<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1996
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CFI INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
A fee of $3,011 was paid in connection with a filing made on July 5,
1996
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
CFI INDUSTRIES, INC.
935 W. UNION AVENUE
WHEATON, IL 60187
(708) 668-2838
July 22, 1996
To: The Stockholders of CFI INDUSTRIES, INC.:
On behalf of the Board of Directors (the "Board") and management of CFI
Industries, Inc., a Delaware corporation (the "Company"), I cordially invite you
to attend a Special Meeting of Stockholders of the Company (the "Special
Meeting") to be held at 10:00 a.m., local time, on Thursday, August 15, 1996, at
Suite 2200, Two North Riverside Plaza, Chicago, Illinois.
At the Special Meeting, you will be asked to consider and vote upon a
proposal (the "Merger Proposal") to approve and adopt the Agreement and Plan of
Merger, dated as of May 17, 1996 and amended as of June 19, 1996 and June 26,
1996, respectively (the "Merger Agreement"), among IPC, Inc. (formerly named
Ivex Packaging Corporation), a Delaware corporation ("IPC"), Package
Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of IPC
("Sub"), the Company and Equity Holdings, an Illinois general partnership, and
the transactions contemplated thereby, including the Merger (as hereinafter
defined).
The Merger Agreement provides for the merger (the "Merger") of Sub with and
into the Company, with the Company surviving as a wholly owned subsidiary of
IPC. Subject to the terms and conditions of the Merger Agreement, each
outstanding share of common stock, $1.00 par value, of the Company ("Common
Stock"), will be converted into the right to receive an amount in cash, without
interest, equal to $6.34, subject to pro-rata reduction (based on shares of
Common Stock outstanding or issuable pursuant to in-the-money stock options) to
the extent that certain fees and expenses of the Company exceed $200,000 (the
"Closing Per Share Amount"). It is currently anticipated by the Company that the
Closing Per Share Amount will be between $6.20 and $6.22.
The Board has determined that the Merger is in the best interests of the
Company and its stockholders and has unanimously approved the Merger Agreement
and the transactions contemplated thereby, including the Merger. THE BOARD
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE MERGER PROPOSAL.
You are urged to read carefully the accompanying Proxy Statement, which
includes a description of the terms of the proposed Merger. A copy of the Merger
Agreement is attached to the Proxy Statement as Annex A.
As is more fully explained in the Proxy Statement, holders of Common Stock
have the right to dissent from the Merger and to receive payment of the fair
value of their shares upon full compliance with Section 262 of the General
Corporation Law of the State of Delaware.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO
SPECIFY YOUR VOTING PREFERENCES BY COMPLETING, DATING AND SIGNING THE ENCLOSED
PROXY CARD AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. If you do
attend and wish to vote in person, you may revoke your proxy at that time.
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME. In the event
the Merger is consummated, you will be sent a letter of transmittal for that
purpose as soon as reasonably practicable thereafter.
Sincerely,
Philip C. Calian
Philip C. Calian
Chairman of the Board
<PAGE> 3
CFI INDUSTRIES, INC.
935 W. UNION AVENUE
WHEATON, IL 60187
(708) 668-2838
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, AUGUST 15, 1996
A Special Meeting of Stockholders (the "Special Meeting") of CFI
Industries, Inc., a Delaware corporation (the "Company"), will be held at 10:00
a.m., local time, on Thursday, August 15, 1996, at Suite 2200, Two North
Riverside Plaza, Chicago, Illinois, for the following purposes:
1. To consider and vote upon a proposal (the "Merger Proposal") to
approve and adopt the Agreement and Plan of Merger, dated as of May 17,
1996 and amended as of June 19, 1996 and June 26, 1996, respectively (the
"Merger Agreement"), among IPC, Inc. (formerly named Ivex Packaging
Corporation), a Delaware corporation ("IPC"), Package Acquisition, Inc., a
Delaware corporation and a wholly owned subsidiary of IPC ("Sub"), the
Company and Equity Holdings, an Illinois general partnership, and the
transactions contemplated thereby, including the Merger (as hereinafter
defined); and
2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Stockholders of record at the close of business on July 17, 1996 are
entitled to receive notice of and to vote at the Special Meeting and any
adjournment or postponement thereof.
The Merger Agreement provides for the merger (the "Merger") of Sub with and
into the Company, with the Company surviving as a wholly owned subsidiary of
IPC. Subject to the terms and conditions of the Merger Agreement, each
outstanding share of common stock, $1.00 par value, of the Company ("Common
Stock"), will be converted into the right to receive an amount in cash, without
interest, equal to $6.34, subject to pro-rata reduction (based on shares of
Common Stock outstanding or issuable pursuant to in-the-money stock options) to
the extent that certain fees and expenses of the Company exceed $200,000 (the
"Closing Per Share Amount"). It is currently anticipated by the Company that the
Closing Per Share Amount will be between $6.20 and $6.22.
The Board of Directors of the Company (the "Board") has determined that the
Merger is in the best interests of the Company and its stockholders and has
unanimously approved the Merger Agreement and the transactions contemplated
thereby, including the Merger. THE BOARD UNANIMOUSLY RECOMMENDS THAT THE
COMPANY'S STOCKHOLDERS VOTE "FOR" THE MERGER PROPOSAL.
The accompanying Proxy Statement includes a description of the terms of the
proposed Merger. A copy of the Merger Agreement is attached to the Proxy
Statement as Annex A.
In accordance with the General Corporation Law of the State of Delaware
(the "DGCL"), a complete list of the holders of Common Stock entitled to vote at
the Special Meeting will be open to examination, during ordinary business hours,
at the office of the Corporate Secretary, Suite 600, Two North Riverside Plaza,
Chicago, Illinois, for 10 days preceding the Special Meeting, by any holder of
Common Stock for any purpose germane to the Special Meeting.
As is more fully explained in the Proxy Statement, holders of Common Stock
have the right to dissent from the Merger and to receive payment of the fair
value of their shares upon full compliance with Section 262 of the DGCL. A copy
of Section 262 is attached to the Proxy Statement as Annex B.
By order of the Board of Directors,
Susan Obuchowski
Susan Obuchowski
Secretary
<PAGE> 4
CFI INDUSTRIES, INC.
935 W. UNION AVENUE
WHEATON, IL 60187
(708) 668-2838
PROXY STATEMENT
This Proxy Statement (the "Proxy Statement") is being furnished to the
holders of common stock, $1.00 par value ("Common Stock"), of CFI Industries,
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company (the "Board")
for use at a Special Meeting of Stockholders of the Company (the "Special
Meeting") to be held at 10:00 a.m., local time, on Thursday, August 15, 1996, at
Suite 2200, Two North Riverside Plaza, Chicago, Illinois, and at any and all
adjournments or postponements thereof. This Proxy Statement and the accompanying
form of proxy are first being mailed to stockholders of the Company on or about
July 22, 1996.
This Proxy Statement relates to the Agreement and Plan of Merger, dated as
of May 17, 1996 and amended as of June 19, 1996 and June 26, 1996, respectively
(the "Merger Agreement"), among IPC, Inc. (formerly named Ivex Packaging
Corporation), a Delaware corporation ("IPC"), Package Acquisition, Inc., a
Delaware corporation and a wholly owned subsidiary of IPC ("Sub"), the Company
and Equity Holdings, an Illinois general partnership, and the Merger (as
hereinafter defined). A copy of the Merger Agreement is attached hereto as Annex
A.
The Merger Agreement provides for the merger (the "Merger") of Sub with and
into the Company, with the Company surviving as a wholly owned subsidiary of
IPC. Subject to the terms and conditions of the Merger Agreement, each
outstanding share of Common Stock will be converted into the right to receive an
amount in cash, without interest, equal to $6.34, subject to pro-rata reduction
(based on shares of Common Stock outstanding or issuable pursuant to
in-the-money stock options) to the extent that certain fees and expenses of the
Company exceed $200,000 (the "Closing Per Share Amount"). It is currently
anticipated by the Company that the Closing Per Share Amount will be between
$6.20 and $6.22. See "THE MERGER AGREEMENT -- Conversion of Securities."
The Board has determined that the Merger is in the best interests of the
Company and its stockholders and has unanimously approved the Merger Agreement
and the transactions contemplated thereby, including the Merger. THE BOARD
UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE "FOR" THE PROPOSAL
(THE "MERGER PROPOSAL") TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.
At the close of business on the Record Date (as hereinafter defined),
Equity Holdings was the beneficial and record owner of 1,334,592 shares of
Common Stock and the directors and executive officers of the Company
beneficially owned, in the aggregate, an additional 7,875 shares of Common Stock
(excluding shares subject to Existing Options (as hereinafter defined)),
representing approximately 67% of the Common Stock outstanding at such time. The
Merger Agreement requires Equity Holdings to vote its shares of Common Stock in
favor of the Merger Proposal. The directors and executive officers of the
Company have informed the Company that they intend to vote their shares of
Common Stock in favor of the Merger Proposal. The aforementioned stockholders
have sufficient voting power to approve the Merger Proposal, regardless of the
vote of any other stockholder of the Company. See "THE SPECIAL MEETING --
Required Vote," "THE MERGER AGREEMENT -- Equity Holdings Voting Obligation" and
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
The Common Stock is traded on The Nasdaq National Market under the symbol
"CFIB." On May 16, 1996, the last trading day prior to the execution of the
Merger Agreement, the last reported sale price of Common Stock, as reported by
The Nasdaq National Market (for a trade occurring on April 30, 1996), was $6.375
per share. On July 17, 1996, the last reported sale price of Common Stock, as
reported by The Nasdaq National Market (for a trade occurring on July 10, 1996),
was $5.75 per share.
STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THIS PROXY STATEMENT AND THE
ANNEXES HERETO IN THEIR ENTIRETY.
The date of this Proxy Statement is July 22, 1996
<PAGE> 5
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OTHER PERSON. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT
IMPLY THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
As used herein, unless the context otherwise clearly requires: "Company"
refers to CFI Industries, Inc. and its consolidated subsidiaries and "IPC"
refers to IPC, Inc. and its consolidated subsidiaries, including Sub.
Capitalized terms not defined in this Proxy Statement have the respective
meanings specified in the Merger Agreement.
------------------------
All information contained in this Proxy Statement concerning IPC has been
supplied by IPC and has not been independently verified by the Company. Except
as otherwise indicated, all other information contained in this Proxy Statement
has been supplied by the Company.
ii
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY............................................................................... 1
The Special Meeting................................................................. 1
Parties to the Merger Agreement..................................................... 1
The Merger.......................................................................... 2
The Merger Agreement................................................................ 3
Appraisal Rights of Dissenting Stockholders......................................... 5
Source and Amount of Funds.......................................................... 5
Interests of Certain Persons in the Merger.......................................... 5
Market Prices of Common Stock....................................................... 5
Security Ownership of Certain Beneficial Owners and Management...................... 6
Selected Consolidated Financial Data................................................ 6
THE SPECIAL MEETING................................................................... 7
Date, Place and Time................................................................ 7
Purpose............................................................................. 7
Record Date; Voting Rights.......................................................... 7
Quorum.............................................................................. 7
Proxies............................................................................. 7
Solicitation of Proxies............................................................. 8
Required Vote....................................................................... 8
Appraisal Rights of Dissenting Stockholders......................................... 8
PARTIES TO THE MERGER AGREEMENT....................................................... 8
The Company......................................................................... 8
IPC................................................................................. 8
Sub................................................................................. 9
Equity Holdings..................................................................... 9
THE MERGER............................................................................ 9
Background of the Merger............................................................ 9
Reasons for the Merger; Recommendation of the Board................................. 11
Opinion of Financial Advisor........................................................ 12
Regulatory Approvals................................................................ 15
Certain Federal Income Tax Consequences............................................. 15
Accounting Treatment................................................................ 16
Delisting and Deregistration of Common Stock........................................ 16
THE MERGER AGREEMENT.................................................................. 16
Effective Time...................................................................... 16
The Merger.......................................................................... 16
Conversion of Securities............................................................ 16
Payment of Merger Consideration..................................................... 17
Stock Options....................................................................... 18
Equity Holdings Voting Obligation................................................... 18
Representations and Warranties...................................................... 19
Conduct of the Business Pending the Merger.......................................... 20
No Solicitation..................................................................... 21
Other Agreements of the Company, IPC and Sub........................................ 22
Conditions Precedent to the Merger.................................................. 22
Termination......................................................................... 23
Fees and Expenses................................................................... 24
Indemnification..................................................................... 24
Amendment; Waiver................................................................... 24
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS........................................... 24
SOURCE AND AMOUNT OF FUNDS............................................................ 27
</TABLE>
iii
<PAGE> 7
<TABLE>
<S> <C>
INTERESTS OF CERTAIN PERSONS IN THE MERGER............................................ 27
MARKET PRICES OF COMMON STOCK......................................................... 28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 29
Security Ownership of Certain Beneficial Owners..................................... 29
Security Ownership of Management.................................................... 29
SELECTED CONSOLIDATED FINANCIAL DATA.................................................. 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................................... 31
Results of Operations............................................................... 31
Liquidity and Capital Resources..................................................... 32
ADDITIONAL INFORMATION ABOUT THE COMPANY AND ITS BUSINESS............................. 33
Business............................................................................ 33
Properties.......................................................................... 34
Legal Proceedings................................................................... 35
CERTAIN FINANCIAL INFORMATION REGARDING FUTURE OPERATIONS OF PLASTOFILM............... 35
INDEPENDENT AUDITORS.................................................................. 36
STOCKHOLDER PROPOSALS FOR THE 1996 MEETING............................................ 36
OTHER MATTERS......................................................................... 36
CONSOLIDATED FINANCIAL STATEMENTS..................................................... F-1
ANNEX A AGREEMENT AND PLAN OF MERGER
ANNEX B SECTION 262 OF THE DGCL
ANNEX C OPINION OF FINANCIAL ADVISOR
</TABLE>
iv
<PAGE> 8
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and the Annexes hereto. Reference is made to, and this
summary is qualified in its entirety by, the more detailed information contained
in this Proxy Statement and the Annexes hereto.
THE SPECIAL MEETING
Date, Place and Time.......... The Special Meeting will be held at 10:00 a.m.,
local time, on Thursday, August 15, 1996, at
Suite 2200, Two North Riverside Plaza, Chicago,
Illinois.
Purpose....................... To consider and vote upon the Merger Proposal
and to transact such other business as may
properly come before the Special Meeting. See
"THE SPECIAL MEETING -- Purpose."
Record Date; Voting Rights.... Only stockholders of record at the close of
business on July 17, 1996 (the "Record Date")
are entitled to receive notice of and to vote
at the Special Meeting and any adjournment or
postponement thereof. At the close of business
on the Record Date, there were 2,002,327 shares
of Common Stock outstanding, each of which
entitles the registered holder thereof to one
vote on each matter voted upon at the Special
Meeting. See "THE SPECIAL MEETING -- Record
Date; Voting Rights."
Quorum........................ The holders of a majority of the shares of
Common Stock outstanding and entitled to vote
must be present in person or represented by
proxy at the Special Meeting in order for a
quorum to be present. See "THE SPECIAL MEETING
-- Quorum."
Required Vote................. Approval of the Merger Proposal will require
the affirmative vote of the holders of not less
than two-thirds of the outstanding shares of
Common Stock entitled to vote thereon. At the
close of business on the Record Date, Equity
Holdings was the beneficial and record owner of
1,334,592 shares of Common Stock and the
directors and executive officers of the Company
beneficially owned, in the aggregate, an
additional 7,875 shares of Common Stock
(excluding shares subject to Existing Options),
representing approximately 67% of the Common
Stock outstanding at such time. The Merger
Agreement requires Equity Holdings to vote its
shares of Common Stock in favor of the Merger
Proposal. The directors and executive officers
of the Company have informed the Company that
they intend to vote their shares of Common
Stock in favor of the Merger Proposal. The
aforementioned stockholders have sufficient
voting power to approve the Merger Proposal,
regardless of the vote of any other stockholder
of the Company. See "THE SPECIAL MEETING --
Required Vote," "THE MERGER AGREEMENT -- Equity
Holdings Voting Obligation" and "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
PARTIES TO THE MERGER AGREEMENT
CFI Industries, Inc. ......... The Company is a fully integrated custom
thermoformer of plastic packaging for the
hospital/medical, consumer products,
electronics and cosmetics markets. The Company
designs, markets and
1
<PAGE> 9
manufactures functional and innovative
packaging for its customers through its wholly
owned subsidiary, Plastofilm Industries, Inc.
("Plastofilm"). Its principal executive offices
are located at 935 W. Union Avenue, Wheaton,
Illinois 60187 and its telephone
number is (708) 668-2838. The Company was
organized in 1972. See "PARTIES TO THE MERGER
AGREEMENT -- The Company" and "ADDITIONAL
INFORMATION ABOUT THE COMPANY AND ITS
BUSINESS."
IPC, Inc. .................... IPC is a vertically integrated, specialty
packaging company engaged in the manufacturing
and marketing of plastic and paper products to
the consumer and industrial packaging markets.
Its principal executive offices are located at
100 Tri-State Drive, Suite 200, Lincolnshire,
Illinois 60069 and its telephone number is
(847) 945-9100. See "PARTIES TO THE MERGER
AGREEMENT -- IPC."
Package Acquisition, Inc. .... Sub was incorporated solely for the purpose of
consummating the Merger. Sub has minimal assets
and no business and has carried on no
activities which are not directly related to
its formation and its execution of the Merger
Agreement. Its principal executive offices are
located at 100 Tri-State Drive, Suite 200,
Lincolnshire, Illinois 60069 and its telephone
number is (847) 945-9100. See "PARTIES TO THE
MERGER AGREEMENT -- Sub."
