<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: July 24, 1995
-------------
(Date of Earliest Event Reported)
RPM, INC.
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(Exact Name of Registrant as Specified in its Charter)
Ohio 0-5132 34-6550857
- ---------------------------- ----------- ----------------
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
P.O. Box 777, 2628 Pearl Road, Medina, Ohio 44258
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (216) 273-5090
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Item 5. Other Events.
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On July 24, 1995, RPM, Inc., an Ohio corporation (the
"Company") entered into a Plan and Agreement of Merger (the "Merger Agreement")
with Narragansett/DSI Acquisition Co., Inc., a Delaware corporation ("NDSI"),
and its Securityholders (as defined in the Merger Agreement). Pursuant to the
Merger Agreement the Company agreed to acquire NDSI through the merger (the
"Merger") of the Company's wholly owned subsidiary, RPM of Delaware, Inc., a
Delaware corporation, with and into NDSI, whereby NDSI would become a wholly
owned subsidiary of the Company. NDSI is a non-operating holding company with
one direct wholly owned operating subsidiary, Dryvit Systems, Inc., a Rhode
Island corporation ("Dryvit").
The completion of the Merger is subject to customary
conditions, including governmental approvals, and concurrent Securities and
Exchange Commission registration for resale of the 3,200,000 Common Shares of
the Company to be issued to certain of the Securityholders of NDSI in the
Merger. A copy of the Merger Agreement is filed as an Exhibit hereto.
Dryvit manufactures, distributes and markets insulated,
exterior wall materials, which are used in both new and retrofit construction.
Dryvit's products have been used in the construction and renovation of
buildings ranging from shopping malls and office buildings to residential
housing.
As consideration for the acquisition of NDSI, the Company (i)
will pay $47,000,000 in cash to the Securityholders of NDSI, of which
approximately $14,500,000 will be used to repay indebtedness of NDSI, and (ii)
issue 3,200,000 Common Shares to certain of the Securityholders. The value of
the Common Shares to be issued in connection with the Merger will be determined
using the average of the market price of the Common Shares over a 10-day
trading period ending two days prior to the consummation of the Merger.
The Company intends to pay the cash portion of the purchase
price pursuant to an advance under its current revolving credit facility with
National City Bank and The First National Bank of Chicago, as co-agents, and
The Chase Manhattan Bank (National Association), as administrative agent.
There are no material relationships between NDSI and the
Company or any of their affiliates, directors or officers.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
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Not Applicable.
(b) Pro Forma Financial Information.
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Not Applicable.
(c) Exhibits.
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Exhibit No.
-----------
2.1 Plan and Agreement of Merger, dated July 24, 1995
(without Exhibits and Schedules), by and among the
Company, Subsidiary, NDSI and the Securityholders of
NDSI . . . . . . . . . . . . . . . . . . . . . . . .
23.1 Consent of KPMG Peat Marwick LLP . . . . . . . . . .
99.1 Narragansett/DSI Acquisition Co., Inc. and
Subsidiaries Consolidated Financial Statements as of
December 31, 1994. . . . . . . . . . . . . . . . . .
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in
Stockholder's Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
99.2 RPM, Inc. and Subsidiaries and Narragansett/DSI
Acquisition Co., Inc. -- Pro Forma Condensed Combined
Financial Statements (Unaudited) . . . . . . . . . .
Pro Forma Condensed Combined Balance Sheet of
RPM, Inc. and Subsidiaries and
Narragansett/DSI Acquisition Co., Inc. as of
February 28, 1995 (Unaudited)
Pro Forma Condensed Combined Statement of
Income of RPM, Inc. and Subsidiaries and
Narragansett/DSI Acquisition Co., Inc. for the
Fiscal Year ended May 31, 1994 (Unaudited)
Pro Forma Condensed Combined Statement of
Income of RPM, Inc. and Subsidiaries and
Narragansett/DSI Acquisition Co., Inc. for the
nine months ended February 28, 1995 (Unaudited)
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
RPM, INC.
/s/ Frank C. Sullivan
-----------------------------
Frank C. Sullivan,
Vice President and Chief
Financial Officer
DATE: July 31, 1995
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EXHIBIT INDEX
PAGINATION
BY
SEQUENTIAL
EXHIBIT EXHIBIT NUMBERING
NUMBER DESCRIPTION SYSTEM
- ------- ----------- ----------
2.1 Plan and Agreement of Merger, dated
July 24, 1995 (without Exhibits and
Schedules), by and among the Company,
Subsidiary, NDSI and the
Securityholders of NDSI . . . . . . . . .
23.1 Consent of KPMG Peat Marwick LLP . . . .
99.1 NDSI and Subsidiaries Consolidated
Financial Statements . . . . . . . . . .
99.2 RPM, Inc. and Subsidiaries and NDSI Pro
Forma Condensed Combined Financial
Statements . . . . . . . . . . . . . . .
<PAGE> 1
Exhibit 2.1
PLAN AND AGREEMENT OF MERGER
Dated July 24, 1995
By and Among
RPM, INC.
and
RPM OF DELAWARE, INC.
and
NARRAGANSETT/DSI ACQUISITION CO., INC.
and
THE SECURITYHOLDERS
IDENTIFIED ON THE SIGNATURE PAGES HERETO
and
ROGER A. VANDENBERG, AS SECURITYHOLDER REPRESENTATIVE
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TABLE OF CONTENTS
(not part of Agreement)
<TABLE>
<CAPTION>
Page
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<S> <C>
1. Definitions.............................................. 2
2. The Merger and Related Matters...........................23
2.1 Merger..............................................23
2.2 Name of Surviving Corporation.......................23
2.3 Certificate of Incorporation and By-laws............23
2.4 Directors and Officers..............................24
2.5 Certain Effects of Merger...........................24
2.6 Further Action......................................25
3. Closing, Filing, Effectiveness...........................26
3.1 Closing and Closing Date............................26
3.2 Filing and Effective Time...........................26
4. Status and Change of Shares; Payment and Distribution;
Securityholder Representative........................27
4.1 Merger Subsidiary Stock.............................27
4.2 NDSI Stock..........................................27
4.3 Payment of Cash Purchase Price and Distribution of
Parent Common Stock; Post Closing
Distributions.......................................31
4.4 Surrender and Exchange of Stock
Certificates........................................35
4.5 Dissenting Shares...................................38
4.6 Options and Warrants................................38
4.7 Securityholder Representative.......................40
5. Representations and Warranties of NDSI...................47
5.1 Corporate Status....................................47
5.2 Corporate Action....................................48
</TABLE>
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<TABLE>
<S> <C>
5.3 No Defaults.........................................49
5.4 Financial Statements................................50
5.5 Conduct of Business.................................51
5.6 Condition of Assets.................................53
5.7 Title, Liens, etc...................................53
5.8 Employees...........................................54
5.9 Litigation..........................................58
5.10 Brokers.............................................58
5.11 Approvals and Consents..............................58
5.12 Intellectual Properties.............................59
5.13 Contracts...........................................60
5.14 Compliance with Laws................................60
5.15 NDSI Capitalization; Subsidiaries...................61
5.16 Tax Matters.........................................63
5.17 Insurance...........................................65
5.18 Environmental Matters...............................65
5.19 Absence of Undisclosed Liabilities..................67
5.20 Permits.............................................68
5.21 Indebtedness to and from Officers,
Directors and Affiliates..........................68
5.22 Officers, Directors and Certain Authorized
Persons...........................................68
5.23 Conflicts of Interest...............................69
5.24 Customers and Suppliers.............................69
5.25 Corporate Documents, Books and Records..............70
5.26 Ordinary Warranty...................................71
5.27 Inventory...........................................72
</TABLE>
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<TABLE>
<S> <C>
5.28 Accounts Receivable.................................72
5.29 Material Facts......................................73
5.30 Exclusivity of Representations......................73
5-A.Representations and Warranties of the Securityholders.... 74
5A.1 Ownership...........................................74
5A.2 Enforceability......................................74
5A.3 Conflicts of Interest...............................75
5A.4 Consents............................................76
6. Representations and Warranties of Parent
and Merger Subsidiary...............................76
6.1 Corporate Status; Capitalization....................76
6.2 Corporate Action....................................78
6.3 No Defaults.........................................79
6.4 Brokers.............................................80
6.5 Litigation..........................................80
6.6 Funds...............................................80
6.7 Approvals and Consents..............................80
6.8 Financial Statements................................81
6.9 Absence of Changes..................................83
6.10 Commission Reports..................................83
6.11 Compliance with Law.................................84
6.12 Undisclosed Liabilities.............................84
6.13 Access..............................................84
6.14 Material Facts......................................85
7. Covenants of NDSI Pending the Closing....................85
7.1 Operation of the Business...........................85
</TABLE>
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<TABLE>
<S> <C>
7.2 Access to Facilities, Files and Records.............88
7.3 Representations and Warranties......................89
7.4 Consents............................................89
7.5 Notice of Proceedings...............................91
7.6 Consummation of Agreement...........................92
7.7 Governmental Action.................................92
8. Covenants of NDSI, Parent and Merger Subsidiary
Pending the Closing......................................93
8.1 Regulatory Matters..................................93
8.2 Representations and Warranties......................95
8.3 Business of Merger Subsidiary.......................96
8.4 Consummation of Agreement...........................96
8.5 Notice of Proceedings...............................96
8.6 Governmental Actions................................97
9. Conditions to the Obligations of NDSI....................97
9.1 Representations, Warranties, Covenants..............97
9.2 Proceedings.........................................98
9.3 Opinions of Counsel.................................99
9.4 Governmental Action.................................99
9.5 Deliveries..........................................99
9.6 Securities Agreement................................99
9.7 Effectiveness of Registration Statement............100
10. Conditions to the Obligations of Parent and
Merger Subsidiary.....................................100
10.1 Representations, Warranties, Covenants.............100
</TABLE>
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<TABLE>
<S> <C>
10.2 Proceedings........................................101
10.3 Opinions of Counsel................................102
10.4 Material Restricted Contracts......................102
10.5 Governmental Action................................102
10.6 Deliveries.........................................103
10.7 Securities Agreement...............................103
10.8 Effectiveness of Registration Statement............103
10.9 No Dissenting Shares...............................103
11. Items to be Delivered at the Closing...................103
11.1 Deliveries by NDSI.................................103
11.2 Deliveries by Parent and Merger Subsidiary.........105
12. Survival of Representations and Warranties;
Indemnification........................................106
12.1 Survival...........................................106
12.2 Indemnification by the Securityholders.............108
12.3 Limitations as to Indemnification Obligation.......109
12.4 Notice and Settlement of Claims of Parent, the Surviving
Corporation and the Operating Company;
Arbitration........................................112
12.5 Notice and Settlement of Tax Liabilities...........113
12.6 Schooner Litigation................................114
12.7 Notice and Settlement of Other Third-Party Claims..114
12.8 No Waiver for Notices..............................116
12.9 Insurance..........................................116
12.10 Tax Benefits......................................116
12.11 Indemnification by Parent.........................117
13. Miscellaneous..........................................117
</TABLE>
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<TABLE>
<S> <C>
13.1 Termination of Agreement...........................117
13.2 Liabilities Upon Termination.......................119
13.3 Expenses...........................................120
13.4 Assignments........................................120
13.5 Further Assurances.................................120
13.6 Public Announcement................................121
13.7 Notices............................................121
13.8 Captions...........................................122
13.9 Law Governing......................................122
13.10 Waiver of Provisions.............................123
13.11 Counterparts.....................................123
13.12 Entire Agreement.................................123
13.13 Access to Books and Records......................124
13.14 Schedules and Amendments to Schedules............125
13.15 Confidentiality..................................126
13.16 Submission to Jurisdiction; Waivers..............126
13.17 Employee Benefits................................127
13.18 Registration Statement to Remain Effective.......128
13.19 Tax Returns......................................129
</TABLE>
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PLAN AND AGREEMENT OF MERGER
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PLAN AND AGREEMENT OF MERGER dated July 24, 1995, by and
among RPM, INC. ("Parent"), an Ohio corporation; RPM OF
DELAWARE, INC. ("Merger Subsidiary"), a Delaware corporation;
NARRAGANSETT/DSI ACQUISITION CO., INC., a Delaware corporation
("NDSI"); the holders of outstanding shares of capital stock of
NDSI and of options and warrants to purchase shares of capital
stock of NDSI identified on the signature pages hereto (the
"Securityholders"); and Roger A. Vandenberg, as the
Securityholder Representative hereunder (the "Securityholder
Representative"). Merger Subsidiary and NDSI are sometimes
herein called the "Constituent Corporations".
R E C I T A L S
WHEREAS, NDSI owns all of the issued and outstanding shares
of the capital stock of Dryvit Systems, Inc., a Rhode Island
corporation ("Dryvit");
WHEREAS, the Parent and Merger Subsidiary wish to acquire,
directly or indirectly, all of the property, tangible and
intangible, real and personal, of NDSI and its direct and
indirect subsidiaries (the "Company Assets") by way of a merger
of Merger Subsidiary with and into NDSI;
WHEREAS, the Constituent Corporations and Parent deem it
advisable and generally to the welfare and advantage of their
respective shareholders that, subject to the terms and
<PAGE> 9
conditions set forth herein, Merger Subsidiary merge into NDSI
pursuant to this Agreement and the General Corporation Law of
the State of Delaware (the "Act") with the effects that NDSI
become a direct wholly-owned subsidiary of Parent and the
Securityholders of NDSI receive the consideration for their
shares specified in Section 4.2 (the "Merger"); and
WHEREAS, in order to induce Parent and Merger Subsidiary to
enter into this Agreement, the Securityholders have agreed to
indemnify Parent, the Surviving Corporation (as defined herein)
and the Operating Company (as defined herein) for certain
out-of-pocket costs, losses, damages and expenses incurred
after the effective time of the Merger in accordance with, but
subject to the limitations of, this Agreement.
NOW, THEREFORE, the parties hereby agree to the following
terms and conditions relating to the Merger contemplated hereby
and the mode of carrying the Merger into effect:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms have the
meanings specified or referred to in this Article I.
"Act" shall have the meaning specified in the Recitals hereof.
"Adjusted Purchase Price" shall mean the sum of (i) the Cash
Purchase Price plus (ii) the product of (x) the aggregate
number of Merger Shares multiplied by (y) the Parent Common
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Stock Value Per Share minus (iii) an amount equal to the GE
Capital Indebtedness.
"Affiliate" shall mean with respect to any Person, any entity
that directly or indirectly controls, is controlled by, or is
under common control with such Person.
"Affiliated Entity" shall mean any entity required to be
aggregated with the Company pursuant to Section 414(b), (c),
(m) or (o) of the Code or any predecessor statute.
"Aggregate Adjusted Class A Preferred Liquidation Preference"
shall mean the difference between (x) the product of (i) the
Class A Preferred Liquidation Preference multiplied by (ii) the
number of shares of Class A Preferred Stock issued and
outstanding immediately prior to the Effective Time and the
number of shares of Class A Preferred Stock issuable upon the
exercise of Warrants issued and outstanding immediately prior
to the Effective Time minus (y) the aggregate exercise price
payable under all such Warrants to purchase shares of Class A
Preferred Stock issuable thereunder.
"Agreement" shall mean this Plan and Agreement of Merger, as
it may be amended from time to time hereafter in accordance
with the terms hereof.
"Arbitration" shall have the meaning specified in Section
12.4.
"Atlanta Real Estate" shall mean the parcel of unimproved
real estate owned by Dryvit and located near Atlanta, Georgia
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containing approximately 7 acres as described in Schedule 5.7 of
the Disclosure Letter.
"Audit Issues" shall have the meaning specified in the
definition of Tax Liability.
"Audited Statements" shall have the meaning specified in
Section 5.4.
"Basket" shall have the meaning specified in Section 12.3(a).
"Benefit Plans" shall have the meaning specified in Section
5.8(b).
"Business Condition" shall mean, in the case of any Person,
the condition (financial or otherwise), results of operations,
properties, assets, or business of such Person.
"Canadian Subsidiary" shall mean Dryvit Systems Canada, Ltd.,
a Canadian corporation and wholly-owned subsidiary of Dryvit.
"Cash Purchase Price" shall mean an aggregate amount equal to
Forty-seven Million Dollars ($47,000,000) to be paid in cash by
Parent as part of the merger consideration payable hereunder.
"Certificate of Designation" shall mean NDSI's Certificate of
Designation, Preferences and Relative and other Special Rights,
and Qualifications, Limitations and Restrictions of Class A
Preferred Stock and Class B Convertible Participating Preferred
Stock filed with the Secretary of State of Delaware on February
23, 1990.
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"Certificate of Merger" shall have the meaning specified in
Section 3.1.
"Certificates" shall mean the certificates which immediately
prior to the Effective Time represented outstanding shares of
NDSI Stock.
"Class A Common Stock" shall mean NDSI's Class A Common
Stock, $.01 par value per share.
"Class A Preferred Liquidation Preference" shall mean the
liquidation preference for each share of Class A Preferred
Stock as set forth in Section 3 of the Certificate of
Designation.
"Class A Preferred Stock" shall mean NDSI's Class A Preferred
Stock, $.01 par value per share.
"Class A Preferred Stock Warrant Spread" shall have the
meaning specified in Section 4.2(c).
"Class B Common Stock" shall mean NDSI's Class B Common
Stock, $.01 par value per share.
"Class B Convertible Preferred Stock" shall mean NDSI's Class
B Convertible Participating Preferred Stock, $.01 par value per
share.
"Closing Date" shall mean September 27, 1995 or such other
date (not later than the Outside Date) as NDSI and Parent may
mutually agree.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, or any predecessor statute, and the rules and
regulations promulgated thereunder.
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"Commission" shall mean the Securities and Exchange
Commission.
"Common Stock" shall mean the Class A Common Stock and the
Class B Common Stock.
"Common and Class B Convertible Preferred Stock Warrant
Spread" shall have the meaning specified in Section 4.2(c).
"Common Stock Equivalent Price Per Share" shall mean that
amount per share equal to (x) the sum of (i) the Adjusted
Purchase Price minus (ii) the Aggregate Adjusted Class A
Preferred Liquidation Preference, minus (iii) the Company
Transaction Expenses, minus (iv) the Reserves, (v) plus the
Option/Warrant Aggregate Exercise Price, divided by (y) the
Total Number of Common Stock Equivalent Shares Outstanding.
"Companies" shall mean NDSI and the Operating Company,
determined collectively and, where appropriate within the
context of this Agreement, on a consolidated basis, and
"Company" shall mean any one of them.
"Company Assets" shall have the meaning specified in the
Recitals hereof.
"Company Transaction Expenses" shall mean the fees, costs and
expenses incurred or reasonably estimated to be incurred by the
Companies through the Effective Time and, to the extent any
Company is obligated for payment of the fees, costs and
expenses of any Securityholders, by the Securityholders, which
are directly related to the transactions contemplated by this
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Agreement, including, without limitation, (i) the fees and
expenses of Edwards & Angell and any other counsel engaged by
the Companies with respect to this Agreement or the
transactions contemplated hereby, (ii) the fees and expenses of
Tucker Anthony Incorporated and any other investment banking
firm or financial advisor engaged by the Companies or their
Board of Directors in connection with this Agreement or the
transactions contemplated hereby, (iii) the fees and expenses
of Kaye, Scholer, Fierman, Hayes & Handler, counsel to GE
Capital, with respect to this Agreement or the transactions
contemplated hereby, (iv) Hart-Scott-Rodino filing fees payable
by NDSI or any of the Securityholders as an acquiring person
with respect to Parent Common Stock to be issued in the Merger,
and (v) the fees and expenses for accounting and other
professional services rendered to the Companies prior to the
Effective Time or to the Securityholder Representative at any
time and in either case directly related to the transactions
contemplated by this Agreement; provided, however, that Company
Transaction Expenses shall not include any filing, printing or
other out-of-pocket fees, costs or expenses incurred or paid by
Parent, or by any Company or any Securityholder at the request
of Parent, directly relating to the Registration Statement,
including the reasonable fees and expenses of NDSI's auditors
in connection with the audit of NDSI's financial statements to
be included in the Registration Statement.
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"Constituent Corporations" shall have the meaning specified
in the Recitals hereof.
"Contracts" shall mean any unexpired or executory written
agreement, arrangement or commitment to which any Company is a
party or by which it is bound.
"Damages" shall have the meaning specified in Section 12.2.
"Disclosure Letter" shall mean a letter from NDSI to Parent
dated the date of this Agreement and delivered to the Parent in
connection herewith.
"Dissenting Shares" shall have the meaning specified in
Section 4.5.
"Dryvit" shall have the meaning specified in the Recitals
hereof.
"Dryvit Subsidiaries" shall mean (i) Tech-21 Panels Systems,
Inc., a Rhode Island corporation and wholly owned subsidiary of
Dryvit; (ii) Dryvit Systems FSC, Inc., a Virgin Island
corporation and wholly owned subsidiary of Dryvit; (iii) the
Canadian Subsidiary; and (iv) Dryvit Systems New Zealand, Ltd.,
a New Zealand corporation and wholly owned subsidiary of Dryvit.
"Effective Time" shall have the meaning specified in Section
3.2(b).
"Environmental Laws" shall mean all federal, state, local or
foreign laws relating to pollution or protection of the
environment (including without limitation, ambient air, surface
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water, groundwater, land surface or subsurface strata) as in
effect on the date hereof, including without limitation, laws
relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, or industrial,
toxic or hazardous substances or wastes into the indoor or
outdoor environment, including without limitation, ambient air,
soil, surface water, ground water, wetlands, subsurface strata,
or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling of chemicals, pollutants, contaminants, or industrial,
toxic or hazardous substances or wastes, as well as all
authorizations, codes, decrees, demands or demand letters,
injunctions, letters, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
"Financial Statements" shall mean the Audited Statements and
the Interim Statements.
"GAAP" shall mean generally acceptable accounting principles
as practiced in the United States, consistently applied from
time to time.
"GE Capital" shall mean General Electric Capital Corporation
and its Canadian subsidiary, General Electric Capital Canada,
Inc.
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"GE Capital Indebtedness" shall mean the aggregate
outstanding principal balance, as of the Closing Date, of the
Companies' indebtedness to GE Capital under those certain
promissory notes of Dryvit issued to GE Capital pursuant to
that certain Loan Agreement with General Electric Capital
Corporation dated March 1, 1990, as amended (which aggregate
outstanding principal balance shall not be less than
$13,589,348), and under that certain promissory note of the
Canadian Subsidiary issued to General Electric Capital Canada,
Inc. on March 1, 1990 (which outstanding principal balance
shall not be less than $1,330,312 CND).
"Governmental Action" shall mean the making of any filing or
registration with, the giving of any notice to or the obtaining
of any permit, authorization, consent or approval of any public
or governmental body or authority.
"Hazardous Material" shall mean, collectively, (a) any
petroleum or petroleum products, flammables, explosives,
radioactive materials, friable asbestos, urea formaldehyde foam
insulation, and transformers or other equipment that contain
dielectric fluid containing polychlorinated biphenyls (PCBs),
(b) any chemicals or other materials or substances as included
in the definition of "hazardous substance", "hazardous waste",
"hazardous materials", "extremely hazardous wastes",
"restricted hazardous wastes", "toxic substances", "toxic
pollutants", "contaminants", "pollutants" or words of similar
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import under any Environmental Law; and (c) any other chemical or
other material or substance, exposure to which is now
prohibited, limited or regulated under any Environmental Law.
"HSR Act" shall have the meaning specified in Section 7.7.
"Indemnification Obligation" shall have the meaning specified
in Section 12.2.
"Indemnified Party" shall have the meaning specified in
Section 12.4.
"Indemnitors" shall mean the Securityholders who hold as of
the Closing Date outstanding shares of Common Stock or Class B
Convertible Preferred Stock or Options or Warrants to purchase
Common Stock or Class B Convertible Preferred Stock.
"Interim Balance Sheet" shall have the meaning specified in
Section 5.4(a).
"Interim Balance Sheet Date" shall have the meaning specified
in Section 5.4(a).
"Interim Income Statement" shall have the meaning specified
in Section 5.4(a).
"Interim Statements" shall have the meaning specified in
Section 5.4(a).
"IRS" shall mean the Internal Revenue Service.
"Liens" shall mean all liens, pledges, encumbrances, security
interests, mortgages, community property rights or other
adverse claims against title.
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"Material Adverse Effect" shall mean a material adverse
effect on the Business Condition of the Companies taken as a
whole.
"Material Restricted Contracts" shall have the meaning
specified in Section 7.4(a).
"Maximum Indemnification Obligation" shall mean the maximum
aggregate liability of the Indemnitors for Indemnification
Obligations hereunder, other than on account of Ownership
Liabilities, Tax Liabilities, and Schooner Litigation
Liabilities, which maximum aggregate liability shall be equal
to Ten Million Dollars ($10,000,000).
