INFORMATION. (A) In addition to the reports which the
Borrowers are obligated to deliver or cause to be
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delivered pursuant to ARTICLE 3 hereof, the Borrowers will furnish to the Bank:
(1) as soon as available, and in any event within ninety (90) days after the
close of each fiscal year of the Borrowers, a Consolidated balance sheet and
statement of cash flows, operations and retained earnings of the Borrowers for
such fiscal year; (2) as soon as available, and in any event within ninety (90)
days after the close of each fiscal year of the Borrowers, a Consolidating
balance sheet and statement of operations and retained earning of the Borrowers
for such fiscal year; (3) as soon as available, and in any event within
forty-five (45) days after the end of each of fiscal quarter of the Borrowers, a
Consolidated and Consolidating balance sheet and statement of cash flows,
operations and retained earnings of the Borrowers for such fiscal quarter; (4)
if requested by the Bank, at the same time the annual financial statements are
delivered under subsection (A)(1) and (2) above, projections of the Borrowers
for such periods as the Bank may request; (5) promptly upon the filing thereof,
copies of all documents filed by the Borrowers with the Securities and Exchange
Commission; and (6) such other information as the Bank may reasonably require.
All data will be prepared according to GAAP. The annual statements delivered in
accordance with subsection (A)(1) above will be audited by and be accompanied by
the unqualified opinion of an independent certified public accountant selected
by the Borrowers but acceptable to the Bank. The annual statements delivered in
accordance with subsection (A)(2) above will be prepared and certified by the
Borrowers' chief financial officer.
(B) Each statement and report called for by SECTION 6.2(A)(1) AND (3)
will be accompanied by: (1) a certificate executed by the chief financial
officer of each of the Borrowers setting forth the calculation of the financial
tests contained in SECTIONS 6.18 THROUGH 6.22 hereof; (2) a certificate executed
by the president or chief financial officer of each of the Borrowers (a) stating
that after reviewing the operations of the Borrowers for such period, to the
best of such person's knowledge, no Event of Default or Default has occurred, or
(b) if an Event of Default or Default has occurred, setting forth the details of
such Event of Default or Default, stating whether or not the same is continuing
and, if continuing, the action that the Borrowers propose to take with respect
thereto.
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SECTION 6.3 INSURANCE. Each Borrower will maintain insurance with financially
sound and reputable insurance companies or associations reasonably satisfactory
to the Bank in such amounts and covering such risks as are usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas in which such Borrower operates or owns such properties. The
Borrowers will promptly furnish to the Bank a copy of all such insurance
policies that cover the Collateral which, after the occurrence of a Trigger
Event, shall insure the interest of the Bank in accordance with a standard
Lender's loss payable clause. After the occurrence of a Trigger Event, all
insurance policies covering the Collateral will name the Bank as an additional
insured and loss payee and contain provisions (A) that, with respect to the
Bank, such insurance policies may be canceled only after not less than 30 days
notice of intent to cancel provided to the Bank and (B) stating "[t]his policy
shall not be invalidated by any act, neglect, breach of warranty, or
misrepresentation of the primary insured."
SECTION 6.4 TAXES. Each Borrower will pay all taxes, assessments and charges
imposed upon it or its property or that it is required to withhold and pay over
when due, except where such taxes, assessments and charges are contested in good
faith and where adequate reserves have been set aside.
SECTION 6.5 ENCUMBRANCES. (A) Unless the Bank shall have consented in writing,
no Borrower will create, incur, assume or suffer to exist, any mortgage, pledge,
judgment, lien or other encumbrance of any kind upon, or any security interest
in, any of its property, assets, including, without limitation, patents,
trademarks, copyrights or any other general intangible except for (1) liens for
taxes not yet delinquent or being contested in good faith and by appropriate
proceedings, (2) liens in connection with workmen's or worker's compensation,
unemployment insurance or other social security obligations, (3) mechanic's,
materialman's, landlord's, carrier's, or other similar liens arising in the
ordinary course of business with respect to obligations that are not due, (4)
purchase money liens on capital equipment to secure indebtedness not to exceed
the lower of cost or fair market value of the capital equipment financed, (5)
liens encumbering capital equipment hereafter acquired by any Borrower subject
to such lien or conditional sales agreements or equipment leases in the nature
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of security agreements to secure payment of the purchase price of equipment
purchased, leased or otherwise acquired by any Borrower provided that the
indebtedness secured thereby and outstanding at the time of such acquisition
does not exceed the lower of cost or fair market value of such equipment, (6)
deposits securing a Borrower's obligations under any lease of personal property,
and (7) liens identified on EXHIBIT 6.5 hereof; PROVIDED THAT the lien of the
Bank granted hereunder effective upon the occurrence of a Trigger Event is, upon
a Trigger Event, and remains prior to the liens described in clauses (1), (2)
and (3).
(B) No Borrower will agree with any Person, other than the
Bank, to restrict its ability to grant mortgages, pledges, liens, or other
encumbrances upon, or security interests in, any of its property or assets.
SECTION 6.6 COMPLIANCE WITH LAWS. Each Borrower will comply with all laws and
regulations applicable to it in the operation of its business.
SECTION 6.7 INSPECTIONS AND AUDITS BY BANK. Each Borrower will permit
representatives of the Bank to inspect the Borrower's facilities, audit the
Collateral and the books and records of such Borrower and to make extracts
therefrom from time to time (which shall be during regular business hours
provided that there is not then a Default or an Event of Default which is
continuing), as may be reasonably requested by the Bank, for purposes of
examination, verification, inspection, audit and appraisal thereof. The
Borrowers will reimburse the Bank promptly on request for the reasonable costs
of conducting such audits, whether done by a third party auditor engaged by the
Bank or by the Bank's own employees, PROVIDED THAT prior to the occurrence of an
Event of Default, the Borrowers shall only be obligated to reimburse the Bank
for the costs of conducting one audit per year. Except after the occurrence of
an Event of Default, the Bank shall give the Borrowers at least one Business
Day's telephone notice before exercising the rights granted in the preceding
sentences of this Section.