Equity Holdings............... Equity Holdings, an Illinois general
partnership, is the beneficial and record owner
of 1,334,592 shares of Common Stock. It is a
party to the Merger Agreement solely for the
purposes of: (i) agreeing to vote such shares
in favor of the Merger Proposal and against
certain specified transactions inconsistent
therewith; and (ii) making certain
representations and warranties with respect to
itself. See "PARTIES TO THE MERGER AGREEMENT --
Equity Holdings," "THE MERGER AGREEMENT --
Equity Holdings Voting Obligation" and "--
Representations and Warranties."
THE MERGER
Recommendation of the Board... The Board has determined that the Merger is in
the best interests of the Company and its
stockholders and has unanimously approved the
Merger Agreement and the transactions
contemplated thereby, including the Merger. THE
BOARD UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS VOTE "FOR" THE MERGER PROPOSAL.
See "THE MERGER -- Reasons for the Merger;
Recommendation of the Board."
Opinion of Financial
Advisor....................... Duff and Phelps Capital Markets Co. ("Duff &
Phelps") has acted as financial advisor to the
Company in connection with the Merger and
delivered its oral opinion on May 17, 1996 to
the Board to the effect that, as of the date of
such opinion, the consideration to be received
by holders of Common Stock pursuant to the
Merger is fair, from a financial point of view,
to such holders. Such oral opinion was
confirmed in a written opinion delivered to the
Board on June 14, 1996. The full text of such
written opinion of Duff & Phelps, which sets
forth the assumptions made, procedures
2
<PAGE> 10
followed, matters considered, and limitations
on the scope of review undertaken, is attached
hereto as Annex C and should be read carefully
in its entirety. See "THE MERGER -- Opinion of
Financial Advisor."
Certain Federal Income Tax
Consequences.................. In general, each holder of Common Stock will
recognize gain or loss for federal income tax
purposes equal to the difference, if any,
between the cash received pursuant to the
Merger or pursuant to the exercise of
dissenters' rights under the General
Corporation Law of the State of Delaware (the
"DGCL") and such holder's adjusted tax basis
for its Common Stock. Such gain or loss
generally will be treated as a capital gain or
capital loss provided the Common Stock was a
capital asset in the hands of such holder. Such
transaction may also be taxable under
applicable state, local and foreign tax laws
and may be subject to backup withholding. All
stockholders are urged to consult their own tax
advisers. See "THE MERGER -- Certain Federal
Income Tax Consequences."
Accounting Treatment.......... The Company understands that the Merger will be
accounted for by IPC as a "purchase" under
generally accepted accounting principles. See
"THE MERGER -- Accounting Treatment."
THE MERGER AGREEMENT
Conversion of Securities...... At the Effective Time of the Merger (as
hereinafter defined) each issued and
outstanding share of Common Stock (except for
Dissenting Shares (as hereinafter defined))
will be converted into the right to receive the
Closing Per Share Amount. It is currently
anticipated by the Company that the Closing Per
Share Amount will be between $6.20 and $6.22.
See "THE MERGER AGREEMENT -- Conversion of
Securities" and "-- Fees and Expenses."
Payment of Merger
Consideration................. As soon as reasonably practical after the
Effective Time, the Exchange Agent appointed
under the Merger Agreement will mail to each
holder of record of shares of Common Stock a
letter of transmittal and related instructions
to effect the surrender of certificates
representing such shares in exchange for the
consideration therefor in accordance with the
Merger Agreement. Equity Holdings may arrange
to receive the consideration in respect of the
Common Stock it owns at the Closing directly
from IPC. See "THE MERGER AGREEMENT -- Payment
of Merger Consideration."
Stock Options................. As of the Effective Time, each option to
purchase Common Stock (referenced in the Merger
Agreement as "Existing Options") with an
exercise price less than the Closing Per Share
Amount will be cancelled in exchange for,
before any income tax and other required
withholdings, cash equal to the product of (i)
the difference between the Closing Per Share
Amount and the exercise price of such Existing
Option, and (ii) the number of shares of Common
Stock covered by such Existing Option. Each
Existing Option with an exercise price greater
than or equal to the Closing Per Share Amount
will be cancelled without payment of
consideration. It is currently anticipated by
the Company that the Closing Per Share
3
<PAGE> 11
Amount will be between $6.20 and $6.22. See
"THE MERGER AGREEMENT -- Stock Options."
Equity Holdings Voting
Obligation.................... Equity Holdings has agreed to vote its Common
Stock in favor of the Merger Proposal and
against certain specified transactions
inconsistent therewith. See "THE MERGER
AGREEMENT -- Equity Holdings Voting
Obligation."
No Solicitation............... The Company has agreed that prior to the
Effective Time it will not, directly or
indirectly, (i) solicit, initiate, facilitate
or encourage any inquiries or the making of any
proposal with respect to an acquisition of the
Company or (ii) negotiate, explore or otherwise
engage in discussions with any person (other
than IPC and its representatives) with respect
to any such acquisition; provided, however,
that the Company may, under specified
circumstances relating to a Superior Proposal
(as hereinafter defined), respond to certain
unsolicited written proposals from third
parties. The Company has agreed to terminate
existing activities, discussions or
negotiations conducted prior to the date of the
Merger Agreement with other parties in respect
of any such acquisition of the Company. See
"The MERGER -- Background of the Merger" and
"THE MERGER AGREEMENT -- No Solicitation."
Termination................... The Merger Agreement may be terminated at any
time prior to the Closing: (i) by mutual
written agreement of IPC and the Company; (ii)
by IPC or the Company, if any one or more of
the conditions to the obligation of IPC or the
Company, as the case may be, to close is not
fulfilled by October 31, 1996; (iii) by the
Company or IPC, if the Board of Directors of
the Company, under certain circumstances
changes its approval or recommendation of the
Merger Agreement or the Merger in order to
enter into an Acquisition Transaction (as
hereinafter defined); (iv) by IPC or the
Company, if the Merger Proposal is not approved
by the Company's stockholders by October 31,
1996; (v) at the election of IPC or the
Company, under certain circumstances, if any
legal proceeding is commenced or threatened by
any governmental or regulatory body directed
against consummation of the Merger; (vi) by
IPC, under certain circumstances, if it is
publicly disclosed or IPC learns that any
person or group (other than Equity Holdings)
has acquired beneficial ownership of more than
14.9% of any class or series of capital stock
of the Company or has been granted the right to
acquire the same; or (vii) by IPC, if Equity
Holdings fails to perform its obligations under
the Merger Agreement. See "THE MERGER AGREEMENT
-- Termination."
Fees and Expenses............. The Merger Agreement provides for the payment
by IPC or the Company, to the other, depending
on the circumstances, of fees in the amount of
$750,000 plus out-of-pocket expenses not to
exceed $250,000 following a termination of the
Merger Agreement under certain circumstances.
If the Merger Agreement and the transactions
contemplated thereby are consummated, up to
$200,000 of reasonable out-of-pocket costs,
fees and expenses incurred by the Company in
connection with (i) the negotiation,
preparation, execution and delivery of and
performance under the Merger Agreement, (ii)
the preparation and distribution of this Proxy
4
<PAGE> 12
Statement and any amendment or supplement
hereto, and (iii) the conduct of the Special
Meeting, will be paid by the Surviving
Corporation, and the balance thereof will be
paid by reducing the consideration payable to
stockholders of the Company and holders of
Existing Options pursuant to the Merger. The
Company currently anticipates that such
reduction will result in the Closing Per Share
Amount being between $6.20 and $6.22. See "THE
MERGER AGREEMENT -- Fees and Expenses."
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Appraisal Rights.............. Under the DGCL, holders of shares of Common
Stock have the right to dissent from the Merger
and to receive payment of the fair value of
their shares upon full compliance with Section
262 of the DGCL. See "APPRAISAL RIGHTS OF
DISSENTING STOCKHOLDERS" and Annex B hereto.
The obligations of IPC and Sub to consummate
the Merger are subject, among other things, to
there not being more than 50,000 shares of
Common Stock which are qualified as Dissenting
Shares. See "THE MERGER AGREEMENT -- Conditions
Precedent to the Merger."
SOURCE AND AMOUNT OF FUNDS
Source and Amount of Funds.... IPC and Sub intend to finance the payment of
the Closing Per Share Amount and all costs and
expenses relating to the Merger through cash
generated from operations and borrowings under
IPC's revolving credit facility under its
senior credit facility. At June 30, 1996,
approximately $52 million was available under
this revolving credit facility. See "SOURCE AND
AMOUNT OF FUNDS."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Interests of Certain Persons
in the Merger................. The Company has agreed to pay Equity Group
Investments, Inc. ("EGI"), an affiliate of
Equity Holdings, a fee of $150,000 for services
rendered by EGI to the Company in connection
with the Merger. See "THE MERGER -- Background
of the Merger." Directors and executive
officers of the Company have interests in the
Merger in addition to their interests solely as
stockholders of the Company. Those interests
relate to the receipt of cash in exchange for
the Existing Options, amounts that may become
due after the Effective Time under certain
"change in control" agreements, interests in
certain legal fees and expenses to be paid by
the Company in connection with the Merger and
the provision of indemnification after the
Merger. See "INTEREST OF CERTAIN PERSONS IN THE
MERGER," "THE MERGER AGREEMENT -- Stock
Options" and "-- Indemnification."
MARKET PRICES OF COMMON STOCK
Market Prices of Common
Stock......................... The Common Stock is traded on The Nasdaq
National Market under the symbol "CFIB." On May
16, 1996, the last trading day prior to the
execution of the Merger Agreement, the last
reported
5
<PAGE> 13
sale price of Common Stock, as reported by The
Nasdaq National Market (for a trade occurring
on April 30, 1996), was $6.375 per share. On
July 17, 1996, the Record Date, the last
reported sale price of Common Stock, as
reported by The Nasdaq National Market (for a
trade occurring on July 10, 1996), was $5.75
per share. For additional information
concerning historical market prices of the
Common Stock, see "MARKET PRICES OF COMMON
STOCK."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain
Beneficial Owners and
Management.................... At the close of business on the Record Date,
Equity Holdings was the beneficial and record
owner of 1,334,592 shares of Common Stock and
the directors and executive officers of the
Company beneficially owned, in the aggregate,
an additional 7,875 shares of Common Stock
(excluding shares subject to Existing Options),
representing approximately 67% of the Common
Stock outstanding at such time. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
SELECTED CONSOLIDATED FINANCIAL DATA
Selected Consolidated
Financial Data................ Certain selected historical consolidated
financial data of the Company are set forth
under "SELECTED CONSOLIDATED FINANCIAL DATA."
That data should be read in conjunction with
the financial statements and related notes also
included in this Proxy Statement. See "SELECTED
CONSOLIDATED FINANCIAL DATA" and "CONSOLIDATED
FINANCIAL STATEMENTS."
6
<PAGE> 14
THE SPECIAL MEETING
DATE, PLACE AND TIME
The Special Meeting will be held at 10:00 a.m., local time, on Thursday,
August 15, 1996, at Suite 2200, Two North Riverside Plaza, Chicago, Illinois.
PURPOSE
At the Special Meeting, stockholders of the Company will consider and vote
upon the Merger Proposal. The stockholders of the Company will also transact
such other business as may properly come before the Special Meeting.
The Board has determined that the Merger is in the best interests of the
Company and its stockholders and has unanimously approved the Merger Agreement
and the transactions contemplated thereby, including the Merger. THE BOARD
UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE "FOR" THE MERGER
PROPOSAL. See "THE MERGER -- Reasons for the Merger; Recommendation of the
Board."
RECORD DATE; VOTING RIGHTS
Only stockholders of record at the close of business on the Record Date,
July 17, 1996, are entitled to receive notice of and to vote at the Special
Meeting and any adjournment or postponement thereof. At the close of business on
the Record Date, there were 2,002,327 shares of Common Stock outstanding, each
of which entitles the registered holder thereof to one vote on each matter voted
upon at the Special Meeting.
QUORUM
The holders of a majority of the shares of Common Stock outstanding and
entitled to vote must be present in person or represented by proxy at the
Special Meeting in order for a quorum to be present. Abstentions and broker
non-votes are counted for purposes of determining the presence or absence of a
quorum for the transaction of business.
If a quorum is not present or represented at the Special Meeting, the
stockholders entitled to vote at the Special Meeting, whether present in person
or represented by proxy, shall only have the power to adjourn the Special
Meeting for the purpose of allowing additional time for soliciting and obtaining
additional proxies or votes. At any subsequent reconvening of the Special
Meeting, all proxies will be voted in the same manner as such proxies would have
been voted at the original convening of the Special Meeting, except for any
proxies which have theretofore effectively been revoked or withdrawn. At such
time as a quorum is present or represented by proxy, the Special Meeting will
reconvene without notice to stockholders, other than an announcement at the
prior adjournment of the Special Meeting, unless the adjournment is for more
than thirty days or a new record date has been set.
PROXIES
All shares of Common Stock represented by properly executed proxies in the
enclosed form which are received in time for the Special Meeting and have not
been revoked will be voted in accordance with the instructions indicated in such
proxies. If no instructions are indicated, such shares will be voted FOR the
Merger Proposal. In addition, the persons designated in such proxies will have
discretion to vote upon such other matters as may properly come before the
Special Meeting, including, without limitation, the right to vote for any
adjournment thereof proposed by the Board to solicit additional proxies.
Any proxy in the enclosed form may be revoked by the stockholder executing
it at any time prior to its exercise by giving written notice thereof to the
Secretary of the Company, by signing and returning a later dated proxy or by
voting in person at the Special Meeting. Attendance at the Special Meeting will
not in and of itself constitute the revocation of a proxy.
7
<PAGE> 15
SOLICITATION OF PROXIES
Proxies are being solicited hereby on behalf of the Board of Directors of
the Company. Subject to the provisions of the Merger Agreement relating to the
payment of expenses, see "THE MERGER AGREEMENT -- Fees and Expenses," the entire
cost of proxy solicitation for the Special Meeting, including the reasonable
expenses of brokers, fiduciaries and other nominees in forwarding solicitation
material to beneficial owners, will be borne by the Company. In addition to the
use of the mail, solicitation may be made by telephone or otherwise by
directors, officers and regular employees of the Company. Such directors,
officers and regular employees will not be additionally compensated for such
solicitation, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. If undertaken, the expense of such solicitation would be
nominal.
REQUIRED VOTE
Approval of the Merger Proposal will require the affirmative vote of the
holders of not less than two-thirds of the outstanding shares of Common Stock
entitled to vote thereon. At the close of business on the Record Date, Equity
Holdings was the beneficial and record owner of 1,334,592 shares of Common Stock
and the directors and executive officers of the Company beneficially owned, in
the aggregate, an additional 7,875 shares of Common Stock (excluding shares
subject to Existing Options), representing approximately 67% of the Common Stock
outstanding at such time. The Merger Agreement requires Equity Holdings to vote
its shares of Common Stock in favor of the Merger Proposal. The directors and
executive officers of the Company have informed the Company that they intend to
vote their shares of Common Stock in favor of the Merger Proposal. The
aforementioned stockholders have sufficient voting power to approve the Merger
Proposal, regardless of the vote of any other stockholder of the Company. See
"THE MERGER AGREEMENT -- Equity Holdings Voting Obligation" and "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Abstentions and broker non-votes with respect to the Merger Proposal will
have the effect of votes cast against it.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Under the DGCL, holders of shares of Common Stock have the right to dissent
from the Merger and to receive payment of the fair value of their shares upon
full compliance with Section 262 of the DGCL. See "APPRAISAL RIGHTS OF
DISSENTING STOCKHOLDERS" and Annex B hereto.
PARTIES TO THE MERGER AGREEMENT
THE COMPANY
The Company is a fully integrated custom thermoformer of plastic packaging
for the hospital/medical, consumer products, electronics and cosmetics markets.
The Company designs, markets and manufactures functional and innovative
packaging for its customers through its wholly owned subsidiary, Plastofilm. Its
principal executive offices are located at 935 W. Union Avenue, Wheaton,
Illinois 60187 and its telephone number is (708) 668-2838. The Company was
organized in 1972. See "ADDITIONAL INFORMATION ABOUT THE COMPANY AND ITS
BUSINESS."
IPC
IPC is a vertically integrated, specialty packaging company engaged in the
manufacturing and marketing of plastic and paper products to the consumer and
industrial packaging markets. Its principal executive offices are located at 100
Tri-State Drive, Suite 200, Lincolnshire, Illinois 60069 and its telephone
number is (847) 945-9100.
8
<PAGE> 16
SUB
Sub was incorporated solely for the purpose of consummating the Merger. Sub
has minimal assets and no business and has carried on no activities which are
not directly related to its formation and its execution of the Merger Agreement.
Its principal executive offices are located at 100 Tri-State Drive, Suite 200,
Lincolnshire, Illinois 60069 and its telephone number is (847) 945-9100.
EQUITY HOLDINGS
Equity Holdings, an Illinois general partnership, is the beneficial and
record owner of 1,334,592 shares of Common Stock. It is a party to the Merger
Agreement solely for the purposes of: (i) agreeing to vote such shares in favor
of the Merger Proposal and against certain specified transactions inconsistent
therewith; and (ii) making certain representations and warranties with respect
to itself. See "THE MERGER AGREEMENT -- Equity Holdings Voting Obligation" and "
- -- Representation and Warranties."