"Merger" shall have the meaning specified in the Recitals
hereof.
"Merger Proceeds" shall mean the Cash Purchase Price and the
Merger Shares.
"Merger Share Certificate" shall have the meaning specified
in Section 4.4(a).
"Merger Shares" shall mean the 3,200,000 shares of Parent
Common Stock (as adjusted for any stock splits or stock
dividends after the date hereof up to and including the
Effective Time) to be issued by Parent as part of the merger
consideration payable hereunder.
"Merger Subsidiary" shall have the meaning specified in the
opening paragraph hereof.
"NDSI" shall have the meaning specified in the opening
paragraph hereof.
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"NDSI Balance Sheet" shall have the meaning specified in
Section 5.4(b).
"NDSI Stock" shall mean the Preferred Stock and the Common
Stock.
"Net Adjusted Cash Payment Per Non-Option Share" shall mean
that amount per share equal to (x) the sum of (i) the Cash
Purchase Price, minus (ii) the GE Capital Indebtedness, minus
(iii) the Aggregate Adjusted Class A Preferred Liquidation
Preference, minus (iv) the Company Transaction Expenses, minus
(v) the Reserves, minus (vi) the aggregate Option Consideration
Per Share paid, plus (vii) the Warrant Aggregate Exercise
Price, divided by (y) the Total Number of Non-Option Common
Stock Equivalent Shares Outstanding.
"Operating Company" shall mean Dryvit and the Dryvit
Subsidiaries, determined collectively and, where appropriate
within the context of this Agreement, on a consolidated basis.
"Option Consideration Per Share" shall mean an amount equal
to the Common Stock Equivalent Price Per Share minus the
exercise price per share specified in the respective Options.
"Options" shall mean non-qualified options to purchase shares
of Class B Common Stock issued by NDSI to employees of the
Company prior to the Merger.
"Option Spread" shall have the meaning specified in Section
4.2(c).
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<PAGE> 21
"Option/Warrant Aggregate Exercise Price" shall mean the
aggregate exercise price for the purchase of all shares of NDSI
stock issuable under all Options and Warrants (other than
Warrants to purchase shares of Class A Preferred Stock) issued
and outstanding immediately prior to the Effective Time,
whether or not then vested or exercisable.
"Option/Warrant Spread" shall mean the Class A Preferred
Stock Warrant Spread, the Common and Class B Convertible
Preferred Stock Warrant Spread, or the Option Spread, as the
case may be.
"Outside Date" shall have the meaning specified in Section
13.1(d).
"Ownership Liabilities" shall mean any out-of-pocket loss,
cost, damage or expense paid or incurred by Parent or the
Surviving Corporation after the Closing Date arising directly
from any misrepresentation or breach of warranty of any of the
Securityholders in Article V-A of this Agreement.
"Parent" shall have the meaning specified in the opening
paragraph hereof.
"Parent Common Stock" shall mean Parent's Common Shares,
without par value.
"Parent Common Stock Closing Price" shall mean, with respect
to any trading day, (a) if Parent Common Stock is listed or
admitted for trading on a national securities exchange, the
closing price on such day on a per share basis
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<PAGE> 22
for Parent Common Stock on the principal securities exchange on
which such shares are traded or (b) if Parent Common Stock is
not listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked prices in
the over-the-counter market on such day as reported by NASDAQ
or any comparable system or, if not so reported, as reported by
any New York Stock Exchange member firm selected by Parent for
such purpose.
"Parent Common Stock Value Per Share" shall mean the average
of the daily Parent Common Stock Closing Prices for the ten
(10) consecutive trading days ending two (2) business days
prior to the Closing Date.
"Parent Disclosure Letter" shall have the meaning specified
in Section 6.4.
"Parent Reports" shall have the meaning specified in Section
6.10.
"Permits" shall have the meaning specified in Section 5.20.
"Permitted Liens" shall mean (w) Liens for current taxes,
assessments or other governmental charges due but not yet
payable as of the applicable date, or the validity of which is
being contested in good faith by appropriate proceedings with
appropriate reserves therefor reflected in the Financial
Statements, (x) Liens arising by operation of law in the
ordinary course of business, such as mechanics' liens,
materialmen's liens, carriers' liens, warehouseman's liens, and
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similar liens, (y) deposits made by any Company in the ordinary
course of business to secure its obligations under worker's
compensation, unemployment insurance, social security and
similar laws, and (z) Liens on the Companies' real estate which
are described in Schedule 5.7 of the Disclosure Letter or which
do not secure obligations incurred in connection with the
borrowing of money or extension of credit and which do not
materially affect the market value, marketability, use or
enjoyment of such real estate in the operation of the Companies.
"Person" shall mean any individual, partnership, joint
venture, corporation, limited liability company, bank, trust,
unincorporated organization or other entity.
"Post-Closing Distributions" shall have the meaning specified
in Section 4.2(a).
"Preferred Stock" shall mean the Class A Preferred Stock and
the Class B Convertible Preferred Stock.
"Pro Rata Share" shall mean, with respect to any holder of
Common Stock or Class B Convertible Preferred Stock or any
holder of an Option or Warrant to purchase Common Stock or
Class B Convertible Preferred Stock, that percentage derived by
dividing the number of shares held of record by, or issuable
upon exercise of such Option or Warrant to, such Securityholder
by the Total Number of Common Stock Equivalent Shares
Outstanding; the Pro Rata Share of each such Securityholder as
of the date of this Agreement being set forth on Schedule 1
hereto.
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<PAGE> 24
"Rejection Notice" shall have the meaning specified in
Section 13.14.
"Registration Statement" shall mean that certain Registration
Statement to be filed by Parent with the Commission under the
Securities Act of 1933 and to be declared effective on or prior
to the Closing Date registering all of the Merger Shares for
resale by the Securityholders.
"Release" shall mean any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the indoor or outdoor environment,
including without limitation, the movement of Hazardous
Materials through the ambient air, soil, surface water, ground
water, wetlands, land or subsurface strata.
"Reserves" shall mean an amount equal to One Million Five
Hundred Thousand Dollars ($1,500,000) or such lesser amount as
may be reasonably determined by the Securityholder
Representative as an appropriate reserve for unascertained
expenses, claims and other contingencies for which the
Securityholder Representative or the Securityholders may be or
become responsible following the Effective Time, together with
any interest earned thereon.
"Restricted Contracts" shall have the meaning specified in
Section 7.4(a).
"Rust Liabilities" shall mean any loss, cost, damage or
expense (including but not limited to attorneys' fees) paid or
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<PAGE> 25
incurred by the Parent, the Surviving Corporation or the
Operating Company in connection with claims made by third
parties as a result of rust staining on projects incorporating
products of the Operating Company to the extent such rust
staining was caused by iron contaminates in such products. For
purposes of this definition, "Rust Liabilities" shall include
any cash expenditures to a third party made by Parent,
Surviving Corporation or the Operating Company after the
Closing Date to satisfy rust staining claims of third parties
existing as of the Closing Date, whether or not such claims may
have been previously accrued or reserved for by the Operating
Company in the Financial Statements.
"Schooner Litigation" shall mean that certain lawsuit filed
by Dryvit against David W. Wagner, Michael Travis and Schooner
Group International, Inc. (including any counter-claim) in
Rhode Island Superior Court, Providence County, Civil Action
No. PC 95-1479.
"Schooner Litigation Liabilities" shall mean any
out-of-pocket loss, cost, damage or expense paid or incurred by
the Surviving Corporation or the Operating Company after the
Closing Date in connection with the prosecution of the Schooner
Litigation pursuant to Section 12.6, including, but not limited
to, reasonable attorney's fees and any resulting damage award
or settlement in connection with any counterclaim thereon.
"Section 262" shall have the meaning specified in Section 4.5.
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<PAGE> 26
"Securities Agreements" shall mean those agreements to be
entered into on the Closing Date between Parent and each of the
Securityholders receiving Merger Shares, which agreements shall
be in the form of Exhibit A hereto with such changes in the
terms thereof as shall be reasonably acceptable to Parent and
such Securityholder.
"Securityholder Representative" shall have the meaning
specified in the opening paragraph hereof and shall include any
successor duly appointed in accordance with Section 4.7 hereof.
"Securityholders" shall have the meaning specified in the
opening paragraph hereof.
"Shareholder" shall mean a holder of NDSI Stock prior to the
Merger.
"Shareholders' Agreement" shall have the meaning specified in
Section 5.15(a), which Agreement shall be terminated prior to
the Closing Date.
"Shareholder Documents" shall mean (i) the Shareholders'
Agreement, (ii) that certain Letter Agreement dated May 4, 1990
between Narragansett Capital Partners-A, L.P., Narragansett
Capital Partners-B, L.P. and B.D.W. & Co., (iii) that certain
Agreement to be Bound dated November 2, 1993 by Richard J.
Ramsden and Smith Barney Shearson; (iv) that certain Agreement
to be Bound dated July 21, 1995 by William L. Searle; (v) that
certain Agreement to be Bound dated July 21, 1995 by Daniel C.
Searle; and (vi) that certain Agreement to be Bound dated July
21, 1995 by Wesley M. Dixon, Jr., each
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<PAGE> 27
of which shall be terminated prior to the Closing Date.
"Shares" shall mean shares of Common Stock and Preferred
Stock.
"Subsidiary" shall mean, when used with reference to any
Person, any corporation more than 50% of the voting power of
the outstanding voting securities of which are directly or
indirectly owned by such Person.
"Surviving Corporation" shall have the meaning specified in
Section 2.1.
"Tax Liability" shall mean any loss, cost, damage or expense
paid or incurred by the Parent, the Surviving Corporation or
the Operating Company (including but not limited to reasonable
attorney's fees) arising directly from any misrepresentation or
breach of warranty of NDSI in Section 5.16(a) of this
Agreement. Parent acknowledges that the Companies have reserved on the
Interim Balance Sheet, for amounts claimed by the Internal
Revenue Service to be due from the Companies in connection with
an audit of the Companies' 1990 federal income tax return and
for amounts which may become due as a consequence of such
audit's potential effects on the Companies' income taxes for
the years 1991, 1992 and 1993, in an aggregate sum equal to
$487,453, which reserve is specifically attributable to the
Companies' amortization of loan fees, accretion of original
issue discount, reasonableness of compensation and related
interest thereon (net of tax
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benefit) (collectively the "Audit Issues"), so that,
notwithstanding anything to the contrary contained in this
Agreement, the term "Tax Liability" shall not include any
amount due or which may become due as a result of or in
connection with the final resolution of the Audit Issues or the
effects of such Audit Issues on the Companies' federal income
tax for any year subsequent to 1990 or on any state or local
income tax for any year thereafter, or as interest thereon, to
the extent (i) any such amount is attributable to the Audit
Issues and (ii) is covered by the above reserve of $487,453.
"Taxes" shall mean (A) all net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property or windfall profits taxes,
or other taxes of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority (domestic or foreign)
upon any Person with respect to all periods or portions thereof
ending on or before the Effective Time and/or (B) any liability
of any Person for the payment of any amounts of the type
described in the immediately preceding clause (A) as a result
of being a member of an affiliated or combined group. "Tax"
shall mean any of the Taxes.
"Total Number of Common Stock Equivalent Shares Outstanding"
shall mean the sum of (i) the total number of
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shares of Common Stock and Class B Convertible Preferred Stock
issued and outstanding immediately prior to the Effective Time
(except NDSI Stock held as treasury shares to be cancelled
pursuant to Section 4.2(a)), plus (ii) the total number of
shares of Common Stock and Class B Convertible Preferred Stock
issuable upon the exercise of Options and Warrants to purchase
shares of Common Stock or Class B Convertible Preferred Stock
outstanding immediately prior to the Effective Time.
"Total Number of Non-Option Common Stock Equivalent Shares
Outstanding" shall mean the sum of (i) the total number of
shares of Common Stock and Class B Convertible Preferred Stock
issued and outstanding immediately prior to the Effective Time
(except NDSI Stock held as treasury shares to be cancelled
pursuant to Section 4.2(a)), plus (ii) the total number of
shares of Common Stock and Class B Convertible Preferred Stock
issuable upon the exercise of Warrants to purchase shares of
Common Stock or Class B Convertible Preferred Stock outstanding
immediately prior to the Effective Time.
"Warrant Aggregate Exercise Price" shall mean the aggregate
exercise price for the purchase of all shares of NDSI Stock
issuable under all Warrants (other than Warrants to purchase
shares of Class A Preferred Stock) issued and outstanding
immediately prior to the Effective Time, whether or not then
vested or exercisable.
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"Warranties" shall have the meaning specified in Section 5.26.
"Warrants" shall mean the warrants to purchase shares of NDSI
Stock issued by NDSI to GE Capital.
ARTICLE II
The Merger and Related Matters
------------------------------
2.1 MERGER. In accordance with the Act, Merger Subsidiary
shall, at the Effective Time, be merged with and into NDSI
and NDSI shall be the surviving corporation (in its capacity
as surviving corporation being sometimes hereinafter called
the "Surviving Corporation") and shall continue to be a
Delaware corporation.
2.2 NAME OF SURVIVING CORPORATION. The name of the
Surviving Corporation shall be "Dryvit Holdings, Inc.".
2.3 CERTIFICATE OF INCORPORATION AND BY-LAWS. At the
Effective Time, the Certificate of Incorporation of NDSI,
as in effect immediately before the Effective Time, shall be
amended to state that the name of such corporation is
"Dryvit Holdings, Inc.". As so amended, such Certificate
of Incorporation shall be the Certificate of Incorporation
of the Surviving Corporation and shall continue to be its
Certificate of Incorporation until amended or changed as
provided by the Act. The By-laws of Merger Subsidiary, as
in effect immediately before the Effective Time, shall be
the By-laws of the Surviving Corporation until amended as
provided therein or by the Act.
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2.4 DIRECTORS AND OFFICERS. (a) From and after the
Effective Time, the persons designated by Parent in writing
before the Effective Time shall be the directors and
officers of the Surviving Corporation, to serve in each
case until their respective successors shall have been duly
elected and shall have duly qualified; and (b) if at the
Effective Time a vacancy shall exist, it may be filled in
the manner provided in the By-laws of the Surviving
Corporation.
2.5 CERTAIN EFFECTS OF THE MERGER. At the Effective Time,
(i) Merger Subsidiary shall be merged into NDSI; (ii) the
separate existence of Merger Subsidiary shall cease; (iii)
NDSI, as the Surviving Corporation, shall have all the
rights, privileges, immunities and powers, and shall be
subject to all of the duties and liabilities, of a
corporation organized under the Act; (iv) NDSI, as the
Surviving Corporation, shall thereupon and thereafter
possess all the rights, privileges, immunities and
franchises, of a public as well as a private nature, of the
Constituent Corporations; (v) all property, real, personal
and mixed, and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and
all and every other interest of or belonging to or due to
either of the Constituent Corporations shall be deemed to be
transferred to and vested in the Surviving
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Corporation without further act or deed; and (vi) the title
to any real estate, or any interest therein, vested in
either of the Constituent Corporations shall not revert or
be in any way impaired by reason of the Merger. The
Surviving Corporation shall thence forth be responsible and
liable for all the liabilities and obligations of the
Constituent Corporations; and any claim existing or action
or proceeding pending by or against either of the
Constituent Corporations may be prosecuted as if the Merger
had not taken place or the Surviving Corporation may be
substituted in its place. The Merger shall have all of the
other effects specified in Section 259 of the Act, and
neither the rights of creditors nor any liens upon the
property of either of the Constituent Corporations shall be
impaired by the Merger.
2.6 FURTHER aCTION. At any time, or from time to time,
after the Effective Time, the last acting officers of
Merger Subsidiary or the corresponding officers of the
Surviving Corporation may, in the name of Merger
Subsidiary, execute and deliver all such proper deeds,
assignments, and other instruments and take or cause to be
taken all such further or other action as the Surviving
Corporation may deem necessary or desirable in order to
vest, perfect or confirm in the Surviving Corporation title
to and possession of all property, rights, privileges,
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powers, franchises, immunities and interests of Merger
Subsidiary and otherwise to carry out the purposes of this
Agreement.
ARTICLE III
Closing, Filing, Effectiveness
------------------------------
3.1 CLOSING AND CLOSING DATE. Subject to satisfaction of
the other conditions in Articles IX and X hereof, the
Constituent Corporations shall duly execute and verify the
certificate of merger relating to the Merger (the
"Certificate of Merger") in accordance with the Act at the
offices of Edwards & Angell, 2700 Hospital Trust Tower,
Providence, Rhode Island at 10:00 A.M., local time, on the
Closing Date.
3.2 Filing and Effective Time.
--------------------------
(a) On the date established for the closing pursuant to
Section 3.1, copies of the Certificate of Merger, so
executed and verified, shall be delivered to the Secretary
of State of the State of Delaware for filing; and
(b) the Merger shall become effective upon the
acceptance for filing of the Certificate of Merger by the
Delaware Secretary of State (the date and time of such event
being herein called the "Effective Time").
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ARTICLE IV
Status and Change of Shares; Payment and Distribution;
------------------------------------------------------
Securityholder Representative.
------------------------------
4.1 MERGER SUBSIDIARY STOCK. Each share of common stock of
Merger Subsidiary outstanding at the Effective Time shall by
virtue of the Merger be changed into one share of the Class
A Common Stock of the Surviving Corporation.
4.2 NDSI STOCK.
(a) At the Effective Time:
(i) each share of NDSI's Class A Preferred Stock
issued and outstanding at the Effective Time shall, by
virtue of the Merger, be changed into the right to
receive from the Parent, by Parent's payment to the
Securityholder Representative for the account of such
holder, in cash, an amount per share equal to the Class
A Preferred Liquidation Preference calculated as of the
Closing Date and no more;
(ii) each share of NDSI's Class B Convertible
Preferred Stock issued and outstanding at the
Effective Time shall, by virtue of the Merger, be
changed into the right to receive (x) from the Parent,
by Parent's payment and delivery to the Securityholder
Representative for the account of the holder of such
share, 33.68421053 shares of Parent Common Stock and,
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in cash, an amount equal to the Net Adjusted Cash
Payment Per Non-Option Share, and (y) from the
Securityholder Representative, a Pro Rata Share of
unapplied Reserves, if any, distributed by the
Securityholder Representative pursuant to Section 4.7
(a "Post-Closing Distribution");
(iii) each share of NDSI's Class A Common Stock
issued and outstanding at the Effective Time shall, by
virtue of the Merger, be changed into the right to
receive (x) from the Parent, by Parent's payment and
delivery to the Securityholder Representative for the
account of the holder of such share, 33.68421053 shares
of Parent Common Stock and, in cash, an amount equal to
the Net Adjusted Cash Payment Per Non-Option Share, and
(y) from the Securityholder Representative, a Pro Rata
Share of any Post-Closing Distribution;
(iv) each share of NDSI's Class B Common Stock
issued and outstanding at the Effective Time shall, by
virtue of the Merger, be changed into the right to
receive (x) from the Parent, by Parent's payment and
delivery to the Securityholder Representative for the
account of the holder of such share, 33.68421053 shares
of Parent Common Stock and, in cash, an amount equal to
the Net Adjusted Cash Payment Per Non-Option Share, and
(y) from the Securityholder Representative, a Pro Rata
Share of any Post-Closing Distribution; and
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<PAGE> 36
(v) all rights in respect of outstanding shares of
NDSI Stock shall cease to exist, other than the right
to receive the merger consideration as described
herein. All shares of NDSI Stock which are held by
NDSI as treasury shares shall be cancelled and retired
without payment therefor.
(b) Any shares of NDSI Stock outstanding at the
Effective Time and held by any holder of Dissenting Shares
who filed a written objection to the Merger in accordance
with the Act but whose right of appraisal shall not have
been perfected as provided therein shall be deemed changed
in the same manner as provided for other outstanding shares
of Common Stock, Class B Convertible Preferred Stock or
Class A Preferred Stock, as the case may be.
(c) Each holder of an Option or Warrant to purchase
shares of NDSI Stock that is issued and outstanding
immediately prior to the Effective Time, whether or not
then vested or exercisable, hereby agrees that upon the
Effective Time the Option or Warrant held by such holder
shall be cancelled immediately and automatically changed
into the right to receive:
(i) in the case of Warrants to purchase Class
A Preferred Stock, from the Parent, by Parent's
payment to the Securityholder Representative for
the account of such holder, in
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cash, an amount equal to the product of (x) the
difference between (A) the Class A Preferred
Liquidation Preference calculated as of the
Closing Date and (B) the per share exercise price
of such Warrant times (y) the number of shares for
which such Warrant is exercisable (the "Class A
Preferred Stock Warrant Spread");
(ii) in the case of Warrants to purchase
Common Stock or Class B Convertible Preferred
Stock, (x) from the Parent, by Parent's payment
and delivery to the Securityholder Representative
for the account of such holder, 33.68421053
shares of Parent Common Stock for each such share
of NDSI Stock for which such Warrant is
exercisable and, in cash, an amount equal to the
product of (1) the difference between (A) the Net
Adjusted Cash Payment Per Non-Option Share and (B)
the per share exercise price of such Warrant times
(2) the number of shares for which such Warrant is
exercisable (the "Common and Class B Convertible
Preferred Stock Warrant Spread") and (y) from the
Securityholder Representative, a Pro Rata Share of
any Post-Closing Distribution; and
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(iii) in the case of the Options (x) from
Parent, by Parent's payment to the Securityholder
Representative for the account of the holder of
such Option, in cash, an amount equal to the
product of (i) the Option Consideration Per Share
times (ii) the number of shares for which such
Option is exercisable (the "Option Spread") and
(y) from the Securityholder Representative, a Pro
Rata Share of any Post-Closing Distribution.
4.3 Payment of Cash Purchase Price and Distribution of
--------------------------------------------------
Parent Common Stock; Post-Closing Distributions.
------------------------------------------------
(a) On the Closing Date, Parent shall wire transfer to
the Securityholder Representative in immediately available
funds an amount equal to the Cash Purchase Price, less that
amount which the holders of Dissenting Shares would have
been entitled to receive in cash on the Closing Date
pursuant to Section 4.2 hereof in respect of the Dissenting
Shares held by them. On the Closing Date the Securityholder
Representative shall:
(i) pay to GE Capital from the Cash Purchase
Price in immediately available funds an amount equal to
the GE Capital Indebtedness;
(ii) set aside from the Cash Purchase Price in
an account established by the Securityholder
Representative an amount equal to the Reserves;
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<PAGE> 39
(iii) pay from the Cash Purchase Price the Company
Transaction Expenses then due and payable;
(iv) pay from the Cash Purchase Price to each of
the Warrant holders in accordance with Section 4.6, an
amount equal to the Class A Preferred Warrant Spread or
the Common and Class B Convertible Preferred Stock
Warrant Spread, as the case may be, due to such holder
as determined under Section 4.2(c) hereof;
(v) pay from the Cash Purchase Price to each of
the Option holders in accordance with Section 4.6, an
amount equal to the Option Spread due to such holder in
accordance with Section 4.2(c) hereof;
(vi) pay from the Cash Purchase Price to each
holder of Class A Preferred Stock (other than a holder
of Dissenting Shares) in accordance with Sections
4.3(c) and 4.4, an amount equal to (X) the Class A
Preferred Liquidation Preference times (Y) the number
of shares of Class A Preferred Stock held by such
holder immediately prior to the Effective Time; and
(vii) pay from the Cash Purchase Price to each
holder of Common Stock and Class B Convertible
Preferred Stock (other than a holder of Dissenting
Shares) in accordance with Sections 4.3(c) and 4.4, an
amount equal to the product of (X) the Net Adjusted
Cash Payment Per Non-Option Share times (Y) the number
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of shares of Common Stock and/or Class B Convertible
Preferred Stock held by such holder immediately prior
to the Effective Time.
(b) On the Closing Date, Parent shall deliver to the
Securityholder Representative for the benefit of the
Securityholders, all of the Merger Shares which shall have
been issued in the names of Persons, and in the amounts,
specified by NDSI in the Merger Share Certificate. The
Securityholder Representative shall not be entitled to vote
or exercise any rights of ownership with respect to the
Merger Shares for any period held by him hereunder.
(c) The Securityholder Representative shall promptly
following receipt of the Merger Shares from Parent
distribute to each holder of a Certificate or Certificates
who shall have surrendered his or its Certificate(s), in
accordance with the distribution instructions of such
holder in his or its letter of transmittal surrendering the
same, a certificate or certificates representing the
aggregate number of full shares of Parent Common Stock
and/or the amount of cash into which the aggregate number
of shares of NDSI Stock previously represented by such
Certificate or Certificates so surrendered shall have been
converted pursuant to this Agreement, in each case without
interest. If delivery of any such Merger Proceeds is to be
made to a Person other than the Securityholder in whose
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<PAGE> 41
name a Certificate is registered, it shall be a further
condition to such delivery and/or payment that the
Certificate shall, upon surrender thereof, be properly
endorsed or otherwise in proper form for transfer and that
the Securityholder requesting such delivery and/or payment
shall have paid any transfer and other taxes required by
reason of such delivery and/or payment in a name other than
that of such Securityholder, or shall have established to
the reasonable satisfaction of Parent that such tax either
has been paid or is not payable.