SECTION 6.8 REPORTS. The Borrowers will furnish to the Bank:
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(A) as soon as possible after a Borrower becomes aware of the occurrence
of any Event of Default or Default, a written statement by the chief executive
or chief financial officer of such Borrower setting forth details of such Event
of Default or Default, stating whether or not the same is continuing and, if so,
the action that the Borrowers propose to take with respect thereto;
(B) as soon as possible after a Borrower becomes aware of the occurrence
of any event of default or default under any subordinated obligations, a written
statement by the chief executive or chief financial officer of such Borrower
setting forth details of such event of default or default, stating whether or
not the same is continuing and, if so, the action that the Borrowers propose to
take with respect thereto;
(C) immediately after receiving notice thereof, notice in writing of all
actions, suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign if an
adverse result thereof could have a Material Adverse Effect;
(D) as soon as practicable after the chief executive or chief financial
officer of a Borrower becomes aware of the occurrence of a change in the
business, properties or the operations and condition (financial or otherwise) of
such Borrower that the officer considers to be materially adverse, a statement
by such officer setting forth details of such material adverse change and the
action that the Borrowers propose to take with respect thereto; and
(E) such other information respecting the business, properties,
condition and operations (financial or otherwise) of each Borrower as the Bank
may at any time and from time to time reasonably request be furnished to it.
SECTION 6.9 ERISA.
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(A) Each Borrower and all members of its Controlled Group will comply in
all material respects with the provisions of ERISA and the Code and the
regulations thereunder with respect to any Plan including the timely filing of
required annual reports and the payment of PBGC premiums, if any are owed.
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(B) Upon the request of the Bank each Borrower will furnish promptly to
the Bank copies of each annual or other report filed with the Secretary of
Labor, the Secretary of the Treasury, the PBGC or any other governmental entity,
with respect to each Plan maintained by a Borrower or any member of its
Controlled Group.
(C) Each Borrower will cause to be made all contributions required to
avoid any accumulated funding deficiency (as defined in Section 412(a) of the
Code and the regulations thereunder and Section 302(a) of ERISA), unless waived,
with respect to any pension plan (as defined in Section 3(2) of ERISA), other
than a Multiemployer Plan, which is subject to Part 3 of Subtitle B of Title I
of ERISA or Section 412 of the Code and the regulations thereunder and which is
maintained by a Borrower or any member of its Controlled Group.
(D) As soon as possible (and in any event within five days) after a
Borrower has reason to know (1) that any Reportable Event has occurred with
respect to any Defined Benefit Pension Plan maintained by a Borrower or any
member of its Controlled Group, (2) that any Defined Benefit Pension Plan
maintained by a Borrower or any member of its Controlled Group is to be
terminated in a "distress termination" (within the meaning of Section 4041(c) of
ERISA), (3) that the PBGC has instituted or will institute proceedings under
Title IV of ERISA to terminate any Defined Benefit Pension Plan maintained by a
Borrower or any member of its Controlled Group, (4) that a Borrower has incurred
Withdrawal Liability from a Multiemployer Plan maintained by it or any member of
its Controlled Group, or (5) that any Multiemployer Plan to which a Borrower or
any member of its Controlled Group has made contributions is in Reorganization,
the Borrowers will furnish a statement to the Bank setting forth the details of
such Reportable Event, distress termination, termination proceedings, Withdrawal
Liability, or Reorganization, and the action that the Borrowers propose to take
with respect thereto, together with a copy of any notice of such Reportable
Event or distress termination given to the PBGC, or a copy of any notice of
termination proceedings, Withdrawal Liability, or Reorganization received by a
Borrower or any member of its Controlled Group.
(E) Each Borrower will furnish to the Bank as soon as possible after
receipt thereof a copy of any notice that a Borrower or any member of its
Controlled Group receives from the PBGC, the
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Internal Revenue Service, the Department of Labor, any other governmental entity
or from the sponsor of any Multiemployer Plan that sets forth or propose any
action to be taken or adverse determination made by the PBGC, the Internal
Revenue Service, the Department of Labor, any other governmental entity or the
sponsor of any Multiemployer Plan with respect to any Plan or Multiemployer
Plan.
(F) Each Borrower will promptly notify the Bank of any taxes, penalties,
interest charges and other financial obligations that have been assessed or
otherwise imposed, or that such Borrower has reason to believe may be assessed
or otherwise imposed, against a Borrower or any member of its Controlled Group
by the Internal Revenue Service, the PBGC, the Department of Labor or any other
governmental entity with respect to any Plan or Multiemployer Plan.
(G) Each Borrower will promptly notify the Bank of the adoption of any
Defined Benefit Plan or any increased obligation to contribute to any
Multiemployer Plan by a Borrower or any member of its Controlled Group.
(H) No Borrower will withdraw, or permit any member of its Controlled
Group to withdraw, from any Multiemployer Plan to which any of them now or
hereafter contribute. No Borrower will permit (1) with respect to any Employee
Benefit Plan, any Prohibited Transaction or Prohibited Transactions under ERISA
or the Code and the Treasury regulations thereunder resulting in liability of a
Borrower or any member of its Controlled Group in excess of $10,000.00 in the
aggregate or (2) with respect to any Defined Benefit Pension Plan, any
Reportable Event under ERISA, if upon termination of the Plan or Plans with
respect to which one or more such Reportable Events has occurred there is or
would be any liability of a Borrower or any members of its Controlled Group to
the PBGC in excess of $10,000.00 in the aggregate. In either case, the Borrowers
will promptly notify the Bank of any such Prohibited Transaction or Reportable
Event.
(I) No Borrower will fail to make required minimum contributions, or
permit any member of its Controlled Group to fail to make required minimum
contributions with respect to a Defined Benefit Pension Plan, resulting in a
lien (as provided in the Code
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or Section 302(f) of ERISA) against a Borrower or any member of its Controlled
Group.
(J) No Borrower will permit the adoption of a plan amendment which
results in significant underfunding (as defined in Section 307 of ERISA) of a
Defined Benefit Pension Plan which requires such Borrower or any member of its
Controlled Group to provide security.
(K) No Borrower will permit any unfunded liabilities of unfunded and
uninsured "employee welfare benefit plans" (as defined in Section 3(1) of ERISA)
of such Borrower and of any member of its Controlled Group in excess of
$10,000.00.