THE MERGER
BACKGROUND OF THE MERGER
In June 1995, a representative of a major company in the packaging industry
("Party A") contacted the President of the Company to discuss strategic
opportunities between the two companies. In the course of the discussion, Party
A expressed an interest in acquiring the Company. The Company invited Party A to
conduct a due diligence review of the Company during a period of thirty days,
during which time the Company would not contact other parties regarding an
acquisition of the Company.
Management of the Company believed that if Party A did not acquire
Plastofilm, Party A would purchase another plastics packaging company and
compete with Plastofilm. Management, in consultation with the Board of Directors
of the Company, concluded that it should investigate other potential strategic
alliances in the packaging industry. The Company requested that EGI, an
affiliate of Equity Holdings, assist the Company in this investigation. While
Party A conducted its due diligence review, the Company, with the assistance of
EGI, prepared a memorandum (the "Offering Memorandum") for distribution to other
potentially interested persons if negotiations with Party A were delayed or
terminated.
Meetings between the Company and Party A were held at the Company during
July, 1995. In late July, Party A indicated that it could not complete a
transaction any earlier than the beginning of 1996. Shortly thereafter, Party A
reported weak earnings and there was other public information suggesting that
Party A was experiencing financial difficulties. The Company concluded that it
was not likely that Party A would be able to consummate a transaction and that
other parties who might provide strategic opportunities to the Company should be
contacted.
In August 1995, management, with the assistance of EGI, compiled a list of
potentially interested parties based in part on prior inquiries received by the
Company, industry data and publicly filed information. Through EGI, the Company
contacted nineteen parties, including IPC, between late August and December 1,
1995. Of these parties, thirteen expressed interest in the Company and were sent
confidentiality agreements. Ten parties, including IPC, executed confidentiality
agreements and received the Offering Memorandum. Six of these parties declined
to proceed after reviewing the Offering Memorandum. In early November, the
Company, through EGI, asked each of the remaining four parties, including IPC,
to indicate its level of interest in pursuing a transaction as well as its
proposed valuation of the Company. The four parties expressed valuations ranging
from approximately $4.00 to $7.00 per share of Common Stock. Party A was invited
to participate in this process but declined to submit a proposal. One other
party contacted EGI in late December. This party subsequently executed a
confidentiality agreement but never made a proposal.
Based on such expressions of interest, IPC and another party ("Party B")
were invited to visit the Company. The other two parties were not invited to
visit the Company because their indications of interest were considered
inadequate from a financial point of view. The Company, through EGI, asked IPC
and Party B to deliver written letters of intent by mid-December. In
mid-December, IPC delivered a letter of
9
<PAGE> 17
intent proposing a transaction at $4.75 per share of Common Stock. At that time,
representatives of Party B indicated orally that Party B would be interested in
pursuing a transaction at $7.00 per share, subject to further meetings with the
Company's management. IPC was told that, absent a substantial improvement in
IPC's proposal, the Company was not interested in pursuing it. On December 22,
the Company received a written proposal from Party B at $7.00 per share and a
revised proposal from IPC at $6.50 per share. On December 29, the Company
delivered its comments on the proposals to IPC and Party B, respectively, and
asked each to submit its best offer.
Party B subsequently agreed to meet with representatives of the Company and
discuss the execution of a definitive agreement with a purchase price of $7.00
per share of Common Stock. Based on the foregoing, the Company entered into a
two-week exclusivity period with Party B commencing January 3, 1996. Such period
was subsequently extended through January 26, 1996. During this period, business
and legal discussions ensued. At the end of this period, Party B indicated that
it would not proceed at $7.00 per share and that it was contemplating a revised
proposal.
The Company, through EGI, resumed negotiations with IPC for a transaction
at $6.50 per share of Common Stock when Party B indicated that it would not
proceed at $7.00 per share. Negotiations with IPC continued into the third week
of March, at which time the general terms of a transaction at $6.50 per share
were orally and preliminarily agreed upon, including a provision for a $750,000
"holdback" to protect IPC from breaches of representations and warranties and
certain undisclosed liabilities of the Company for up to two years after
closing. Counsel for the Company submitted a draft definitive agreement for the
transaction to IPC in late March, and received a revised draft from counsel for
IPC in early April.
On April 10, the Company received a letter from Party A proposing to
acquire the Common Stock for $7.50 per share. Representatives of Party A met
with the Company's management and representatives of EGI on April 16 to discuss
terms of a transaction. The Board reviewed the respective proposals of IPC and
Party A at its regularly scheduled meeting on April 18, and directed management
to continue to pursue the proposal of Party A. However, on April 19, Party A
indicated that it could not pursue a transaction due to internal considerations.
The Company again resumed discussions with IPC. The negotiation of a
definitive agreement with IPC continued from late April into the first two weeks
of May. The $750,000 "holdback" was eliminated in exchange for a reduction of
the per share price from $6.50 to $6.34. The Company retained Duff & Phelps to
provide its opinion as to whether the consideration to be received by holders of
Common Stock in the IPC transaction was fair, from a financial point of view, to
such holders.
The general terms of the transaction with IPC as they evolved during
negotiations were sent to the Board of Directors of the Company on April 30, May
10 and May 16. On May 17, Duff & Phelps made a presentation to the Board that
concluded with its oral opinion that the consideration to be received by holders
of Common Stock pursuant to the Merger was fair, from a financial point of view,
to such holders. Duff & Phelps' oral opinion assumed that such consideration
would be approximately $6.25 per share. The Board was also apprised by counsel
of its obligations under Delaware law. The Board then unanimously approved the
Merger and, subject to certain revisions that are now contained therein, the
Merger Agreement.
Subsequent to the signing of the Merger Agreement, the Company concluded
that because of an increase in projected transaction costs, the Closing Per
Share Amount would be between $6.20 and $6.22 rather than approximately $6.25 as
had previously been anticipated. The Board of Directors of the Company confirmed
its approval of the Merger Agreement and the transactions contemplated thereby,
including the Merger, assuming a Closing Per Share Amount of no less than $6.20.
The written opinion of Duff & Phelps delivered to the Board on June 14, 1996
assumes that the Closing Per Share Amount will not be less than $6.20.
Certain technical and other amendments to the Merger Agreement, including a
limited extension of the post-signing due diligence period described herein
under "THE MERGER AGREEMENT -- Conditions Precedent to the Merger," were made as
of June 19, and June 26, 1996, respectively. Such post-signing due diligence
period ended on June 26, 1996 and the related condition to close has been deemed
satisfied.
10
<PAGE> 18
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD
The Board of Directors of the Company has determined that the Merger is in
the best interests of the Company and its stockholders and has unanimously
approved the Merger Agreement and the transactions contemplated thereby,
including the Merger. THE BOARD UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS VOTE "FOR" THE MERGER PROPOSAL.
In determining to recommend that the Company's stockholders vote FOR the
Merger Proposal, the Board considered a number of factors, including the
following:
(i) The current and historical financial condition and results of
operations of the Company, including the recent improvement in financial
condition and results of operations of the Company.
(ii) The projected financial condition, results of operations,
prospects and strategic objectives of the Company, as well as the risks
involved in achieving those prospects and objectives in the plastic
packaging industry with the current economic and market conditions.
(iii) The presentation of Duff & Phelps to the Board at its meeting on
May 17, 1996 as to various financial matters deemed relevant to the Board's
consideration, including, among other things, (a) an analysis of certain
historical business and financial information relating to the Company, (b)
a review of the efforts conducted by the Company with the assistance of EGI
in exploring alternative transactions with other parties as described above
under "-- Background of the Merger," (c) a review of the historical stock
prices and trading volumes of the Common Stock, (d) a review of various
financial forecasts and other data provided to Duff & Phelps by the Company
relating to its business, (e) a review of the most significant terms of the
Merger Agreement, (f) a review of public information with respect to
certain other companies in lines of businesses Duff & Phelps believed to be
generally comparable, in whole or in part, to the business of the Company,
(g) a discounted cash flow valuation of the Company, and (h) an analysis of
the consideration to be received by holders of Common Stock pursuant to the
Merger as a multiple of various measures of the Company's operating
performance.
(iv) The efforts conducted by the Company with the assistance of EGI
in exploring alternative transactions with other parties since June 1995 as
described above under "-- Background of the Merger."
(v) The Board's view, after consultation with management, counsel to
the Company and Duff & Phelps, regarding the likelihood of the existence of
other viable purchasers on terms as favorable as those in the Merger
Agreement.
(vi) The oral opinion of Duff & Phelps delivered to the Board on May
17, 1996 to the effect that, as of the date of such opinion, the
consideration to be received by holders of Common Stock pursuant to the
Merger is fair, from a financial point of view, to such holders. Such oral
opinion was confirmed in a written opinion delivered to the Board on June
14, 1996. The full text of such written opinion of Duff & Phelps, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken, is attached hereto as Annex C and should be read
carefully in its entirety.
(vii) The increase in the price of the Common Stock over the past two
years and the relative lack of trading volume in the Common Stock.
(viii) The availability of appraisal rights under Section 262 of the
DGCL for Dissenting Shares.
(ix) The terms and conditions of the Merger Agreement and the course
of the negotiations resulting in the execution thereof (including the terms
of the Merger Agreement that permit the Company, in response to an
unsolicited written proposal from a third party regarding a Superior
Proposal, to furnish information to and engage in discussions and
negotiations with such third party, if the Board determines in good faith,
after consultation with its financial advisors and based upon the written
advice of independent Delaware counsel, that failing to take such action
would result in a breach of the fiduciary duties of the Board under
applicable law). The members of the Board noted that the Merger Agreement
provides that, under certain circumstances, the Company would be obligated
to pay IPC a termination fee of $750,000 and expenses of up to $250,000.
11
<PAGE> 19
(x) The requirement by IPC, as a condition to the transaction, that
Equity Holdings agree to vote its shares of Common Stock in favor of the
Merger Proposal and against certain specified transactions inconsistent
therewith; the stated desire of Equity Holdings to proceed with the Merger;
the decision of Equity Holdings to enter into the Merger Agreement; and the
possible effect of the Equity Holdings voting obligation on any other third
party proposal.
(xi) The likelihood that the Merger would be consummated, including
the likelihood of satisfying the conditions to the consummation of the
Merger contained in the Merger Agreement, the experience, reputation and
financial condition of IPC and the risks to the Company if the Merger were
not consummated.
(xii) The recommendation of the Company's management with respect to
the Merger.
The foregoing discussion of the information and factors considered by the
Board is not meant to be exhaustive but includes all material factors considered
by it. In view of the variety of factors considered, the Board did not find it
practical to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
OPINION OF FINANCIAL ADVISOR
Duff & Phelps has acted as financial advisor to the Company in connection
with the Merger and has assisted the Board in its examination of the fairness,
from a financial point of view, of the consideration to be received by holders
of Common Stock pursuant to the Merger.
On May 17, 1996, Duff & Phelps rendered its oral opinion (the "Oral
Opinion") to the Board to the effect that, as of such date, the consideration to
be received by holders of Common Stock pursuant to the Merger is fair, from a
financial point of view, to such holders. In rendering the Oral Opinion, Duff &
Phelps assumed that such consideration would be approximately $6.25 per share.
The Oral Opinion was confirmed in a written opinion delivered to the Board on
June 14, 1996 (the "Written Opinion"). The Written Opinion assumes that the
Closing Per Share Amount will not be less than $6.20 per share. The full text of
the Written Opinion, which sets forth the assumptions made, procedures followed,
matters considered, and limitations on the scope of review undertaken, is
attached hereto as Annex C and should be read carefully in its entirety.
In connection with rendering the Oral Opinion, Duff & Phelps reviewed,
among other things, certain financial and other information regarding the
Company that was publicly available or furnished to Duff & Phelps by the
Company, including certain financial analyses, financial forecasts, reports and
other information prepared by management and representatives of the Company.
Duff & Phelps discussed with the Company's senior management the Company's
current and historical financial condition and results of operations and the
Company's projected financial condition, results of operations, prospects and
strategic objectives. Duff & Phelps did not independently conduct a solicitation
of interest in the Company from third parties, but relied upon the sale process
conducted by the Company and EGI as a factor in its analysis.
In preparing the Oral Opinion, Duff & Phelps performed a variety of
financial and comparative analyses, including: (i) a discounted cash flow
analysis of the projected free cash flow of the Company, (ii) a comparison of
financial performance and market valuation ratios of the Company with those of
publicly traded companies Duff & Phelps deemed relevant for purposes of the Oral
Opinion, (iii) a review of selected recent change of control transactions in the
plastics and packaging industries, and (iv) a review of the publicly traded
stock price and trading volume of the Common Stock. Duff & Phelps also reviewed
and evaluated the efforts in exploring alternative transactions with other
parties as described above under "-- Background of the Merger." Duff & Phelps
conducted such other studies, analysis and investigations as it deemed
appropriate for purposes of rendering the Oral Opinion.
Duff & Phelps valued the Company and reviewed the consideration to be
received by holders of Common Stock pursuant to the Merger on a change of
control basis using the methodologies described below.
Discounted Cash Flow Analysis. Duff & Phelps performed a discounted cash
flow ("DCF") analysis of the projected free cash flows of the Company. Free cash
flow is defined as cash that is available to either
12
<PAGE> 20
reinvest in new businesses or to distribute to investors in the form of
dividends, stock buybacks, or debt service. The projected free cash flows are
discounted to the present at a rate which reflects the relative risk associated
with these flows as well as the rates of return which both equity and debt
investors could expect to realize on alternative investment opportunities.
The Company's future free cash flows were based on projected revenues, net
income, depreciation and amortization, working capital and capital expenditure
requirements for the ten fiscal years ending June 30, 1996 to June 30, 2005. The
projections were prepared from the perspective of a hypothetical buyer of a
controlling interest in the Company. Duff & Phelps discounted the resulting free
cash flows at rates which ranged between 13% and 14%, which reflect, among other
things, industry risks, the relatively small market capitalization of the
Company, and current rates of return required by investors in debt and equity
instruments in general. The discounted cash flow analysis resulted in a control
price, or a reasonable estimate of the price that a fully informed buyer would
pay for all of the outstanding Common Stock. This set of projections is not
intended to represent the expectations of a minority interest investor who has
no access to nonpublic information about the Company. This DCF analysis yielded
a control price range of $5.22 to $6.64 per share of Common Stock.
Comparative Company Analysis. Duff & Phelps selected a set of publicly
traded companies based on their comparability to the Company. Although no
company chosen is identical to the Company, these companies share many of the
same operating characteristics and are affected by many of the same economic
forces as the Company. The consideration to be received by holders of Common
Stock pursuant to the Merger was checked for reasonableness by comparing the
rate at which the chosen comparable companies are capitalized in the market with
the capitalization rate implied by the amount of such consideration, after
adjusting for differences in operations and performance.
Using publicly available information, Duff & Phelps analyzed the historical
financial performance, stock prices and resulting valuation multiples for the
following firms: Calnetics Corporation, Sun Coast Industries, Inc., Ultra Pac,
Inc., Bemis Company, Inc., Envirodyne Industries, Inc., Schawk, Inc., Sealright
Company, Inc., Tuscarora, Inc., AEP Industries, Inc., Applied Extrusion
Technologies, Inc., and Spartech Corporation (collectively, the "Comparable
Companies").
Duff & Phelps compared the financial performance of the Company with the
financial performance of the Comparable Companies, adjusting for any identified
nonrecurring items. Comparative statistics reveal the following: (i) five-year
compounded annual and latest twelve months' growth in revenue for the Company
were (6.7)% and 6.7%, respectively, versus medians of 15.3% and 8.5%,
respectively, for the Comparable Companies; (ii) five-year average and latest
twelve months' operating cash flow margins for the Company were 5.0% and 10.2%,
respectively, versus medians of 12.7% and 13.5%, respectively, for the
Comparable Companies; and (iii) five-year average capital expenditures as a
percent of revenues for the Company was 3.5% versus a median of 9.0% for the
Comparable Companies. Five-year averages for the Company are based on fiscal
years ended on or about June 30, 1990 to 1995, while the latest twelve months
are for the period ended March 31, 1996.
Duff & Phelps analyzed the capitalized values of the Comparable Companies
as a multiple of operating cash flow ("OCF") for the twelve months ended March
31, 1996, defined as operating income plus depreciation and amortization; as a
multiple of free cash flow ("FCF") for the twelve months ended March 31, 1996,
defined as OCF less three-year average capital expenditures; and as a multiple
of earnings before interest and taxes ("EBIT"). These median multiples were
7.1x, 11.9x, and 10.8x, respectively. In comparison, the OCF, FCF and EBIT
multiples for the Company for the twelve months ended March 31, 1996 were 5.6x,
7.7x and 9.7x, respectively, and, based on estimated operating data for the
twelve months ending June 30, 1996, were 6.5x, 9.7x and 11.9x, respectively, in
each case, using an assumed Closing Per Share Amount of $6.25. The lower
multiples for the Company as compared to the Comparable Companies' medians
reflect the smaller size of the Company, its poorer historical growth and
margins, and the need for substantial reinvestment in the Company that was
foregone prior to its recent turnaround. Duff & Phelps also analyzed the
capitalized values for the Comparable Companies as multiples of revenues for the
twelve months ended March 31, 1996. This median multiple was 87%, although the
median multiple for Calnetics Corporation, Sun Coast Industries, Inc. and Ultra
Pac, Inc., the three Comparable Companies which are of
13
<PAGE> 21
similar size and in similar businesses as the Company, was 58%. In comparison,
the revenue multiple for the Company for the twelve months ended March 31, 1996
was 56%, and, based on estimated revenues for the twelve months ending June 30,
1996, was 58%. The reasons for the lower multiples for the Company are the same
as those discussed above. Finally, Duff & Phelps analyzed the equity values for
the Comparable Companies as multiples of earnings ("P/E") for the twelve months
ended March 31, 1996. The median P/E multiple was 15.4x. In comparison, the P/E
multiple for the Company for the twelve months ended March 31, 1996 was 16.1x
and, based on estimated earnings for the twelve months ending June 30, 1996, was
21.0x, in each case, after normalizing income taxes. The Comparable Companies
multiples were based upon closing stock prices as of May 2, 1996.