(d) Notwithstanding any other provision of this
Agreement, neither certificates nor scrip for fractional
shares of Parent Common Stock shall be issued in the Merger.
Any fraction of a share of Parent Common Stock which would
otherwise have been issued hereunder shall instead be
rounded to the nearest whole share without any
corresponding cash adjustment.
(e) From time to time and at any time following the
Closing Date, as the Securityholder Representative may
determine in his sole discretion, any or all Reserves not
theretofore paid or applied by the Securityholder
Representative pursuant to Section 4.7 hereof shall be
distributed among the holders of Common Stock and Class B
Convertible Preferred Stock and the holders of Options and
Warrants to purchase Common Stock and Class B Convertible
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<PAGE> 42
Preferred Stock according to their Pro Rata Share (adjusted
for any Dissenting Shares).
4.4 Surrender and Exchange of Certificates.
---------------------------------------
(a) Within thirty (30) days following the date hereof,
NDSI shall mail to each Securityholder a form of letter of
transmittal to be used for each Certificate to be
surrendered and cancelled pursuant to Section 4.2, together
with instructions for use therein in effecting the surrender
of Certificates and receiving the Merger Proceeds in
exchange therefor. Not less than five (5) business days
prior to the Closing Date, NDSI shall deliver to Parent a
certificate (the "Merger Share Certificate") specifying to
whom the Merger Shares shall be issued and in what amounts
so as to give effect to all letters of transmittal
theretofore properly delivered to it. In the event a
Securityholder fails to properly deliver a letter of
transmittal, the Merger Share Certificate shall call for
Merger Shares to be issued in the name of such
Securityholder as reflected in NDSI's stock record book in
one single certificate.
(b) After the Effective Time and upon payment and
delivery of the Merger Proceeds to the Securityholder
Representative pursuant to Section 4.3, each holder of a
Certificate or Certificates which were changed into the
right to receive merger consideration pursuant to Section
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<PAGE> 43
4.2 hereof shall cease to have any other rights with respect
to shares of NDSI Stock represented thereby and to the
extent not theretofore surrendered pursuant to a letter of
transmittal, shall surrender for cancellation all such
Certificates to the Securityholder Representative
accompanied by duly executed stock transfers in proper
form. The holder of any such surrendered Certificates
shall not be entitled to receive interest on any of the
funds to be received in the Merger. The Securityholder
Representative shall promptly cancel each such Certificate
and forward each such cancelled Certificate and stock
transfer to the Surviving Corporation on the Closing Date.
(c) Each outstanding Certificate which is not
surrendered to the Securityholder Representative in
accordance with the procedures provided for herein shall,
after the Effective Time, until duly surrendered to the
Securityholder Representative, be deemed to evidence
ownership of the number of shares of Parent Common Stock
and/or the right to receive the amount of cash into which
such NDSI Stock shall have been converted. After the
Effective Time of the Merger, there shall be no further
transfer on the records of NDSI of Certificates and if such
Certificates are presented to NDSI for transfer, they shall
be cancelled against delivery of certificates for Parent
Common Stock and cash as hereinabove provided. No
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dividends which have been declared will be remitted to any
Person entitled to receive shares of Parent Common Stock
under this Section 4.4 until such Person surrenders the
Certificate or Certificates representing NDSI Stock, at
which time such dividends shall be remitted to such Person,
without interest.
(d) The Parent and the Securityholder Representative
shall be entitled to rely upon the stock transfer books of
NDSI to verify the identity of those Persons entitled to
receive consideration specified in this Agreement, which
books shall be conclusive with respect thereto. In the
event of a dispute with respect to ownership of NDSI Stock
represented by any Certificate, Parent shall be entitled to
deposit any consideration represented thereby with the
Securityholder Representative and thereafter be relieved
with respect to any claims thereto.
(e) Any Securityholder who has not theretofore complied
with this Article IV shall after the Effective Time look
only to the Securityholder Representative for payment of
their shares of Parent Common Stock and/or cash pursuant to
this Agreement, in each case, without any interest thereon.
Notwithstanding the foregoing, none of Parent, the
Securityholder Representative, or any other Person shall be
liable to any former holder of shares of NDSI Stock for any
amount properly delivered to a public
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official pursuant to applicable abandoned property, escheat
or similar laws.
4.5 DISSENTING SHARES. Each outstanding share of NDSI
Stock, the holder of which has demanded and perfected his
demand for appraisal of his shares in accordance with
Section 262 of the Act ("Section 262") and who has not
effectively withdrawn or lost his right to such appraisal
("Dissenting Shares"), shall not represent a right to
receive merger consideration pursuant to Section 4.2
hereof, but the holder thereof shall be entitled only to
such rights as are granted by Section 262. Each holder of
Dissenting Shares who becomes entitled to payment for his
NDSI Stock pursuant to Section 262 shall receive payment
therefor from the Surviving Corporation (but only after the
amount thereof shall have been agreed upon or finally
determined pursuant to such Section). NDSI shall within
two business days after receiving any written demands for
appraisal, withdrawals of demands for appraisal or any other
instruments served pursuant to Section 262, notify Parent of
such demands, withdrawals or other instruments. NDSI agrees
that without the written consent of the Parent it will not
voluntarily make any payment with respect to, or settle or
offer to settle any such demand.
4.6 OPTIONS AND WARRANTS. (a) Prior to the Effective Time,
the Board of Directors of NDSI (or, if appropriate,
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the committee administrating any plan pursuant to which the
Options were granted) shall adopt appropriate resolutions
and take such other actions as may be necessary and lawful
to adjust the terms of all outstanding Options and Warrants
to provide that (i) immediately prior to the Effective Time,
all such Options shall be vested in full and (ii) each such
Option and Warrant shall be cancelled immediately after the
Effective Time in consideration for payment of the
applicable Option/Warrant Spread and the right to receive
Post-Closing Distributions in accordance with Section 4.2(c).
(b) The Securityholder Representative will pay the
applicable Option/Warrant Spread to each holder of
outstanding Options or Warrants immediately following the
Effective Time in accordance with substantially the same
terms and procedures for payment to the holders of NDSI
Stock set forth in Sections 4.3 and 4.4 hereof, net of any
amount of income tax required to be withheld under Section
1.83-6 of the regulations promulgated under the Code;
provided, however, in lieu of the surrender of
Certificates, the holders of Options and Warrants shall
execute and deliver consents, releases and agreements
cancelling the Options and Warrants (in a form reasonably
satisfactory to Parent) in exchange for the applicable
Option/Warrant Spread and the right to Post-Closing
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Distributions. No interest shall accrue or be payable on any
amount payable in cash in respect of the applicable
Option/Warrant Spread or the right to Post-Closing
Distributions or upon the delivery of any such consents,
releases or agreements cancelling the Options and Warrants.
4.7 SECURITYHOLDER REPRESENTATIVE. (a) Each Securityholder
hereby irrevocably designates and appoints the
Securityholder Representative to be the representative of
each such Securityholder for the purposes of (i)
distributing the Merger Proceeds, (ii) paying the Company
Transaction Expenses, (iii) establishing, holding, paying
and, to the extent applicable, distributing the Reserves,
(iv) facilitating the prosecution, settlement and defense of
the Schooner Litigation and paying any Indemnification
Obligation on account thereof, (v) investigating,
defending, negotiating and arbitrating any other claim for
indemnification by Parent, the Surviving Corporation or the
Operating Company hereunder and (vi) any other purposes
specified in this Agreement. Parent, Merger Subsidiary and
the Surviving Corporation shall not be responsible or liable
in any manner for any actions taken or omitted to be taken
by the Securityholder Representative, including but not
limited to the obligation of the Securityholder
Representative to pay to the Securityholders the amounts
received by it and due to the Securityholders pursuant to
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this Agreement, and Parent, Merger Subsidiary and the
Surviving Corporation shall be indemnified and held
harmless by the Securityholders, severally and not jointly,
against any loss, expense or damage arising therefrom.
Notwithstanding anything to the contrary contained in this
Agreement, the Securityholders' indemnity contemplated by
this Section 4.7 shall not be included within or limited by
the provisions of Section 12.3 hereof, including but not
limited to, the Maximum Indemnification Obligation.
(b) The Securityholder Representative hereby accepts the
appointment by the Securityholders contemplated herein and
agrees to take such actions as the Securityholder
Representative in his sole discretion shall deem appropriate to
accomplish the purposes, enforce the rights and protect the
interests of the Securityholders under this Agreement so that
the Securityholders may receive the full benefit thereof.
(c) Upon receipt of the Merger Proceeds at the Effective
Time, the Securityholder Representative shall distribute the
Merger Proceeds to the Securityholders subject to and in
accordance with this Article IV. The Securityholder
Representative is authorized to take such additional action as
in the sole judgment of the Securityholder Representative is
necessary or advisable to accomplish the purposes, enforce the
rights and protect the interests of the Securityholders under
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this Agreement, including the authority to investigate,
negotiate, prosecute and defend, and to resolve and settle by
arbitration or otherwise, any claim of or against the
Securityholders, or the Securityholder Representative, under
this Agreement, to waive, compromise or release any rights of
the Securityholders under this Agreement, to require
indemnification contributions from each of the Securityholders
in accordance with Article XII, and to pay or satisfy any debt,
tax or claim of or on account of the Securityholders under this
Agreement, upon any evidence deemed to be sufficient by the
Securityholder Representative. In the administration of his
powers and duties hereunder, the Securityholder Representative
is authorized to employ or contract for services of financial
advisors, consultants, accountants, attorneys and other
professionals and experts, and to employ or contract for
clerical and other administrative assistance and to make
payments from the Reserves of all reasonable fees for services
or expenses in any manner thus incurred. As soon as is
practicable after receipt of notice of any claim for
indemnification from Parent under this Agreement, or the
occurrence of any other event under this Agreement which in the
sole judgment of the Securityholder Representative materially
adversely affects the Securityholders, the Securityholder
Representative shall give written notice thereof to each of the
Securityholders.
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(d) The Securityholder Representative shall be entitled
to withhold from distribution and maintain the Reserves for
such reasonable period of time as the Securityholder
Representative may determine in his sole discretion, and to pay
from the Reserves any Company Transaction Expenses which were
not ascertained or payable on the Closing Date, any Schooner
Litigation Liabilities, any out-of-pocket fees, costs and
expenses incurred by him in the discharge of his
responsibilities hereunder, and the compensation due him for
services to the extent contemplated hereunder, and to pay or
discharge out of the Reserves any other Indemnification
Obligations, claims or contingencies as the Securityholder
Representative may elect to pay or discharge in his sole
discretion which may arise after the Effective Time for which
the Securityholders are responsible in connection with the
transactions contemplated hereby.
(e) No provision of this Agreement shall be construed to
relieve the Securityholder Representative from liability for
his own gross negligence or his own willful misconduct.
Notwithstanding the foregoing, however,
(i) the Securityholder Representative shall not be
liable for any error of judgment made in good faith nor any
action taken or omitted to be taken by him in good faith and
reasonably believed by him to be within the discretion or
powers conferred upon him or in good faith omitted to be
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taken by him because such action is reasonably believed to be
beyond the discretion or powers conferred upon him, or taken
pursuant to any direction or instruction under this
Agreement or omitted to be taken for any reason or the lack
of direction or instruction required for such action, or be
responsible for the consequences of any error of judgment
reasonably made by him;
(ii) the Securityholder Representative shall not be
liable with respect to any action taken or omitted to be
taken at the direction of Securityholders holding more than
two-thirds of the Total Common Stock Equivalent Shares;
(iii) the Securityholder Representative need not take
or refrain from taking any action hereunder unless he shall
have been indemnified in a manner and form satisfactory to
him against any and all costs, expenses, demands, losses and
liabilities which have been or could be asserted against him;
(iv) the Securityholder Representative need not take
any action if he shall have been advised in writing by
independent counsel that such action is contrary to law or
this Agreement (as the same may be from time to time
amended) or is likely to result in liability to the
Securityholder Representative in his individual capacity;
(v) no provision of this Agreement shall require the
Securityholder Representative to expend or risk his own
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funds or otherwise incur any financial liability in the
performance of any of his duties hereunder, or in the
exercise of any of his rights or powers, unless he has been
furnished with indemnity in form and substance satisfactory
to the Securityholder Representative;
(vi) the Securityholder Representative may rely, and
shall be protected in acting or in refraining from acting in
reliance, upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent,
order or other paper or document believed by him to be
genuine and to have been signed or presented by the proper
party or parties and shall not be bound to make any
investigation into any of the matters contained in any of
the foregoing; and
(vii) the Securityholder Representative may consult
with professionals to be selected by him and the
Securityholder Representative shall not be liable for any
action taken or omitted to be taken by him in accordance
with the advice of such professionals.
(f) All moneys and other assets received by the
Securityholder Representative shall, until distributed or paid
over as herein provided, be held in trust for the benefit of
the Securityholders and invested in U.S. government obligations
or money-market funds invested primarily in U.S. government
obligations. The Securityholder Representative shall be under
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no liability for interest or for producing income on any moneys
received by the Securityholder Representative hereunder and
held for distribution or payment to the Securityholders, except
as such interest shall actually be received by the
Securityholder Representative. The Securityholder
Representative shall provide to the Securityholders on an
annual basis an accounting (unaudited) of the Reserves and a
status report in narrative form regarding existing claims and
contingencies against which the Reserves are being retained.
(g) The Securityholder Representative shall be entitled to
reasonable compensation from the Securityholders, customary in
transactions of this type, including reimbursement for all
out-of-pocket expenses.
(h) The Securityholder Representative shall be indemnified,
and shall be entitled to reimbursement from the Securityholders
against and from any and all loss, liability, expense or damage
which the Securityholder Representative may sustain in good
faith and without gross negligence or willful misconduct in the
exercise and performance of any of the powers and duties of the
Securityholder Representative under this Agreement. The
provisions of this Section shall survive termination of this
Agreement and shall remain available to any former
Securityholder Representative replaced or resigning under
Section 4.7(i).
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(i) The Securityholder Representative may resign by giving
not less than sixty (60) days' prior written notice thereof to
the Securityholders. Such resignation shall become effective
on the day specified in such notice or upon the appointment of
a successor and the acceptance by such successor of such
appointment, whichever is earlier. The Securityholder
Representative may be removed at any time, with or without
cause, by action of Securityholders holding more than half of
the Total Common Stock Equivalent Shares. In the event of the
Securityholder Representative's resignation or removal, a
successor Securityholder Representative shall be selected by
Securityholders holding more than half of the Total Common
Stock Equivalent Shares. Any successor Securityholder
Representative appointed hereunder shall execute an instrument
accepting such appointment hereunder and shall file such
acceptance with the Parent. Thereupon, such successor
Securityholder Representative shall, without any further act,
become vested with all the estates, properties, rights, powers,
trusts and duties of his hereunder with like effect as if
originally named herein.
ARTICLE V
Representations and Warranties of NDSI
--------------------------------------
NDSI represents and warrants to Parent and Merger Subsidiary
as follows:
5.1 CORPORATE STATUS. (a) NDSI is a corporation duly
incorporated, validly existing and in good standing under
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the laws of the State of Delaware and is qualified and
authorized to do business as a foreign corporation and is
in good standing in each jurisdiction in which the nature of
its business requires such qualification. NDSI has the
requisite corporate power and authority to enter into this
Agreement and perform its obligations hereunder. NDSI has
conducted no business since the date of its incorporation,
other than the purchase of the capital stock of and
management of its investment in Dryvit.
(b) Dryvit and the Dryvit Subsidiaries are corporations
duly incorporated, validly existing and in good standing in
each state or country of their respective incorporations and
are qualified and authorized to do business as foreign
corporations and are in good standing in each jurisdiction
in which the nature of their respective businesses requires
such qualification. Schedule 5.1 of the Disclosure Letter
sets forth the jurisdiction of incorporation of each Company
and each jurisdiction in which such Company is qualified as
a foreign corporation. The Operating Company has all power
to carry on its business as it is now being conducted, and
to own and operate the properties used in its business.
5.2 CORPORATE ACTION. All corporate and shareholder actions
and proceedings necessary to be taken by or on the part of
NDSI to adopt and approve this Agreement have been
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duly and validly taken, and the execution and delivery of
this Agreement have been duly and validly authorized by all
necessary corporate and shareholder action. This Agreement
has been duly and validly executed and delivered by NDSI and
constitutes the legal, valid and binding obligation of NDSI,
enforceable against NDSI in accordance with and subject to
its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws from time to time in
effect affecting creditors' rights generally or by
principles governing the availability of equitable remedies.
5.3 NO DEFAULTS. Neither the execution and delivery by NDSI
of this Agreement, the performance of its obligations
hereunder, nor the consummation of the transactions
contemplated hereby is an event that, of itself, or with
the giving of notice or the passage of time or both, will
(i) conflict with the charter or by-laws of any Company,
(ii) assuming that the approvals or consents referred to on
Schedule 5.11 of the Disclosure Letter or otherwise
contemplated hereby are obtained, constitute a violation
of, or conflict with or result in any breach of or any
default under, or constitute grounds for termination or
acceleration of, any mortgage, indenture, lease, contract,
agreement or instrument to which any Company is a party or
by which any Company is bound, or result in the creation of
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any Lien (other than Permitted Liens) upon any of the Company
Assets, or (iii) violate (A) any judgment, decree, or order,
or (B) assuming the filings, consents and approvals referred
to on Schedule 5.11 of the Disclosure Letter or otherwise
contemplated hereby are made or obtained, any statute, rule
or regulation, in each such case, applicable to any Company.
5.4 FINANCIAL STATEMENTS. (a) NDSI has previously
delivered to Parent copies of (i) the consolidated balance
sheets of the Operating Company as at December 31, 1994 and
December 31, 1993 and the consolidated statements of income
and cash flow of the Operating Company for each of the years
then ended, together with report thereon of KPMG Peat
Marwick (the "Audited Statements") and (ii) the internally
prepared unaudited consolidated balance sheet of the
Operating Company (the "Interim Balance Sheet") as at May
31, 1995 (the "Interim Balance Sheet Date") and the
internally prepared unaudited consolidated statement of
income and cash flow of the Operating Company for the
portion of the fiscal year then ended (the "Interim Income
Statement" and collectively with the Interim Balance Sheet,
the "Interim Statements"). The Financial Statements are
attached to Schedule 5.4(a) of the Disclosure Letter and
present fairly, in all material respects, the financial
position of the Operating Company as of December 31, 1994,
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December 31, 1993 and the Interim Balance Sheet Date and the
results of operations and cash flows of the Operating
Company for the years and period then ended, all in
conformity with GAAP, except that the Interim Statements
are subject to normal year-end audit adjustments and do not
contain the disclosures required by GAAP to be disclosed in
the notes to financial statements.
(b) NDSI has previously delivered to Parent copies of
the internally prepared unaudited and unconsolidated balance
sheet of NDSI (the "NDSI Balance Sheet") as of December 31,
1994. The NDSI Balance Sheet is attached to Schedule 5.4(b)
of the Disclosure Letter and presents fairly, in all
material respects, the financial position of NDSI as of
December 31, 1994 in conformity with GAAP, except that the
NDSI Balance Sheet reports NDSI's investment in Dryvit using
the equity method and does not contain the disclosures
required by GAAP to be disclosed in the notes to financial
statements. NDSI had no revenues and earned no income
(other than earnings determined on a consolidated basis and
derived directly from its ownership of Dryvit) for the year
ending December 31, 1994 or for the period ending on the
Interim Balance Sheet Date.
5.5 CONDUCT OF BUSINESS. From December 3l, l994 to the date
of this Agreement, except as disclosed in Schedule 5.5 of
the Disclosure Letter, there has been no:
(a) declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or
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property) with respect to the capital stock of NDSI;
(b) actual or, to NDSI's knowledge, threatened
organizational activity with respect to the establishment
of a union or any strike or significant work stoppage
affecting the business or operations of any Company, or, to
NDSI's knowledge, any complaint against any Company filed
with the National Labor Relations Board, any arbitration
tribunal or any administrator of any applicable state or
federal wage/hour laws or equal employment opportunity laws;
(c) physical damage, destruction or loss in an amount
exceeding $100,000 in the aggregate affecting any of the
Company Assets which has not been adequately repaired or
remedied;
(d) increase in base compensation payable or to become
payable to any of the employees of the Companies listed on
Schedule 5.8 of the Disclosure Letter in excess of the
amounts reflected thereon, or any material change in
benefits or other compensation arrangements affecting the
employees of the Companies (other than increases in wages
and salaries or bonus payments made in the ordinary course
of business);
(e) change by any Company in accounting principles or
methods except insofar as any be required by a change in
GAAP;
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(f) material change in any Company's method of managing
its working capital other than in the ordinary course of
business, including, without limitation, (i) any material
change in its level of inventories over the level maintained
for comparable periods during prior fiscal years as
reasonably adjusted for changes in sales, (ii) any material
change in its practice of collecting accounts receivable or
(iii) any material change in its practice of making payment
upon accounts payable;
(g) waiver of any material rights by any Company under
any Contract; or
(h) change which, individually or in the aggregate,
constitutes a Material Adverse Effect, except changes in
the ordinary course of business.
5.6 CONDITION OF ASSETS. The significant tangible assets
included in the Company Assets are being maintained in
accordance with the usual practices of the Operating
Company, are in good working condition, reasonable wear and
tear excepted, and are capable of being used for their
intended purpose.
5.7 Title, Liens, etc.
------------------
(a) Schedule 5.7 of the Disclosure Letter contains
descriptions of all items of tangible personal property
owned by NDSI or the Operating Company and used or held for
use in connection with the business or operations of the
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Operating Company as of the date of this Agreement, in each
case to the extent such item has a current depreciated book
value in excess of $50,000. Schedule 5.7 of the Disclosure
Letter contains descriptions of all land, leaseholds and
other interests in real property and buildings owned,
leased or otherwise possessed by any Company and used or
held for use in connection with the business and operations
of such Company, in each case to the extent such interest
has a current depreciated book value in excess of $50,000 or
involves rental payments by a Company in excess of $50,000
per annum; provided however that the Atlanta Real Estate may
be sold prior to the Closing Date in accordance with Section
7.1(d). The Company Assets are free and clear of all Liens,
except (i) as disclosed on Schedule 5.7 of the Disclosure
Letter; (ii) Permitted Liens; and (iii) Liens in favor of GE
Capital to be released on the Closing Date.
(b) No condemnation of any material portion of the real
property included in the Company Assets has occurred, nor
has any Company received written notice from any
governmental authority of a proposal to condemn any portion
of the real property included in the Company Assets.
5.8 Employees.
----------
(a) Except as described in Schedule 5.8 to the
Disclosure Letter, no Company has a written or oral
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contract of employment with any of its employees which
provides for severance pay (other than pursuant to the
Company's existing severance policy) or which is not
terminable at will or on notice of not longer than 30 days,
nor is any Company a party to or subject to any collective
bargaining agreements with respect to its employees.
Schedule 5.8 contains a true and complete list of all
individuals employed by any Company as of the date hereof
whose base compensation as of January 1, 1995 exceeded
$75,000.
(b) Schedule 5.8 to the Disclosure Letter sets forth
all "employee benefit plans" (within the meaning of Section
3(3) of ERISA), including, without limitation, any pension,
welfare or savings plan or arrangement, or any employee
stock purchase or stock option, deferred compensation,
severance, vacation or holiday pay, sick leave,
performance, bonus, profit sharing, incentive, or insurance
plan or similar plan, policy or arrangement whether or not
in written form (the "Benefit Plans") which the Companies
and Affiliated Entities maintain with respect to their
employees. NDSI has made available to Parent copies of
each written Benefit Plan which relates to or covers any
employees of the Companies and related trust agreements as
in effect on the date hereof. No Benefit Plan is a (and no
Company is required to contribute to any) "multiemployer
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plan" (within the meaning of Section 3(37) of ERISA). No
Company maintains any plan, policy or arrangement that
provides post-retirement medical benefits to any employees
or former employees of the Companies, except as required by
applicable statutory law. None of the Benefit Plans
obligate any of the Companies, the Surviving Corporation or
Parent to pay benefits directly as a result of the
transactions contemplated by this Agreement.