(L) No Borrower will acquire, or permit the acquisition by any member of
its Controlled Group of, any trade or business which has incurred either
directly or indirectly any Amount of Unfunded Benefit Liabilities in excess of
$100,000 under any Defined Benefit Pension Plan.
(M) No Borrower will participate in any violations of the "continuation
coverage requirements" of "group health plans" of Section 4980B of the Code and
the regulations thereunder and Part 6 of Subtitle B of Title I of ERISA with
respect to any Employee Benefit Plan of a Borrower or of any member of its
Controlled Group to which such continuation coverage requirements apply which
results in a liability of $10,000.00 in the aggregate.
SECTION 6.10 ENVIRONMENTAL MATTERS.
(A) Each Borrower will obtain and comply with all required permits,
licenses, registrations, and approvals relating to the discharge or release of
liquids, gases or solids to the environment. To the extent that such are
applicable to the operation of its business, each Borrower will comply with all
laws, rules, regulations and governmental orders and directives relating to the
generation, treatment, storage, transportation, disposal and release into the
environment and cleanup of any "hazardous substance" as that term is defined
under Section 101(14) of CERCLA, or any hazardous or toxic substances as defined
by the provisions of any other Environmental Law at all premises owned or
operated by such Borrower.
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(B) Each Borrower will promptly notify the Bank in writing of the
receipt by it of (1) any notice from any governmental agency that it is a
potentially responsible party in any proceeding under CERCLA or any other
similar Environmental Law, (2) any notice of any claim, proceeding, litigation,
order, directive, citation, or request for information concerning its compliance
with the Environmental Laws, (3) notice of any alleged violation of the
Environmental Laws, or (4) any information concerning any potentially adverse
environmental condition on, above, or beneath its premises, including but not
limited to any spilling, leaking, discharge, release, or threat of release of
any hazardous or toxic waste or substance.
(C) The Borrowers shall comply with any notice or directive from the DEP
or any other governmental authority, whether international, national, state,
federal, or local, regarding the removal or discharge of any hazardous substance
on any of its properties within sixty (60) days from the date of such notice or
directive (or within such shorter period contained therein) unless the same is
being contested by Borrower in good faith and, upon request of Bank shall
provide a bond or title insurance endorsement reasonably satisfactory to the
Bank insuring the Bank's continued lien on the Collateral affected by such
notice or directive.
(D) Each Borrower hereby, jointly and severally, indemnifies and agrees
to defend and hold harmless the Bank, its parent corporation, subsidiaries,
successors, assigns, officers, directors, shareholders, employees, agents and
counsel from and against any and all claims, actions, causes of action,
liabilities, penalties, fines, damages, judgments, losses, suits, expenses,
legal or administrative proceedings, interest, costs and expenses (including
court costs and reasonable attorneys', consultants' and experts' fees) arising
out of or in any way relating to (1) the presence of any substance which is or
becomes regulated under any Environmental Law whether now or hereafter enacted,
on, about, beneath or arising from any property used or occupied by a Borrower;
(2) the failure of a Borrower to comply with any Environmental Law; (3) a
Borrower's breach of any of the representations and warranties or covenants
contained in SECTION 5.15 hereof or this SECTION 6.10; (4) any notice of
violation, citation, complaint, request for information, order, directive,
compliance schedule, notice of claim, consent decree, action,
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litigation or proceeding brought or instituted by any governmental authority or
any third party under or in connection with any Environmental Law or based on
the presence of any substances described in (1) above; and (5) the imposition or
recording of a lien against any property of or occupied by a Borrower pursuant
to any Environmental Law, unless due solely to the willful misconduct of the
Bank. IT IS INTENDED THAT THE INDEMNITY PROVIDED IN THIS SECTION SHALL SURVIVE
THE REPAYMENT OF THE LIABILITIES.
SECTION 6.11 NATURE OF BUSINESS. No Borrower will make any material change in
the nature of its business as conducted at the date of this Agreement.
SECTION 6.12 REGULATION U. No Borrower will: (A) use the proceeds of the Loan to
purchase or carry any Margin Stock; (B) engage in the business of making loans
for the purchase of Margin Stock; or (C) purchase or carry Margin Stock.
SECTION 6.13 DISPOSAL OF ASSETS. Except for sales of inventory in the ordinary
course of business and disposal of Equipment which in the reasonable business
judgment of the Borrowers is obsolete (provided that the Borrowers shall give
the Bank notice any disposal of obsolete Equipment with a value individually or
in the aggregate in excess of $200,000.00 within thirty (30) days of such
disposal), no Borrower will dispose of assets.
SECTION 6.14 GUARANTEES AND OTHER CONTINGENT LIABILITIES. No Borrower will
become liable on the obligation of anyone except by endorsement of negotiable
instruments for deposit or collection in the usual course of business and the
guarantees by a Borrower of the debt of another Borrower (subject with respect
to Pamarco Europe to the limitations contained in SECTION 6.31 hereof) provided
such debt is otherwise permitted hereunder.
SECTION 6.15 MAINTENANCE OF PROPERTY. Each Borrower will maintain all of its
property and assets in good condition and repair and keep any patents,
trademarks, copyrights, licenses, and permits it may have in full force and
effect.
SECTION 6.16 MERGER; CORPORATE STRUCTURE; SUBSIDIARIES. No Borrower will enter
into any merger or consolidation or change its corporate structure or the nature
or character of its stock, except
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that a Borrower may merge into another Borrower excluding mergers by any
Borrower into Pamarco Europe. No Borrower shall acquire all or a substantial
portion of the assets of any other Person, excluding a Permitted Acquisition;
and no Borrower shall create any new Subsidiaries, PROVIDED HOWEVER THAT, a
Borrower may create or acquire a Subsidiary so long as such Subsidiary becomes a
Borrower hereunder by execution of a joinder agreement satisfactory in form and
substance to the Bank and delivers to the Bank Security Documents with respect
to all of its assets which Security Documents will be held in escrow by the Bank
in accordance with ARTICLE 3 hereof prior to the occurrence of a Trigger Event.