Change of Control Transactions Analysis. Duff & Phelps reviewed recent
control transactions involving plastics and packaging firms as targets. Duff &
Phelps identified five completed transactions involving targets of similar size
as the Company (the "Control Transaction Companies"). Duff & Phelps believes
that these transactions provide a meaningful comparison to the Company due to
the fact that they are representative of the market for control of companies of
similar size, historical capital spending, and business focus. Duff & Phelps
analyzed the capitalized values for the Control Transaction Companies as a
multiple of twelve months' ended March 31, 1996 OCF, as a multiple of FCF, and
as a multiple of EBIT. These median multiples were 5.4x, 8.8x, and 9.5x,
respectively. In comparison, the respective multiples for the Company were
generally higher. The OCF, FCF and EBIT multiples for the Company for the twelve
months ended March 31, 1996 were 5.6x, 7.7x and 9.7x, respectively, and, based
on estimated operating data for the twelve months ending June 30, 1996, were
6.5x, 9.7x and 11.9x, respectively, in each case, using an assumed Closing Per
Share Amount of $6.25.
In order to determine the true marketable minority interest value of the
Common Stock, not duly affected by any takeover speculation, Duff & Phelps
performed an analysis of recent price for the Common Stock and trading volume.
Duff & Phelps noted, however, that the market for the Common Stock was very
thin. Upon review of the historical price movements of the Common Stock, it
appeared that prior to July 1995, the Common Stock traded within a bid/asked
range of $3.50 to $4.125 per share. Between July and August 1995, the price of
the Common Stock increased to a bid/asked range of $6.00 to $7.00 per share. In
addition, trading volume substantially increased. Duff & Phelps noted that this
is the period during which Party A contacted the Company and the Company began
contacting other parties and also that the Company announced strong quarterly
earnings. After August, trading volume subsided but the bid/asked range was
generally in the range of $5.75 - $7.00. Due to the several possible reasons for
the price increase, Duff & Phelps could not state whether the pre-July 1995
bid/asked range represents the marketable minority interest value unaffected by
the transaction, and thus cannot determine what portion of the 52% premium
(based upon the asked price of $4.125) to 79% premium (based upon the bid price
of $3.50) is represented by the assumed Closing Per Share Amount.
The DCF analysis, the comparable company analysis and the control
transactions analysis all support the assumed Closing Per Share Amount.
Therefore, Duff & Phelps concluded that a Closing Per Share Amount of $6.25
would be fair to the holders of Common Stock, from a financial point of view.
In rendering the Written Opinion, which assumes that the Closing Per Share
Amount will not be less than $6.20, Duff & Phelps performed procedures
substantially similar to those described above with respect to the Oral Opinion
and reached substantially similar conclusions.
In rendering the Oral Opinion and the Written Opinion, Duff & Phelps
relied, without independent verification, on the accuracy and completeness of
all financial and other information publicly available or furnished to Duff &
Phelps by or on behalf of the Company. Duff & Phelps did not make an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of the Company. The Oral Opinion and the Written Opinion are based on economic,
market and business and financial conditions relevant to the Company and
existing on the dates of the respective opinions. The Company did not place any
limitation upon Duff & Phelps with respect to the procedures followed or factors
considered by Duff & Phelps in rendering the Oral Opinion or the Written
Opinion.
Duff & Phelps was selected as the Company's financial advisor because it is
a nationally recognized financial advisory firm with substantial experience in
transactions similar to the proposed Merger. As part of
14
<PAGE> 22
its financial advisory business, Duff & Phelps is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, restructurings, employee benefit plans, private
placements and valuations for estate, corporate and other purposes. Duff &
Phelps has not previously provided financial advisory services to the Company
and is not under contract or in specific discussions to provide future financial
advisory services to the Company.
As compensation for its services as financial advisor to the Company in
connection with the Merger, the Company agreed to pay Duff & Phelps a retainer
fee of $30,000 at the commencement of its engagement and $35,000 upon rendering
its final opinion to the Board of Directors of the Company. No portion of the
fee paid to Duff & Phelps is contingent upon the conclusion reached in its final
opinion. In addition, the Company has agreed to reimburse Duff & Phelps for
reasonable out-of-pocket expenses, including the fees and expenses of its legal
counsel, and to indemnify Duff & Phelps against certain liabilities, including
liabilities under the federal securities laws, relating to, arising out of or in
connection with the engagement.
REGULATORY APPROVALS
The consummation of the Merger is conditioned upon the expiration or
termination of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Under the HSR
Act and the regulations promulgated thereunder by the Federal Trade Commission
(the "FTC"), the Merger may not be consummated until notifications have been
given and certain information has been furnished to the FTC and the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the
applicable waiting period has expired or been terminated. Report forms relating
to the Merger have been filed on behalf of the Company and IPC under the HSR Act
with the FTC and the Antitrust Division. The applicable waiting period was
terminated on July 16, 1996.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material federal income tax
consequences of the Merger to beneficial owners of Common Stock and to holders
of options to purchase Common Stock, and is based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing, proposed,
temporary and final regulations thereunder and current administrative rulings
and court decisions, all of which are subject to change (possibly on a
retroactive basis). No attempt has been made to comment on all federal income
tax consequences of the Merger that may be relevant to particular holders,
including those that are subject to special tax rules such as dealers in
securities, mutual funds, insurance companies, tax-exempt entities, holders who
do not hold their Common Stock as capital assets and holders that, for federal
income tax purposes, are non-resident alien individuals, foreign corporations,
foreign partnerships or foreign estates or trusts.
The tax discussion set forth below is included for general information
only. It is not intended to be, nor should it be construed to be, legal or tax
advice to any particular holder. Holders are advised and expected to consult
with their own legal and tax advisers regarding the federal income tax
consequences of the Merger in light of their particular circumstances, and any
other consequences to them of the Merger under state, local and foreign tax
laws.
In general, each holder of Common Stock will recognize gain or loss for
federal income tax purposes equal to the difference, if any, between the cash
received pursuant to the Merger or pursuant to the exercise of dissenters'
rights under the DGCL and such holder's adjusted tax basis for its Common Stock.
In general, such gain or loss will be capital gain or loss and will be long-term
capital gain or loss if the holder has held its Common Stock for more than one
year as of the Effective Time.
Unless a holder of Common Stock entitled to receive cash payments pursuant
to the Merger complies with certain reporting and certification procedures, or
otherwise demonstrates to the satisfaction of the Exchange Agent under the
Merger Agreement that it is an exempt recipient under applicable withholding
provisions of the Code and the Treasury regulations promulgated thereunder, such
holder may be subject to federal backup withholding at a rate of 31% with
respect to all such cash payments which such holder is entitled to receive.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to 31% backup withholding will be reduced by the amount of tax
withheld.
15
<PAGE> 23
Pursuant to the Merger Agreement, each option to purchase Common Stock with
an exercise price less than the Closing Per Share Amount will be cancelled in
exchange for cash in the manner described herein under "THE MERGER AGREEMENT --
Stock Options." Each option to purchase Common Stock with an exercise price
greater than or equal to the Closing Per Share Amount will be cancelled without
payment of consideration. Each holder of an option to purchase Common Stock will
recognize ordinary income (subject to applicable wage withholding) on any
amounts paid in exchange for the surrender and cancellation of such option.
ACCOUNTING TREATMENT
The Company understands that the Merger will be accounted for by IPC as a
"purchase" under generally accepted accounting principles.
DELISTING AND DEREGISTRATION OF COMMON STOCK
If the Merger is consummated, the Common Stock will no longer be traded on
The Nasdaq National Market and will be deregistered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
THE MERGER AGREEMENT
The description of the Merger Agreement contained in this Proxy Statement
does not purport to be complete and is qualified in its entirety by reference to
the Merger Agreement, a copy of which is attached hereto as Annex A and
incorporated herein by reference.
EFFECTIVE TIME
At the time of the closing of the Merger (the "Closing"), a Certificate of
Merger (the "Certificate of Merger") will be filed with the Secretary of State
of the State of Delaware. The Merger will become effective at the time of such
filing (the "Effective Time"). The date of the Closing is hereinafter referred
to as the Closing Date.
THE MERGER
At the Effective Time, Sub will be merged with and into the Company, with
the Company continuing as the surviving corporation (in such capacity, the
"Surviving Corporation"). As a result of the Merger, the separate corporate
existence of Sub will cease and the Surviving Corporation will succeed to all
the rights and be responsible for all the obligations of the Company and Sub in
accordance with the DGCL.
At the Effective Time, the Certificate of Incorporation and the By-laws of
Sub as in effect immediately prior thereto, will become the Certificate of
Incorporation and By-laws, respectively, of the Surviving Corporation, until
thereafter amended in accordance with applicable law.
The directors and officers of Sub immediately prior to the Effective Time
will become the directors and officers of the Surviving Corporation, each to
hold office in accordance with the Certificate of Incorporation and By-laws of
the Surviving Corporation.
CONVERSION OF SECURITIES
At the Effective Time, by virtue of the Merger and without any further
action on the part of any shareholder of the Company or Sub:
(i) each issued and outstanding share of Common Stock (except for
Dissenting Shares (as hereinafter defined)) will be converted into the
right to receive the Closing Per Share Amount;
(ii) each share of Common Stock held in the Company's treasury will be
cancelled and retired and cease to exist without any conversion thereof;
and
16
<PAGE> 24
(iii) each issued and outstanding share of common stock, par value
$.01, of Sub, will be converted into one share of Common Stock of the
Surviving Corporation.
The Closing Per Share Amount will equal $6.34, subject to pro-rata
reduction (based on shares of Common Stock outstanding or issuable pursuant to
in-the-money stock options) to the extent that certain fees and expenses of the
Company exceed $200,000. The Company currently anticipates that the relevant
fees and expenses will total approximately $478,000 ($278,000 in excess of
$200,000), including payments of $70,000 to Duff & Phelps and $150,000 to EGI;
legal and accounting fees and expenses of $210,000; printing, mailing and filing
fees of $33,000; and exchange agent's fees and expenses of $15,000. Assuming
that there are 2,002,327 shares of Common Stock outstanding at the Effective
Time and 360,500 shares of Common Stock subject to in-the-money stock options,
the per share reduction would equal $278,000 divided by the sum of 2,002,327 and
360,500, or approximately $.12 per share, resulting in a Closing Per Share
Amount of approximately $6.22.
Shares of Common Stock which immediately prior to the Effective Time are
held by persons who have properly exercised and perfected appraisal rights under
Section 262 of the DGCL (the "Dissenting Shares") will not be converted into the
right to receive the Closing Per Share Amount. The holders of Dissenting Shares
will be entitled to receive such consideration as shall be determined pursuant
to Section 262 of the DGCL; provided, however, that if any such holder fails to
perfect or shall withdraw or lose such holder's right to appraisal and payment
under the DGCL, each of such holder's shares of Common Stock will be deemed to
have been converted as of the Effective Time into the right to receive the
Closing Per Share Amount, without any interest thereon, and such shares will no
longer be Dissenting Shares.
After the Effective Time, holders of Common Stock will cease to have rights
with respect thereto, except the right to receive the Closing Per Share Amount
in respect of each such share or the right to perfect appraisal rights in
respect thereof. No transfer of shares of Common Stock will be made on the stock
transfer books of the Surviving Corporation after the Effective Time.
PAYMENT OF MERGER CONSIDERATION
Prior to the Effective Time, the Company will appoint American Stock
Transfer and Trust Company to act as the exchange agent (the "Exchange Agent")
under the Merger Agreement. At the Closing, immediately prior to the Effective
Time, IPC will cause Sub to deposit with the Exchange Agent, on behalf of the
holders of Common Stock, an aggregate amount in cash equal to the Closing Per
Share Amount multiplied by the number of shares of Common Stock outstanding as
of the Closing (such aggregate amount, the "Exchange Fund").
As soon as reasonably practical after the Effective Time, the Exchange
Agent will mail to each holder of record of certificate(s) which immediately
prior to the Effective Time represented outstanding Common Stock
("Certificates"): (i) a letter of transmittal (a "Letter of Transmittal") which
will specify that delivery shall be effected, and risk of loss and title to each
such Certificate shall pass only upon delivery of such Certificate to the
Exchange Agent, contain a representation in a form reasonably satisfactory to
IPC as to the good and marketable title to the Common Stock represented by such
Certificate(s) free and clear of any Lien, consent to the terms of the Merger
Agreement providing for the determination of the Closing Per Share Amount, and
contain such other provisions as the Company and IPC may reasonably specify; and
(ii) instructions to effect the surrender of such Certificate(s) in exchange for
an amount equal to the product of the Closing Per Share Amount and the number of
shares of Common Stock represented by such Certificate (the "Merger
Consideration").
Upon surrender to the Exchange Agent of a Certificate for cancellation,
together with a duly executed Letter of Transmittal and such other documents as
the Exchange Agent may reasonably require, the Exchange Agent will deliver the
Merger Consideration in respect of the shares of Common Stock represented by
such Certificate, without interest. The Exchange Agent will promptly surrender
such Certificate to the Surviving Corporation for cancellation.
17
<PAGE> 25
Any portion of the Exchange Fund that remains unclaimed for one year after
the Closing Date will be delivered by the Exchange Agent to the Surviving
Corporation, upon demand, and any holder of a Certificate who has not
theretofore surrendered such Certificate as described above may thereafter look
only to the Surviving Corporation for delivery of the Merger Consideration in
respect of the shares of Common Stock represented by such Certificate, without
interest, subject in all events to all applicable escheat and other similar
laws.
If the amount to be paid from the Exchange Fund upon surrender of a
Certificate is to be delivered to a person other than the person in whose name
such Certificate is registered, it will be a condition of such delivery that
such Certificate be properly endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name of the record holder appears
on such Certificate, and shall otherwise be in proper form for transfer, and
that the person requesting such delivery pay to the Exchange Agent or the
Surviving Corporation, as the case may be, any transfer or other tax required by
law as a result of such delivery, or establish to the satisfaction of the
Exchange Agent and the Surviving Corporation that such tax has been paid or is
not payable.
The Exchange Agent or the Surviving Corporation will be entitled to deduct
and withhold from the Merger Consideration in respect of the shares of Common
Stock represented by a Certificate such amounts as the Company reasonably
determines are required to be deducted and withheld under the Code, or under any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by the Exchange Agent or the Surviving Corporation, such withheld
amounts will be treated as having been paid to the person for whom such
deduction and withholding was made.
Notwithstanding the foregoing, Equity Holdings may arrange to receive the
Merger Consideration in respect of the Common Stock it owns at the Closing
directly from IPC. The amount deposited with the Exchange Agent will be reduced
to the extent that Equity Holdings receives such Merger Consideration at the
Closing.
HOLDERS OF COMMON STOCK SHOULD NOT FORWARD THEIR STOCK CERTIFICATES WITH
THE ENCLOSED PROXY CARD, NOR SHOULD THEY RETURN THEIR STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED A LETTER OF TRANSMITTAL.
STOCK OPTIONS
As of the Effective Time, each Existing Option with an exercise price less
than the Closing Per Share Amount, will be cancelled in exchange for, and the
holder of such Existing Option will be entitled to receive at the Closing (or
thereafter, if necessary) upon surrender of such Existing Option for
cancellation, and before any income tax and other required withholdings, cash
equal to the product of (i) the difference between the Closing Per Share Amount
and the exercise price of such Existing Option, and (ii) the number of shares of
Common Stock covered by such Existing Option. Each Existing Option with an
exercise price greater than or equal to the Closing Per Share Amount will be
cancelled without payment of consideration. It is currently anticipated by the
Company that the Closing Per Share Amount will be between $6.20 and $6.22.