(c) Each of the Benefit Plans is in compliance with
applicable requirements of ERISA, the Code and other
applicable law. Each of the Benefit Plans has been
administered in accordance with its terms and with
applicable legal requirements. No Benefit Plan is a
"defined benefit plan" (within the meaning of Section 3(35)
of ERISA) which is subject to Title IV of ERISA. The
Companies have not engaged in a "prohibited transaction"
within the meaning of Section 406 of ERISA for which no
exemption exists under Section 408 of ERISA or Section
4975(c)(1) of the Code for which no exemption exists under
Section 4975(c)(2) or (d) of the Code, nor has any Company
breached its fiduciary responsibility with respect to any
Benefit Plan which could subject Parent or any Company to a
penalty tax or other liability under ERISA or the Code nor,
except for routine claims for benefits or as set forth on
Schedule 5.8 to the Disclosure Letter, does any Company
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have any pending or to its knowledge threatened claim or
litigation by any party with respect to the Benefit Plans.
The Companies have the right to amend or terminate, without
the consent of any other Person, any Benefit Plan which they
maintain except as prescribed by law. Except with respect
to the Benefit Plans and as disclosed on Schedule 5.8 of the
Disclosure Letter, none of the Companies have any liability
of any nature, whether absolute or contingent, with respect
to any Benefit Plan which was in the past maintained by any
of them or to which any of them were required to contribute
or with respect to any Benefit Plan which was in the past or
is currently maintained by any other sponsor or to which any
other employer or sponsor was in the past or is currently
required to contribute.
(d) Except as set forth on Schedule 5.8 of the
Disclosure Letter, the Companies are in compliance in all
material respects with all applicable federal, state and
local laws and ordinances relating to the employment of
labor, including the provisions thereof relating to wages,
hours and the payment of social security taxes, and are not
liable for any arrears of wages or any tax relating thereto
(except for currently accrued and unpaid wages and except
for currently accrued withholding, payroll, unemployment and
social security taxes payment of which is not overdue) or
penalties for failure to comply with any of the
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foregoing and since March 1, 1990, have received no written
notice to the contrary from any governmental agency.
5.9 LITIGATION. Except as set forth on Schedule 5.9 of the
Disclosure Letter, there is no litigation, proceeding or
investigation pending, or to the knowledge of NDSI
threatened, against any Company which is reasonably
expected to be adversely determined. No Company has been
operating under or subject to, or in default with respect
to, any order, writ, injunction or decree of any court or
federal, state, municipal or other governmental department,
commission, board, agency or instrumentality, foreign or
domestic.
5.10 BROKERS. Except for Tucker Anthony Incorporated, there
is no investment banker, broker or finder or other Person
having a claim against any Company for a commission or
brokerage fee in connection with the execution and delivery
of this Agreement or the consummation of the transactions
contemplated hereby as a result of any agreement of or
action taken by any Company or any Securityholder.
5.11 APPROVALS AND CONSENTS. The only approvals or consents
of, or filings to be made with, Persons not a party to this
Agreement that are required by law to be obtained or made by
any Company or required to be obtained or made under any
material contractual obligation of any
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Company in connection with the consummation of the
transactions contemplated by this Agreement, are those
which are described in Section 7.7 and in Schedule 5.11 of
the Disclosure Letter.
5.12 INTELLECTUAL PROPERTIES. Set forth on Schedule 5.12 to
the Disclosure Letter is a list of all of the United States
and foreign patents, trademark and service mark
registrations, copyright registrations and applications
therefor, and all tradenames and logotypes (collectively,
"Intellectual Properties") owned, used or held for use by
any Company in connection with the business or operation of
the Companies. Except as set forth on Schedule 5.12 to the
Disclosure Letter, the Companies exclusively own the entire
right, title and interest in and to each of the Intellectual
Properties, subject to the security interests of GE Capital
therein to be released on the Closing Date. Also set forth
on Schedule 5.12 to the Disclosure Letter is a list of all
Intellectual Properties licensed by any Company to others
and by others to any Company in connection with the business
or operation of the Companies. Except as disclosed on
Schedule 5.12 of the Disclosure Letter, no Company has
received any notice or claim that the use by such Company
of any of the Intellectual Properties conflicts with or
infringes on the rights of any other party. Except as
disclosed on Schedule
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5.12 of the Disclosure Letter, no Company is aware of any
infringement, misappropriation or misuse of any of the
Intellectual Properties owned by the Companies by others.
5.13 CONTRACTS. Schedule 5.13 to the Disclosure Letter
lists all Contracts which are material to the ownership or
Business Condition of any Company and all other Contracts
providing for payments by any Company to the extent such
other Contracts impose monetary obligations on such Company
of more than $100,000 per year. No Company is in default
under any such Contract, other than immaterial defaults
which would not impose a monetary obligation on such
Company, or to accelerate the time for payment of any
amount due from such Company or the performance of any
obligation of such Company thereunder, or to give rise in
favor of the other party thereto a right to unilaterally
terminate or modify any such Contract in a manner adverse
to such Company.
5.14 COMPLIANCE WITH LAWS. Except as set forth on Schedule
5.14 of the Disclosure Letter, the operations of the
Operating Company are not being conducted in material
violation of any applicable law, ordinance or regulation.
Except as set forth on Schedule 5.14 of the Disclosure
Letter, since March 1, 1990, no Company has received any
notice from any governmental authority that the operations
of the Operating Company are being or have been conducted
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in violation of any applicable law, ordinance, or regulation
of any governmental authority.
5.15 NDSI CAPITALIZATION; SUBSIDIARIES. (a) The authorized
capital stock of NDSI consists of (i) 100,000 shares of
Class A Common Stock, of which there are 46,200 shares
issued and outstanding, (ii) 25,000 shares of Class B
Common Stock, of which there are no shares issued and
outstanding, (iii) 4,130 shares of Class A Preferred Stock,
of which there are 3,500 shares issued and outstanding, and
(iv) 39,800 shares of Class B Convertible Preferred Stock,
of which there are 30,800 shares issued and outstanding
(assuming that none of the Options or Warrants are
exercised). All the issued and outstanding shares of NDSI
Stock are validly issued, fully paid and nonassessable and
free of preemptive rights, except as contemplated by that
certain Shareholders' Agreement dated as of February 28,
1990, as amended (the "Shareholders' Agreement"), with no
personal liability attaching to the ownership thereof. The
Company has no shares of capital stock reserved for
issuance, except that there are 1,800 shares of Class B
Common Stock reserved for issuance upon the exercise of
outstanding Options, and 9,000 shares of Class A Common
Stock, 9,000 shares of Class B Convertible Preferred Stock
and 630 shares of Class A Preferred Stock reserved for
issuance upon exercise of outstanding Warrants. Except as
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indicated above, as of the date hereof, (i) there are no
shares of capital stock of NDSI authorized, issued or
outstanding and (ii) there are no outstanding
subscriptions, options, warrants, calls, rights,
convertible securities or other agreements or commitments
of any character obligating NDSI to issue, transfer or sell
any shares of the capital stock of NDSI or any security
convertible into, exchangeable for, or evidencing the right
to subscribe for, any shares of capital stock of NDSI,
except as provided in the Shareholders' Agreement.
(b) NDSI owns, directly or indirectly, all of the
issued and outstanding shares of the capital stock of
Dryvit and the Dryvit Subsidiaries, free and clear of any
liens, charges, encumbrances and security interests other
than security interests held by GE Capital to be released on
the Closing Date. Neither Dryvit nor any Dryvit Subsidiary
has or is bound by any outstanding subscriptions, options,
warrants, calls, rights, convertible securities or other
agreements or commitments of any character whatsoever
obligating such Company to issue, transfer or sell any
shares of its capital stock or any security convertible
into, exchangeable for, or evidencing the right to
subscribe for, any shares of its capital stock.
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(c) Except as set forth in Schedule 5.15 of the
Disclosure Letter, NDSI does not directly or indirectly
own, beneficially or of record, any shares of any class of
capital stock or any other security of or interest in a
partnership, joint venture or other legal entity, and does
not have any option or obligation to directly or indirectly
acquire, beneficially or of record, any such stock or other
security of or interest in a partnership, joint venture or
other legal entity.
5.16 TAX MATTERS. (a) The Companies have prepared and
filed prior to the time when due (as such time may have
been extended) with the appropriate federal, state and
local authorities all tax returns and other reports
required to be filed by them before the date hereof, which
tax returns and reports were prepared on a basis consistent
with the Financial Statements (except as otherwise disclosed
in such financial statements or in schedules filed with such
tax returns), and have paid all Taxes, including interest
and penalties, in respect of all periods covered by such
returns (except for any amounts being contested in good
faith by appropriate proceedings and described in Schedule
5.16 of the Disclosure Letter); or, if any such Taxes had
not been paid as of the Interim Balance Sheet Date, the
reserves, if any, for Taxes on the Interim Balance Sheet
are sufficient for all accrued and
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unpaid Taxes of the Companies, including interest and
penalties with respect thereto, if any, whether or not
disputed, for the year 1994 and that portion of the year
1995 ended on the Interim Balance Sheet Date (subject to
year-end adjustments required by the Parent and reasonably
acceptable to the Securityholder Representative). No
representation or warranty is made by NDSI regarding
payment of Taxes occasioned by an election by Parent or any
Subsidiary or Affiliate of Parent with respect to the Merger
under the Code, which Taxes shall be borne (if such an
election is made) solely by the Surviving Corporation and
not by the Securityholders. Except as disclosed in Schedule
5.16 of the Disclosure Letter, no Company has executed or
filed with the IRS or any other taxing authority any
agreement now in effect extending, or having the effect of
extending, the period for assessment or collection of any
income or other Taxes. Except as set forth in Schedule 5.16
of the Disclosure Letter, no Company is a party to any
pending action or proceeding by any governmental authority
for assessment or collection of Taxes, no Company has
received notification that the IRS or any other applicable
taxing authority intends to commence a review or examination
or has proposed an adjustment of any such returns and no
claim for assessment or collection of taxes has been
asserted against any Company. True and
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complete copies of all federal, state and local income or
franchise tax returns filed by the Companies for any period
not yet closed by the applicable statute of limitations have
been previously delivered to Parent or made available to
representatives of Parent.
(b) NDSI is not a party to or bound by, and does not
have any obligation under, any tax sharing or similar
agreement. NDSI has not consented to have the provisions
of Code Section 341(f)(2) apply to it.
5.17 INSURANCE. Schedule 5.17 of the Disclosure Letter sets
forth a true and complete description of all insurance
policies maintained by the Companies. Such policies are in
full force and effect and the Companies are not in default
thereunder. To the knowledge of NDSI, the insurance
coverages set forth in Schedule 5.17 of the Disclosure
Letter are adequate under prevailing industry standards to
protect the Companies from any material loss that may occur
which is subject to insurance.
5.18. ENVIRONMENTAL MATTERS. Except as disclosed on
Schedule 5.18 of the Disclosure Letter:
(a) Since March 1, 1990, no Company has received any
notice of a violation of Environmental Laws which relate to
the use, ownership or occupancy of real estate now or
formerly owned or leased by the Operating Company.
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(b) Except in accordance with valid Permits listed in
Schedule 5.20 of the Disclosure Letter or with applicable
Environmental Laws, there has been no emission, spill,
release or discharge into or upon (i) the air, (ii) soils
or any improvements located thereon, (iii) surface water or
ground water, or (iv) the sewer, septic system or waste
treatment, storage or disposal system servicing any real
estate now owned or leased by the Operating Company, or any
other real estate owned or leased by the Operating Company
since March 1, 1990 (but only with respect to the period of
ownership or occupancy by the Operating Company) of any
Hazardous Material at or from such real estate.
(c) There are no Hazardous Materials located in or on
any of the real estate now owned or leased by the Operating
Company in violation of Environmental Laws or that require
investigation, cleanup, or corrective action.
(d) Since March 1, 1990, there has been no complaint,
order, directive, citation or notice issued to any Company
by any governmental authority with respect to (i) air
emissions, (ii) spills, releases or discharges to soils or
any improvements located thereon, surface water, groundwater
or the sewer, septic system or waste treatment, storage or
disposal systems servicing the real estate now or formerly
owned or leased by the Operating Company, (iii) noise
emissions, (iv) solid or liquid waste disposal, (v)
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the use, generation, storage, transportation or disposal of
Hazardous Wastes or (vi) other material environmental
matters, in any case affecting any such real estate which
has not been adequately addressed or remediated.
(e) The Companies are in compliance in all material
respects with all applicable Environmental Laws.
5.19 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to
the extent set forth on the balance sheet of the Operating
Company included within the Audited Statements as at
December 31, 1994 (including the notes thereto), the
Operating Company had no liabilities or obligations,
whether accrued, contingent or otherwise, other than
liabilities and obligations of a nature not required to be
reflected in (or on footnotes to) financial statements of
the Operating Company as at such date prepared in accordance
with GAAP, consistently applied. Since December 31, 1994,
the Operating Company has not incurred any such liability or
obligation, except for liabilities and obligations which
have been or, to the extent incurred after the date hereof,
will be (i) incurred in the ordinary course of business
consistent with past practice, (ii) of a nature not
required to be reflected in (or on footnotes to) financial
statements of the Operating Company as of the date hereof or
the Closing Date prepared in accordance with GAAP,
consistently applied, (iii) incurred after the date
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hereof with the prior approval of Parent, (iv) incurred after
the date hereof in compliance with the terms of this
Agreement, (v) incurred with respect to Rust Liabilities,
or (vi) disclosed pursuant to this Agreement or the
Disclosure Letter.
5.20 PERMITS. The Operating Company owns or possesses all
licenses, franchises, ordinances, authorizations, permits
and certificates of all governmental authorities having
appropriate jurisdiction over the Operating Company or its
operations which are necessary to enable the Operating
Company to continue to conduct its business in all material
respects as presently conducted (collectively, "Permits").
Schedule 5.20 of the Disclosure Letter sets forth a list of
all such Permits.
5.21 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS AND
AFFILIATES. Except as set forth in Schedule 5.21 of the
Disclosure Letter, no Company is indebted to any director,
officer, employee or agent of any Company except for amounts
due as normal salary, wages, bonus, benefits or
reimbursement of ordinary business expenses. Except as set
forth in Schedule 5.21, no shareholder, director, officer,
employee or agent of any Company is indebted to any Company
except for ordinary business expense advances.
5.22 OFFICERS, DIRECTORS AND CERTAIN AUTHORIZED PERSONS.
Schedule 5.22 of the Disclosure Letter sets forth a
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complete and accurate list of (i) the names of all directors
of each Company, (ii) the names and offices of all officers
of each Company, (iii) the names of all individuals
authorized to borrow money or incur indebtedness on behalf
of each Company, (iv) all safes, vaults and safe deposit
boxes maintained by or on behalf of each Company and the
names of all individuals authorized to have access thereto,
and (v) all bank accounts of each Company and the names of
all individuals who are authorized signatories with respect
to such accounts, the capacities in which they are
authorized and the terms of the authorizations.
5.23 CONFLICTS OF INTEREST. Except as set forth in Schedule
5.23 of the Disclosure Letter, no director or officer of any
Company has any ownership interest in (i) any material item
of property, real or personal, tangible or intangible,
owned, used or leased by any Company or (ii) any creditor,
supplier, customer, manufacturer or representative of any
Company or any distributor of products of any Company.
Schedule 5.23 lists all indebtedness to or Contracts with
any Affiliate of NDSI (other than a Company) to which any
Company is a party or by which it is bound.
5.24 CUSTOMERS AND SUPPLIERS. (a) Set forth on Schedule
5.24(a) of the Disclosure Letter is a list of the Operating
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Company's ten largest customers based upon sales volume for
the fiscal year ended December 31, 1994. Except as set
forth in Schedule 5.24(a), no Company has received any
written communications from any such customer indicating
its intention to materially reduce its purchases from the
Operating Company, whether by reason of the consummation of
the transactions contemplated by this Agreement or otherwise.
(b) Set forth on Schedule 5.24(b) is a list of the
Operating Company's ten largest suppliers based upon
purchase volume for the fiscal year ended December 31,
1994. Except as set forth in Schedule 5.24(b), no Company
has received any written communications from any such
supplier indicating its intention to materially reduce its
supply to the Operating Company, whether by reason of the
consummation of the transactions contemplated by this
Agreement or otherwise.
5.25 CORPORATE DOCUMENTS, BOOKS AND RECORDS. Complete and
correct copies of the charter and by-laws, and all
amendments thereto, of each Company have been previously
delivered to the Parent, and no changes in said documents
will be made on or before the Effective Date. The minute
book of each Company contains appropriate records of all
meetings and consents in lieu of meetings of the Board of
Directors (and its committees) and of the voting
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stockholders of each Company since March 1, 1990. Except as
reflected in such minute books, there are no minutes of
meetings or consents in lieu of meetings of the Board of
Directors (and its committees) or of the voting
stockholder(s) of any Company of a material nature
reflecting meetings held or other corporate action taken
since March 1, 1990. The books and records of each Company
fairly reflect in all material respects the transactions to
which each Company is a party or by which its properties are
subject or bound, and in all material respects such books
and records have been properly kept and maintained.
5.26 ORDINARY WARRANTY.
Complete and accurate copies of the Operating Company's
forms of standard and national account express written
warranties (the "Warranties") have been previously provided
to the Parent, and no changes have been or will be made to
the Warranties prior to the Closing Date. Except for the
Warranties and certain special warranties issued by the
Operating Company for specific projects in the ordinary
course of business, the Company has not issued any other
express written warranties with respect to its products.
Schedule 5.26 to the Disclosure Letter contains an
accounting of the ordinary warranty expenses (exclusive of
Rust Liabilities) for the Operating Company during the years
indicated. In addition, the current warranty expense
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reserve (exclusive of Rust Liabilities) shown on Schedule
5.26 for the date indicated is a reasonable reserve
established in accordance with GAAP and the past practices
of the Operating Company for all pending known ordinary
warranty claims (exclusive of Rust Liabilities) as of such
date.
5.27 INVENTORY. The inventory of the Operating Company as
reflected on the Audited Statements was valued at the lower
of cost or net realizable value in accordance with GAAP,
with cost determined consistent with past practices. The
inventory classified as such in the Audited Statements
consists of items of a quantity and quality usable or
saleable in the ordinary course of the business at
prevailing market prices without discount other than in the
ordinary course of business.
5.28 ACCOUNTS RECEIVABLE. All accounts receivable of the
Operating Company as shown on the Audited Statements or
thereafter acquired by the Operating Company are valid,
genuine and subsisting, were acquired in the ordinary
course of business from customers believed by the Operating
Company to be commercially responsible, and are subject to
no asserted counterclaims, defenses or setoffs, except as
may be reflected in reserves therefor in the Audited
Statements.
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5.29 MATERIAL FACTS. No representation or warranty made by
NDSI in this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state
any material fact necessary in order to make the statements
contained herein or therein not misleading.
5.30 EXCLUSIVITY OF REPRESENTATIONS. THE REPRESENTATIONS
AND WARRANTIES MADE BY NDSI IN THIS AGREEMENT ARE IN LIEU OF
AND ARE EXCLUSIVE OF ALL OTHER REPRESENTATIONS AND
WARRANTIES, INCLUDING WITHOUT LIMITATION ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS OR ADEQUACY FOR
ANY PARTICULAR PURPOSE OR USE. NDSI HEREBY EXCLUDES AND
DISCLAIMS ANY SUCH OTHER OR IMPLIED REPRESENTATIONS OR
WARRANTIES, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO
PARENT OR ITS OFFICERS, DIRECTORS, EMPLOYEES, PARTNERS,
AGENTS OR REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER
INFORMATION (INCLUDING, WITHOUT LIMITATION, THE
CONFIDENTIAL INFORMATION MEMORANDUM RELATING TO THE COMPANY
DATED APRIL, 1995 AND PREPARED BY TUCKER ANTHONY
INCORPORATED) BY THE COMPANY OR ANY OTHER PERSON IN
CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
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ARTICLE V-A
Representations and Warranties of Securityholders
Each of the Securityholders severally (and not jointly)
represents and warrants as follows:
5A.1 OWNERSHIP. With respect to the shares of NDSI Stock
owned by such Securityholder, that such Securityholder owns all
of such shares free and clear of any liens, charges,
encumbrances and security interests other than the Shareholder
Documents, and that such Securityholder has full right and
authority to enter into this Agreement and perform its
obligations hereunder.
5A.2 ENFORCEABILITY. This Agreement has been, and when
delivered on the Closing Date the Securities Agreement entered
into by such Securityholder will be, duly and validly executed
and delivered by such Securityholder and such execution and
delivery does not or will not (i) conflict with or result in
any violation by such Securityholder of any judgment, decree,
award, order, statute, rule or regulation applicable to such
Securityholder or to the NDSI Stock held by such
Securityholder, (ii) conflict with, violate or result in any
breach of any agreement or instrument to which such
Securityholder is a party or by which such Securityholder is
bound, or constitute a default thereunder, or (iii) result in
the creation of any right, lien, security interest, claim,
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charge, restriction or encumbrance of any kind or nature against
or with respect to the NDSI Stock held by such Securityholder.
5A.3 CONFLICTS OF INTEREST. Except as set forth on Section
5A.3 of the Disclosure Letter, such Securityholder or any
entity controlled by such Securityholder: (i) does not own,
directly or indirectly, any interest in (excepting not more
than a 2% interest for investment purposes in securities of
publicly held and traded companies), and is not an employee or
representative of or consultant to, any corporation, firm,
association or other business entity or organization which is,
or is engaged in business as, a competitor, lessor, lessee,
customer or supplier of the Companies; and (ii) does not own,
directly or indirectly, in whole or in part, any tangible or
intangible property which the Companies are using or the use of
which is necessary for the conduct of the business of the
Companies (including, without limitation, any real estate,
buildings, machinery, equipment, permit, patent, trade secret
or confidential information), other than items of tangible
personal property owned by any such Securityholder who is an
employee of a Company and which items are of immaterial value;
and (iii) does not have of any cause of action against, and
does not owe any amount to, any Company, other than repayment
of ordinary course travel advances; provided, however, that the
representations and warranties contemplated by this Section
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5A.3 shall not be deemed to be made by or apply to GE Capital or
any entity controlled by GE Capital.
5A.4 CONSENTS. Except for filings, approvals or other
actions described in this Agreement, no authorization,
approval, consent or order of, or registration, declaration or
filing with, any court, governmental body or agency or other
public or private body, entity or Person is required in
connection with the execution, delivery and performance of this
Agreement or the Securities Agreement by such Securityholder
which has not been made, filed or obtained.
ARTICLE VI
Representations and Warranties of Parent and Merger Subsidiary
--------------------------------------------------------------
Parent and Merger Subsidiary jointly and severally represent
and warrant to NDSI as follows:
6.1 CORPORATE STATUS; CAPITALIZATION. (a) Parent is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Ohio, and is in good
standing in each jurisdiction in which the nature of its
business requires such qualification. Parent has the
requisite corporate power and authority to enter into this
Agreement and to issue the Merger Shares, to perform its
obligations hereunder, to carry on its business as it is
now being conducted, and to own and operate the properties
used in its business.
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(b) The authorized capital stock of Parent consists of
100,000,000 shares of Parent Common Stock, of which as of
May 31, l995, 56,957,000 shares were issued and outstanding.
All of the issued and outstanding shares of Parent Common
Stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights,
with no personal liability attaching to the ownership
thereof. As of the date of this Agreement, except as set
forth in the Financial Statements previously delivered by
Parent to NDSI, Parent does not have and is not bound by any
outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the
purchase or issuance of any shares of Parent Common Stock or
any other equity securities of Parent or any securities
representing the right to purchase or otherwise receive any
shares of Parent Common Stock. As of May 31, 1995, 10,709,200
shares of Parent Common Stock were reserved for issuance
pursuant to outstanding warrants, rights, options and
employee benefit plans. Since May 31, 1995, Parent has not
issued any shares of its capital stock or any securities
convertible into or exercisable for any shares of its
capital stock, other than pursuant to the exercise of
employee stock options granted prior to such date. The
Merger Shares to be issued on the Closing Date will be duly
authorized and validly issued and, on the
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Closing Date, all such shares will be fully paid,
nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof.
(c) Merger Subsidiary is a corporation duly
incorporated, validly existing and in good standing under
the laws of the State of Delaware. Merger Subsidiary has
the requisite corporate power and authority to enter this
Agreement and perform its obligations hereunder. Merger
Subsidiary has conducted no business prior to the date
hereof.
6.2 CORPORATE ACTION. All corporate and shareholder actions
and proceedings necessary to be taken by or on the part of
Parent and Merger Subsidiary to adopt and approve this
Agreement have been duly and validly taken, and the
execution and delivery of this Agreement and the issuance
of the Merger Shares have been duly and validly authorized
by all necessary corporate and shareholder action, and do
not require the further approval of any holders of any
indebtedness or obligations of Parent or Merger Subsidiary.