SECTION 6.17 TRANSACTIONS WITH AFFILIATES. No Borrower will enter into any
transaction with any officer, director or shareholder of any Borrower or any
Subsidiary or Affiliate of any Borrower (excluding any other Borrower) for less
than full value or on terms or conditions not less favorable than could be
obtained in an arm's length transaction with a third party, excluding the
existing consulting agreement dated July 25, 1994 between the Company and
Bradford Ventures Ltd. and the consulting agreement dated January 23, 1995
between Dauphin and Bradford Ventures Ltd., provided that such agreements may
not be amended, extended, supplemented or modified without the prior written
consent of the Bank (which shall not be unreasonably withheld or delayed).
SECTION 6.18 CURRENT RATIO. The Borrowers will not permit the Current Ratio to
be less than 1.25:1.00 as of the end of any fiscal year.
SECTION 6.19 LEVERAGE RATIO. The Borrowers will not permit the Leverage Ratio to
exceed 2.0:1.0 as of the end of any fiscal year.
SECTION 6.20 CASH FLOW COVERAGE RATIO. The Borrowers will not permit the Cash
Flow Coverage Ratio to be less than 1.3:1.0 as of the end of any fiscal quarter
commencing with the fiscal quarter ending March 31, 1998.
SECTION 6.21 TANGIBLE NET WORTH. The Borrowers will not permit Tangible Net
Worth as of the end of any fiscal year to be less than the Tangible Net Worth as
of the end of the preceding fiscal year plus 25% of Net Income of the Borrowers
on a Consolidated basis earned in the fiscal year being measured.
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SECTION 6.22 CAPITAL EXPENDITURES. The Borrowers' Capital Expenditures shall not
exceed $6,800,000.00 in the fiscal year ending December 31, 1997; and
$5,200,000.00 for each fiscal year thereafter. Capital Expenditures for newly
acquired or formed Borrowers will be subject to the Bank's prior review. The
foregoing Capital Expenditure limitations shall be increased by an amount equal
to the Capital Expenditures set forth in the projections delivered in accordance
with SECTION 4.4(A) hereof in connection with a Permitted Acquisition, subject
to the Bank's approval of such projected Capital Expenditures, which approval
will not unreasonably be withheld.
SECTION 6.23 DIVIDENDS AND DISTRIBUTIONS. No Borrower shall make or declare any
distribution. No Borrower shall make a payment on or declare any dividend in any
quarter in excess of the lesser of (A) five cents (5(cent)) per share, or (B)
25% of such Borrower's Net Income for such quarter PROVIDED HOWEVER THAT no such
dividend may be paid if a Default or Event of Default has occurred and is
continuing upon declaration or payment of such dividend or would result
therefrom.
SECTION 6.24 OTHER DEBT. No Borrower will incur or otherwise permit to exist any
obligation for the payment of borrowed money, whether as borrower or guarantor,
except (A) debt owed to the Bank in connection herewith, (B) purchase money
indebtedness or indebtedness under capitalized or finance leases, (C) debt owed
to another Borrower (subject with respect to Pamarco Europe to the limitations
contained in SECTION 6.31 hereof), and (D) the Subordinated Debt provided that
the Subordinated Debt remains fully subordinated to the obligations of the
Borrowers to the Bank. The Borrowers agree not to pay the Subordinated Debt,
interest thereon or any other amount with respect thereto except with the Bank's
prior written consent.
SECTION 6.25 LICENSES, PERMITS. Each Borrower will maintain the validity, force
and effect of, and operate in compliance with, all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates and orders
required for the conduct of its businesses.
SECTION 6.26 LOANS AND INVESTMENTS. No Borrower shall make any loan or
investment except for investments in (A) Cash Equivalents,
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(B) loans or investments existing on the date hereof and set forth on the
financial statements delivered in connection with SECTION 5.4 hereof, (C) loans
to and investments in another Borrower (subject with respect to Pamarco Europe
to the limitations contained in SECTION 6.31 hereof), and (D) Permitted
Acquisitions.
SECTION 6.27 CHANGE OF CONTROL. No Person shall have the power directly or
indirectly to elect a majority of the directors on the Company's board of
directors.
SECTION 6.28 RICO. No Borrower shall engage in any conduct or take or fail to
take any action which will or would violate RICO.
SECTION 6.29 PRIMARY OPERATING ACCOUNTS. The Borrowers (excluding Dauphin and
Pamarco Europe) shall maintain all of their primary operating accounts with the
Bank.
SECTION 6.30 INTEREST RATE PROTECTION CONTRACTS. The Borrowers shall maintain
(A) Interest Rate Protection Contracts with the Bank and/or (B) Loans with an
Interest Period equal to or in excess of one year in an amount equal to 25% of
the aggregate principal amount of all Prime Rate Loans and LIBOR Loans having a
term of less than one year. The Borrowers will promptly furnish to the Bank a
copy of all such Interest Rate Protection Contracts.
SECTION 6.31 SPECIAL LIMITATIONS WITH RESPECT TO PAMARCO EUROPE. Notwithstanding
anything to the contrary contained herein, the Dollar equivalent of the Loans
advanced directly or indirectly to Pamarco Europe plus the principal amount of
any loans to, investments in or guarantees of the debt of Pamarco Europe by any
other Borrower shall not at any time exceed $12,000,000.00.
SECTION 6.32 FURTHER ASSURANCES. (A) From time to time the Borrowers will
execute and deliver to the Bank such additional instruments as the Bank may
reasonably request to effectuate the purposes of this Agreement and to assure to
the Bank upon the occurrence of a Trigger Event, a first priority security
interest in the Collateral. Each Borrower hereby irrevocably appoints the Bank
as such Borrower's attorney-in-fact to take any action the Bank reasonably deems
necessary to perfect after the occurrence of a Trigger Event, or maintain
perfection of any security interest granted to the Bank herein or in connection
herewith, including the
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execution of any document on such Borrower's behalf, which power of attorney is
coupled with an interest and irrevocable until all of the Liabilities are paid
in full.