EQUITY HOLDINGS VOTING OBLIGATION
Equity Holdings has agreed that during the period commencing on the date of
the Merger Agreement and continuing until the first to occur of (i) the
Effective Time or (ii) termination of the Merger Agreement, at any meeting of
the holders of Common Stock or in connection with any written consent of the
holders of Common Stock, that it will vote (or cause to be voted) the shares of
Common Stock held of record or beneficially owned by it or its Affiliates (i) in
favor of the Merger, the execution and delivery by the Company of the Merger
Agreement and the approval and adoption of the terms thereof and each of the
other actions provided for in the Merger Agreement and any actions required in
furtherance thereof; (ii) against any action or agreement that would result in a
breach in any respect of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement; and (iii)
except as otherwise agreed to in writing in advance by IPC, against the
following actions (other than the Merger and the transactions contemplated by
the Merger Agreement): (a) any extraordinary corporate transaction, such as a
18
<PAGE> 26
merger, consolidation or other business combination involving the Company or its
Subsidiaries; (b) any sale, lease or transfer of a material amount of assets of
the Company or its Subsidiaries, or a reorganization, restructuring,
recapitalization, special dividend, dissolution or liquidation of the Company or
its Subsidiaries; or (c)(1) any change in a majority of the persons who
constitute the Board; (2) any change in the present capitalization of the
Company including any proposal to sell a substantial equity interest in the
Company and its Subsidiaries; (3) any amendment of the Company's Certificate of
Incorporation or By-laws; (4) any other change in the Company's corporate
structure or business; or (5) any other action which, in the case of each of the
matters referred to in clauses (c)(1), (2), (3) or (4) is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated by the
Merger Agreement. Equity Holdings has agreed that it will not enter into any
agreement or understanding with any person the effect of which would be
inconsistent or violative of the provisions and agreements described in this
paragraph.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
Company relating, among other things, to: (i) the organization, existence,
qualification as a foreign corporation and good standing of the Company and the
organization, existence, qualification as a foreign corporation and good
standing of specified subsidiaries of the Company; (ii) the corporate power and
authority of the Company and specified subsidiaries of the Company; (iii) the
business operated by the Company and its subsidiaries; (iv) the Certificate of
Incorporation and By-laws of the Company and specified subsidiaries of the
Company; (v) the capitalization of the Company; (vi) the authorization,
execution, delivery and enforceability of the Merger Agreement; (vii) the
absence of conflicts, violations and defaults under the Certificate of
Incorporation and By-laws of the Company and certain other documents; (viii)
title to assets; (ix) the absence of specified litigation, and the absence of
pending or threatened litigation; (x) the books, records and financial
statements of the Company; (xi) the absence of certain events; (xii) buildings
and equipment; (xiii) certain existing contracts and the performance and
enforceability thereof; (xiv) certain existing insurance policies; (xv) employee
benefit matters; (xvi) brokers', finders' or similar fees in connection with the
Merger Agreement; (xvii) tax matters; (xviii) real estate; (xix) governmental
approvals; (xx) the absence of pending acquisitions; (xxi) investments; (xxii)
labor matters; (xxiii) indebtedness of the Company; (xxiv) the subsidiaries of
the Company; (xxv) existing permits and the absence of certain violations of
law; (xxvi) unemployment compensation; (xxvii) intangible assets; (xxviii)
environmental matters; (xxix) the vote required to approve the Merger Proposal;
(xxx) transactions with affiliates of the Company; (xxxi) claims to return
merchandise of the Company; and (xxxii) the accuracy and completeness of certain
documents and reports filed by the Company with the Securities and Exchange
Commission (the "SEC").
The Merger Agreement contains various representations and warranties of IPC
and Sub relating, among other things, to: (i) their organization, existence and
good standing; (ii) corporate power, authority and similar corporate matters;
(iii) the authorization, execution, delivery and enforceability of the Merger
Agreement; (iv) consents and approvals; (v) brokers', finders' or similar fees
in connection with the Merger Agreement; (v) the absence of conflicts,
violations and defaults under the Certificate of Incorporation and By-laws of
IPC and Sub, respectively, and certain other documents; and (vi) the absence of
pending or threatened litigation.
The Merger Agreement contains various representations and warranties of
Equity Holdings relating, among other things, to: (i) its organization,
existence and good standing; (ii) partnership power and authority; (iii) the
authorization, execution, delivery and enforceability of the Merger Agreement;
(iv) the absence of conflicts and violations under its partnership agreement and
certain other documents; (v) the absence of pending or threatened litigation;
and (vi) its ownership of Common Stock.
None of the representations, warranties, covenants, agreements and
certifications of the Company, Equity Holdings and/or any officer of the Company
contained in or pursuant to the Merger Agreement will survive the Effective
Time, and, from and after the Effective Time, neither IPC nor Sub will be
entitled to make any claim for breach of any such representations, warranties,
covenants or certifications.
19
<PAGE> 27
CONDUCT OF THE BUSINESS PENDING THE MERGER
The Company has agreed that from the date of the Merger Agreement and until
the termination of the Merger Agreement or the Closing Date (whichever first
occurs), it will:
(i) carry on its business in the usual, regular and ordinary course
substantially in the same manner as carried on prior to the date of the
Merger Agreement; and not (a) make payments or distributions (other than
normal salaries) to any Affiliate of the Company except for transactions in
the ordinary course of business upon commercially reasonable terms; (b)
sell, lease, transfer or assign any of its assets, tangible or intangible,
other than for a fair consideration in the ordinary course of business and
other than the disposition of obsolete or unusable property; (c) enter into
any contract (other than purchase and sales orders in the ordinary course
of business in accordance with past practice) either involving more than
$20,000 or outside the ordinary course of business without the consent of
IPC (which consent shall not be unreasonably withheld); (d) accelerate,
terminate, modify in any material respect, or cancel any contract (other
than purchase and sales orders in the ordinary course of business in
accordance with past practice) involving more than $20,000 to which the
Company is a party or by which it is bound without the consent of IPC
(which consent shall not be unreasonably withheld); (e) make any capital
expenditure (or series of related capital expenditures) either involving
more than $50,000 (unless such expenditure is identified in the then
current business plan of Plastofilm as disclosed to IPC) or outside the
ordinary course of business; (f) delay or postpone the payment of accounts
payable and other liabilities outside the ordinary course of business; (g)
cancel, compromise, waive or release any right or claim (or series of
related rights and claims) not covered by the reserves or accruals relating
to such claim in the Company's financial statements either involving more
than $20,000 or outside the ordinary course of business without the consent
of IPC (which consent shall not be unreasonably withheld); (h) grant any
license or sublicense of any rights under or with respect to any Intangible
Assets; or (i) make any loan to, or enter into any other transaction with,
any of its Affiliates, directors, officers and employees outside the
ordinary course of business;
(ii) use, operate, maintain and repair all of its assets and
properties in a normal business manner consistent with its past practices;
(iii) use commercially reasonable efforts to preserve in all material
respects its business organization intact, to retain the services of its
employees and to conduct business with suppliers, customers, creditors and
others having business relationships with the Company in the best interests
of the Company;
(iv) not knowingly do any act or knowingly omit to do any act or, to
the extent within its reasonable control, knowingly permit any act or
omission to act, which will cause a breach of any of the Existing Contracts
that would have a Material Adverse Effect;
(v) use reasonable efforts to maintain specified insurance policies
(or policies substantially equivalent thereto) in full force and effect;
(vi) not: (a) except as required by any Existing Contracts or in a
manner consistent with past practice, grant any increase in the rate of pay
of any of its employees; (b) institute or amend any employee benefit plan
unless required by law; (c) enter into or modify any written employment
agreement with any person; or (d) pay or accrue any bonus or incentive
compensation to any person; provided, however, that the Company may pay
certain bonuses as referenced in the Merger Agreement consistent with past
practice;
(vii) other than in the ordinary course of business, not create, incur
or assume any Indebtedness or make any Investment;
(viii) not amend the Certificate of Incorporation and By-laws of the
Company or of specified subsidiaries;
(ix) not (a) issue any additional shares of stock of any class except
pursuant to Existing Options or pursuant to Section 4 of The CFI
Industries, Inc. Form Your Future Plan, or grant any warrants, options
20
<PAGE> 28
or rights to subscribe for or acquire any additional shares of stock of any
class (including, without limitation, pursuant to Section 5 of The CFI
Industries, Inc. Form Your Future Plan); (b) declare or pay any dividend or
make any capital, surplus or other distributions (other than normal
salaries) of any nature to the Company's stockholders; or (c) directly or
indirectly redeem, purchase or otherwise acquire, recapitalize or
reclassify any of its capital stock or liquidate in whole or in part;
(x) timely and properly file, or timely and properly file requests for
extensions to file, all federal, state, local and foreign tax returns which
are required to be filed, and pay or make provision for the payment of all
taxes owed by it;
(xi) not knowingly do any act or omit to do any act that would result
in a breach of any representation by the Company set forth in the Merger
Agreement; and
(xii) use reasonable efforts to obtain releases, in substantially the
form attached as an exhibit to the Merger Agreement from each of its
officers and directors.
The Company has also agreed to suspend and discontinue the operation of The
CFI Industries, Inc. Form Your Future Plan on and as of July 1, 1996,
immediately after giving effect to the issuance of shares of Common Stock
pursuant to payroll deductions which have accrued under such plan up to and as
of such date.
NO SOLICITATION
The Company has agreed that prior to the Effective Time, neither it, any of
its respective subsidiaries or Affiliates, nor any of the respective directors,
officers, employees, agents or representatives of the foregoing, will, directly
or indirectly, (i) solicit, initiate, facilitate or encourage (including by way
of furnishing or disclosing non-public information) any inquiries or the making
of any proposal with respect to any merger, consolidation or other business
combination involving the Company or any subsidiary of the Company or the
acquisition of all or any significant part of the assets or capital stock of the
Company or any subsidiary of the Company (an "Acquisition Transaction") or (ii)
negotiate, explore or otherwise engage in discussions with any person (other
than IPC and its representatives) with respect to any Acquisition Transaction,
or which may reasonably be expected to lead to a proposal for an Acquisition
Transaction or enter into any agreement, arrangement or understanding with
respect to any such Acquisition Transaction or which would require it to
abandon, terminate or fail to consummate the Merger or any other transaction
contemplated by the Merger Agreement; provided, however, that the Company may,
in response to an unsolicited written proposal from a third party regarding a
Superior Proposal (as hereinafter defined), furnish information to and engage in
discussions and negotiations with such third party, but only if the Board
determines in good faith, after consultation with its financial advisors and
based upon the written advice of independent Delaware counsel, that failing to
take such action would result in a breach of the fiduciary duties of the Board
under applicable law. The Company further agreed that any violation of the terms
of the Merger Agreement described in this paragraph by any director, officer,
Affiliate, investment banker, financial advisor, attorney or other advisor or
representative of the Company or any subsidiary of the Company, whether or not
such person is purporting to act on behalf of the Company or any other
subsidiary of the Company, or otherwise, will be deemed to be a breach of such
terms of the Merger Agreement by the Company.
The Company has also agreed that, as of the date of the Merger Agreement,
its Subsidiaries and Affiliates, and the respective directors, officers,
employees, agents and representatives of the foregoing, would cease and cause to
be terminated any existing activities, discussions or negotiations with any
person (other than IPC and its representatives) conducted prior to the date of
the Merger Agreement with respect to any Acquisition Transaction. The Company
agreed to promptly advise IPC in writing of the existence of (i) any inquiries
or proposals (or desire to make a proposal) received by (or indicated to), any
such information requested from, or any negotiations or discussions sought to be
initiated or continued with, the Company, its Subsidiaries or Affiliates, or any
of the respective directors, officers, employees, agents or representatives of
the foregoing, in each case from a person (other than IPC and its
representatives) with respect to an Acquisition Transaction, and (ii) the terms
thereof, including the identity of such third party and the terms of any
financing arrangement or commitment in connection with such Acquisition
Transaction, and to update on an ongoing basis or upon IPC's reasonable request,
the status thereof.
21
<PAGE> 29
As used in the Merger Agreement, "Superior Proposal" means a bona fide,
written and unsolicited proposal or offer made by any person (or group) (other
than IPC or any of its Subsidiaries) with respect to an Acquisition Transaction
on terms which, as determined by the Board in good faith and in the exercise of
reasonable judgment (based on the advice of independent financial advisors and
independent Delaware counsel), could reasonably be likely to be more favorable
to the Company and its stockholders than the transactions contemplated by the
Merger Agreement.
OTHER AGREEMENTS OF THE COMPANY, IPC AND SUB
So long as the Merger Agreement has not been terminated, the Company, IPC
and Sub have agreed to: (i) promptly make their respective filings and
thereafter make any other submissions required under all applicable laws with
respect to the Merger Agreement, the Merger and the other transactions
contemplated thereby; and (ii) use their respective commercially reasonable
efforts to promptly take, or cause to be taken, all other actions and do, or
cause to be done, all other things necessary proper or appropriate to consummate
and make effective the Merger as provided for in the Merger Agreement.
CONDITIONS PRECEDENT TO THE MERGER
The obligations of IPC and Sub to consummate the Merger are subject, among
other things, to the satisfaction of the following conditions at or prior to the
Closing: (i) the Company having performed and complied in all material respects
with its obligations under the Merger Agreement which are to be performed or
complied with by it prior to or on the Closing Date and as of the Effective
Time; (ii) the absence of any pending suit, action or other proceeding in which
the consummation of the transactions contemplated by the Merger Agreement is
restrained or enjoined or in which the relief requested is to restrain, enjoin
or prohibit the consummation of such transactions; (iii) the representations and
warranties made by the Company in the Merger Agreement being true and correct in
all material respects on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date; (iv) there shall not have
occurred, since the date of the Merger Agreement, any Material Adverse Effect
that continues to exist on the Closing Date; (v) neither the business nor the
assets and properties of the Company taken as a whole having been materially
adversely affected by reason of any taking, condemnation, destruction or other
physical damage, whether or not insured against, between the date of the Merger
Agreement and the Closing Date; (vi) subject to specified exceptions, the
absence of liabilities or obligations of the Company (whether absolute, accrued,
contingent or otherwise) which are material to the Company taken as a whole;
(vii) all Accounts owed by an Affiliate of the Company (except Subsidiaries of
the Company) to the Company having been paid in full and any Affiliate of the
Company (except Subsidiaries of the Company) who has an amount owed to it by the
Company having been paid prior to the Effective Time and executing a release,
dated the date of the Closing, in a form reasonably acceptable to IPC and Sub;
(viii) the Merger Proposal receiving the affirmative vote of the holders of not
less than two-thirds of the outstanding shares of Common Stock entitled to vote
thereon; (ix) as of the Closing, there being not more than 50,000 outstanding
shares of Common Stock which are qualified to be Dissenting Shares; (x) IPC
completing to its satisfaction, no later than June 19, 1996, and with respect to
certain specified items, June 26, 1996, its due diligence review of the Company
and (xi) all resignations from directors of the Company which shall have been
previously requested in writing by IPC having been delivered to IPC. The
post-signing due diligence period referenced in clause (x) of the preceding
sentence ended on June 26, 1996 and the related condition to close has been
deemed satisfied.
The obligations of the Company to consummate the Merger are subject, among
other things, to the satisfaction of the following conditions at or prior to the
Closing: (i) each of IPC and Sub having performed and complied in all material
respects with its obligations under the Merger Agreement which are to be
performed or complied with by it prior to or on the Closing Date and as of the
Effective Time; (ii) the absence of any pending suit, action or other proceeding
in which the consummation of the transactions contemplated by the Merger
Agreement is restrained or enjoined or in which the relief requested is to
restrain, enjoin or prohibit the consummation of such transactions; (iii) the
representations and warranties made by IPC and Sub in the Merger Agreement being
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date; (iv) the
Merger Proposal
22
<PAGE> 30
receiving the affirmative vote of the holders of not less than two-thirds of the
outstanding shares of Common Stock entitled to vote thereon; and (v) Sub having
delivered the Exchange Fund to the Exchange Agent and paying all amounts due to
holders of Existing Options.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Closing,
whether before or after approval of the Merger Proposal by the Company's
stockholders:
(i) by mutual written agreement of IPC and the Company;
(ii) by IPC, if any one or more of the conditions to the obligation of
IPC to close is not fulfilled by October 31, 1996 (except if the basis
therefor is attributable to a breach by IPC of any of its obligations under
the Merger Agreement);
(iii) by the Company, if any one or more of the conditions to the
obligation of the Company to close is not fulfilled by October 31, 1996
(except if the basis therefor is attributable to a breach by the Company of
any of its obligations under the Merger Agreement);
(iv) by the Company if the Board of Directors of the Company (a)
withdraws, modifies or changes in a manner adverse to IPC or Sub its
approval or recommendation of the Merger Agreement or the Merger in order
to approve and permit the Company to execute a definitive agreement
relating to an Acquisition Transaction, and (b) determines, after having
received the written advice of independent Delaware counsel, that the
failure to take such action as set forth in the preceding clause (a) would
result in a breach of the Board's fiduciary duties under applicable law;
provided, however, that the Company shall have given IPC and Sub at least
thirty-six hours advance actual notice of any termination pursuant to this
clause (iv) and made concurrently with such termination the $750,000
payment described herein under "-- Fees and Expenses;"
(v) by IPC or the Company, if the Merger Agreement and the Merger do
not receive the requisite approval of the Company's stockholders by October
31, 1996;
(vi) by IPC or the Company, if any legal proceeding is commenced or
threatened by any governmental or regulatory body directed against the
consummation of the Closing or any transaction contemplated by the Merger
Agreement and either IPC or the Company, as the case may be, reasonably and
in good faith deems it impractical or inadvisable to proceed in view of
such legal proceeding or threat thereof;
(vii) by IPC, if (a) the Board of Directors of the Company withdraws,
modifies or changes in a manner adverse to IPC or Sub its approval or
recommendation of the Merger Agreement or Merger or recommends an
Acquisition Transaction or other business combination, or the Company
enters into an agreement in principle (or similar agreement) or definitive
agreement providing for an Acquisition Transaction with a Person other than
IPC, Sub or their Subsidiaries (or the Board resolves to do any of the
foregoing), or (b) it is publicly disclosed or IPC learns that any Person
or "group" (as that term is defined in Section 13(d)(3) of the Exchange
Act), other than IPC, Sub or Equity Holdings, after receiving the approval
of the Board contemplated by Section 203 of the DGCL, has acquired
beneficial ownership (determined pursuant to Rule 13d-3 promulgated under
the Exchange Act) of more than 14.9% of any class or series of capital
stock of the Company, through the acquisition of stock, the formation of a
group or otherwise, or has been granted any option, right or warrant,
conditional or otherwise, to acquire beneficial ownership of more than
14.9% of any class or series of capital stock of the Company; or
(viii) by IPC upon the failure of Equity Holdings to perform its
obligations under the Merger Agreement described under "-- Equity Holdings
Voting Obligation."