This Agreement has been duly and validly executed and
delivered by Parent and Merger Subsidiary, and on the
Closing Date the Merger Shares will have been duly and
validly issued by Parent, and this Agreement constitutes
the legal, valid and binding obligations of Parent and
Merger Subsidiary (as applicable), enforceable
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against Parent and Merger Subsidiary (as applicable) in
accordance with and subject to its terms, except as such
enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other similar
laws from time to time in effect affecting creditors'
rights generally or by principles governing the
availability of equitable remedies.
6.3 NO DEFAULTS. Neither the execution and delivery by
Parent and Merger Subsidiary of this Agreement, nor the
issuance by Parent of the Merger Shares, nor the
consummation of the transactions contemplated hereby or
thereby, is an event that, of itself, or with the giving of
notice or the passage of time or both, will (i) conflict
with the charter or by-laws of Parent or Merger Subsidiary,
(ii) constitute a violation of, or conflict with or result in
any breach of or any default under, or constitute grounds
for termination or acceleration of, any mortgage, indenture,
lease, contract, agreement or instrument to which Parent or
Merger Subsidiary is a party or by which Parent or Merger
Subsidiary is bound, or result in the creation of any Lien
upon any of its assets, or (iii) violate (A) any judgment,
decree, or order, or (B) any statute, rule or regulation, in
each such case, applicable to Parent or Merger Subsidiary.
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6.4 BROKERS. There is no investment banker, broker or
finder or other Person having a claim against Parent or
Merger Subsidiary for a commission or brokerage fee in
connection with the execution and delivery of this
Agreement or the consummation of the transactions
contemplated hereby as a result of any agreement of or
action taken by Parent or Merger Subsidiary, except for the
matter set forth in Schedule 6.4 of the disclosure letter of
Parent delivered to NDSI concurrently herewith (the "Parent
Disclosure Letter").
6.5 LITIGATION. There is no litigation, proceeding or
investigation pending or, to Parent's or Merger
Subsidiary's knowledge, threatened against either of them
which is reasonably expected to be adversely determined and,
if adversely determined, will affect their ability fully to
carry out the transactions contemplated by this Agreement,
or which would reasonably be expected to have a material
adverse effect on the Business Condition of Parent and its
subsidiaries, taken as a whole.
6.6 FUNDS. On the Closing Date, Parent will have cash on
hand and unconditionally available for the purpose of paying
the Cash Purchase Price.
6.7 APPROVALS AND CONSENTS. Except for (i) the filing with
the Commission of the Registration Statement, (ii) the
filing of the Certificate of Merger with the Delaware
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Secretary pursuant to the Act, (iii) the filings contemplated
by Section 8.6 of this Agreement, and (iv) such filings and
approvals as are required to be made or obtained under the
securities or "Blue Sky" laws of various states in
connection with the issuance of the Merger Shares pursuant
to this Agreement, no Governmental Action and no consents or
approvals of or filings or registrations with any third
party are necessary in connection with (A) the execution
and delivery by Parent of this Agreement and (B) the
consummation by Parent of the Merger and the other
transactions contemplated hereby.
6.8 FINANCIAL STATEMENTS. Parent has previous delivered to
NDSI copies of (a) the consolidated balance sheets of Parent
and its Subsidiaries as of May 31 for each of the fiscal
years 1993 and 1994, and the related consolidated
statements of income, changes in stockholders' equity and
cash flows for the fiscal years ended May 31, 1993 and 1994,
inclusive, as reported in Parent's Annual Report on Form
10-K for the fiscal year ended May 31, 1994 filed with the
Commission under the Exchange Act, in each case accompanied
by the audit report of Ciulla Stephens & Co., independent
public accountants with respect to Parent, and (b) the
unaudited consolidated balance sheet of Parent and its
Subsidiaries as of February 28, 1995 and February 28, 1994
and the related unaudited consolidated statements of
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income, changes in stockholders' equity and cash flows for
the nine month periods then ended as reported in Parent's
Quarterly Report on Form 10-Q for the period ended February
28, 1995 filed with the Commission under the Exchange Act.
The May 31, 1994 consolidated balance sheet of Parent
(including the related notes, where applicable) fairly
presents in all material respects the consolidated
financial position of Parent and its Subsidiaries as of the
date thereof, and the other financial statements referred to
in this Section 6.8 (including the related notes, where
applicable) fairly present in all material respects
(subject, in the case of the unaudited statements to
recurring audit adjustments normal in nature and amount)
the results of the consolidated operations, changes in
stockholders' equity and cash flows and the consolidated
financial position of Parent and its Subsidiaries for the
respective fiscal periods or as of the respective dates
therein set forth; each of such statements (including the
related notes, where applicable) comply in all material
respects with applicable accounting requirements and with
the published rules and regulations of the Commission with
respect thereto; and each of such statements (including the
related notes, where applicable) has been prepared in
accordance with GAAP consistently applied during the
periods involved, except in each case as indicated in such
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statements or in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q.
6.9 ABSENCE OF CHANGES. Since May 31, 1994, there has not
occurred any material adverse change in the Business
Condition of Parent and its subsidiaries, taken as a whole,
except as publicly disclosed in the Parent Reports.
6.10 Commission Reports. Parent has previously made
available to NDSI an accurate and complete copy of each (a)
final registration statement, prospectus, report, schedule
and definitive proxy statement filed by Parent with the
Commission pursuant to the Securities Act or the Exchange
Act from January 1, 1993 to the date hereof (the "Parent
Reports") and (b) communication mailed by Parent to its
stockholders from January 1, 1993 to the date hereof, and
no such registration statement, prospectus, report,
schedule, proxy statement or communication contained any
untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances in which they were made, not misleading,
except that information as of a later date shall be deemed
to modify information as of an earlier date. Parent has
timely filed all Parent Reports and other documents
required to be filed by it under the Securities Act and the
Exchange Act, and, as of their respective dates, all Parent
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Reports complied in all material respects with the published
rules and regulations of the Commission with respect
thereto.
6.11 COMPLIANCE WITH LAW. The operations of the Parent and
its subsidiaries are not being conducted in violation of any
applicable law, ordinance or regulation, except for
violations which, individually or in the aggregate, will
not have and would not reasonably be expected to have, a
material adverse effect on the Business Condition of Parent
and its subsidiaries, taken as a whole.
6.l2 UNDISCLOSED LIABILITIES. Except for those liabilities
that are fully reflected or reserved against on the
consolidated balance sheet of Parent included in the
balance sheet of Parent as of May 31, 1994 and except for
liabilities incurred since May 31, 1994 and disclosed in the
Parent Reports, neither Parent nor any of its subsidiaries
has incurred any liability of any nature whatsoever (whether
absolute, accrued, contingent or otherwise and whether due
or to become due) that, either alone or when combined with
all similar liabilities, has had, or could reasonably be
expected to have, a material adverse effect on the Business
Condition of Parent and its subsidiaries, taken as a whole.
6.13 ACCESS. Parent and Merger Subsidiary acknowledge that
they have been provided full and complete access to
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the books, records, facilities, properties and management of
the Companies, that they have conducted their own
independent investigation, analysis and evaluation of the
Companies and the Business Condition (including their
prospects) of the Companies, and that they have reviewed
the Contracts and other documents and records of the
Companies made available to them by the Companies to the
extent Parent deemed appropriate, and that all questions
regarding the Companies have been answered to their
satisfaction.
6.14 MATERIAL FACTS. No representation or warranty made by
Parent or Merger Subsidiary in this Agreement contains or
will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary in
order to make the statements contained herein or therein not
misleading.
ARTICLE VII
Covenants of NDSI Pending the Closing
-------------------------------------
NDSI covenants and agrees that from the date hereof until
the Effective Time:
7.1 OPERATION OF THE BUSINESS.
(a) NDSI and the Operating Company shall continue to
carry on the business and operations of the Operating
Company and keep their respective books, accounts, records
and files in the ordinary course of business and consistent
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with past practice for comparable periods of prior years.
The Operating Company shall be operated in all material
respects in accordance with applicable laws and regulations
and Parent and Merger Subsidiary will be given prompt notice
of any Company's receipt of written notice of any violation
in respect thereof.
(b) NDSI shall, within thirty (30) days after the end
of each month, beginning with the month ending June 30,
1995, provide Parent with copies of the unaudited
consolidated income statement of the Operating Company for
the portion of the Operating Company's fiscal year ending
with such month and the unaudited consolidated balance sheet
of the Operating Company as of the end of such month,
prepared in a manner consistent with past practice.
(c) NDSI shall use all reasonable efforts to preserve
the business organization of the Operating Company and the
goodwill of the Operating Company's suppliers and customers,
and others having business relations with the Operating
Company.
(d) Prior to the Closing Date, without the prior
written consent of Parent, the Companies will not:
(i) Sell, lease, transfer, or agree to sell, lease or
transfer any of the material Company Assets, without
replacement thereof with a substantially equivalent
asset of substantially equivalent kind, condition and
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value, except for (x) inventory sold in the ordinary
course of business, (y) assets consumed or worn out in
the ordinary course of business and (z) the Atlanta
Real Estate;
(ii) Enter into any severance arrangement (other than
pursuant to the Company's existing severance policy) or
contract of employment (other than contracts terminable
by Parent or Merger Subsidiary without penalty
immediately following the Effective Time) with any
employee or employees of the Companies, except in the
ordinary course of business and consistent with past
practice;
(iii) Enter into any new Contract or renew or amend the
material terms of any existing Contract; provided,
however, that without the consent of Parent, any
Company may enter into any new Contract, or renew or
amend the material terms of any existing Contract (A)
in the ordinary course of business and consistent with
past practice, (B) that obligates a Company to make
payments of less than $100,000 per year, (C) that
constitutes a lease or rental agreement, or (D)
pursuant to which any Company makes or is obligated to
make a capital expenditure if and to the extent
contemplated by the 1995 fixed asset spending plan
approved by the Dryvit Board of Directors and attached
as Schedule 7.1 to the Disclosure Letter;
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(iv) Make or grant any increase in the base
compensation payable or to become payable to any
employee of the Companies identified on Schedule 5.8
to the Disclosure Letter or any increase in any
employee benefit plan or arrangements, except as
required by law or existing executive compensation
plans or in the ordinary course of business and
consistent with past practice; or
(v) Prepay any GE Capital Indebtedness; provided,
however that the Companies (i) shall timely pay
the scheduled principal payment of $266,062.50 (CND)
due on September 1, 1995 and all interest accrued on
all of the GE Capital Indebtedness through and
including the Closing Date and (ii) may prepay
$266,062.50 (CND) of GE Capital Indebtedness
representing a current installment due on September 1,
1995 if the Closing Date shall occur prior to such due
date.
7.2 ACCESS TO FACILITIES, FILES AND RECORDS. At the request
of Parent or Merger Subsidiary and upon reasonable advance
notice, NDSI will give or cause to be given to the officers,
employees, accountants, engineers, counsel, and authorized
representatives of Parent and Merger Subsidiary (a)
reasonable access during normal business hours to all
facilities, management personnel, properties, accounts,
books, deeds, title papers, insurance policies, licenses,
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agreements, contracts, commitments, records and files of
every character, equipment, machinery, fixtures, furniture,
vehicles, notes and accounts payable and accounts receivable
of the Companies, and (b) all such other information solely
concerning the affairs of the Companies as Parent or Merger
Subsidiary may reasonably request; provided, however, that
NDSI shall not be required to permit such access or provide
such information to the extent it unreasonably interferes
with the operation of the Companies or to the extent such
information would violate any Company's attorney-client
privilege or the rights to privacy of any employee of any
Company.
7.3 REPRESENTATIONS AND WARRANTIES. NDSI will give written
notice to Parent and Merger Subsidiary promptly upon
learning of the occurrence of any event that would cause or
constitute a breach, or would have caused a breach had such
event occurred or been known to NDSI prior to the date
hereof, of any of NDSI's representations or warranties
contained in this Agreement or in any Schedule to the
Disclosure Letter.
7.4 Consents.
---------
(a) The Contracts set forth on Schedule 5.13 of the
Disclosure Letter as to which consents or approvals to the
transactions provided for in this Agreement are required
are sometimes referred to herein as "Restricted
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Contracts". NDSI and Parent agree that the only Restricted
Contracts that are material to the Business Condition of the
Operating Company are those so designated on Schedule 5.11
of the Disclosure Letter. Such material Restricted Contracts
are referred to herein as "Material Restricted Contracts".
(b) Notwithstanding any other Section of this Agreement
to the contrary, to the extent that the consent or approval
of any Person is required under any Restricted Contract in
order to consummate the Merger or otherwise by reason of the
transactions provided for in this Agreement, NDSI will use
its reasonable efforts (not involving the expenditure of
money by NDSI) to obtain such consents and approvals. If
any such consent or approval is not obtained, NDSI will use
its reasonable efforts (not involving the expenditure of
money by NDSI) to secure an arrangement reasonably
satisfactory to Parent and Merger Subsidiary insuring that
the Parent or Merger Subsidiary will receive substantially
all of the benefits under such Restricted Contract following
the Effective Time; provided, however, that nothing in this
Section shall excuse NDSI from obtaining all such consents
or approvals required with respect to any Material
Restricted Contract; and provided, further, that with
respect to any Restricted Contract which is not a Material
Restricted Contract and for which consent
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or approval or an alternative arrangement is not provided,
(i) NDSI shall have no obligation to obtain such consent or
approval or to provide such an alternative arrangement other
than the undertaking to use reasonable efforts to obtain the
same as set forth above in this Section 7.4(b), (ii) Parent
and Merger Subsidiary shall remain obligated to close,
subject to the other provisions hereof, and (iii) Parent
and Merger Subsidiary shall have no remedy nor any right to
terminate this Agreement for NDSI's failure to obtain any
such consent or approval or to provide any such alternative
arrangement. Parent's and Merger Subsidiary's sole remedy
for NDSI's failure to obtain any consent or approval or to
provide any alternative arrangement with respect to any
Material Restricted Contract shall be to terminate this
Agreement as specified in Section 13.1(c) hereof. NDSI
shall promptly notify Parent if any party to any Restricted
Contract notifies NDSI of its intention to withhold consent
or proposes to condition its consent on Parent's or Merger
Subsidiary's acceptance of less favorable terms under the
Contract. Parent and Merger Subsidiary shall cooperate with
NDSI in obtaining the consents under the Restricted
Contracts.
7.5 NOTICE OF PROCEEDINGS. NDSI will promptly notify Parent
upon (a) becoming aware of any order or decree or any
complaint praying for an order or decree restraining or
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enjoining the consummation of this Agreement or the
transactions contemplated hereunder, or (b) receiving any
notice from any governmental department, court, agency or
commission of such authority's intention (i) to institute an
investigation into, or institute a suit or proceeding to
restrain or enjoin, the consummation of this Agreement or
such transactions, or (ii) to nullify or render ineffective
this Agreement or such transactions if consummated.
7.6 CONSUMMATION OF AGREEMENT. Subject to the provisions of
Section 13.1 of this Agreement:
(a) NDSI will use all reasonable efforts to fulfill and
perform all conditions and obligations on its part to be
fulfilled and performed under this Agreement, and to cause
the transactions contemplated by this Agreement to be fully
carried out; and
(b) NDSI will not knowingly take any action that would
prevent consummation of this Agreement.
7.7 GOVERNMENTAL ACTIONS. As soon as possible (but in no
event later than 15 days) after the date hereof, NDSI shall
prepare and file (i) all documents with the Federal Trade
Commission and the United States Department of Justice as
are required of it and the Securityholders, if applicable,
to comply with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), and (ii) all
documents, if any, as are required of it to comply with the
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Investment Canada Act, and NDSI will furnish promptly all
materials thereafter requested by any of the regulatory
agencies having jurisdiction over such filings.
ARTICLE VIII
Covenants of NDSI, Parent and Merger Subsidiary Pending the
-----------------------------------------------------------
Closing
- -------
NDSI, Parent and Merger Subsidiary, as applicable, each
covenants and agrees that from the date hereof until the
Effective Time:
8.l REGULATORY MATTERS. (a) Parent shall promptly prepare
and file with the Commission on an appropriate form the
Registration Statement with respect to the Merger Shares.
Parent shall use its best efforts to have the Registration
Statement declared effective under the Securities Act as
promptly as practicable after such filing. Notwithstanding
the foregoing, Parent shall retain sole discretion in
responding to Commission comments concerning the
Registration Statement and shall not be required to agree
to any staff comments which Parent reasonably believes are
not applicable to it or would be materially detrimental to
its ongoing business. Parent shall also use all reasonable
efforts to obtain all necessary state securities law or
"Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement; provided,
however, that in connection therewith, Parent shall not be
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required to qualify to do business where it is not so
qualified or file a general consent to service of process
in such states or jurisdictions where it has not previously
done so, and NDSI shall furnish all information concerning
the Companies as may reasonably be requested in connection
with any such action, including audited financial statements
for NDSI in proper form for filing under Regulation S-X of
the Securities Act.
(b) The parties hereto shall cooperate with each other
and use their best efforts to promptly prepare and file all
necessary documentation, to effect all applications,
notices, petitions and filings, to obtain as promptly as
practicable all permits, consents, approvals and
authorizations of all third parties which are necessary or
advisable to consummate the transactions contemplated by
this Agreement (including without limitation the Merger),
and to comply with the terms and conditions of all such
permits, consents, approvals and authorizations. Parent
and NDSI shall have the right to review in advance, and to
the extent practicable each will consult the other on, in
each case subject to applicable laws relating to the
exchange of information, all the information relating to
NDSI or Parent, as the case may be, and any of their
respective Subsidiaries, which will appear in any filing
made with, or written materials submitted to, any third
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party in connection with the transactions contemplated by
this Agreement. In exercising the foregoing right, each of
the parties hereto shall act reasonably and as promptly as
practicable. The parties hereto agree that they will
consult with each other with respect to the obtaining of
all permits, consents, approvals and authorizations of all
third parties necessary or advisable to consummate the
transactions contemplated by this Agreement and each party
will keep the other apprised of the status of matters
relating to completion of the transactions contemplated
herein.
(c) Parent and NDSI shall, upon request, furnish each
other with all information concerning themselves, their
Subsidiaries, directors, officers and stockholders and such
other matters as may be reasonably necessary or advisable in
connection with the Registration Statement or any other
statement, filing, notice or application made by or on
behalf of Parent, NDSI or any of their respective
Subsidiaries in connection with the Merger and the other
transactions contemplated by this Agreement.
8.2 REPRESENTATIONS AND WARRANTIES. Parent and Merger
Subsidiary shall give written notice to NDSI promptly upon
learning of the occurrence of any event that would cause or
constitute a breach, or would have caused a breach had such
event occurred or been known to Parent or Merger Subsidiary
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prior to the date hereof, of any of the representations and
warranties of Parent or Merger Subsidiary contained in this
Agreement.
8.3 BUSINESS OF MERGER SUBSIDIARY. Until the Effective
Time, Parent will not permit Merger Subsidiary to engage in
any business activities or enter into any transaction except
in connection with this Agreement and the performance by
Merger Subsidiary of its obligations hereunder.
8.4 CONSUMMATION OF AGREEMENT. Subject to the provisions of
Section 13.1 of this Agreement, (a) Parent and Merger
Subsidiary shall use all reasonable efforts to fulfill and
perform all conditions and obligations on their parts to be
fulfilled and performed under this Agreement, and to cause
the transactions contemplated by this Agreement to be fully
carried out and (b) neither Parent nor Merger Subsidiary
will knowingly take any action that would prevent
consummation of this Agreement.
8.5 NOTICE OF PROCEEDINGS. Parent and Merger Subsidiary
will promptly notify NDSI upon:
(a) becoming aware of any order or decree or any
complaint praying for an order or decree restraining or
enjoining the consummation of this Agreement or the
transactions contemplated hereunder, or
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(b) receiving any notice from any governmental
department, court, agency or commission of such authority's
intention (i) to institute an investigation into, or
institute a suit or proceeding to restrain or enjoin, the
consummation of this Agreement or such transactions, or (ii)
to nullify or render ineffective this Agreement or such
transactions if consummated.
8.6 GOVERNMENTAL ACTIONS. As soon as practicable (but in no
event later than 15 days) after the date hereof, Parent and
Merger Subsidiary shall prepare and file (i) all documents
with the Federal Trade Commission and the United States
Department of Justice as are required of them to comply
with the HSR Act, and (ii) all documents, if any, as are
required of them to comply with the Investment Canada Act,
and shall promptly furnish all materials thereafter
requested by any of the regulatory agencies having
jurisdiction over such filings.
ARTICLE IX
Conditions to the Obligations of NDSI
-------------------------------------
The obligations of NDSI under this Agreement are, at NDSI's
option, subject to the fulfillment of the following conditions
prior to or on the Closing Date:
9.1 Representations, Warranties, Covenants.
---------------------------------------
(a) Each of the representations and warranties of
Parent and Merger Subsidiary contained in this Agreement
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shall have been true and correct in all material respects as
of the date when made and shall be deemed to be made again
on and as of the Closing Date and shall then be true and
correct in all material respects except to the extent
changes are permitted or contemplated pursuant to this
Agreement;
(b) Parent and Merger Subsidiary shall have performed
and complied in all material respects with each and every
covenant and agreement required by this Agreement to be
performed or complied with by them prior to or at the
Closing Date; and
(c) Parent and Merger Subsidiary shall have furnished
NDSI with a certificate dated the Closing Date and duly
executed by duly authorized officers of Parent and of
Merger Subsidiary authorized on behalf of Parent and Merger
Subsidiary to give such a certificate, to the effect that
the conditions set forth in subparagraphs (a) and (b) of
this Section 9.1 have been satisfied.
9.2 Proceedings.
------------
(a) Neither NDSI, Parent nor Merger Subsidiary shall be
subject to any restraining order or injunction restraining
or prohibiting the consummation of the transactions
contemplated hereby; no action or proceeding shall have
been instituted by any third party before any court or
governmental body to restrain or prohibit the
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consummation of the transactions contemplated by this
Agreement; and none of the parties to this Agreement shall
have received written notice from any governmental body of
(A) its intention to institute any action or proceeding to
restrain or enjoin or nullify this Agreement or the
transactions contemplated hereby, or (B) actual
commencement of such investigation.
(b) In the event such a restraining order or injunction
is in effect or such an action or proceeding has been
instituted and is pending or such a notice of intention is
received or such an investigation is commenced, this
Agreement may not be abandoned by NDSI pursuant to this
Section 9.2 prior to the Outside Date, but the Closing Date
shall be delayed during such period.
9.3 OPINIONS OF COUNSEL. NDSI shall have received
opinion(s) of counsel to Parent and Merger Subsidiary,
dated the Closing Date, in the form attached to this
Agreement as Exhibit B.
9.4 GOVERNMENTAL ACTIONS. The waiting period under the HSR
Act shall have expired or been terminated.
9.5 DELIVERIES. Parent and Merger Subsidiary shall have
complied with each and every one of their obligations set
forth in Section 11.2.
9.6 SECURITIES AGREEMENT. Parent shall have executed and
delivered to each Securityholder receiving Merger Shares a
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Securities Agreement and the letter in the form appended
thereto.
9.7 EFFECTIVENESS OF REGISTRATION STATEMENT. The
Registration Statement pursuant to which the Merger Shares
are to be registered shall have been declared effective by
the SEC and all applicable state regulatory authorities, and
no stop order suspending the effectiveness of such
Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted by
the Commission or by any state regulatory authorities.
ARTICLE X
Conditions to the Obligations of Parent and Merger Subsidiary
-------------------------------------------------------------
The obligations of Parent and Merger Subsidiary under this
Agreement are, at Parent's option, subject to the fulfillment
of the following conditions prior to or on the Closing Date:
10.1 Representations, Warranties, Covenants.
---------------------------------------
(a) Each of the representations and warranties of NDSI
contained in this Agreement shall have been true and correct
in all material respects as of the date when made and shall
be deemed to be made again on and as of the Closing Date and
shall then be true and correct in all material respects
except to the extent changes are permitted or contemplated
pursuant to this Agreement;
(b) NDSI shall have performed and complied in all
material respects with each and every covenant and
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agreement required by this Agreement to be performed or
complied with by it prior to or at the Closing Date; and
(c) NDSI shall have furnished Parent a certificate,
dated the Closing Date and duly executed by a duly
authorized officer of NDSI authorized on behalf of NDSI to
give such a certificate, to the effect that the conditions
set forth in subparagraphs (a) and (b) of this Section 10.1
have been satisfied.