(B) The Borrowers will notify the Bank prior to any change in the
location of the chief place of business or chief executive office of any
Borrower, any change in the place where any Borrower keeps its Equipment and/or
Inventory or its Books and Records, the establishment of any new or the
discontinuance of any existing place of business, and the establishment of any
new or the discontinuance of any location where Inventory, Equipment or Books
and Records are kept. Prior to any such change in location, the Borrowers shall
deliver to Lender financing statements under the Uniform Commercial Code or a
Fixed and Floating Charge covering such new location to be held by the Bank in
accordance with Section 3.1 hereof.
SECTION 6.33 ACQUISITIONS. No Borrower shall make any acquisition except for
Permitted Acquisitions.
SECTION 6.34 INDEMNIFICATION. Each Borrower jointly and severally hereby
indemnifies and agrees to protect, defend, and hold harmless the Bank and all of
its directors, officers, employees, agents, attorneys and shareholders from and
against any and all losses, damages, expenses or liabilities of any kind or
nature and from any suits, claims, or demands, including all reasonable counsel
fees incurred in investigating, evaluating, or defending such claims, suffered
by any of them and caused by, relating to, arising out of, resulting from, or in
any way connected with this Agreement, the Notes, any other Loan Document and
any transaction contemplated herein or therein including, but not limited to,
claims based upon any act or omission by the Bank in connection with this
Agreement, the Notes or any Loan Document and any transaction contemplated
herein or therein to the extent not caused by the gross negligence, bad faith or
willful misconduct of the Bank, its directors, officers, employees, agents or
attorneys. If any Borrower shall have knowledge of any claim or liability hereby
indemnified against, it shall promptly give written notice to the Bank. THIS
COVENANT SHALL SURVIVE THE PAYMENT OF THE INDEBTEDNESS CREATED BY THIS
AGREEMENT, THE NOTES OR THE LOAN DOCUMENTS.
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ARTICLE 7
DEFAULTS
SECTION 7.1 EVENTS OF DEFAULT. Each of the following shall be an event of
default ("Event of Default"):
(A) if the Borrowers shall fail to pay any principal of the Loans or
reimburse any Letter of Credit Liability as and when due;
(B) if the Borrowers shall fail to pay any interest on the Loans, any
Fee, or any other amount owing hereunder, under the Notes or the Loan Documents
or any of the Liabilities as and when due; PROVIDED THAT the Borrowers shall
have five days to cure such default in the event Borrower has not used such five
day cure period more than two times in the preceding twelve month period;
(C) if any representation or warranty made in this Agreement, or in any
certificate, agreement, instrument, statement or report contemplated hereby or
made or delivered pursuant hereto or in connection herewith shall prove to have
been incorrect or misleading in any material respect;
(D) if any Borrower shall fail to pay any Credit Obligation owing by it,
or any interest or premium thereon, when due or within any applicable grace
period, whether such Credit Obligation shall become due by scheduled maturity,
by required prepayment, by acceleration, by demand or otherwise, or shall fail
to perform any term, covenant or agreement on its part to be performed under any
agreement or instrument evidencing or securing or relating to any such Credit
Obligation when required to be performed or within any applicable grace period,
if the effect of such failure is to accelerate, or to permit the holder or
holders of such Credit Obligation to accelerate, the maturity of such Credit
Obligation, whether or not such failure to perform shall be waived by the holder
or holders of such Credit Obligation, unless such waiver has the effect of
terminating the right of such holder or holders to accelerate the maturity of
such Credit Obligation as a result of such failure;
(E) if any Borrower or any Subsidiary is adjudicated a bankrupt or
insolvent or the equivalent under any law or admits in
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writing its inability to pay its debts as they mature or, or makes an assignment
for the benefit of its creditors; or if any Borrower or any Subsidiary shall
apply for or consent to the appointment of any receiver, trustee, or similar
officer or the equivalent under any law for such applicant or for all or any
substantial part of its property; or such receiver, trustee or similar officer
or the equivalent under any law shall be appointed without the application or
consent of such party and shall continue undischarged for a period of 60 days;
or if any Borrower or any Subsidiary shall institute (by petition, application,
answer, consent or otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or if any such
proceeding shall be instituted (by petition, application or otherwise) against
any Borrower or any Subsidiary and an order for relief or similar remedy shall
be entered in such proceeding or such proceeding shall remain undismissed for a
period of 60 days; or, a meeting of shareholders or creditors is convened for a
Borrower's winding up or a Borrower enters into a composition or arrangement in
respect of its debts or a meeting is convened for the considering of a
resolution for (or to petition for) its winding up or administration or any such
resolution is passed or an order is made for its winding up or administration;
(F) if any judgment, writ, warrant of attachment or execution or similar
process shall be issued or levied against any substantial portion of the
properties of any Borrower or any Subsidiary and such judgment, writ, or similar
process shall not be released, vacated or fully bonded within 60 days after its
issue or levy;
(G) if (1) any Reportable Event, or any failure of compliance required
by SECTION 6.9 hereof, that the Bank reasonably determines in good faith creates
a reasonable possibility of the termination of any Defined Benefit Pension Plan
of Borrower or of the appointment by the appropriate United States district
court of a trustee to administer any such plan, shall have occurred and be
continuing 60 days, or (2) any such plan shall be terminated, or (3) the plan
administrator of any such plan shall file with the PBGC a notice of intention to
terminate such Defined Benefit Pension Plan, or (4) the PBGC shall institute
proceedings to terminate any such Defined Benefit Pension Plan or to appoint a
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trustee to administer any such Defined Benefit Pension Plan and such proceedings
shall remain undismissed or unstayed for 60 days and if, in any of the cases
described in the foregoing clauses (1) through (4), the Bank further reasonably
determines that the amount of the unfunded guaranteed benefits (within the
meaning of Title IV OF ERISA) resulting upon termination of such Defined Benefit
Pension Plan would have a Material Adverse Effect;
(H) if any Borrower shall fail to perform or observe when due any term,
covenant or agreement contained in SECTIONS 3.3, 3.4, 6.2 - 6.5(A), 6.10, OR
6.25, on its part to be performed or observed and such failure continues for
thirty (30) days from the earlier of (1) notice from the Bank of such failure,
or (2) a Borrower becoming aware of such failure;
(I) if any Borrower shall fail to perform or observe when due any term,
covenant or agreement contained in this Agreement (excluding any terms,
covenants or agreements referred to in other subsections of this SECTION 7.1),
on its part to be performed or observed;
(J) if there occurs any "event of default" (as defined therein) under
the Notes or any of the other Loan Documents; or
(K) if any Borrower shall incur a loss as a result of damage,
destruction or other loss of assets and the aggregate amount of such loss, after
the recovery of any applicable insurance proceeds thereon, shall be greater than
$500,000.00 in the aggregate during any fiscal year.