23
<PAGE> 31
FEES AND EXPENSES
The Company has agreed to pay to IPC (i) $750,000 and (ii) up to $250,000
of out-of-pocket expenses reasonably incurred by IPC and Sub in connection with
the Merger Agreement and the Merger if the Merger Agreement is terminated under
specified conditions, pursuant to the provisions of the Merger Agreement
described above in clauses (ii), (iv), (v), (vii) or (viii) under "--
Termination." The fee of $750,000 is required to be paid concurrently with the
occurrence of the event giving rise to such payment obligation and the expense
amount is required to be paid within five business days after receipt by the
Company of reasonably detailed evidence of the expenses. After receipt of such
payments, IPC will not be entitled to damages or other amounts or remedies from
the Company for breach of, or otherwise in connection with, the Merger
Agreement.
IPC has agreed to pay to the Company (i) $750,000.00 and (ii) up to
$250,000 of out-of-pocket expenses reasonably incurred by the Company in
connection with the Merger Agreement and the Merger if the Merger Agreement is
terminated by the Company under specified conditions, pursuant to the provisions
of the Merger Agreement described above in clause (iii) under "-- Termination."
After receipt of such payments, the Company will not be entitled to damages or
other amounts or remedies from IPC or Sub for breach of, or otherwise in
connection with, the Merger Agreement.
If the Merger Agreement and the transactions contemplated thereby are
consummated, up to $200,000 of reasonable out-of-pocket costs, fees and expenses
incurred by the Company in connection with (i) the negotiation, preparation,
execution and delivery of and performance under the Merger Agreement, (ii) the
preparation and distribution of this Proxy Statement and any amendment or
supplement hereto, and (iii) the conduct of the Special Meeting, will be paid by
the Surviving Corporation, and the balance thereof will be paid by reducing the
consideration payable to stockholders of the Company and holders of Existing
Options pursuant to the Merger. The Company currently anticipates that such
reduction will result in the Closing Per Share Amount being between $6.20 and
$6.22. If the Merger Agreement is not consummated, IPC and Sub, on the one hand,
and the Company, on the other hand, will bear their respective legal fees and
expenses.
INDEMNIFICATION
Sub has agreed to cause the Surviving Corporation to indemnify and hold
harmless, for six years after the Closing Date, each present and former director
and officer of the Company and its Subsidiaries against all losses in connection
with any claim, action, suit, proceeding or investigation arising out of such
person's capacity as such director or officer before the Effective Time, in each
case to the fullest extent permitted under applicable law.
AMENDMENT; WAIVER
No amendment, supplement, modification, waiver or termination of the Merger
Agreement will be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of the Merger Agreement will be
deemed to constitute a waiver of any other provision of the Merger Agreement,
whether or not similar, nor will such waiver constitute a continuing waiver
unless otherwise expressly provided.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Under the DGCL, any holder of Common Stock who does not wish to accept the
Merger Consideration in respect of his or her shares of Common Stock has the
right (an "Appraisal Right") to dissent from the Merger and to seek an appraisal
of, and to be paid the fair cash value (exclusive of any element of value
arising from the accomplishment or expectation of the Merger) for, his or her
shares of Common Stock provided that the stockholder fully complies with the
provisions of Section 262 of the DGCL ("Section 262").
The following is intended as a brief summary of the material provisions of
the statutory procedures required to be followed by a stockholder in order to
dissent from the Merger and perfect the stockholder's Appraisal Right. This
summary, however, is not a complete statement of all applicable requirements and
is qualified in its entirety by reference to Section 262, the complete text of
which is attached hereto as Annex B.
24
<PAGE> 32
If any holder of Common Stock elects to demand appraisal of his or her
shares of Common Stock, such holder must satisfy each of the following
conditions:
(i) the holder must deliver to the Company a written demand for
appraisal of his or her shares of Common Stock before the vote with respect
to the Merger is taken (this written demand for appraisal must be in
addition to and separate from any proxy or vote abstaining from or against
the Merger; voting against or failing to vote for the Merger by itself does
not constitute a demand for appraisal within the meaning of Section 262);
and
(ii) the holder must not vote in favor of the Merger Proposal (an
abstention or failure to vote will satisfy this requirement, but a vote in
favor, by proxy (including by returning an executed but otherwise unmarked
proxy card) or in person, will constitute a waiver of the stockholder's
Appraisal Right in respect of the shares of Common Stock so voted and will
nullify any previously filed written demands for appraisal).
Within ten days after the Effective Time, the Company must give written
notice that the Merger has become effective to each holder of Common Stock who
so filed a written demand for appraisal and who did not vote in favor of the
Merger. Within 120 days after the Effective Time, the Company or any stockholder
who has complied with the requirements of Section 262 may file a petition in the
Delaware Court of Chancery (the "Court of Chancery") demanding a determination
of the fair value of the shares of Common Stock held by all stockholders
entitled to appraisal. The Company does not currently intend to file such a
petition in the event there are dissenting stockholders. INASMUCH AS THE COMPANY
HAS NO OBLIGATION TO FILE SUCH A PETITION, THE FAILURE OF A STOCKHOLDER TO DO SO
WITHIN THE PERIOD SPECIFIED COULD NULLIFY SUCH STOCKHOLDER'S PREVIOUSLY WRITTEN
DEMAND FOR APPRAISAL. At any time within 60 days after the Effective Time, any
stockholder who has demanded appraisal has the right to withdraw the demand and
to accept payment of the Merger Consideration in respect of his or her shares of
Common Stock. Within 120 days after the Effective Time, any stockholder who has
complied with the requirements of Section 262 is entitled, upon written request,
to receive from the Company a statement setting forth the aggregate number of
shares of Common Stock not voted in favor of the Merger Proposal and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares.
If any stockholder fails to comply with the above provisions and the Merger
becomes effective, such stockholder will be entitled to receive the Merger
Consideration in respect of his or her shares of Common Stock as provided for in
the Merger Agreement and will have no Appraisal Rights with respect to such
shares.
All demands for appraisal should be addressed to Susan Obuchowski, CFI
Industries, Inc., Corporate Secretary, Suite 600, Two North Riverside Plaza,
Chicago, Illinois 60606, before the vote on the Merger Agreement is taken at the
Special Meeting, and should be executed by, or on behalf of, the holder of
record of the shares of Common Stock. The demand must reasonably inform the
Company of the identity of the stockholder and the intention of such stockholder
to demand appraisal of his or her shares of Common Stock.
To be effective, a demand for appraisal must be made by or in the name of
the registered stockholder, fully and correctly, as such stockholder's name
appears on his or her stock certificate(s) and cannot be made by the beneficial
owner if the beneficial owner does not also hold the shares of Common Stock of
record. The beneficial holder must, in such cases, have the registered owner
submit the required demand in respect of such shares of Common Stock.
If shares of Common Stock are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, execution of a demand for appraisal
should be made in such a capacity, and if the shares of Common Stock are owned
of record by more than one person, as in joint tenancy or tenancy in common, the
demand should be executed by or for all joint owners. An authorized agent,
including one for two or more joint owners, may execute the demand for appraisal
for a stockholder of record; however, the agent must identify the record owner
or owners and expressly disclose the fact that, in executing the demand, he or
she is acting as agent for the record owner. A record owner, such as a broker,
who holds shares of Common Stock as a nominee for others, may exercise his or
her right of appraisal with respect to the shares of Common Stock held for one
or more beneficial owners, while not exercising this right for other beneficial
owners. In such case, the
25
<PAGE> 33
written demand should state the number of shares of Common Stock as to which
appraisal is sought. Where no number of shares of Common Stock is expressly
mentioned, the demand will be presumed to cover all shares of Common Stock held
in the name of such record owner.
If a petition for appraisal is duly filed by a stockholder and a copy
thereof is delivered to the Company, the Company will then be obligated within
20 days thereafter to provide the Court of Chancery with a duly verified list
containing the names and addresses of all stockholders who have demanded an
appraisal of their shares of Common Stock and with whom agreements as to the
value of their shares have not been reached. After notice to such stockholders,
the Court is empowered to conduct a hearing upon the petition, to determine
those stockholders who have complied with Section 262 and who have become
entitled to Appraisal Rights. The Court may require the stockholders who have
demanded payment for their shares of Common Stock to submit their stock
certificates to the Register in Chancery for notation thereon of the pendency of
the appraisal proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such stockholder.
After determining the stockholders entitled to an appraisal, the Court of
Chancery will appraise the shares of Common Stock, determining their fair value
exclusive of any element of value arising from the accomplishment or expectation
of the Merger. When the value is so determined, the Court of Chancery will
direct the payment by the Company of such value, with interest thereon accrued
during the pendency of the proceeding if the Court of Chancery so determines, to
the stockholders entitled to receive the same, upon surrender to the Company by
such holders of the certificates representing such shares of Common Stock. In
determining fair value, the Court of Chancery is required to take into account
all relevant factors.
Each Stockholder considering seeking appraisal should be aware that the
fair value of his or her shares of Common Stock determined under Section 262
could be more, the same, or less than the Merger Consideration in respect
thereof that he or she is entitled to receive pursuant to the Merger Agreement
if he or she does not seek appraisal, and that opinions of financial advisors as
to fairness from a financial point of view are not necessarily opinions as to
fair value under Section 262.
Costs of the appraisal proceeding may be imposed upon the parties thereto
(that is, the Company and the stockholders participating in the appraisal
proceeding) by the Court of Chancery as it deems equitable in the circumstances.
Upon the application of a stockholder, the Court of Chancery may order all or a
portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys' fees
and the fees and expenses of experts, to be charged pro-rata against the value
of all shares of Common Stock entitled to appraisal.
Any stockholder who had demanded Appraisal Rights will not, after the
Effective Time, be entitled to vote shares of Common Stock subject to such
demand for any purpose or to receive payments of dividends or any other
distribution with respect to such shares of Common Stock (other than with
respect to payment as of a record date prior to the Effective Time) or to
receive the Merger Consideration in respect thereof that he or she is entitled
to receive pursuant to the Merger Agreement; however, if no petition for
appraisal is filed within 120 days after the Effective Time, or if such
stockholder delivers a written withdrawal of his or her demand for appraisal and
an acceptance of the Merger, either within 60 days after the Effective Time, or
thereafter with written approval of the Company, then the right of such
stockholder to appraisal will cease and such stockholder will be entitled to
receive the Merger Consideration in respect of his or her shares of Common Stock
that he or she is entitled to receive pursuant to the Merger Agreement, without
interest.
Failure to follow the steps required by Section 262 for perfecting
Appraisal Rights may result in the loss of such rights. In view of the
complexity of Section 262, stockholders of the Company who are considering
dissenting from the Merger should consult their legal advisors.
The obligations of IPC and Sub to consummate the Merger are subject, among
other things, to there not being more than 50,000 shares of Common Stock which
are qualified as Dissenting Shares. See "THE MERGER AGREEMENT -- Conditions
Precedent to the Merger."
26
<PAGE> 34
SOURCE AND AMOUNT OF FUNDS
IPC and Sub intend to finance the payment of the Closing Per Share Amount
and all costs and expenses relating to the Merger through cash generated from
operations and borrowings under IPC's revolving credit facility under its senior
credit facility. At June 30, 1996, approximately $52 million was available under
this revolving credit facility.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Company has agreed to pay EGI a fee of $150,000 for services it
rendered to the Company in connection with the Merger. See "THE MERGER --
Background of the Merger." EGI is an affiliate of Equity Holdings. The Company
believes that such payment, together with amounts to be paid to Duff & Phelps,
is reasonable and less than that which it would have paid to an unrelated third
party for similar services.
Directors and executive officers of the Company have interests in the
Merger in addition to their interests solely as stockholders of the Company.
Those interests relate to the receipt of cash in exchange for outstanding
options to purchase Common Stock, amounts that may become due after the
Effective Time under certain "change in control" agreements, interests in
certain legal fees and expenses to be paid by the Company in connection with the
Merger and the provision of indemnification after the Merger.
As described herein under "THE MERGER AGREEMENT -- Stock Options,"
outstanding options to purchase Common Stock will be cancelled in exchange for
cash. Assuming that the Closing Per Share Amount is $6.22, the directors and
executive officers would receive the following amounts, before any income tax
and other required withholdings, upon cancellation of the options to purchase
Common Stock held by them: Philip C. Calian, $367,660; C. Clifford Brake,
$10,927.50; Marshall L. Burman, $10,927.50; Robert W. George, $347,000; Richard
M. Harris, $10,927.50; Donald J. Liebentritt, $10,927.50; Sheli Z. Rosenberg,
$10,927.50; Richard L. Partlow, $231,800; and Robert W. Zimmer, $118,950.
Plastofilm and each of Messrs. Partlow and Zimmer have an agreement that if
his employment with Plastofilm is terminated without cause prior to April 30,
1997, he will be paid compensation at his then base salary until the first to
occur of (a) 270 days after his last day of employment, and (b) the date of
which he starts full-time employment with another employer (the "Severance
Period"). Plastofilm and Mr. George have an agreement that if his employment is
terminated without cause at any time within one year after the effective date of
a sale or change in control of Plastofilm occurring prior to December 31, 1996,
he will be paid compensation at his then base salary during the applicable
Severance Period. In each such agreement, termination without cause includes a
termination subsequent to a sale or change in control with respect to
Plastofilm, and following such sale or change in control there is subsequent
diminution of his duties. Messrs. George, Partlow and Zimmer will also be
offered coverage in Plastofilm's health insurance plan at the same cost as
active employees until the first to occur of (a) or (b) above. Mr. George's
current annual base salary is $160,000, Mr. Partlow's current annual base salary
is $110,000, and Mr. Zimmer's current annual base salary is $99,000. Under these
agreements, the Merger will constitute a change in control of Plastofilm.
The Company expects to pay Rosenberg & Liebentritt, P.C., a law firm whose
two stockholders are Mrs. Rosenberg and Mr. Liebentritt, approximately $140,000
in legal fees relating to the Merger. In addition, for a period of five years
following the Closing Date, Rosenberg & Liebentritt, P.C. has agreed to provide
consultation and assistance at no charge to the Surviving Corporation with
respect to certain claims and proceedings that the Surviving Corporation may
become subject to relating to any discontinued operations or businesses of the
Company; the Surviving Corporation will reimburse Rosenberg & Liebentritt, P.C.
for all out-of-pocket expenses incurred in connection with its provision of such
services. Mrs. Rosenberg's husband is a partner in the law firm of Seyfarth Shaw
Fairweather & Geraldson. The Company expects to pay Seyfarth Shaw Fairweather &
Geraldson approximately $5,000 in legal fees relating to the Merger. The Company
also expects to pay to an accounting firm that is associated with Equity
Holdings approximately $2,000 in fees relating to the Merger.
27
<PAGE> 35
Each director and officer of the Company and its Subsidiaries will be
entitled to indemnification from the Surviving Corporation as described herein
under "THE MERGER AGREEMENT -- Indemnification."
MARKET PRICES OF COMMON STOCK
The Common Stock is traded on The Nasdaq National Market under the symbol
"CFIB." On May 16, 1996, the last trading day prior to the execution of the
Merger Agreement, the last reported sale price of Common Stock, as reported by
The Nasdaq National Market (for a trade occurring on April 30, 1996), was $6.375
per share. On July 17, 1996, the Record Date, the last reported sale price of
Common Stock, as reported by The Nasdaq National Market (for a trade occurring
on July 10, 1996), was $5.75 per share. Stockholders are urged to obtain current
market quotations for the Common Stock.
The following table sets forth, for the fiscal quarters indicated, the high
and low sales prices per share of the Common Stock:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1995
1st Quarter................................................ $3.75 $2.75
2nd Quarter................................................ $4.875 $4.125
3rd Quarter................................................ $4.75 $3.75
4th Quarter................................................ $4.125 $3.50
FISCAL 1996
1st Quarter................................................ $7.00 $3.75
2nd Quarter................................................ $6.875 $6.00
3rd Quarter................................................ $6.75 $6.00
4th Quarter................................................ $6.50 $5.75
FISCAL 1997
1st Quarter (through July 17).............................. $5.75 $5.75
</TABLE>
There were approximately 1,900 record holders of the Common Stock at the
close of business on the Record Date. The Company has not paid dividends on the
Common Stock since its organization and has no current intention to pay
dividends.
28
<PAGE> 36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the names and addresses of all persons who,
to the knowledge of the Company, beneficially owned more than 5% of the
outstanding shares of Common Stock at the close of business on the Record Date:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS
- ----------------------------------------------------------------------------------------- ----------
<S> <C> <C>
Equity Holdings(2)................................................ 1,334,592 66.65%
Two North Riverside Plaza
Chicago, Illinois 60606
</TABLE>
- -------------------------
(1) The amount of the Common Stock beneficially owned is reported on the basis
of regulations of the SEC governing the determination of beneficial
ownership of securities.
(2) Equity Holdings is an Illinois general partnership, the partners of which
are Samuel Zell, as trustee of the Samuel Zell Revocable Trust under a trust
agreement dated January 17, 1990, Ann Lurie and Mark Slezak, as co-trustees
of the Robert H. and Ann Lurie Trust, and B/S Investments, an Illinois
general partnership. Certain direct and indirect beneficial owners of B/S
Investments are trusts created for the benefit of Mr. Zell and his family
and Mrs. Lurie and her family. Sheli Z. Rosenberg, Mrs. Lurie and Mr. Slezak
are trustees of certain of these trusts. Messrs. Zell and Slezak and Mmes.
Rosenberg and Lurie may be deemed to be beneficial owners of the shares of
Common Stock owned by Equity Holdings, but they each disclaim beneficial
ownership of such shares.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of the close of business on the Record
Date, certain information with respect to the Common Stock that may be deemed to
be beneficially owned by each director of the Company, the executive officers
named in the Summary Compensation Table in the Company's Proxy Statement for its
1995 Annual Meeting of Stockholders and by all directors and executive officers
as a group.