10.2 Proceedings.
------------
(a) (i) Neither NDSI, Parent nor Merger Subsidiary shall
be subject to any restraining order or injunction
restraining or prohibiting the consummation of the
transactions contemplated hereby;
(ii) no action or proceeding shall have been instituted
by any third party before any court or governmental
body to restrain or prohibit the consummation of the
transactions contemplated by this Agreement; and (iii)
none of the parties to this Agreement shall have
received written notice from any governmental body of
(A) its intention to institute any action or proceeding
to restrain or enjoin or nullify this Agreement or the
transactions contemplated hereby or (B) the actual
commencement of such investigation.
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(b) In the event such a restraining order or injunction
is in effect or such an action or proceeding has been
instituted and is pending or such a notice of intention is
received or such an investigation is commenced, this
Agreement may not be abandoned by Parent pursuant to this
Section 10.2 prior to the Outside Date, but the Closing Date
shall be delayed during such period.
10.3 OPINIONS OF COUNSEL. Parent shall have received an
opinion of Edwards & Angell, counsel to the Companies,
dated the Closing Date, in the form attached to this
Agreement as Exhibit C.
10.4 MATERIAL RESTRICTED CONTRACTS. All consents required
under the Material Restricted Contracts in order to
consummate the transactions contemplated hereby shall have
been obtained or, with respect to any Material Restricted
Contracts for which such consent shall not have been
obtained, NDSI shall have provided Parent with an
alternative arrangement reasonably satisfactory to Parent
ensuring that following the Effective Time, Parent or the
Surviving Corporation will receive substantially all of the
benefits under such Material Restricted Contracts as to
which such consent shall not have been obtained in
accordance with Section 7.4(b).
10.5 GOVERNMENTAL ACTIONS. The waiting period under the HSR
Act shall have expired or been terminated.
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10.6 DELIVERIES. NDSI shall have complied with each and
every one of its obligations set forth in Section 11.1.
10.7 SECURITIES AGREEMENT. Each of the Securityholders
receiving Merger Shares shall have executed and delivered
to Parent a Securities Agreement.
10.8 EFFECTIVENESS OF REGISTRATION STATEMENT. The
Registration Statement pursuant to which the Merger Shares
are to be registered shall have been declared effective by
the SEC and all applicable state regulatory authorities, and
no stop order suspending the effectiveness of such
Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted by
the Commission or by any state regulatory authorities.
10.9 NO DISSENTING SHARES. No dissenters' rights shall have
been properly perfected and not withdrawn or forfeited under
applicable law by any Securityholder or any other holder of
NDSI Stock with respect to the Merger.
ARTICLE XI
Items to be Delivered at the Closing
------------------------------------
11.1 DELIVERIES BY NDSI. On the Closing Date, NDSI shall
deliver to Parent or Merger Subsidiary:
(a) Evidence of compliance by NDSI with its
obligations under Section 7.4(b);
(b) Certified copies of resolutions, duly adopted
by the Board of Directors of NDSI, which shall
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be in full force and effect on the Closing Date,
authorizing the execution, delivery and performance by
NDSI of this Agreement and the consummation of the
transactions contemplated hereby;
(c) The certificate referred to in Section 10.1(c);
(d) The opinion of counsel referred to in Section
10.3;
(e) Consents, releases and agreements cancelling
the Options and Warrants duly executed by the holders
of the Options and the Warrants;
(f) Certificates for all shares of NDSI Stock
with duly executed stock powers;
(g) Payoff letters from GE Capital with respect
to the GE Capital Indebtedness in customary form,
accompanied by instruments which shall terminate and
release the existing Liens on the Company Assets in
favor of GE Capital and shall contemplate the
reassignment of the Intellectual Properties upon
payment in full of the amounts specified in such
letters;
(h) Agreements of the parties to the Shareholder
Documents cancelling the Shareholder Documents prior to
the Closing Date;
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(i) An agreement of the parties cancelling the
Management Advisory Services and Financial Consulting
Agreement dated March 1, 1990, between Narragansett
Capital, Inc., NDSI and Dryvit; and
(j) Such other documents or payments as are
required to be delivered or paid by NDSI pursuant to
this Agreement.
11.2 DELIVERIES BY PARENT AND MERGER SUBSIDIARY. On
the Closing Date, Parent and Merger Subsidiary shall
deliver to the Securityholder Representative on behalf
of NDSI:
(a) The Merger Proceeds, which shall be paid and
delivered in the manner specified in Section 4.3(a) and
(b) hereof;
(b) Certified copies of resolutions, duly adopted
by each of Parent's and Merger Subsidiary's Board of
Directors, and by Parent as the sole stockholder of
Merger Subsidiary, which shall be in full force and
effect on the Closing Date, authorizing the execution,
delivery and performance by Parent and Merger
Subsidiary of this Agreement and the consummation of
the transactions contemplated hereby and thereby;
(c) The certificates referred to in Section 9.1(c);
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(d) The opinions of counsel referred to in Section
9.3; and
(e) Such other documents or payments as are
required to be delivered or paid by Parent or Merger
Subsidiary pursuant to this Agreement.
ARTICLE XII
Survival of Representations and Warranties;
-------------------------------------------
Indemnification
---------------
12.1 SURVIVAL. (a) Except with respect to (i) Tax
Liabilities, (ii) Schooner Litigation Liabilities and
(iii) Ownership Liabilities, all representations and
warranties, and the related indemnities contained in
this Agreement (whether by Parent or NDSI), shall
survive the Effective Time of the Merger for a period
of twelve (l2) months, provided that if at the
expiration of such twelve-month period the
Securityholder Representative shall have received from
the Parent, the Surviving Corporation or the Operating
Company on the one hand, or the Parent shall have
received from the Securityholder Representative on the
other hand, written notice of a claim with respect to
an alleged breach of any such representation or
warranty (other than in respect of Tax Liabilities,
Schooner Litigation Liabilities or Ownership
Liabilities), stating with particularity the
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applicable provisions of this Agreement so breached and
providing in reasonable detail all relevant facts then
known to Parent, the Surviving Corporation and the
Operating Company on the one hand, or the
Securityholder Representative on the other hand, with
respect to such breach, the applicable representation,
warranty or covenant, and the related indemnity, will
not expire with respect to such claim.
(b) The representations and warranties of the
Securityholders set forth in Article V-A, and the
related indemnity for Ownership Liabilities contained
in Section 12.2, shall survive indefinitely the
Effective Time of the Merger.
(c) The representations and warranties of NDSI set
forth in Section 5.16, and the related indemnity for
Tax Liabilities contained in Section 12.2, shall
survive the Effective Time of the Merger until the
expiration of the applicable statute of limitations
with respect to the year on account of which the Tax
giving rise to such claim was payable, plus thirty (30)
days. Neither the Parent, the Surviving Corporation nor
the Operating Company shall consent to the extension
of, or take any other action to extend, any applicable
statute of limitations with respect to such tax year
without the prior written consent of the Securityholder
Representative.
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(d) The specific indemnity for Schooner Litigation
Liabilities contained in Section 12.2 shall survive the
Effective Time of the Merger until a final
determination by a court of competent jurisdiction
shall be rendered from which no further appeal may be
taken, or, with prior notice to Parent, until
settlement thereof shall be entered into among the
parties thereto and accompanied by an unconditional
release from each such party, whichever first occurs.
12.2 INDEMNIFICATION BY THE SECURITYHOLDERS. Subject
to the limitations contemplated by Section 12.3 below,
the Securityholders shall indemnify and hold harmless
Parent, the Surviving Corporation and the Operating
Company, in the manner and to the extent contemplated
by this Article XII, for any (i) Ownership Liabilities,
(ii) Tax Liabilities, (iii) Schooner Litigation
Liabilities and (iv) other out-of-pocket loss, cost,
damage or expense (including, but not limited to,
reasonable attorneys fees but expressly excluding any
such loss, cost, damage or expense constituting Rust
Liabilities) actually paid by Parent, the Surviving
Corporation or the Operating Company and arising
directly from any misrepresentation or breach of
warranty of NDSI in this Agreement (collectively
referred to herein as
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"Damages"). The obligations of the Securityholders are
collectively referred to as the "Indemnification
Obligation" and neither the Securityholders, nor the
Securityholder Representative on their behalf, shall
have any right or claim against the Parent, Surviving
Corporation or the Operating Company for any claim for
reimbursement or contribution in respect of any
Indemnification Obligation.
12.3 Limitations as to Indemnification Obligation.
---------------------------------------------
(a) Except with respect to Ownership Liabilities,
Tax Liabilities, and Schooner Litigation Liabilities,
for which indemnification shall be from the first
dollar, the Securityholders shall have no liability
with respect to any Indemnification Obligation unless
and until the total of all Damages (exclusive of
Ownership Liabilities, Tax Liabilities and Schooner
Litigation Liabilities) exceeds $l,000,000 (the
"Basket"), and then shall bear liability for all such
Damages from the first dollar of such Damages (subject,
however, to the limitations contemplated by Sections
12.3(b), (c) and (d)).
(b) The Securityholders shall not be liable for any
individual claim for Damages, and no individual claim
for Damages shall be included in the calculation of the
Basket, unless the matter involved is a claim of $5,000
or more.
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(c) Notwithstanding anything to the contrary in
this Agreement, (i) each Securityholder shall bear
liability for Damages (excluding Ownership
Liabilities, Tax Liabilities, and Schooner Litigation
Liabilities) and any other claim arising from or
related to this Agreement only up to that amount which
is equal to his or its Pro Rata Share of Ten Million
Dollars ($l0,000,000); and (ii) each Securityholder
shall be responsible for his or its Pro Rata Share of
Tax Liabilities and Schooner Litigation Liabilities;
and (iii) each Securityholder shall be fully
responsible for any Ownership Liabilities attributable
to such Securityholder (but no Securityholder shall be
responsible for any Ownership Liabilities attributable
to any other Securityholder); provided, however, that
the maximum aggregate liability of any Securityholder
under this Agreement shall not exceed that amount which
is equal to his or its pro rata share of the Adjusted
Purchase Price as reflected on Schedule 1A to this
Agreement.
(d) Notwithstanding anything to the contrary
contained in this Agreement, the Securityholders shall
not be liable for any (i) Rust Liabilities, whether
incurred or arising on, before or after the Closing
Date, (ii) loss, cost, damage or expense (including,
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but not limited to attorney's fees) paid or incurred by
the Parent, the Surviving Corporation or the Operating
Company in connection with ordinary warranty claims
made by third parties, whether on, before or after the
Closing Date, on account of products manufactured or
sold by Company, or (iii) loss, cost, damage or expense
(including, but not limited to attorneys' fees) paid or
incurred by the Parent, the Surviving Corporation or
the Operating Company in connection with any
litigation, suit or similar proceeding (x) disclosed
on Schedule 5.9 of the Disclosure Letter or (y) arising
in the ordinary course of business after the Closing
Date based on or arising out of or in connection with
any event(s) occurring or condition(s) existing on or
before the Closing Date, except to the extent any
Company had actual knowledge of any overtly threatened
litigation, suit, or similar proceeding described in
clause (y) above based on a writing received by such
Company on or prior to the Closing Date.
(e) Notwithstanding the provisions of Sections
5.14, 5.18 and 5.20 which qualify said representations
and warranties by concepts of materiality, but
otherwise are subject to all other provisions of
Section 12.3 hereof, Securityholders shall be liable
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for Damages suffered or incurred by Parent, Surviving
Corporation or the Operating Company for breaches of
said representations and warranties contained in
Sections 5.14, 5.18, and 5.20 without regard to the
concepts of materiality contained therein.
12.4 NOTICE AND SETTLEMENT OF CLAIMS OF PARENT, THE
SURVIVING CORPORATION AND THE OPERATING COMPANY;
ARBITRATION. If Parent, the Surviving Corporation or
the Operating Company (an "Indemnified Party") suffers
or incurs any Damages (other than Damages with respect
to Tax Liabilities, Schooner Litigation Liabilities or
third party claims covered by Section 12.7), and if a
claim for indemnification in respect thereof is to be
made against the Securityholders under Section 12.2,
the Indemnified Party shall give notice to the
Securityholder Representative within sixty (60) days
of Parent acquiring actual knowledge thereof,
describing such Damages, the amount thereof, if known,
and the method of computation of such Damages, all with
reasonable particularity and containing a reference to
the provisions of this Agreement in respect of which a
breach has occurred and such Damages have been suffered
or incurred. Promptly after any such notice has been
given the parties shall endeavor to resolve any
disputes with respect to the
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matters set forth in such notice. If the Securityholder
Representative and the Indemnified Party cannot reach
agreement within thirty (30) days after such notice has
been given, then the matter shall be submitted promptly
to binding arbitration to be held in Providence, Rhode
Island under rules and procedures of the American
Arbitration Association applicable to commercial
transactions as then in effect ("Arbitration").
12.5 NOTICE AND SETTLEMENT OF TAX LIABILITIES. Upon
receipt by Parent of written notice of a claim by a
governmental authority which may give rise to a Tax
Liability, Parent shall give notice of such claim
within sixty (60) days to the Securityholder
Representative. The Indemnified Party and
Securityholder Representative shall cooperate with
each other in the conduct of any audit or other
proceeding involving the Surviving Corporation or the
Operating Company, provided that the Securityholder
Representative shall have the right to control, at the
Securityholders' expense, the resolution of any such
audit or settlement for which any resulting Tax,
interest or penalties shall be indemnifiable
hereunder. The Indemnified Party shall have no right
to settle any such claim without the prior written
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consent of the Securityholder Representative. Any
dispute regarding an Indemnification Obligation on
account of Tax Liabilities shall be submitted to
Arbitration.
12.6 SCHOONER LITIGATION. The Surviving Corporation
and the Operating Company shall, on a timely and
expeditious basis, continue to prosecute the Schooner
Litigation with counsel reasonably satisfactory to the
Securityholder Representative, and shall not settle the
Schooner Litigation without the prior written consent
of the Securityholder Representative. The Surviving
Corporation, the Operating Company and the
Securityholder Representative shall cooperate with
each other in the conduct of the Schooner Litigation,
provided that the Securityholder Representative shall
have the right to control, at the Securityholders'
expense, all matters pertaining to such action,
including settlement thereof, so long as the
Securityholders continue to bear the reasonable
out-of-pocket costs of prosecution and any resulting
damage award or settlement in connection with any
counterclaim thereon.
12.7 NOTICE AND SETTLEMENT OF OTHER THIRD-PARTY CLAIMS.
Upon receipt by Parent of notice of the commencement
of any action brought by a third party
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which is indemnifiable under Section 12.2 (other than on
account of Tax Liabilities or Schooner Litigation
Liabilities), the Parent shall give prompt notice
thereof to the Securityholder Representative. Unless
otherwise provided below, the Indemnified Party(ies)
shall have the right to defend and settle any third
party claim subject to consultation with the
Securityholder Representative. The Securityholder
Representative may, however, elect in writing to
assume the defense of any such third party claim
against the Indemnified Party(ies) with counsel
reasonably satisfactory to such Indemnified Party(ies)
and, after notice from the Securityholder
Representative to such Indemnified Party(ies) of its
election so to assume the defense thereof, the
Securityholder Representative shall not be liable to
such Indemnified Party(ies) for any fees of other
counsel or any other expenses subsequently incurred by
such Indemnified Party(ies) in connection with the
defense thereof, and the Indemnified Party(ies) shall
not agree to settle any such third-party claim without
the prior written consent of the Securityholder
Representative. Any dispute regarding an
Indemnification Obligation on account of third party
claims covered by this Section 12.7 shall be submitted
to Arbitration.
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12.8 NO WAIVER FOR NOTICES. The Indemnified Party
shall not have waived its right to indemnification
under this Agreement merely by providing notice of
such a claim outside of the time limits set forth in
Sections 12.4, 12.5 and 12.7 hereof, except to the
extent such a delay has an adverse effect on the
Damages (whether in type or amount) suffered by the
Securityholders or prejudices the rights of the
Securityholders in respect thereof.
12.9 INSURANCE. The Parent, Surviving Corporation or
Operating Company, as appropriate, shall, on a timely
and expeditious basis, seek recovery under applicable
insurance policies, if any, for each underlying item of
Damages to the extent allowable by law, and any
Indemnification Obligation on account thereof shall be
computed on a basis net of any such recovery.
12.10 TAX BENEFITS. Each underlying item of Damages
claimed hereunder, and any Indemnification Obligation
on account thereof, shall be computed on a basis net of
applicable tax benefits actually received or receivable
by the Parent, the Surviving Corporation or the
Operating Company in connection with federal and state
tax deductions attributable to payment of amounts
claimed as Damages hereunder.
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12.11 INDEMNIFICATION BY PARENT. Parent shall
indemnify and hold harmless the Securityholders for
any out-of-pocket loss, cost, damage or expense
(including, but not limited to, reasonable attorneys'
fees) actually paid by the Securityholders or the
Securityholders' Representative on their behalf and
arising directly from any misrepresentation or breach
of warranty of Parent or Merger Subsidiary in this
Agreement. Any claim of the Securityholders hereunder
shall be treated in a manner consistent with Section
12.4. Notwithstanding anything to the contrary
contained in this Agreement, Parent shall bear
liability for any such loss, cost, damage or expense
or any other claim arising from or related to this
Agreement only up to an amount equal to the product of
the aggregate number of Merger Shares multiplied by the
Parent Common Stock Value Per Share.
ARTICLE XIII
Miscellaneous
-------------
13.1 TERMINATION OF AGREEMENT. This Agreement may be
terminated and the Merger abandoned at any time before the
Effective Time:
(a) by mutual consent of the Board of Directors of
Parent (acting on its own behalf and on behalf of Merger
Subsidiary) and the Board of Directors of NDSI;
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(b) by the non-defaulting party, if there has been a
material breach of any covenant or agreement contained in
this Agreement on the part of the other party which, if not
cured, would excuse the performance hereof by the
non-defaulting party, and such breach is not cured at or
prior to a date thirty (30) days after written notice of
such default is given by the non-defaulting party;
(c) by Parent, if by the Closing Date NDSI has failed
to obtain the consents and approvals or to provide the
alternative arrangements contemplated by Section 7.4(b)
with respect to all Material Restricted Contracts (provided
that Parent shall have used all reasonable efforts to
cooperate with NDSI in obtaining such consents and
approvals and such alternative arrangements as provided in
Section 7.4(b));
(d) by any party hereto, if the Closing has not taken
place by the September 30, 1995 (the "Outside Date") and the
party seeking to terminate this Agreement has not
contributed in any material way to the failure of the
transaction to close by such date;
(e) by any party hereto, if any court of competent
jurisdiction or other governmental authority in the United
States shall have issued an order, decree or ruling or taken
any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and such
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<PAGE> 126
order, decree, ruling or other action shall have become final
and nonappealable;
(f) by Parent or NDSI, if Parent delivers a Rejection
Notice with respect to any amendment to a Schedule proposed
by NDSI and NDSI shall fail to agree to delete the
objectionable portion of the amending Schedule within ten
(10) days of the receipt of such Rejection Notice;
(g) by NDSI, if the Parent Common Stock Value Per Share
is less than $17.50;
(h) by Parent, if the Parent Common Stock Value Per
Share is greater than $21.00; or
(i) by NDSI, if the Registration Statement is not
declared effective by the Commission by the Outside Date.
A termination pursuant to this Section 13.1 shall not
relieve any party of liability it would otherwise have for a
breach of this Agreement.
13.2 LIABILITIES UPON TERMINATION. Except for the
obligations contained in Section 13.15 hereof which shall
survive any termination of this Agreement, upon the
termination of this Agreement pursuant to Section 13.1
hereof, this Agreement shall forthwith become null and
void, and no party hereto or any of its officers,
directors, employees, agents, attorneys, consultants,
trustees, stockholders, partners or principals shall have
any rights, liabilities or obligations hereunder or with
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respect hereto; provided, however, that nothing contained
herein shall relieve any party from liability for any
breach or inaccuracy of any representation or warranty
contained herein or any failure to comply with any covenant
or agreement contained herein.
13.3 EXPENSES. The Securityholders shall bear all of the
Company Transaction Expenses, and RPM or the Surviving
Corporation shall bear all other expenses incurred in
connection with the transactions contemplated by this
Agreement, including without limitation, Parent's
Hart-Scott-Rodino filing fees; provided, however, that
fees and expenses of the arbitration in any Arbitration
shall be borne one-half by the Parent and one-half by the
Securityholders.
13.4 ASSIGNMENTS. No party hereto may assign any of its
rights or delegate any of its duties hereunder without the
prior written consent of the other parties, and any such
attempted assignment or delegation without such consent
shall be void.
13.5 FURTHER ASSURANCES. From time to time prior to, at and
after the Closing Date, each party hereto will execute all
such instruments and take all such actions as any other
party, being advised by counsel, shall reasonably request
in connection with carrying out and effectuating the intent
and purpose hereof and all transactions and things
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contemplated by this Agreement, including, without
limitation, the execution and delivery of any and all
confirmatory and other instruments in addition to those to
be delivered on the Closing Date, and any and all actions
which may reasonably be necessary or desirable to complete
the transactions contemplated hereby.
13.6 PUBLIC ANNOUNCEMENT. Except as required by law,
neither party shall make any press release or other public
announcement concerning the transactions contemplated by
this Agreement without the express written consent of the
other parties (which shall not be unreasonably withheld) and
the parties shall use their best efforts to cause a mutually
agreeable release or announcement to be issued.
13.7 NOTICES. Notices and other communications provided for
herein shall be in writing (which shall include notice by
facsimile transmission) and shall be delivered in person or
by nationally recognized overnight courier service (or if by
facsimile communications equipment of the sending party
hereto, transmitted by such equipment), addressed as
follows:
If to NDSI or the Securityholder Representative:
c/o Narragansett Capital, Inc.
Manufacturing Group
Suite 1550
Turks Head Place
Providence, Rhode Island 02903
Attention: Roger A. Vandenberg
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<PAGE> 129
with a copy to:
Edwards & Angell
2700 Hospital Trust Tower
Providence, Rhode Island 02903
Attention: Christopher D. Graham, Esq.
If to Parent and Merger Subsidiary:
RPM, Inc.
2628 Pearl Road
P.O. Box 777
Medina, Ohio 44258
Attn: Thomas C. Sullivan
Chairman
with a copy to:
Calfee, Halter & Griswold
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114
Attn: William A. Papenbrock, Esq.
or to such other address as a party may from time to time
designate in writing in accordance with this Section. All
notices and other communications given to any party hereto
in accordance with the provisions of this Agreement shall be
deemed to have been given on the date of receipt.
13.8 CAPTIONS. The captions of Sections of this Agreement
are for convenience only and shall not control or affect the
meaning or construction of any of the provisions of this
Agreement.
13.9 LAW GOVERNING. This Agreement shall be governed by,
construed, and enforced in accordance with the laws of the
State of Delaware.
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13.10 WAIVER OF PROVISIONS. The terms, covenants,
representations, warranties, and conditions of this
Agreement may be amended, modified or waived only by a
written instrument executed by all of the parties hereto.
The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no
manner affect the right of such party at a later date to
enforce the same. No waiver by any party of any condition
or the breach of any provision, term, covenant,
representation, or warranty contained in this Agreement,
whether by conduct or otherwise, in any one or more
instances shall be deemed to be or construed as a further
or continuing waiver of any such condition or of the breach
of any other provision, term, covenant, representation, or
warranty of this Agreement.
13.11. COUNTERPARTS. This Agreement may be executed in
several counterparts, and all counterparts so executed
shall constitute one agreement, binding on the parties
hereto, notwithstanding that the parties are not signatory
to the same counterpart.
13.12 ENTIRE AGREEMENT. This Agreement, including the
Schedules and Exhibits hereto, constitutes the entire
Agreement between the parties and supersedes and cancels
any and all prior agreements between them relating to the
subject matter hereof.
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<PAGE> 131
13.13 ACCESS TO BOOKS AND RECORDS. After the Effective
Time, Parent, the Surviving Corporation and the Operating
Company shall upon the Securityholder Representative's
request, in connection with any determination of Damages or
Indemnification Obligation, or the defense or settlement of
any Tax Liabilities, Ownership Liabilities or other third
party claims, or the prosecution, defense or settlement of
the Schooner Litigation, or for such other purposes as the
Securityholder Representative shall reasonably request (i)
provide to the Securityholder Representative and other
authorized representatives of the Securityholder
Representative full access, during normal business hours
upon reasonable advance notice, to any and all premises,
properties, files, books, records, documents and other
information of the Surviving Corporation and the Operating
Company, (ii) cause its officers and the Surviving
Corporation and the Operating Company to furnish to the
Securityholder Representative and its authorized
representatives any and all relevant financial, technical
and operating data and other information pertaining to the
Surviving Corporation and the Operating Company, (iii) make
available to the Securityholder Representative and its
authorized representatives, at no expense to the
Securityholder Representative or the Securityholders (other
than reimbursement of reasonable out-of-pocket expenses),
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<PAGE> 132
appropriate personnel of the Surviving Corporation and the
Operating Company to consult with such persons and to
testify at appropriate proceedings, and (iv) make available
for inspection and copying by the Securityholder
Representative and its authorized representatives at the
Securityholder's expense, true and complete copies of any
documents relating to the foregoing.