SECTION 7.2 TERMINATION OF THE COMMITMENT; ACCELERATION. If any Event of Default
other than those described in SECTION 7.1(E) hereof shall occur and be
continuing, then upon notice by the Bank to the Borrower, and if any Event of
Default described in SECTION 7.1(E) shall occur, then automatically, (A) the
obligation of the Bank to make Revolving Credit Advances and Equipment Line
Advances hereunder shall terminate, (B) the Bank shall not have any further
obligation to issue Letters of Credit, (C) the entire unpaid principal amount of
the Loans, all interest accrued and unpaid thereon and all other amounts payable
hereunder shall become immediately due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly
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waived by the Borrowers, and (D) the Borrowers shall pledge cash collateral and
deposit in the Letter of Credit Cash Collateral Account an amount equal to the
amount of any Letter of Credit Liability.
SECTION 7.3 REMEDIES. (A) Upon the occurrence and during the continuance of an
Event of Default, the Bank shall have the right, in addition to all other rights
and remedies available to it, without notice to the Borrowers, to apply towards
and set-off against the then unpaid balance of the Loans and the other
Liabilities any items or funds held by the Bank or its Subsidiaries or
Affiliates, any and all deposits (whether special or general, time or demand,
matured or unmatured, fixed or contingent, liquidated or unliquidated) for the
Borrowers' own account with the Bank or its Subsidiaries or Affiliates, and any
other indebtedness at any time held or owing by the Bank or its Subsidiaries and
Affiliates to or for the credit or account of the Borrowers. For such purpose,
the Bank shall have, and the Borrowers hereby grant to the Bank, a first lien on
all such deposits. The Bank is hereby authorized to charge any such account or
indebtedness for any and all of the Liabilities due to the Bank. Such right of
set-off shall exist whether or not the Bank shall have made any demand under
this Agreement or any other Loan Document and whether or not the Liabilities are
matured or unmatured. The Borrowers hereby confirm the Bank's lien on such
accounts and rights of set-off, and nothing in this Agreement shall be deemed a
waiver or prohibition of such lien or right of set-off. In the event that the
Bank exercises such rights, prior to applying any such amount against amounts
due from the Borrowers in connection with other transactions outside of this
Agreement, it will apply the proceeds to the payment of the Liabilities
hereunder.
(B) Upon the occurrence and during the continuance of any one or more
Events of Default, the Bank may proceed to protect and enforce its rights under
this Agreement and the other Loan Documents by exercising such remedies as are
available to the Bank in respect thereof under applicable law, either by suit in
equity or by action at law, or both, whether for specific performance of any
provision contained in this Agreement or any of the other Loan Documents or in
aid of the exercise of any power granted in this Agreement or the other Loan
Documents.
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(C) After the occurrence of a Trigger Event, upon the occurrence and
during the continuance of any one or more Events of Default, the Bank shall have
the right to exercise any and all of the remedies of a secured party under the
Uniform Commercial Code, including the right to require the Borrowers to
assemble the Collateral and make it available to the Bank at a place reasonably
convenient to the parties.
(D) After the occurrence of a Trigger Event, upon the occurrence and
during the continuance of any one or more Events of Default, the Bank may, upon
ten (10) calendar days prior written notice to the Borrowers, which the
Borrowers hereby acknowledge to be sufficient, commercially reasonable and
proper, sell, lease or otherwise dispose of any or all of the Collateral at any
time and from time to time at public or private sale, with or without
advertisement thereof and apply the proceeds of any such sale first to the
Bank's expenses in preparing the Collateral for sale (including reasonable
attorneys' fees) and second to the complete satisfaction of the Liabilities. The
Borrowers waive the benefit of any marshalling doctrine with respect to the
Bank's exercise of its rights hereunder.
(E) Upon the occurrence and during the continuance of any one or more
Events of Default, the Bank, in addition to all the other rights and remedies
herein contained or contained in any of the Loan Documents, shall be entitled to
exercise any and all rights available to it in law or equity.
ARTICLE 8
ADDITIONAL PROVISIONS
SECTION 8.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of
the Bank in exercising any right, power, or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right,
power, or remedy preclude any other or further exercise thereof or the exercise
of any other right, power, or remedy hereunder. No waiver of any provision
hereof shall be effective unless the same shall be in writing and signed by the
Bank. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
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SECTION 8.2 NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be given to each party hereto
at its address specified below or at such other address as shall be designated
by such party in a notice to each other party complying with the terms of this
SECTION 8.2:
If to the Borrowers:
Pamarco Technologies, Inc.
Murray Hill Office Center
571 Central Avenue, Suite 119
New Providence, NJ 07974
Attention: Larry Handeli, CFO
Phone No.: (908) 665-8500
Fax No.: (908) 665-8501
If to the Bank:
CoreStates Bank, N.A.
120 Albany Street Plaza
New Brunswick, NJ 08903
Attention: Kurt J. Fuoti and/or Richard Banning
Phone No.: (732) 435-6914 or (732) 435-6907
Fax No.: (732) 435-6928
All notices, requests, demands and other communications provided for hereunder
shall be effective (A) if given by mail, when deposited in the mails, with first
class postage prepaid, addressed as aforesaid, and (B) if given by any other
means (including telecopy), when delivered or received at the aforesaid
addresses. Any notice provided by facsimile copy, including notices of
borrowings under SECTION 2.2, 2.4 OR 2.8, must also be provided in writing.