<TABLE>
<CAPTION>
SHARES UPON
SHARES OF EXERCISE OF PERCENT OF
NAME OF BENEFICIAL HOLDER(1) COMMON STOCK OPTIONS(2) TOTAL CLASS
- ----------------------------------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
C. Clifford Brake........................ -- 6,000 6,000 *
Marshall L. Burman....................... 500 6,000 6,500 *
Philip C. Calian......................... -- 104,500 104,500 4.96%
Robert W. George......................... 25 101,500 101,525 4.83%
Richard M. Harris........................ 5,000 6,000 11,000 *
Donald J. Liebentritt.................... 300 6,000 6,300 *
Richard L. Partlow....................... 25 65,000 65,025 3.15%
Sheli Z. Rosenberg....................... 1,346,050(3)(4) 6,000 1,352,050(3)(4) 67.32%
Robert W. Zimmer......................... 2,025 31,666 33,691(5) 1.66%
All directors and executive officers as a
group, including the above-named
persons................................ 1,353,925 332,666 1,686,591 72.23%
</TABLE>
- -------------------------
* Less than 1%
(1) Unless otherwise indicated, each person included in the group has sole
investment power and sole voting power with respect to the securities
beneficially owned by such person.
(2) The amounts shown in this column reflect shares of Common Stock subject to
options granted under the Company's 1991 Stock Option Plan which are
currently exercisable or will become exercisable within 60 days of the
Record Date.
(3) Includes 1,334,592 shares beneficially owned by Equity Holdings. Under the
regulations of the SEC, Mrs. Rosenberg may be deemed to be the beneficial
owner of all the shares which are beneficially owned
29
<PAGE> 37
by Equity Holdings. See "-- Security Ownership of Certain Beneficial
Owners." Mrs. Rosenberg disclaims beneficial ownership of the shares
beneficially owned by Equity Holdings.
(4) Includes 11,458 shares beneficially owned by Mrs. Rosenberg's spouse. Mrs.
Rosenberg disclaims beneficial ownership of the shares beneficially owned by
her spouse.
(5) Includes 2,000 shares of Common Stock held as a joint tenant with Mr.
Zimmer's mother. Does not include 3,334 shares subject to options held by
Mr. Zimmer that are not yet exercisable and which ordinarily would not
become exercisable within 60 days of the Record Date, but which under the
terms of the Merger Agreement will be included as Existing Options. See "THE
MERGER AGREEMENT -- Stock Options." Pursuant to the Company's 1991 Stock
Option Plan and the agreement relating to such stock options, the
Compensation Committee of the Board could accelerate the exercisability of
such options in connection with the Merger.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data for the Company for each of the five years in the period ended June 30,
1995 and for the nine-month periods ended March 31, 1996 and March 26, 1995.
Such data have been derived from, and should be read in conjunction with, the
audited Consolidated Financial Statements, including the notes thereto contained
herein and the unaudited consolidated interim financial statements for the nine
months ended March 31, 1996, including the notes thereto, also contained herein.
Data for the fiscal year ended June 30, 1995 are not comparable to data for
prior years because: (i) Operating Income for 1994 excludes non-recurring
severance costs of $370,000; (ii) Net Loss for each of 1992 and 1991 includes a
provision for soil remediation of $1.0 million; and (iii) 1991 results include
the operations of Form-Fit, Inc. until April 15, 1991 (the date it was sold).
See "CONSOLIDATED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
--------------------- --------------------------------------------------------
MARCH 31, MARCH 26, JUNE 30, JUNE 26, JUNE 27, JUNE 28, JUNE 30,
1996 1995 1995 1994 1993 1992 1991
--------- --------- -------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales..................... $22,763 $22,306 $ 31,287 $ 28,730 $ 30,164 $ 29,737 $ 38,897
Gross Margin.................. 5,866 5,506 8,100 6,616 6,596 5,986 9,495
Operating Income (Loss)....... 1,093 887 1,782 154 (49) (685) 1,436
Net Income (Loss)............. 769 544 1,808 (842) (448) (1,900) (182)
Net Income (Loss) per common
share....................... $ 0.34 $ 0.26 $ 0.86 $ (0.42) $ (0.22) $ (0.95) $ (0.09)
Total Assets.................. $19,331 $18,215 $ 19,023 $ 19,214 $ 19,475 $ 21,413 $ 20,987
Long-term Liabilities......... $ 3,865 $ 2,963 $ 3,072 $ 3,612 $ 3,980 $ 4,419 $ 4,792
</TABLE>
30
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of the Quarter and Nine Months Ended March 31, 1996 with the Quarter
and Nine Months Ended March 26, 1995
Sales for the third quarter of fiscal 1996 were $8.1 million which are
comparable to $8.0 million for the third quarter of fiscal 1995. For the first
nine months of fiscal 1996, sales were $22.8 million as compared to $22.3
million for the first nine months of fiscal 1995. This increase of $0.5 million
was a result of improving market conditions and a pass-through of raw material
cost increases which were experienced over the past year.
The gross profit percentages were 28.1% and 25.8% for the third quarter and
first nine months of fiscal 1996, respectively, as compared to gross profit
percentages of 25.2% and 24.7% in the third quarter and first nine months of
fiscal 1995, respectively. The increase in the third quarter of fiscal 1996 as
compared to the third quarter of the prior year was a result of increased
manufacturing efficiencies and reduced operating costs.
Selling expenses were $979,000 or 12.1% of sales for the third quarter of
fiscal 1996 as compared to $1,020,000 or 12.7% of sales in the third quarter of
fiscal 1995. For the first nine months of fiscal 1996, selling expenses were
$2,808,000 or 12.4% of sales as compared to $2,969,000 or 13.3% in the first
nine months of fiscal 1995. The decreases in selling expenses incurred in fiscal
1996 of $41,000 and $161,000 over the respective periods of fiscal 1995 were a
result of reduced expenses for sales support and continued cost control efforts.
General and administrative expenses were $732,000 and $1,965,000 for the
third quarter and nine months of fiscal 1996, respectively, as compared to
$558,000 and $1,650,000 in the third quarter and nine months of fiscal 1995,
respectively. The increases of $174,000 and $315,000 over the respective periods
of fiscal 1995 were primarily a result of costs incurred in planning and
executing the expansion into Northern Ireland and consulting services incurred
for systems and operational reviews.
Operating income was $563,000 for the third quarter of fiscal 1996 as
compared to $446,000 for the third quarter of fiscal 1995. The increase of
$117,000 was a result of increased gross margins offset by higher administrative
expenses. Operating income for the first nine months of fiscal 1996 was
$1,093,000 as compared to $887,000 for the comparable period in fiscal 1995.
This $206,000 improvement was due to higher sales levels and corresponding gross
profit offset by expenses incurred in conjunction with the expansion into
Northern Ireland.
Net interest expense was $90,000 for the third quarter of fiscal 1996 which
was substantially unchanged from the net interest expense of $87,000 incurred
during the third quarter of fiscal 1995. Net interest expense for the first nine
months of fiscal 1996 was $256,000 as compared to $312,000 for the comparable
period in fiscal 1995. This decrease in net interest expense of $56,000 was a
result of lower outstanding balances on the Company's line of credit and
increased interest income.
Net other income & expense was an expense of $23,000 for the third quarter
of fiscal 1996 which was substantially unchanged from the net expense of $30,000
reported during the third quarter of fiscal 1995. For the first nine months of
fiscal 1996 net other income & expense was an expense of $68,000 as compared to
a net expense of $31,000 for the comparable period of fiscal 1995. This
difference of $37,000 was a result of a gain on the sale of real estate of
$53,000 reported in fiscal 1995.
The Company reported net income of $450,000 and $769,000 for the third
quarter and nine months of fiscal 1996, respectively, as compared to $329,000
and $544,000 reported in the third quarter and nine months of fiscal 1995,
respectively. The improvements of $121,000 and $225,000 over the respective
periods of fiscal 1995 were primarily a result of higher operating income
derived from increased sales and related gross margins which more than offset
the increased expenses relating to the expansion into Northern Ireland.
31
<PAGE> 39
Comparison of the Years Ended June 30, 1995, June 26, 1994 and June 27, 1993
Sales of thermoformed plastic products were $31.3 million in fiscal 1995,
compared to $28.7 million and $30.2 million in fiscal 1994 and 1993,
respectively. The sales increase in fiscal 1995 was a result of increased demand
in the medical supply market, the Company's principal market. The sales decrease
in fiscal 1994 as compared to fiscal 1993 was a result of depressed conditions
in the medical supply market.
The gross profit percentage was 25.9% in fiscal 1995, compared to 23.0% and
21.9% in fiscal 1994 and 1993, respectively. The increase in gross profit for
fiscal 1995 over 1994 and fiscal 1994 over 1993 was due to reductions in direct
labor costs and continued improvements in operating efficiencies.
Selling expenses were $4.0 million in fiscal 1995, compared to $4.2 million
and $4.1 million in fiscal 1994 and 1993, respectively. The decrease in fiscal
1995 as compared to fiscal 1994 and 1993 was primarily due to labor cost
reductions.
General and administrative expenses were $2.3 million, $2.2 million and
$2.5 million in fiscal 1995, 1994 and 1993, respectively. The decreases in
fiscal 1995 and 1994 as compared to fiscal 1993 were primarily due to reductions
in personnel and the impact of cost savings programs.
Operating income for fiscal 1995 was $1.8 million as compared to losses of
$216,000 and $49,000 in fiscal 1994 and 1993, respectively. Included in the
operating loss for fiscal 1994 was $370,000 of non-recurring severance costs.
The $1.65 million improvement in operating income, after adjustment for the
non-recurring severance costs, was a result of increased gross margins due to
higher sales volume, increased operating efficiencies and the impact of ongoing
cost reduction programs. The reduction in operating losses of $203,000, after
adjustment for non-recurring severance costs, for fiscal 1994 as compared to
1993 was a result of increased operating efficiencies.
Net interest expense was $0.4 million in fiscal 1995 and 1994 compared to
$0.2 million in fiscal 1993. The increase in fiscal 1995 and 1994 over 1993 was
principally due to higher average debt levels, higher interest rates and reduced
cash and marketable securities balances resulting in lower interest income.
During fiscal 1991, soil conditions at Plastofilm's Wheaton, Illinois
facility were discovered which need remediation. At June 30, 1991, a pre-tax
provision of $1.0 million was recorded for the estimated costs of testing and
remediation. Fiscal 1992 expenditures for testing and remediation were
approximately $535,000. At June 28, 1992, an additional pre-tax provision of
$1.0 million was recorded to reflect the then currently estimated costs to
complete the soil remediation. Expenditures during fiscal 1995, 1994 and 1993
were approximately $78,000, $67,000 and $127,000, respectively. During fiscal
1993, the Illinois Environmental Protection Agency requested that certain
additional testing be performed before approval of the Company's voluntary
clean-up plan. These tests were conducted in fiscal 1994 and submitted to the
agency in fiscal 1995 for approval. The approval of the Company's voluntary
clean-up plan is pending.
Order backlog for thermoformed plastic products was $7.1 million at June
30, 1995 as compared to $6.8 million at June 26, 1994 and $7.6 million at June
27, 1993. The decrease in backlog at June 26, 1994 as compared to June 27, 1993
was a reflection of shortening lead times between customer's orders and
shipments.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital increased to $3.8 million as of March 31, 1996,
compared to $2.1 million as of June 30, 1995. This increase of $1.7 million in
working capital was primarily attributed to earnings and related cash flows.
Plastofilm has a short-term facility with a financial institution which is
renewable on November 30, 1996 at the option of such institution. As of March
31, 1996, $3,000,000 was available under this facility and Plastofilm was in
compliance with all covenants. Plastofilm also has a capital expenditure
facility which has maximum borrowings of $1,000,000. As of March 31, 1996,
$275,000 was available under this facility. In addition, the Company through its
wholly owned subsidiary, Plastofilm LTD, has negotiated a $1.6 million credit
facility with a financial institution in Northern Ireland and a grant package
from the Industrial Development Board of Northern Ireland. This facility and
grant package are anticipated to provide the capital
32
<PAGE> 40
and liquidity needs to support the Company's expansion into Northern Ireland. As
of March 31, 1996, there have been no advances made against the credit facility
or the grant.
The Company's liquidity and capital needs through fiscal 1996 include the
costs associated with the establishment of a production facility in Northern
Ireland and Texas, and other possible production expansion in Puerto Rico.
Additional capital needs include the upgrade and replacement of existing
equipment, as well as expenditures for soil remediation at the Wheaton, Illinois
facility. The funds required to finance these items are expected to be provided
from operating cash flows, Plastofilm's existing credit facilities, credit
facilities that have been established in Northern Ireland, grants to be made
available from the Industrial Development Board of Northern Ireland and from
other credit facilities which may become available to the Company.
ADDITIONAL INFORMATION ABOUT THE COMPANY AND ITS BUSINESS
BUSINESS
The Company is a fully integrated custom thermoformer of plastic packaging
for the hospital/medical, consumer products, electronics and cosmetics markets.
The Company designs, markets and manufactures functional and innovative
packaging for its customers through its wholly owned subsidiary, Plastofilm. For
a discussion of other operations which the Company sold in prior years see
"-- Operations Sold in Prior Years." The Company was organized in 1972.
Operations
Plastofilm produces custom thermoformed packaging, point of purchase
displays and a variety of disposable packaging products for the
hospital/medical, consumer products, electronics and cosmetics industries. Most
applications involve design of custom molds or dies by Plastofilm's design and
engineering departments.
The Company's primary production process includes the extrusion of
purchased plastic resins into roll stock, thermoforming roll stock into finished
product and performing various secondary operations such as punching, assembly,
sealing and packaging. Production equipment includes extruders and thermoforming
machines. A Class 100,000 clean room is maintained for the production of certain
medical and electronic packaging products. Support for production includes a
computer aided design equipment based staff, a production tool design and
maintenance shop, and a prototype model shop.
Manufacturing is conducted in two facilities. An owned 120,000 square foot
manufacturing facility in Wheaton, Illinois includes four extrusion lines and
sixteen thermoforming machines, including the Class 100,000 clean room
operation. A leased 40,000 square foot production facility in Sparks, Nevada,
started in June, 1992, includes four thermoforming machines. A third facility,
containing approximately 16,000 square feet, leased from the Industrial
Development Board of Northern Ireland and located in Enniskillen, Northern
Ireland, commenced production in July, 1996.
Plastofilm has a nationwide customer base, the majority of which is located
in the Midwest and West. A majority of its customers are in the
hospital/medical, consumer products, electronics and cosmetics markets.
Plastofilm markets its products primarily through its own national sales force
that is supported by the design and product development team and the customer
service organization located in Wheaton, Illinois. The Sparks, Nevada facility
produces for the West Coast market and allows Plastofilm to more effectively
compete against other West Coast plastic thermoformers. The Northern Ireland
facility will primarily service European customers. Expansion of this strategy
will be evaluated in 1996 to include production facilities in Texas and Puerto
Rico to meet the growing business opportunities in these regions.
During fiscal years 1995, 1994 and 1993, sales to Baxter International,
Inc. and its affiliates accounted for approximately 17%, 16% and 12%,
respectively, of the total net sales of the Company.
Plastofilm purchases its raw material in roll stock and pellet form from
several suppliers and an adequate supply of raw material is available.
Plastofilm also recycles most of its scrap plastic by regrinding and
33
<PAGE> 41
reprocessing it. During fiscal 1995 and 1994, the Company experienced price
increases for its purchased plastic resins. In accordance with its standard
selling terms and conditions, the Company has increased the price of its
products to reflect this increased cost.
Valuation Reserves Relating to Net Operating Loss Carryforwards
The Company has previously established a valuation reserve to reduce
deferred tax assets to a level which management expected to be realized in the
future. This valuation reserve was established and maintained pursuant to the
guidelines contained in Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("SFAS 109"). See Note 7 of the Notes to
Consolidated Financial Statements included herein under "CONSOLIDATED FINANCIAL
STATEMENTS." Consistent with SFAS 109, based on operating results for the two
years ended June 30, 1996, and management's projections of future results, the
Company believes that a portion of such reserve may no longer be required. A
reduction in the valuation reserve would result in a Federal Income Tax Benefit
of $1.5 million for the year ended June 30, 1996. This Federal Income Tax
Benefit is a non-cash item and will not result in a refund of Federal Income
Taxes previously paid.
Operations Sold in Prior Years
From June 1989 to April 1991, the Company also manufactured thermoformed
packaging products for the food service industry through its indirect wholly
owned subsidiary, Form-Fit, Inc. ("Form-Fit"), which was acquired June 8, 1989.
On April 15, 1991, the Company sold 100% of the capital stock of Form-Fit to
Detroit Forming, Inc. ("Detroit Forming") and entered into a noncompetition
agreement with Detroit Forming for an aggregate purchase price of $3.9 million.
Such noncompetition agreement expired in accordance with its terms on April 15,
1994.
Competition
Plastofilm operates in a highly competitive industry. The Company estimates
that there are approximately 750 companies engaged in the production of
thermoformed plastic packaging, the great majority of which are smaller than
Plastofilm. The Company believes its principal competitive strengths include its
design abilities, its manufacturing facilities and equipment, a reputation for
quality thermoforming derived from more than 50 years in the plastic
thermoforming industry and its in-house extrusion capabilities which allow it to
maximize material utilization and provide rapid response time to customer
requirements.