13.14 SCHEDULES AND AMENDMENTS TO SCHEDULES. Any
information disclosed on any Schedule hereto or the
Financial Statements shall be deemed fully disclosed for
the purposes of all the Schedules hereto and all purposes
hereof. At or prior to the Closing, NDSI shall have the
right to deliver amended Schedules for review and either
approval thereof or rejection thereof by Parent, which
approval shall not be unreasonably withheld or delayed by
Parent. Any amendments to Schedules will be delivered
sufficiently in advance of the Closing Date to allow Parent
to fully review the contents thereof. Parent may reject any
amended Schedule which differs from the original Schedule in
any material respect within five (5) days of receipt (but
not later than five (5) days prior to Closing). In the
event that Parent rejects any such amended Schedule in
writing (the "Rejection Notice") and NDSI shall fail to
agree to delete the objectionable portion of such amending
Schedule within three (3) days of
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receipt of the Rejection Notice, either party may terminate
this Agreement pursuant to Section 13.1(f).
13.15 CONFIDENTIALITY. All information provided to Parent
or Merger Subsidiary on behalf of the Companies before or
after the date of this Agreement concerning the business,
assets, liabilities and operations of the Companies shall be
governed by the Confidentiality Agreement dated ,
1994, heretofore executed by Parent and the Company.
13.16 SUBMISSION TO JURISDICTION; WAIVERS. Each of Parent,
Merger Subsidiary and NDSI hereby irrevocably and
unconditionally:
(a) submit for itself and its property in any legal
action or proceeding relating to this Agreement, or for
recognition the enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the
Courts of the State of Delaware, the courts of the United
States of America for the District of Delaware, and
appellate courts from any of the foregoing;
(b) consents that any such action or proceeding may be
brought in such courts, and waives any objection that it may
now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees
not to plead or claim the same;
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<PAGE> 134
(c) agrees that service of process in any such action
or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar
form of mail), postage prepaid, to such party at its address
as provided in Section 13.7 hereof; and
(d) agrees that nothing herein shall affect the right
to effect service of process in any other manner permitted
by law or shall limit the right to sue in any other
jurisdiction.
13.17 Employee Benefits.
------------------
(a) The Parent agrees that it shall cause Dryvit to
make a cash contribution to the Dryvit Systems, Inc. 401(k)
Profit Sharing Plan ("Profit Sharing Plan"), as soon after
the Closing Date as is practicable, whether or not the
Profit Sharing Plan is terminated, in an amount equal to
the amount which Dryvit has accrued on a monthly basis up to
the Closing Date, which amount shall not exceed 75% of the
contribution which would be made in accordance with the
Profit Sharing Plan if calculated at a 12.5% maximum rate
of contribution applied to base compensation as of the
Closing Date. The contribution required under this
subsection (a) shall be allocated among the accounts of
participants in the Profit Sharing Plan in accordance with
its terms.
(b) The Parent agrees that it shall cause Dryvit to pay
cash bonuses to all employees eligible under the 1995 Basic
Incentive Compensation Program and the 1995
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<PAGE> 135
Supplemental Incentive Compensation Program, as soon after
the Closing Date as is practicable, based on monthly
accruals by Dryvit up to the Closing Date consistent with
past practices, which accruals in the aggregate shall equal
a percentage (calculated based on the number months for
which such accruals have been made prior to the Closing
Date divided by twelve) of the amount of bonuses which
would be payable in accordance with the Programs if
calculated based upon the sum of the Companies'
consolidated performance to the Closing Date plus their
budgeted consolidated performance for the period from the
Closing Date to the end of the 1995 calendar year.
(c) Parent agrees that the Operating Company may in its
discretion effective on the Closing Date take such action as
is necessary to fully vest for all purposes all participants
in the Profit Sharing Plan who are actively employed by the
Operating Company as of the Closing Date or as may be
required by law.
13.18 REGISTRATION STATEMENT TO REMAIN EFFECTIVE. Parent agrees
to maintain the effectiveness of the Registration Statement
under the Securities Act and applicable Blue Sky laws for a
period of three years following the Effective Time. After the
Registration Statement has been declared effective by the
Commission, Parent shall advise the Securityholders, promptly
after Parent becomes so notified of the issuance by the
Commission of any stop order or of any order preventing or
suspending the use of the Registration Statement, of the
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<PAGE> 136
suspension of the qualification of the Parent Common Stock for
offering or sale in any jurisdiction, of the initiation or
threatened initiation of any proceeding for any such purpose or
of any request by the Commission for any amendment or
supplement to the Registration Statement or for additional
information. In the event any stop order or any other order
preventing or suspending the use of the Registration Statement
or suspending any such qualification is issued or threatened to
be issued, Parent shall use its reasonable best efforts to
obtain its withdrawal.
13.19 TAX RETURNS. Parent shall prepare and timely file, or
cause the Company or Companies to prepare and timely file, at
the Parent's expense, all required returns and reports of Taxes
(or any amendment thereto) of the Company or Companies due
after the Closing Date for any period (i) which ends after the
Closing Date and includes any period on or prior to the Closing
Date; (ii) which ends before the Closing Date to the extent the
Company or Companies previously were responsible for the
preparation and filing of such returns in prior years; and
(iii) which ends on the Closing Date. Parent shall submit, or
cause the Company or Companies to submit, to the Securityholder
Representative for his review and and approval (which approval
shall not be unreasonably withheld), at least thirty (30) days
prior to the due date for filing, copies of all such returns
and reports of Taxes which the Company or Companies are
obligated to file. If the Securityholder Representative does
not approve of any return position contained in the foregoing
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<PAGE> 137
returns and reports of Taxes (or any amendment thereto), then
such matter shall be referred to mutually agreeable independent
tax counsel for resolution.
IN WITNESS WHEREOF, the parties have executed this Agreement
or caused this Agreement to be duly executed by their duly
authorized officers, all as of the day and year first above
written.
RPM, INC.
By: /s/ Frank C. Sullivan
--------------------------
Its CFO/VP
--------------------------
RPM OF DELAWARE, INC.
By: /s/ Frank C. Sullivan
--------------------------
Its VP
--------------------------
NARRAGANSETT/DSI
ACQUISITION CO., INC.
By: /s/ Roger A. Vandenberg
--------------------------
Its Chairman
--------------------------
SECURITYHOLDER REPRESENTATIVE
/s/ Roger A. Vandenberg
--------------------------
Roger A. Vandenberg
As to Article V-A and Article XII only:
(Signatures continued on next page.)
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<PAGE> 138
SECURITYHOLDERS
As to Article V-A and NARRAGANSETT CAPITAL PARTNERS-A,
Article XII only L.P.
By: Narragansett Capital
Associates, l.p., its sole general
partner
By: /s/ Roger A. Vandenberg
----------------------
Roger A. Vandenberg
General Partner
As to Article V-A and NARRAGANSETT CAPITAL PARTNERS-B,
Article XII only L.P.
By: Narragansett Capital
Associates, l.p., its sole general
partner
By: /s/ Roger A. Vandenberg
----------------------
Roger A. Vandenberg
General Partner
As to Article V-A and
Article XII only /s/ Richard J. Ramsden
--------------------------
Richard J. Ramsden
As to Article V-A and
Article XII only /s/ Dennis M. Dallman
--------------------------
Dennis M. Dallman
As to Article V-A and
Article XII only /s/ Vincent Tamburrini
--------------------------
Vincent Tamburrini
As to Article V-A and
Article XII only /s/ Paul H. Hill
--------------------------
Paul H. Hill
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<PAGE> 139
As to Article V-A and
Article XII only /s/ Kenneth J. Nota
------------------------
Kenneth J. Nota
As to Article V-A and
Article XII only /s/ Fred M. Hansen
------------------------
Fred M. Hansen
As to Article V-A and
Article XII only /s/ Jan Nogradi
------------------------
Jan Nogradi
As to Article V-A and
Article XII only /s/ Robert C. Budrich
------------------------
Robert C. Budrich
As to Article V-A and
Article XII only /s/ Ronald M. Strickland
------------------------
Ronald M. Strickland
As to Article V-A and
Article XII only /s/ Matthew C. Davis
------------------------
Matthew C. Davis
As to Article V-A and
Article XII only /s/ Richard E. Kroll
------------------------
Richard E. Kroll
As to Article V-A and
Article XII only /s/ Duncan B. Crowther
------------------------
Duncan B. Crowther
As to Article V-A and
Article XII only /s/ Edwin A. Watson
------------------------
Edwin A. Watson
As to Article V-A and
Article XII only GENERAL ELECTRIC CAPITAL
CORPRATION, a Delaware
corporation
By: /s/ Douglas M. Hichner
--------------------
Title:
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<PAGE> 140
As to Article V-A and Smith, Barney Shearson
Article XII only as Custodian FBO Richard J.
Ramsden IRA
By: /s/ Robert G. Huckins
--------------------------
Name: Robert G. Huckins
Title: 1st Vice President
As to Article V-A and
Article XII only /s/ Richard J. Ramsden POA
------------------------------
Wesley M. Dixon, Jr., by
Richard J. Ramsden as
Attorney-in-fact
As to Article V-A and
Article XII only /s/ Richard J. Ramsden POA
------------------------------
William L. Searle, by
Richard J. Ramsden as
Attorney-in-fact
As to Article V-A and
Article XII only /s/ Richard J. Ramsden POA
------------------------------
Daniel C. Searle, by
Richard J. Ramsden as
Attorney-in-fact
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<PAGE> 141
EXHIBITS
A. Securities Agreement
B. Opinion of Counsel for Parent and Merger Subsidiary
C. Opinion of Counsel for NDSI
<PAGE> 1
Exhibit 23.1
CONSENT OF
INDEPENDENT AUDITORS
We consent to the inclusion of our report dated February 28, 1995 with
respect to the consolidated balance sheets of Narragansett/DSI Acquisition Co.,
Inc. ("NDSI") and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the two-year period ended December 31, 1994,
which appear in the Current Report on Form 8-K of RPM, Inc. dated July 24,
1995. We also consent to the incorporation by reference of such report in RPM,
Inc.'s Registration Statements on Form S-3 (Reg. No. 33-50868, Liquid Yield
Option Notes, 33-68222, Dynatron/Bondo Corporation acquisition, and 33-52235,
Stonhard, Inc. acquisition) and Registration Statements on Form S-8 (Reg. No.
2-65508, 1979 Stock Option Plan, 33-32794, 1989 Stock Option Plan, and 33-
54720, Retirement Savings Plan).
Our report dated February 28, 1995 contains an explanatory paragraph that
states that NDSI's wholly owned subsidiary, Dryvit Systems, Inc., has
experienced rust related warranty expense arising from prior years sales.
Dryvit Systems, Inc. has made provision for reported claims; however, no
provision has been made for unreported claims as they cannot be reasonably
estimated. Accordingly, no additional provision for any liability that may
result has been recognized in the financial statements.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Providence, Rhode Island
July 28, 1995
<PAGE> 1
Exhibit 99.1
(LOGO)
NARRAGANSETT/DSI ACQUISITION
CO., INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1994 and 1993
(With Independent Auditors' Report Thereon)
<PAGE> 2
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Table of Contents
Page
----
Independent Auditors' Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Changes in Stockholder's Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-16
<PAGE> 3
(LOGO) PEAT MARWICK LLP
500 Fleet Center
50 Kennedy Plaza
Providence, RI 02903-9605
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Narragansett/DSI Acquisition Co., Inc.:
We have audited the accompanying consolidated balance sheets of
Narragansett/DSI Acquisition Co., Inc. and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income, changes in
stockholder's equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Narragansett/DSI
Acquisition Co., Inc. and subsidiaries at December 31, 1994 and 1993, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in note 11 to the financial statements, Narragansett/DSI
Acquisition Co., Inc.'s wholly owned subsidiary, Dryvit Systems, Inc., has
experienced rust related warranty expense arising from prior years sales.
Dryvit Systems, Inc. has made provision for reported claims. However, future
levels of rust related warranty expense for unreported claims, if any, cannot
be reasonably estimated at this time. Accordingly, no additional provision for
any liability that may result has been recognized in the accompanying financial
statements.
/s/ KPMG PEAT MARWICK LLP
Providence, Rhode Island KPMG Peat Marwick LLP
February 28, 1995
<PAGE> 4
2
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1993
<TABLE>
<CAPTION>
Assets 1994 1993
------ ---- ----
<S> <C> <C>
Current assets:
Cash (note 7) $ 2,094,501 744,645
Trade accounts receivable, less allowance for doubtful receivables
of $851,213 in 1994 and $1,600,550 in 1993 5,332,990 6,568,948
Other receivables, less allowance for doubtful receivables of $171,406
in 1994 and $155,492 in 1993 206,875 337,046
Inventories (note 2) 2,380,712 2,417,537
Prepaid expenses (note 3) 301,191 671,414
Deferred income taxes (note 8) 733,162 896,708
----------- ----------
Total current assets 11,049,431 11,636,298
----------- ----------
Property, plant and equipment (notes 4 and 10) 12,915,205 12,049,790
Less accumulated depreciation (3,992,454) (3,205,577)
----------- ----------
Net property, plant and equipment 8,922,751 8,844,213
----------- ----------
Goodwill, less accumulated amortization 20,654,371 21,241,676
Non-compete agreement, less accumulated amortization 256,833 1,797,833
Other assets, less accumulated amortization (notes 5 and 6) 1,267,069 2,346,350
----------- ----------
$42,150,455 45,866,370
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
Liabilities and Stockholder's Equity 1994 1993
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Current installments of long-term debt (note 7) $ 758,704 --
Current installments of obligations under capital leases (note 7) 32,150 29,526
Accounts payable - trade 2,378,120 2,083,009
Accrued expenses 5,365,253 5,183,217
Income taxes payable 812,146 163,073
----------- ----------
Total current liabilities 9,346,373 7,458,825
Long-term debt, excluding current installments (notes 7 and 9) 14,430,406 24,146,737
Deferred income taxes (note 8) 1,071,403 1,062,410
----------- ----------
Total liabilities 24,848,182 32,667,972
----------- ----------
Stockholder's equity (note 12):
Voting, Class A common stock, $.01 par value. Authorized 100,000 shares;
issued and outstanding 46,200 shares 462 462
Nonvoting, Class A preferred stock, $.01 par value. Authorized 4,130
shares; issued and outstanding 3,500 shares 35 35
Voting Class B convertible participating preferred stock, $.01 par value.
Authorized 39,800 shares; issued and outstanding 30,800 shares 308 308
Additional paid in capital 10,499,195 10,499,195
Retained earnings 6,775,920 2,661,270
Equity adjustment from foreign currency translation 26,353 37,128
----------- ----------
Total stockholder's equity 17,302,273 13,198,398
----------- ----------
Commitments and contingencies (note 10).
$42,150,455 45,866,370
=========== ==========
</TABLE>
<PAGE> 6
3
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Net sales $65,653,838 57,966,042
Cost of sales 36,913,569 31,313,829
----------- ----------
Gross profit 28,740,269 26,652,213
Selling, general and administrative expenses (notes 13, 14 and 15) 18,907,844 19,467,446
----------- ----------
Operating income 9,832,425 7,184,767
----------- ----------
Other income (expense):
Interest income 18,512 16,641
Interest expense (2,553,597) (3,393,669)
Miscellaneous, net (note 5) 157,705 114,451
----------- ----------
(2,377,380) (3,262,577)
----------- ----------
Income before income taxes 7,455,045 3,922,190
Income tax expense (note 8) 3,340,395 583,421
----------- ----------
Net income $ 4,114,650 3,338,769
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
<TABLE>
<CAPTION>
Liabilities and Stockholder's Equity 1994 1993
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Current installments of long-term debt (note 7) $ 758,704 --
Current installments of obligations under capital leases (note 7) 32,150 29,526
Accounts payable - trade 2,378,120 2,083,009
Accrued expenses 5,365,253 5,183,217
Income taxes payable 812,146 163,073
----------- ----------
Total current liabilities 9,346,373 7,458,825
Long-term debt, excluding current installments (notes 7 and 9) 14,430,406 24,146,737
Deferred income taxes (note 8) 1,071,403 1,062,410
----------- ----------
Total liabilities 24,848,182 32,667,972
----------- ----------
Stockholder's equity (note 12):
Voting, Class A common stock, $.01 par value. Authorized 100,000 shares;
issued and outstanding 46,200 shares 462 462
Nonvoting, Class A preferred stock, $.01 par value. Authorized 4,130
shares; issued and outstanding 3,500 shares 35 35
Voting Class B convertible participating preferred stock, $.01 par value.
Authorized 39,800 shares; issued and outstanding 30,800 shares 308 308
Additional paid in capital 10,499,195 10,499,195
Retained earnings 6,775,920 2,661,270
Equity adjustment from foreign currency translation 26,353 37,128
----------- ----------
Total stockholder's equity 17,302,273 13,198,398
----------- ----------
Commitments and contingencies (note 10).
$42,150,455 45,866,370
=========== ==========
</TABLE>
<PAGE> 8
4
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholder's Equity
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
$.01 par
convertible
$.01 par $.01 par participating
common preferred preferred Additional
stock stock stock paid-in
Class A Class A Class B Capital
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balances at December 31, 1992 $ 462 35 308 10,499,195
Net income -- -- -- --
Equity adjustment from foreign
currency translation -- -- -- --
--- --- --- ----------
Balances at December 31, 1993 462 35 308 10,499,195
Net income -- -- -- --
Equity adjustment from foreign
currency transaction -- -- -- --
--- --- --- ----------
Balances at December 31, 1994 $ 462 35 308 10,499,195
===== == === ==========
</TABLE>
<TABLE>
<CAPTION>
Retained
earnings Total
(accumulated) Equity stockholder's
deficit adjustment equity
------- ---------- ------
<S> <C> <C> <C>
Balances at December 31, 1992 (677,499) 57,856 9,880,357
Net income 3,338,769 -- 3,338,769
Equity adjustment from foreign
currency translation -- (20,728) (20,728)
---------- ------- ----------
Balances at December 31, 1993 2,661,270 37,128 13,198,398
Net income 4,114,650 -- 4,114,650
Equity adjustment from foreign
currency transaction -- (10,775) (10,775)
---------- ------ -------
Balances at December 31, 1994 6,775,920 26,353 17,302,273
========== ====== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 9
5
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,114,650 3,338,769
----------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,443,058 3,415,674
Loss on sale of fixed assets 1,037 72,106
Loss on disposal of interest in joint ventures 38,328 --
Provision for losses on accounts receivable 220,164 1,317,010
Provision for warranty expenses 2,407,343 2,183,817
Equity in income of joint ventures -- (58,024)
Gain on discontinuation of employee benefit plan (203,221) --
Deferred tax expense 179,638 8,757
----------- ---------
Adjustments related to income statement activity 6,086,347 6,939,340
Changes in assets and liabilities
Decrease (increase) inaaccounts receivable 1,097,652 (601,158)
Decrease (increase) in inventories 14,053 (422,311)
Decrease in goodwill due to allocation of tax benefits -- 176,000
Decrease (increase) in prepaid expenses (120,728) 91,852
Decrease in prepaid employee benefit plan due
to discontinuation 694,172 --
Decrease in accounts payable and accrued expenses (1,880,271) (1,082,930)
Increase in income tax payable 653,359 141,343
Decrease in refundable income taxes -- 55,453
Decrease in other assets 2,039 54,536
----------- ---------
Total adjustments 6,546,623 5,352,125
----------- ---------
Net cash provided by operating activities 10,661,273 8,690,894
----------- ---------
Cash flows from investing activities:
Capital expenditures for property, plant and equipment (1,216,404) (428,113)
Capital expenditures for intangible assets (64,102) (43,901)
Proceeds from sale of fixed assets 93,299 18,154
Proceeds from sale of interest in joint ventures 716,480 --
----------- ---------
Net cash used in investing activities (470,727) (453,860)
----------- ---------
</TABLE>
(Continued)
<PAGE> 10
6
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash flows from financing activities:
Payments on long-term debt and revolving line of credit $(8,835,016) (8,079,519)
----------- ---------
Net cash used in financing activities (8,835,016) (8,079,519)
----------- ---------
Effect of exchange rate changes on cash (5,674) 5,229
----------- ---------
Net increase in cash and cash equivalents 1,349,856 162,744
Cash and cash equivalents at beginning of year 744,645 581,901
----------- ---------
Cash and cash equivalents at end of year $ 2,094,501 744,645
=========== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 2,553,597 3,393,669
Income taxes $ 2,507,398 249,717
=========== =========
</TABLE>
A capital lease obligation of $144,030 was incurred in the year ended
December 31, 1993 when the Company entered into leases for new
equipment (note 9).
See accompanying notes to consolidated financial statements.
<PAGE> 11
7
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of
Narragansett/DSI Acquisition Co., Inc. (the "Holding Company"), its
wholly-owned subsidiary, Dryvit Systems, Inc. (the "Company") and its
wholly-owned subsidiaries: Dryvit Systems Canada, Ltd. ("DSCL"), Dryvit
Systems Australia, Ltd. ("Australia"), Dryvit Systems New Zealand, Ltd.
("NZ"), Dryvit Systems FSC, Inc. and Tech-21 Panel Systems, Inc.
("Tech-21"). All significant intercompany transactions and balances have
been eliminated.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by using the last-in, first-out (LIFO) method for manufacturing
inventories and by using the first-in, first-out (FIFO) method for resale
inventories and inventories owned by DSCL.
(c) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Buildings, machinery,
and equipment are depreciated using the straight-line method over the
estimated useful lives of the respective assets.
(d) Income Taxes
The Holding Company prepares a consolidated tax return. The Company is
included in this consolidated tax return and accounts for substantially
all of the Holding Company's consolidated taxable income.
Income tax expense is provided for and reported in the accompanying
statements of income regardless of when such tax is payable. Deferred
income taxes result from the recognition of certain income and expense
items in different time periods for financial statement and tax return
purposes.
Deferred income taxes have not been provided on the undistributed earnings
of foreign subsidiaries and joint ventures, as such earnings are intended
to be indefinitely reinvested by the Company.
(e) Profit Sharing Plan
The Company has a voluntary, contributory 401(k) profit sharing plan
covering all eligible employees. All contributions to the plan by Dryvit
Systems, Inc. are discretionary. Under the plan, eligible employees can
contribute up to 10% of their annual compensation.
(f) Warranty
The Company accrues for reported warranty claims based on the estimated
costs to repair. Estimated costs are based on either actual bids received
for repairs or a calculation of square footage of affected areas times the
applicable per square foot rate to repair. The Company has established the
rates to repair based on agreements with independent repair companies and
historical calculations for each method of repair.
<PAGE> 12
8
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(g) Intangible Assets
Intangible assets are stated at cost and are shown net of amortization.
Intangibles are amortized using the straight-line method over 40 years
for goodwill, 5 years for the non-compete agreement and the term of the
related debt for deferred financing costs. Other intangibles are
amortized utilizing the straight-line method over various estimated
lives, not exceeding 40 years.
(h) Consolidated Statements of Cash Flows
For the purposes of the Consolidated Statements of Cash Flows, the Company
considers cash held in banks and the negative revolver balance (note 7)
as cash and cash equivalents.
(i) Foreign Currency Translation
Foreign currency financial statements are translated into dollars at
current rates, except that revenues, costs and expenses are translated at
average rates during each reporting period. Adjustments resulting from
translation of financial statements are reflected as a separate component
of stockholder's equity.
(j) Presentation
Certain prior year amounts have been reclassified to conform to current
year presentation.
(2) Inventories
At December 31, 1994 and 1993, inventories are classified and valued as
follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Manufacturing inventories (LIFO) $1,538,488 1,493,661
Resale inventories (FIFO) 448,797 529,099
Manufacturing and resale inventory DSCL (FIFO) 393,427 394,777
---------- ---------
Total inventories 2,380,712 2,417,537
========== =========
</TABLE>
The components of inventories (e.g., raw materials and finished goods) have
not been disclosed as the computation would require a percentage allocation
of the LIFO dollar base for manufacturing inventories which is only
coincidentally related to the components of inventories.
If the first-in, first-out (FIFO) method of inventory valuation had been
used, manufacturing inventories would have been $76,821 and $165,820 higher
than that reported at December 31, 1994 and 1993, respectively.
(3) Employee Benefit Plan
At December 31, 1993 the Company had a Voluntary Employee Benefit Plan which
covered substantially all employees. Provisions of the Plan, among other
things, provided for payment of certain employee benefits into the Plan for
later disbursement to parties providing the benefits. The Plan was
discontinued during the year ended December 31, 1994, and all employee
benefits previously provided through the Plan were paid directly by the
Company.