SECTION 8.3 COSTS AND EXPENSES. The Borrowers agree to pay on demand (A) all
reasonable costs and expenses of the Bank in connection with the preparation,
printing, execution and delivery of this Agreement, the other Loan Documents and
the other instruments and documents to be delivered hereunder; (B) all the
reasonable fees and expenses of Bank's counsel incurred in representing the Bank
in this transaction and all appraisal and other fees incurred in connection with
this transaction, and (C)
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all reasonable fees, costs and expenses, if any, of the Bank in connection with
the administration and enforcement of any Loan Document and the Bank's right to
take possession of the Collateral and the proceeds thereof and to hold, collect,
prepare for sale, render in compliance with all laws, including without
limitation, Environmental Laws, sell and dispose of the Collateral (including
the reasonable fees and out-of-pocket expenses of counsel with respect thereto).
Any and all amounts owing under this SECTION 8.3 shall be added to the principal
of the Loans, earn interest at the Interest Rate then applicable hereunder and
be secured, to the extent permitted by law, by the Collateral.
SECTION 8.4 GOVERNING LAW. This Agreement and the other Loan Documents shall be
governed in all respects by the law of the State of New Jersey, the jurisdiction
in which the Loan Documents have been executed and delivered, and for all
purposes shall be construed in accordance with such law.
SECTION 8.5 SURVIVAL OF AGREEMENTS AND REPRESENTATIONS; JURY WAIVER; CONSENT TO
JURISDICTION. Except as otherwise set forth herein or in any other Loan
Document, all agreements, representations and warranties made herein shall
survive the delivery of this Agreement and the Notes until the Liabilities are
paid in full. Any and all judicial proceedings brought by the Bank against the
Borrowers with respect to this Agreement may be brought in: (A) any court of
competent jurisdiction in the State of New Jersey and (B) any Federal district
court having subject matter jurisdiction and being located in the State of New
Jersey. AFTER CONSULTATION WITH COUNSEL, AND WITH KNOWLEDGE OF THE CONSEQUENCES,
THE BORROWERS AND THE BANK HEREBY WAIVE ALL RIGHTS TO DEMAND A JURY TRIAL AND
AGREE THAT ALL SUITS WILL BE HEARD BY JUDGE ONLY. Each Borrower hereby accepts,
for itself and its properties, the non-exclusive jurisdiction of the aforesaid
courts and agrees to be bound by any judgments rendered by such courts in
connection with this Agreement. The Borrowers will not move to transfer any such
proceeding to any different court. Any such process may be mailed by registered
or certified mail to the Borrowers at the address referred to in Section 8.2
hereof. Each Borrower agrees that service by mail will constitute sufficient
notice. Service will be considered complete upon deposit in the mails. Nothing
herein limits the right of the Bank to bring proceedings against the Borrowers
in the courts of any other jurisdiction.
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SECTION 8.6 HEADINGS. Article and Section headings used in this Agreement are
for convenience only and shall not affect the construction of this Agreement.
SECTION 8.7 AMENDMENTS. Any of the provisions of this Agreement may be waived,
modified or amended only by written agreement or agreements entered into by the
Borrowers and the Bank, except that no such waiver, modification, or amendment
shall extend to or affect any obligation not expressly waived, modified, or
amended, or impair any right of the Bank related to such obligation.
SECTION 8.8 USURY. Nothing herein contained or in any other Loan Document, nor
any transaction related hereto or thereto, shall be construed or shall so
operate either presently or prospectively to require the Borrowers (A) to pay
interest at a rate greater than is now lawful in such case to contract for, but
shall require payment of interest only to the extent of such lawful rate, or (B)
to make any payment or do any act contrary to law, but if any provision herein
or therein contained shall otherwise so operate to invalidate this Agreement,
the Notes, or any other Loan Document, in whole or in part, then such provision
only shall be held for naught as though not herein or therein contained and the
remainder of this Agreement, the Notes, and the other Loan Documents shall
remain operative and in full force and effect. Any interest paid in excess of
the lawful rate shall be refunded to the Borrowers. Such refund shall be made by
application of the excessive amount of interest paid against any sums
outstanding under this Agreement and shall be applied in such order as the Bank
may determine. If the excessive amount of interest paid exceeds the sums
outstanding hereunder, the portion exceeding the said sums outstanding shall be
refunded in cash by the Bank. Any such crediting or refund shall not cure or
waive any Default or Event of Default by the Borrowers hereunder or under the
Notes or any other Loan Document. The Borrowers agree, however, that in
determining whether or not any interest payable exceeds the highest rate
permitted by law, any non-principal payment (except payments specifically stated
in this Agreement to be "interest") shall be deemed, to the extent permitted by
law, to be an expense, fee, premium, or penalty rather than interest.
SECTION 8.9 ASSIGNMENTS; PARTICIPATIONS.
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(A) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the Borrowers, the Bank, all future holders of the
Notes, and their respective successors and assigns, except that no Borrower may
assign or transfer any of its rights hereunder or interests herein without the
prior written consent of the Bank and the Bank may not assign or transfer (but
may sell participation interests in) any of its rights hereunder or interests
herein without the prior written consent of the Company except as set forth in
8.9(D) below, and any purported assignment without such consent shall be void,
PROVIDED FURTHER THAT, any assignment shall be in the minimum amount of
$5,000,000.00, and in connection with any assignment, the institutions party to
such assignment shall pay CoreStates Bank, N.A. $3,000, as an processing and
recording fee.
(B) PARTICIPATIONS. The Bank may, in the ordinary course of its
commercial banking business and in accordance with applicable law, at any time
sell participations to one or more commercial banks or other Persons (each a
"PARTICIPANT") in all or a portion of its rights and obligations under this
Agreement and the other Loan Documents (including, without limitation, all or a
portion of its Revolving Credit commitment and the Loans owing to it and any
Note held by it); PROVIDED, that
(1) the Bank's obligations under this Agreement and the other
Loan Documents shall remain unchanged,
(2) the Bank shall remain solely responsible to the Borrowers
hereto for the performance of such obligations,
(3) the Borrowers shall continue to deal solely and directly
with the Bank in connection with the Bank's rights and obligations under this
Agreement and each of the other Loan Documents,
(4) such Participant shall not be a competitor of any
Borrower, and
(5) the agreement executed by the Bank in favor of the
participant shall not give the participant the right to require the Bank to take
or omit to take any action hereunder except action directly relating to (a) the
extension of a payment date with
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respect to any portion of the principal of or interest on any amount outstanding
hereunder allocated to such participant, (b) increases in the amount of such
Participant's obligations, or (c) the reduction of the rate of interest payable
on such amount or any amount of fees payable hereunder to a rate or amount, as
the case may be, below that which the participant is entitled to receive under
its agreement with the Bank.
(C) FINANCIAL AND OTHER INFORMATION. Each Borrower authorizes the Bank
to disclose to any Participant and any prospective transferee any and all
financial and other information in such Person's possession concerning such
Borrower and its Affiliates which has been or may be delivered to such Person by
or on behalf of such Borrower in connection with this Agreement or any other
Loan Document or such Person's credit evaluation of such Borrower and its
Affiliates; provided that the Bank shall notify such Borrower of the identity of
the transferee and shall obtain a commercially reasonable confidentiality letter
(a copy of which shall be provided to the Borrowers) with respect to the
disclosure of such information, in accordance with applicable law.
(D) ASSIGNMENTS TO FEDERAL RESERVE BANK. The Bank may at any time assign
all or any portion of its rights under this Agreement, including without
limitation any Loans owing to it, and any Note held by it to a Federal Reserve
Bank. No such assignment shall relieve the Bank from its obligations hereunder.
SECTION 8.10 TERMINATION STATEMENTS, ETC. The Bank agrees to deliver promptly
any and all UCC-3 termination statements and other documents that the Borrowers
shall reasonably request after all of the Liabilities have been paid in full.
The Borrowers shall be responsible for the costs of preparing and filing such
statements.
SECTION 8.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
SECTION 8.12 SET-OFF. The Bank shall have a right of set-off against, a lien
upon and security interest in all property of the Borrowers now or at any time
in the possession of the Bank in any
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capacity whatever, including but not limited to the Borrowers' interest in any
deposit account, as security for the obligations of the Borrowers under the Loan
Documents.
SECTION 8.13 BORROWERS' OBLIGATIONS. (A) All obligations of the Borrowers
hereunder and under the other Loan Documents are joint and several, subject with
respect to Pamarco Europe to the limitations contained in SECTION 2.29 hereof.
(B) The Borrowers are interdependent for their operational and financial
needs, and they and the Bank intend that each Borrower be jointly and severally
liable for each monetary obligation, warranty and covenant obligation arising
under this Agreement. The delivery of funds to any Borrower under this Agreement
shall constitute valuable consideration and reasonably equivalent value to all
Borrowers for the purpose of binding them and their assets on a joint and
several basis for the Liabilities hereunder. The Bank may enforce this Agreement
against any Borrower without first making demand upon or instituting collection
proceedings against any other Borrower.
(C) The unconditional liability of each Borrower for the entire
Liabilities shall not be impaired by any event whatsoever, including, but not
limited to, the merger, consolidation, dissolution, cessation of business or
liquidation of any Borrower; the financial decline or bankruptcy of any
Borrower; the failure of any other party to guarantee the Liabilities or to
provide collateral therefor; the Bank's compromise or settlement with or without
release of any Borrower; the Bank's release of any Collateral, with or without
notice to the Borrowers; the Bank's failure to file suit against any Borrower
(regardless of whether such Borrower is becoming insolvent, is believed to be
about to leave the state or jurisdiction or any other circumstance); the Bank's
failure to give any Borrower notice of default; the unenforceability of the
Liabilities against any Borrower due to bankruptcy discharge, counterclaim or
for any other reason; the Bank's acceleration of the Liabilities at any time;
the extension, modification or renewal of the Liabilities or any Loan Document;
the Bank's failure to undertake or exercise diligence in collection efforts
against any party or property; the termination of any relationship of any
Borrower with any other Borrower, including, but not limited to, any
relationship of commerce or ownership; any
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Borrower's change of name or use of any name other than the name used to
identify such Borrower in this Agreement; or any Borrower's use of the credit
extended for any purpose whatsoever.
(D) The Borrowers' respective rights of contribution, reimbursement,
subrogation and any other rights among themselves are not impaired by this
Agreement, except that each Borrower agrees not to seek payment directly or
indirectly from another Borrower through a claim of indemnity, contribution, or
otherwise with respect to the Liabilities, until the Liabilities have been
repaid in full and the obligation of the Bank to make Revolving Credit Advances
and/or Equipment Line Advances have terminated.
(E) In any action or proceeding involving any state corporate law or any
state or Federal bankruptcy, insolvency, reorganization or other law affecting
the rights of creditors generally, if the obligations hereunder of any Borrower
(excluding the Company and its successors and assigns) would otherwise be held
or be determined to be void, invalid or unenforceable on account of the amount
of the Liabilities, then, notwithstanding any other provision hereof to the
contrary, the amount of such liability shall, without any further action by such
Borrower, the Bank or any other Person, be automatically limited and reduced to
the highest amount which is valid and enforceable and not subordinated to the
claims of other creditors determined in such action or proceeding.
SECTION 8.14 RESTATEMENT. This Agreement amends and restates the Amended and
Restated Loan and Security Agreement dated January 10, 1997 as amended by the
First Amendment and the Second Amendment each among the Borrowers and the Bank.
This Agreement does not constitute a novation.
SECTION 8.15 ENTIRE AGREEMENT. This Agreement, the Exhibits attached hereto, and
the other Loan Documents constitute the entire understanding among the parties
with respect to the subject matter hereof and supersede any and all
contemporaneous and prior agreements between the parties hereto with respect to
the subject matter hereof and thereof.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have caused this Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
PAMARCO TECHNOLOGIES, INC. PAMARCO, INC.
By: By:
-------------------------- --------------------------------
Title: Title:
----------------------- ----------------------------
ARMOTEK INDUSTRIES, INC. PAMARCO EUROPE LTD.
By: By:
-------------------------- --------------------------------
Title: Title:
----------------------- ----------------------------
DAUPHIN GRAPHIC MACHINES, INC. DIAMOND HOLDING CORPORATION
By: By:
-------------------------- --------------------------------
Title: Title:
----------------------- ----------------------------
CORESTATES BANK, N.A.
By:
--------------------------
Title:
-----------------------
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 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 7, 1998