(Continued)
<PAGE> 13
9
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The estimated obligations under the Plan were $490,951 at December 31, 1993.
For financial statement purposes, the estimated obligation was considered a
prepaid asset until the benefit payment obligation was incurred and was
included in prepaid expenses at December 31, 1993. Proceeds received upon
dissolution of the Plan were $694,172.
(4) Property, Plant and Equipment
A summary of property, plant and equipment follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Land $ 1,324,425 1,344,655
Buildings 4,462,060 4,274,165
Building improvements 1,843,178 1,842,787
Machinery and equipment 4,778,958 4,124,713
Furniture and fixtures 273,986 256,495
Automobiles 70,734 45,111
Capital leases (see note 9) 161,864 161,864
----------- ----------
12,915,205 12,049,790
Less accumulated depreciation (3,992,454) (3,205,577)
----------- ----------
$ 8,922,751 8,844,213
=========== ==========
</TABLE>
Depreciation expense amounted to $924,886 and $899,145 for the years ended
December 31, 1994 and 1993.
(5) Investments in Joint Ventures
The Company accounts for certain investments in joint ventures using the
equity method of accounting. The following is a listing of such
investments in joint ventures and their related carrying values at December
31, 1994 and 1993, and the equity in income of the investments for the
years ended December 31, 1994 and 1993. The carrying values of the
investments are included in other assets and the equity in income of the
investments is included in miscellaneous income.
<TABLE>
<CAPTION>
1994 1993
-------------------------------------- -----------------------------------
Carrying Equity in Percent Carrying Equity in Percent
Investment Value Income Ownership Value Income Ownership
---------- ----- ------ --------- ----- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Hyosung-Dryvit Co., Ltd. $ -- -- 0% 739,808 58,024 40.0%
Browne-Dryvit Limited -- -- 0% 15,000 -- 50.0%
------- ------ ------- ------
$ -- -- 754,808 58,024
======= ====== ======= ======
</TABLE>
Dryvit sold all of its shares in Hyosung-Dryvit Co., Ltd., in 1994 to the
majority shareholder. The Company received $696,500 from the majority
shareholder on May 11, 1994. The difference between the December 31, 1993
carrying value and the amount received is included in miscellaneous, net.
The investment in Browne-Dryvit Limited was written down in 1993 to its
expected net realizable value of $15,000. During 1994 the Company received
$19,980 and the joint venture was terminated.
<PAGE> 14
10
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Other Assets
Included in other assets are $816,588 and $1,121,339 of deferred financing
costs at December 31, 1994 and 1993, respectively, net of applicable
amortization, which are being amortized over the remaining term of the
related debt which does not exceed 10 years. Amortization expense amounted
to $302,051 and $293,207 for the years ended December 31, 1994 and 1993.
Also included in other assets is $34,970 and $50,789 of computer software
costs at December 31, 1994 and 1993, respectively, net of applicable
amortization. Amortization expense amounted to $21,648 and $25,563 for the
years ended December 31, 1994 and 1993.
(7) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Revolving credit note payable under a line of credit agreement that
permits the Company to borrow up to the "Additonal Borrowing Base"
plus the lesser of (1) eligible receivables or (2) $6,500,000. The
"Additional Borrowing Base" at December 31, 1994 was $8,200,000 and
is subject to mandatory quarterly reductions of $1,025,000 per quarter
from March 1, 1995 through December 1, 1996. Interest is payable monthly
at a rate equal to prime plus 1.5% $ -- 7,424,364
Fixed rate note payable in quarterly amounts commencing in March
1997 through December 1998. Principal payments are payable in different
amounts quarterly in 1997 and 1998. Interest payable monthly throughout
the term of the loan at a rate equal to 14.5%. 13,589,348 15,000,000
Note payable in quarterly amounts commencing in March 1995 through
December 1996. Interest is payable monthly throughout the term of the
loan at the Canadian prime rate plus 2.0%. 1,517,408 1,607,869
Obligations under capital leases (see note 9) 114,504 144,030
----------- ----------
Total 15,221,260 24,176,263
Less: current installment of long-term debt and obligations under
under capital leases (790,854) (29,526)
----------- ----------
Long-term debt $14,430,406 24,146,737
=========== ==========
</TABLE>
<PAGE> 15
11
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The loan agreement dated March 1, 1990 as amended on July 29, 1992 and
February 17, 1995 covers the fixed rate note payable and the revolving
credit note payable. The availability under the terms of the revolving
credit note payable terminates on March 1, 1997 at which time full payment
of the outstanding balance is due. The amended loan agreement contains
restrictive covenants which establish minimums for consolidated cash flows
and consolidated interest coverage ratios and maximums for funded debt to
cash flow ratios, extraordinary warranty expenditures and capital
expenditures. At December 31, 1994, the Company was in compliance with
these covenants except for the covenant relating to the limitation on
extraordinary warranty expenditures. In an agreement dated February 17,
1995, the lender agreed to waive the violation for the year ended December
31, 1994 and amended the covenant's limitations for future years.
Under the terms of a lock-box arrangement included in the loan agreement, it
is possible for the Company to achieve a negative revolver balance due to
deposits to the lockbox in excess of borrowings under the revolving credit
note payable. As of December 31, 1994, the negative revolver balance
amounted to $1,878,750 and is classified as cash.
The aggregate maturities of long-term debt, (excluding the mandatory
reductions as described above under the revolving credit note payable and
maturities of obligations under capital lease which are disclosed in note
9), for each of the five years ending December 31, 1999 are as follows:
1995 - $758,704; 1996 - $758,704; 1997 - $7,000,000, 1998 - $6,589,348; and
1999 - $0.
Mandatory reductions of the Additional Borrowing Base are expected to be
offset at any point in time by the credit availability provided for by the
eligible receivables borrowing base.
(8) Income Taxes
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
Charge in
Current Deferred Lieu of Tax Total
------- --------- ----------- -----
<S> <C> <C> <C> <C>
1994:
Federal $2,482,686 120,204 -- 2,602,890
State 575,577 44,792 -- 620,369
Foreign 109,593 7,543 -- 117,136
---------- ------- ------- ---------
Total income tax expense $3,167,856 172,539 -- 3,340,395
========== ======= ======= =========
1993:
Federal $ 262,729 53,908 165,440 482,077
State 33,543 (37,394) 10,560 6,709
Foreign 107,414 (12,779) -- 94,635
---------- ------- ------- -------
Total income tax expense $ 403,686 3,735 176,000 583,421
========== ======= ======= =======
</TABLE>
(Continued)
<PAGE> 16
12
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Income tax (benefit) expense amounted to $3,340,395 for 1994 and $583,421 for
1993. The actual tax expense for both 1994 and 1993 differs from the
"expected" tax expense (computed by applying the U.S. Federal corporate tax
rate of 34% to earnings before income taxes) as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Computed "expected" tax expense $2,534,715 1,333,545
Expense of foreign subsidiary tax on income at greater than 34% 40,916 --
State tax net of Federal tax benefit 409,444 161,700
Non-taxable net loss (profit) of unconsolidated subsidiary
and joint ventures 17,230 (19,727)
Meals and entertainment 24,575 11,206
Nondeductible amortization of intangibles 232,498 242,760
Other 84,025 (11,916)
Charge in lieu of taxes resulting from recognition of tax benefits
charged to goodwill -- 176,000
Change in valuation allowance (3,008) (1,310,147)
---------- ---------
Total income tax expense $3,340,395 583,421
========== =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1994 and 1993 are presented below:
<TABLE>
<CAPTION>
Deferred Tax Asset 1994 1993
------------------ ---- ----
<S> <C> <C>
Net operating loss carryforward $ 7,270 --
Reserve for bad debts 293,282 551,355
Reserve for product warranties 402,420 591,663
Reserve for compensated absences and other benefits 84,247 76,128
---------- ---------
Total gross deferred tax assets 787,219 1,219,146
Less: Valuation allowance (26,341) (29,349)
---------- ---------
Gross deferred tax assets net of valuation allowance 760,878 1,189,797
---------- ---------
Depreciation and amortization 1,062,587 1,062,410
Employee benefits -- 252,008
Other 36,532 41,081
---------- ---------
Total gross deferred tax liability 1,099,119 1,355,499
---------- ---------
Net deferred tax liability $ 338,241 165,702
========== =========
</TABLE>
(Continued)
<PAGE> 17
13
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Deferred Tax Liability 1994 1993
---------------------- ---- ----
<S> <C> <C>
The net deferred tax liability is comprised as follows:
Net current deferred tax asset $ 733,162 896,708
Net long-term deferred tax liability 1,071,403 1,062,410
---------- ---------
$ 338,241 165,702
========== =========
</TABLE>
The cumulative amounts of undistributed earnings of the Company's foreign
subsidiaries and joint ventures amounted to approximately $579,869 and
$609,636 at December 31, 1994 and 1993, respectively, all of which are
considered to be indefinitely reinvested.
It is management's assertion that it is more likely than not that the results
of future operations will generate sufficient taxable income to realize
gross deferred tax assets net of valuation allowance.
The Holding Company has been assessed by the Internal Revenue Service per an
examination of certain prior years tax returns. Deductions principally
related to costs incurred in connection with the Company's acquisition by
the parent have been disallowed by the IRS. The Company believes that the
assessment is without merit and is vigorously defending its position on
these matters. If the Company is unsuccessful in its negotiations with the
IRS, any portion of the tax deductions lost would not have a material
impact on financial position or results of operations.
(9) Capital leases
The Company has eight capital leases expiring in various years through 1998.
The assets and liabilities under capital leases are recorded at the lower
of the present value of the minimum lease payments or the fair value of the
asset. The assets are depreciated over the lesser of the related lease
terms or their estimated productive lives. Depreciation of the assets
under capital leases is included in depreciation expense.
Following is a summary of property held under capital leases:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Forklifts $ 161,864 161,864
Less: Accumulated depreciation (53,177) (20,804)
--------- -------
$ 108,687 141,060
========= =======
</TABLE>
(Continued)
<PAGE> 18
14
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Future minimum lease payments at December 31, 1994 under capital leases are
as follows:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
1995 $ 39,515
1996 39,515
1997 36,104
1998 13,914
Subsequent to 1998
--------
Total minimum lease payments 129,048
Less: Amount representing interest (14,544)
--------
Present value of minimum lease payments $114,504
========
</TABLE>
The interest rate of 7.5% on capitalized leases is based on the Company's
incremental borrowing rate at the inception of each lease.
All capital leases contain purchase options, which provide for pricing at the
expected fair value of the equipment at the expiration of the lease term.
(10) Commitments and Contingencies
As of December 31, 1994, the Company had under operating leases certain office
equipment and automobiles.
The following is a schedule by years of future minimum rental payments
required under operating leases as of December 31, 1994 (all current leases
expire by December 31, 1997):
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1995 $ 45,150
1996 27,415
1997 11,582
</TABLE>
Total rental expense under operating leases amounted to $116,785 and $164,406
for the years ended December 31, 1994 and 1993.
The Company is party to various claims and lawsuits, all of which are being
contested. In the opinion of management, the ultimate liability with
respect to these actions and claims will not have a material adverse effect
on either the Company's financial position or its results of operations.
(Continued)
<PAGE> 19
15
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company periodically receives claims from customers relating to product
or application failure. After investigation by the Company and
determination of the cause of the failure, Dryvit may decide to repair the
failure or participate in an appropriate remedy. This decision is based on
factors relating to the extent of actual material failure and customer
goodwill. Warranty expense, including the amounts relating to rust (note
11), amounted to $2,407,343 (net of the reversal of an overaccrual from
1993) and $2,183,817 for the years ended December 31, 1994 and 1993 and is
included in selling, general and administrative expenses.
(11) Rust Warranty Claims
The Company periodically receives warranty claims relating to rust spotting
and staining that appears on a customerGs exterior finished wall. These
rust claims arise from the presence of impurities in the sand component of
product manufactured by the Company prior to April 1991. The impurities
consisted of ferrous and pyrite particles which developed into rust spots
when exposed to seasonal weathering conditions. The rust spots affect only
the aesthetic appearance of the building and have no impact on its
structural integrity.
The Company has implemented comprehensive quality control procedures
specifically aimed at ensuring the elimination of impurities from the
manufacturing process. The quality control procedures include independent
inspection and analysis of sand sources prior to selecting suppliers,
analysis of sand shipments before shipping and again upon arrival at the
production facilities, and the inclusion of high powered magnets in the
sand handling process at all facilities. These quality control steps were
completed and in place by April 1991. The Company has not received any
rust warranty claims relating to product produced after April 1991.
Based on their experience with reported claims, management believes that an
estimate of future claims cannot be reasonably determined, since not all
product produced prior to April 1991 contained impurities and not all
projects having rust spots will result in a claim.
Rust warranty expense amounted to $2,416,983 in 1994 and $1,904,302 in 1993.
(12) Stockholders Equity
In addition to the common stock, preferred stock and convertible
participating preferred stock, the Holding Company is authorized to issue
25,000 shares of $.01 par nonvoting Class B common stock, and 75,000 shares
of preferred stock with a par value of $.01 per share, none of which are
outstanding.
The Class B convertible participating preferred stock has a liquidation value
of $146.10 per share plus any declared but unpaid dividends thereon. It is
convertible upon the occurrence of specific events relating to change in
control of the Holding Company into Class A common stock at a formula
specified in the stock issuance certificates. The convertible
participating preferred stock has a liquidation priority over common stock
and preferred stock but not over Class A preferred stock.
The Class A preferred stock has a liquidation value of $1,000 plus all
accrued and unpaid dividends to date, whether or not declared by the Board
of Directors and has preference over all other classes of stock in
liquidation.
(Continued)
<PAGE> 20
16
NARRAGANSETT/DSI ACQUISITION CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
During 1991, the Holding Company issued stock options under a non-qualified
plan (which was amended in 1993) to certain key employees of Dryvit. These
options are for Class B Nonvoting Common Stock, $0.01 par value, of
Narragansett/DSI Acquisition Co. At December 31, 1994 and 1993, the total
number of shares under option were 2,800 and 3,000 shares, of which 1,922
and 1,411 shares were exercisable, respectively. At December 31, 1994 and
1993, no options had been exercised. The options expire on the tenth
anniversary of the option date, or when an employee is no longer employed
by Dryvit. The option price for each share is $105.52 per share, which was
the estimated fair market value at the date of grant.
On March 1, 1990, the Holding Company issued three warrants to GE Capital
with each having an expiration date of March 1, 2000. The first warrant
issued was for the purchases of 9,000 shares of Class A Voting Common Stock
of Narragansett/DSI Acquisition Co., Inc., at a purchase price of $32.4675
per share. The second warrant issued was for the purchase of Class B
Convertible Participating Preferred Stock of Narragansett/DSI Acquisition
Co., Inc., at a purchase price of $178.5714 per share. The third warrant
issued was for the purchase of 630 shares of Class A Accreting Preferred
Stock of Narragansett/DSI Acquisition Co., Inc., at a purchase price of
$1.00 per share. As of December 31, 1994, none of the warrants, nor any
part of the warrants, had been exercised.
(13) Amortization Expense
For the years ended December 31, 1994 and 1993, total amortization expense on
goodwill, non-compete agreements and other assets amounted to $2,518,172
and $2,516,529, respectively.
(14) Profit Sharing Plan
For the years ended December 31, 1994 and 1993, profit sharing expense
amounted to $943,893 and $1,019,759, respectively.
(15) Research and Development
Expenditures for research and development are charged to earnings in the year
incurred. Total Research and Development expense was $452,757 and $473,687
for the years ended December 31, 1994 and 1993, respectively.
<PAGE> 1
Exhibit 99.2
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
-------------------------------------------------------------
RPM, INC. AND SUBSIDIARIES
--------------------------
AND
---
NARRAGANSETT/DSI ACQUISITION CO., INC.
--------------------------------------
The following unaudited pro forma condensed combined balance sheet as of
February 28, 1995, gives effect to the acquisition of Narragansett/DSI
Acquisition Co., Inc. by RPM, Inc. and Subsidiaries as if the acquisition
occurred on February 28, 1995. The following unaudited pro forma condensed
statements of income combine the condensed statement of income of RPM, Inc. and
Subsidiaries and Narragansett/DSI Acquisition Co., Inc. for the year ended May
31, 1994, assuming the purchase of Narragansett/DSI Acquisition Co., Inc. had
been consummated as of June 1, 1993, and for the nine months ended February 28,
1995, assuming the purchase had been consummated as of June 1, 1994. The pro
forma information is based on the historical financial statements of RPM, Inc.
and Subsidiaries and Narragansett/DSI Acquisition Co., Inc. giving effect to
the transaction under the purchase method of accounting and the assumptions and
adjustments in the accompanying notes to the pro forma financial statements.
The pro forma statements have been prepared by RPM, Inc.'s management based
upon the financial statements of Narragansett/DSI Acquisition Co., Inc.
included elsewhere herein. These pro forma statements may not be indicative of
the results that actually would have occurred if the combination had been in
effect on the dates indicated or which may be obtained in the future. The pro
forma financial statements should be read in conjunction with the audited
financial statements and notes of Narragansett/DSI Acquisition Co., Inc.
contained elsewhere herein.
<PAGE> 2
PRO FORMA CONDENSED COMBINED
----------------------------
BALANCE SHEET (UNAUDITED)
-------------------------
FEBRUARY 28, 1995
-----------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RPM, Inc. and Narragansett/
Subsidiaries DSI Acquisition Pro Forma Pro Forma
ASSETS (as Reported) Co., Inc. Adjustments Combined
------ ----------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Current Assets
(a)$ 47,000
(b) (15,005)
Cash and short-term cash investments $ 24,347 $ 723 (c) (31,995) $ 25,070
Marketable securities, at cost 8,854 8,854
Trade accounts receivable, net 166,108 6,848 172,956
Inventories 168,095 3,022 171,117
Prepaid expenses and other current assets 14,181 1,083 15,264
-------- -------- -------- ----------
Total current assets 381,585 11,676 393,261
-------- -------- -------- ----------
(d) (92,795)
Investment in Subsidiaries (c) 92,795
Property, Plant and Equipment, At Cost 355,171 13,076 1,289 369,536
Less: Accumulated depreciation 157,875 4,138 ( 4,138) 157,875
-------- -------- -------- ----------
Property, plant and equipment, net 197,296 8,938 5,427 211,661
-------- -------- -------- ----------
Other Assets
Goodwill, net 173,911 20,556 (d) 34,000 228,467
Other intangible assets, net 160,715 (d) 70,000 230,715
Equity in unconsolidated affiliates 14,195 14,195
Other 24,010 1,306 25,316
-------- -------- -------- ----------
Total other assets 372,831 21,862 104,000 498,693
-------- -------- -------- ----------
Total Assets $951,712 $ 42,476 $109,427 $1,103,615
======== ======== ======== ==========
</TABLE>
<PAGE> 3
PRO FORMA CONDENSED COMBINED
----------------------------
BALANCE SHEET (UNAUDITED)
-------------------------
FEBRUARY 28, 1995
-----------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RPM, Inc. and Narragansett/
Subsidiaries DSI Acquisition Pro Forma Pro Forma
LIABILITIES AND SHAREHOLDERS' EQUITY (as Reported) Co., Inc. Adjustments Combined
------------------------------------ ----------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Current Liabilities
Notes and accounts payable $ 51,983 $ 2,746 $ 54,729
Current portion of long-term debt 608 765 (b)$( 765) 608
Accrued compensation and benefits 34,282 2,478 36,760
Accrued warranty and loss reserves 18,458 2,077 20,535
Other accrued liabilities 18,734 862 19,596
Income taxes payable 276 867 1,143
-------- -------- -------- ----------
Total current liabilities 124,341 9,795 (765) 133,371
-------- -------- -------- ----------
(a) 47,000
Long-Term Debt, Less Current Maturities 412,939 14,240 (b) (14,240) 459,939
-------- -------- -------- ----------
Deferred Income Taxes and Other 80,946 1,073 (d) 34,000 116,019
-------- -------- -------- ----------
Shareholders' Equity
Common shares 1,292 (c) 73 1,365
(c) 60,727
Paid-in capital 146,379 10,500 (d) (10,500) 207,106
Cumulative translation adjustment (1,231) 24 (d) ( 24) (1,231)
Retained earnings 187,046 6,844 (d) ( 6,844) 187,046
-------- -------- -------- ----------
Total shareholders' equity 333,486 17,368 43,432 394,286
-------- -------- -------- ----------
Total Liabilities And Shareholders' Equity $951,712 $ 42,476 $109,427 $1,103,615
======== ======== ======== ==========
<FN>
(a) Reflects additional debt associated with the acquisition
(b) Reflects the repayment of the debt of Narragansett/DSI
Acquisition Co., Inc.
(c) Reflects the purchase of Narragansett/DSI Acquisition Co.,
Inc. for cash and 3,200,000 RPM, Inc. common shares
(d) Reflects the adjustment to fair value for the assets acquired
and the liabilities assumed with the difference allocated to
goodwill
</TABLE>
<PAGE> 4
PRO FORMA CONDENSED COMBINED
----------------------------
STATEMENT OF INCOME (UNAUDITED)
-------------------------------
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1995
-------------------------------------------
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
RPM, Inc. and Narragansett/
Subsidiaries DSI Acquisition Pro Forma Pro Forma
(as Reported) Co., Inc. Adjustments Combined
----------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Net sales $736,509 $49,134 $785,643
Cost of sales 427,114 27,903 455,017
-------- ------- --------
Gross profit 309,395 21,231 330,626
(b)$ 59
Selling, general and administrative expenses 221,694 14,544 (c) 2,738 239,035
Interest expense, net 16,456 1,697 (a) 771 18,924
-------- ------- ------- --------
Income before income taxes 71,245 4,990 (3,568) 72,667
Provision for income taxes 30,279 2,201 (d) (1,048) 31,432
-------- ------- ------- --------
Net income $ 40,966 $ 2,789 $(2,520) $ 41,235
======== ======= ======= ========
Average shares outstanding 57,109 3,200 60,309
====== ====== ======
Primary earnings per share $.72 $.68
==== ====
Fully diluted earnings per share $.69 $.66
==== ====
<FN>
(a) Reflects the incremental interest expense RPM, Inc. would have
incurred on the additional debt resulting from the
acquisition, along with the refinancing of acquired
Narragansett/DSI Acquisition Co., Inc. debt, calculated using
the applicable borrowing rates during the period.
(b) Reflects the increase in depreciation resulting from
adjustments to the fair value of Property, Plant and
Equipment.
(c) Reflects the increase in amortization resulting from
adjustments to the fair value of intangibles.
(d) Reflects the computation of taxes assuming Narragansett/DSI
Acquisition Co., Inc. was included in RPM, Inc. and
Subsidiaries federal income tax return for the period and
reflects the income tax effects related to the other pro forma
adjustments.
</TABLE>
<PAGE> 5
PRO FORMA CONDENSED COMBINED
----------------------------
STATEMENT OF INCOME (UNAUDITED)
-------------------------------
FOR THE YEAR ENDED MAY 31, 1994
-------------------------------
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
RPM, Inc. and Narragansett/
Subsidiaries DSI Acquisition Pro Forma Pro Forma
(as Reported) Co., Inc. Adjustments Combined
----------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Net sales $815,598 $62,141 $877,739
Cost of sales 476,146 34,034 510,180
-------- ------- --------
Gross profit 339,452 28,107 367,559
(b)$ 79
Selling, general and administrative expenses 237,931 19,317 (c) 3,650 260,977
Interest expense, net 13,427 3,086 (a) 1,187 17,700
-------- ------- ------- --------
Income before income taxes 88,094 5,704 (4,916) 88,882
Provision for income taxes 35,454 1,724 (d) ( 656) 36,522
-------- ------- ------- --------
Net income $ 52,640 $ 3,980 $(4,260) $ 52,360
======== ======= ======= ========
Average shares outstanding 56,717 3,200 59,917
====== ====== ======
Primary earnings per share $.93 $.87
==== ====
Fully diluted earnings per share $.89 $.84
==== ====
<FN>
(a) Reflects the incremental interest expense RPM, Inc. would have
incurred on the additional debt resulting from the
acquisition, along with the refinancing of acquired
Narrangansett/DSI Acquisition Co., Inc. debt, calculated using
the applicable borrowing rates during the period.
(b) Reflects the increase in depreciation resulting from the
adjustments to the fair value of Property, Plant and
Equipment.
(c) Reflects the increase in amortization resulting from
adjustments to the fair value of intangibles.
(d) Taxes have been computed assuming Narragansett/DSI Acquisition
Co., Inc. was included in RPM, Inc. and Subsidiaries federal
income tax return for the period and reflects the income tax
effects related to the other pro forma adjustments.
</TABLE>