Government Regulation
The Company's plastic thermoforming operations are not subject to any
comprehensive federal laws or regulations which relate specifically to such
activities. However, in the past ten years, certain municipalities have passed
laws which regulate the chemical properties (such as recyclability or
biodegradability) of plastic packaging products. To date, these laws have not
had any adverse effect on the Company's operations.
Backlog
Order backlog for thermoformed plastic products was approximately $7.1
million at June 30, 1995 and $6.8 million at June 26, 1994.
Employees
As of June 30, 1995, the Company employed approximately 250 persons. The
Company believes that it has good relations with its employees.
PROPERTIES
Plastofilm's administrative headquarters and principal manufacturing
operations are located in an owned facility in Wheaton, Illinois, a leased
warehouse facility in Batavia, Illinois, and a second manufacturing operation,
located in leased facilities in Sparks, Nevada, which services customers located
on the West Coast.
34
<PAGE> 42
A third manufacturing facility, located in Enniskillen, Northern Ireland,
commenced production in July, 1996. Plastofilm is considering additional
facilities in Puerto Rico and Texas. This expanded operating base will enable
the Company to better serve its present base of multinational customers.
Testing has revealed soil conditions at Plastofilm's Wheaton, Illinois
facility which require remediation. During fiscal 1993 the Illinois
Environmental Protection Agency ("IEPA") requested certain additional testing of
soil and groundwater be performed before approval of the Company's voluntary
clean-up plan. These tests were conducted in fiscal 1994 and submitted to the
IEPA in fiscal 1995 for approval. The IEPA has approved the Company's proposed
clean-up method. The IEPA has also approved a pilot remediation plan which could
be used to determine the size and spacing of full scale remediation equipment.
Based on the results of the pilot program, a detailed clean-up plan could be
prepared for submission to the IEPA and for inclusion in a request-for-quotation
package for clean-up contractors. See Note 10 of the Notes to Consolidated
Financial Statements included herein under "CONSOLIDATED FINANCIAL STATEMENTS."
LEGAL PROCEEDINGS
In the ordinary course of business, the Company and its subsidiaries may
from time to time be involved as plaintiffs or defendants in various legal
proceedings. It is the opinion of the Company, based in part upon the advice of
its counsel, that any lawsuits not provided for in the Consolidated Financial
Statements are either without merit, are covered by insurance, or are otherwise
of such a nature that their ultimate disposition will not be material in
relation to the Company's consolidated results of operations or financial
position.
CERTAIN FINANCIAL INFORMATION REGARDING
FUTURE OPERATIONS OF PLASTOFILM
The Company does not as a matter of course make public forecasts or
projections as to future revenues or results of operations. However, during the
course of negotiations, the Company presented certain financial information to
IPC. The information included estimates by the Company's management of
Plastofilm's future financial performance prepared during March, 1996 that are
set forth below (the "Plastofilm Financial Information").
The Plastofilm Financial Information was not prepared with a view towards
public disclosure or compliance with either the published guidelines of the SEC
regarding projections or forecasts or the American Institute of Certified Public
Accountants' Guide for Prospective Financial Statements. The Plastofilm
Financial Information was not prepared in accordance with generally accepted
accounting principles and was not audited or reviewed by independent auditors
nor did any independent auditors perform any services with respect thereto.
The Plastofilm Financial Information, while presented with numerical
specificity, was based upon numerous estimates and other assumptions (some of
which are referred to in the following paragraphs) which are inherently subject
to significant business, economic and competitive uncertainties, contingencies
and risks, all of which are difficult to quantify and many of which are beyond
the control of the Company. Accordingly, there can be no assurance that the
Plastofilm Financial Information will be realized, and it is likely that future
results will vary from those set forth below, possibly by material amounts. The
Plastofilm Financial Information included the information set forth below:
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Sales........................ $30,760 $35,700 $41,285 $46,750 $51,450
Gross Margin..................... 7,771 8,477 10,445 12,809 14,350
Operating Income................. 1,703 2,070 3,984 5,921 7,114
</TABLE>
35
<PAGE> 43
The Plastofilm Financial Information assumes: (i) the start-up of the
Northern Ireland operation in May 1996, (ii) the establishment of a Texas
manufacturing facility in July 1996, (iii) the acquisition of a thermoforming
operation in the Northeast in fiscal 1998 and (iv) the closing of the Batavia,
Illinois warehouse operation by June 1997. The strategic actions assumed above
adversely affect fiscal years 1996 and 1997 due to associated start-up and
reorganization costs. The Plastofilm Financial Information does not include
expenses of CFI Industries, Inc.
The Plastofilm Financial Information was not based on detailed budgets. The
sales projections were based on management's then current information concerning
the market and management's estimate of market growth. Operating costs and
expenses are consistent with current operations and include the estimated cost
savings expected to be realized from closing the Batavia warehouse.
Neither the Company nor IPC presently intends to update or otherwise
publicly revise the Plastofilm Financial Information presented herein to reflect
circumstances existing or developments occurring after the preparation of such
information or to reflect the occurrence of unanticipated events. The Plastofilm
Financial Information is included herein solely because such information was
provided to IPC. The Plastofilm Financial Information has not been independently
verified by IPC. Inclusion of the Plastofilm Financial Information herein should
not be regarded as a representation by any person that the results will be
achieved.
INDEPENDENT AUDITORS
Deloitte & Touche LLP are the Company's independent auditors.
Representatives of Deloitte & Touche LLP are expected to be present at the
Special Meeting to respond to appropriate questions of stockholders and make a
statement if they so desire.
STOCKHOLDER PROPOSALS FOR THE 1996 MEETING
If the Merger is not consummated, the Company will hold its 1996 Annual
Meeting of its stockholders in accordance with its By-laws and the DGCL. Any
proposals of stockholders to be presented at the 1996 Meeting were required to
have been received by the Secretary of the Company for inclusion in the
Company's Proxy Statement and form of Proxy no later than June 29, 1996. No such
proposals were received.
OTHER MATTERS
The Board is not aware of any business which will be presented at the
Special Meeting other than those matters set forth in the accompanying Notice of
Special Meeting. If any other matters are properly presented at the Special
Meeting for action, it is intended that the persons named in the accompanying
Proxy and acting thereunder will vote in accordance with their best judgment on
such matters.
36
<PAGE> 44
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report......................................................... F-2
Consolidated Balance Sheets as of June 30, 1995 and June 26, 1994.................... F-3
Consolidated Statements of Operations for the Years Ended June 30, 1995, June 26,
1994 and June 27, 1993............................................................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1995,
June 26, 1994 and June 27, 1993.................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1995, June 26,
1994 and June 27, 1993............................................................. F-6
Notes to Consolidated Financial Statements........................................... F-7
Consolidated Balance Sheets as of March 31, 1996 and June 30, 1995 (unaudited)....... F-14
Consolidated Statements of Operations for the Three and Nine Months Ended March 31,
1996 and March 26, 1995 (unaudited)................................................ F-15
Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 1996 and
March 26, 1995 (unaudited)......................................................... F-16
Notes to Consolidated Interim Financial Statements (unaudited)....................... F-17
</TABLE>
Financial Statement schedules have been omitted because they are
inapplicable, not required or the information is included in the financial
statements or notes thereto.
F-1
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
AND STOCKHOLDERS OF
CFI INDUSTRIES, INC.
WHEATON, ILLINOIS
We have audited the accompanying consolidated balance sheets of CFI
Industries, Inc. and subsidiaries as of June 30, 1995 and June 26, 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of CFI Industries, Inc. and
subsidiaries at June 30, 1995 and June 26, 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1995 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Chicago, Illinois
August 23, 1995
F-2
<PAGE> 46
CFI INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND JUNE 26, 1994
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, JUNE 26,
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash................................................................... $ 1,211 $ 267
Marketable securities.................................................. -- 1,524
Trade receivables, net allowance for doubtful accounts of $15 in 1995
and $9 in 1994...................................................... 3,706 3,432
Inventories............................................................ 2,818 2,442
Prepayments and other.................................................. 486 622
Deferred income taxes.................................................. 1,173 762
------- --------
Total Current Assets........................................... 9,394 9,049
Property and equipment, at cost, less accumulated depreciation........... 7,043 7,509
Intangible assets, at cost, net of accumulated amortization of $768 in
1995 and $686 in 1994....................................................... 2,531 2,614
Other assets............................................................. 55 42
------- --------
$ 19,023 $ 19,214
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt........................................................ $ 800 $ 2,000
Current maturities of long-term debt................................... 742 687
Current portion of other long-term liabilities......................... 55 76
Accounts payable....................................................... 2,388 2,273
Accrued liabilities:
Salaries and wages.................................................. 867 932
Insurance........................................................... 417 634
Provision for soil remediation...................................... 1,193 1,271
Other............................................................... 859 907
------- --------
Total Current Liabilities...................................... 7,321 8,780
Long-term debt........................................................... 2,229 2,618
Other long-term liabilities.............................................. 200 232
Deferred income taxes.................................................... 643 762
------- --------
Total Liabilities.............................................. 10,393 12,392
------- --------
Commitments and Contingent Liabilities (Notes 6 & 10)
Stockholders' Equity:
Common stock, $1.00 par value, 10,000,000 shares authorized, 1,991,407
and 1,991,420 shares issued and outstanding in 1995 and 1994,
respectively........................................................ 1,991 1,991
Paid-in surplus........................................................ 16,374 16,374
Deficit................................................................ (9,735) (11,543)
------- --------
Total Stockholders' Equity..................................... 8,630 6,822
------- --------
$ 19,023 $ 19,214
======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE> 47
CFI INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1995, JUNE 26, 1994 AND JUNE 27, 1993
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-----------------------------
JUNE JUNE JUNE
30, 26, 27,
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net sales........................................................ $31,287 $28,730 $30,164
Cost of sales.................................................... 23,187 22,114 23,568
-------- -------- --------
Gross profit................................................... 8,100 6,616 6,596
Selling expenses................................................. 4,048 4,229 4,101
General and administrative expenses.............................. 2,270 2,233 2,544
Non-recurring severance costs.................................... -- 370 --
-------- -------- --------
Operating income (loss)........................................ 1,782 (216) (49)
Interest expense................................................. 426 438 376
Interest income.................................................. (54) -- (132)
Other income..................................................... (63) (23) (81)
Other expense.................................................... 165 211 236
-------- -------- --------
Income (loss) before income taxes................................ 1,308 (842) (448)
Income tax (benefit)............................................. (500) -- --
-------- -------- --------
Net income (loss)........................................... $ 1,808 $ (842) $ (448)
======== ======== ========
Per common share:
Net income (loss).............................................. $ 0.86 $ (0.42) $ (0.22)
======== ======== ========
Weighted average common shares outstanding....................... 2,104 1,991 2,003
======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE> 48
CFI INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, JUNE 26, 1994 AND JUNE 27, 1993
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
COMMON PAID-IN STOCK IN
STOCK SURPLUS DEFICIT TREASURY TOTAL
------ ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance, June 28, 1992.......................... $2,009 $16,426 $(10,253) -- $8,182
Net (loss)...................................... -- -- (448) -- (448)
Purchase of treasury stock...................... -- -- -- (70) (70)
------- -------- --------- -------- -------
Balance, June 27, 1993.......................... 2,009 16,426 (10,701) (70) 7,664
Net (loss)...................................... -- -- (842) -- (842)
Cancellation of treasury stock.................. (18 ) (52) -- 70 --
------- -------- --------- -------- -------
Balance, June 26, 1994.......................... 1,991 16,374 (11,543) 6,822
Net income...................................... -- -- 1,808 -- 1,808
------- -------- --------- -------- -------
Balance, June 30, 1995.......................... $1,991 $16,374 $ (9,735) $8,630
======= ======== ========= ========= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE> 49
CFI INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, JUNE 26, 1994 AND JUNE 27, 1993
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------
JUNE 30, JUNE 26, JUNE 27,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................. $ 1,808 $ (842) $ (448)
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Depreciation and amortization................................... 1,234 1,200 1,095
Provision for doubtful accounts................................. 4 9 7
Provision for losses, asset write-offs and other................ 24 47 112
Provision for deferred taxes.................................... (530) -- --
Deferred severance and compensation............................. -- 191 7
(Gain) loss on sale of assets................................... (58) 73 (53)
Changes in assets and liabilities:
Trade receivables............................................... (278) (467) 507
Inventories..................................................... (400) 324 (372)
Prepayments and other current assets............................ 136 (363) (45)
Accounts payable and accrued liabilities........................ (314) 31 (1,152)
Other -- net.................................................... (58) 15 (9)
------ ----- ------
Net cash flows from operating activities..................... 1,568 218 (351)
------ ----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................................. (912) (883) (872)
Sales of marketable securities.................................... 1,524 594 1,453
Proceeds from sale of property and equipment...................... 298 98 53
------ ----- ------
Net cash flows from investing activities..................... 910 (191) 634
------ ----- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (re-payments) borrowings under line of credit................. (1,200) 800 400
Purchase of treasury stock........................................ -- -- (70)
Proceeds from long-term debt...................................... 480 -- --
Reduction in long-term debt....................................... (814) (613) (614)
------ ----- ------
Net cash flows from financing activities..................... (1,534) 187 (284)
------ ----- ------
Net increase (decrease) in cash................................... 944 214 (1)
Beginning cash.................................................... 267 53 54
------ ----- ------
Ending cash....................................................... $ 1,211 $ 267 $ 53
====== ===== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest........................................................ $ 425 $ 467 $ 374
Income taxes.................................................... $ 20 -- --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Capital leases.................................................... $ -- $ 157 $ --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE> 50
CFI INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995, JUNE 26, 1994 AND JUNE 27, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year -- The Company's fiscal year ends on the last day in June.
Prior to fiscal 1995 the Company's fiscal year ended the last Sunday in June.
Principles of Consolidation -- The consolidated financial statements
include the accounts of CFI Industries, Inc. and subsidiaries (the "Company" or
"CFI"). All significant intercompany accounts and transactions have been
eliminated.
Marketable Securities -- Marketable securities, which were carried at the
lower of cost or market, consisted of a mutual fund invested primarily in 100%
government backed mortgage securities. Unrealized losses on such securities in
fiscal 1994 of $77,000 were offset against interest income.
Revenue Recognition -- Revenue from product sales is recognized at the time
the product is shipped.
Inventories -- Inventories, which consist of roll stock and pelletized or
thermoformed plastics, are carried at the lower of cost or net realizable value
using the first-in, first-out or weighted average cost methods. Cost includes
raw material, labor and manufacturing overhead.
Inventories at June 30, 1995 and June 26, 1994 consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 26,
1995 1994
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Raw material............................................. $1,018 $ 822
Work in process.......................................... 158 172
Finished Goods........................................... 1,642 1,448
------ ------
$2,818 $2,442
====== ======
</TABLE>
Depreciation -- Depreciation for financial reporting purposes is provided
by using the straight-line method based upon the estimated useful lives of the
assets as follows: buildings, 10 to 40 years; equipment, 3 to 20 years; and
furniture and fixtures, 4 to 10 years.
Intangible Assets -- Intangible assets consist of goodwill, the cost in
excess of net asset value of an acquired business, which is being amortized on a
straight-line basis over a period of 40 years. The Company reviews the
recoverability of goodwill, based upon anticipated future operating results, on
a nondiscounted basis, of the acquired business compared with the scheduled
goodwill amortization.
Calculation of Net Income (Loss) per Common Share -- The number of shares
used in the net income (loss) per common share calculation is the weighted
average number of shares of common stock and common stock equivalents
outstanding during each period. Common stock equivalents, in the form of stock
options, have been included in the fiscal 1995 calculation of weighted average
shares outstanding using the treasury stock method. There were no common stock
equivalents included in the calculation of net loss per common share for fiscal
1994 and 1993 as outstanding options were antidilutive during such periods.
Statements of Cash Flows -- For purposes of the Statements of Cash Flows,
the Company considers all highly liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents.
2. TRANSACTIONS WITH RELATED PARTIES
For fiscal 1995, 1994 and 1993, the Company paid $23,000, $32,000 and
$20,000, respectively, for legal services rendered by Rosenberg & Liebentritt,
P.C., a law firm whose two shareholders are members of the Company's Board of
Directors. The Company believes that these fees are no less favorable than could
be obtained from an outside party.
F-7
<PAGE> 51
CFI INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1995, JUNE 26, 1994 AND JUNE 27, 1993
In addition, individuals and companies affiliated with Equity Group
Investments, Inc. ("EGI"), a related party, provide services to the Company and
its subsidiaries relating to corporate planning, tax advice and other matters.
Amounts paid to EGI or its affiliates for such services in fiscal 1995, 1994 and
1993 were $46,000, $69,000 and $42,000, respectively. The Company believes that
these fees are no less favorable than could be obtained from an outside party.
3. PROPERTY AND EQUIPMENT
Components of property and equipment at June 30, 1995 and June 26, 1994
were as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 26,
1995 1994
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Land and improvements................................... $ 544 $ 681
Buildings and improvements.............................. 3,527 3,514
Machinery and equipment................................. 8,707 8,014
Furniture, fixtures and other........................... 1,506 1,404
Constructions-in-progress............................... 65 99
-------- --------
14,349 13,712
Less accumulated depreciation........................... 7,306 6,203
-------- --------
$ 7,043 $ 7,509
======== ========
</TABLE>
Included in the above amounts are items under capitalized leases as
follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 26,
1995 1994
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Cost...................................................... $197 $197
Less accumulated depreciation............................. 50 14
---- ----
$147 $183
==== ====
</TABLE>
Maintenance and repair expense during fiscal 1995, 1994 and 1993 was $1.7
million, $1.7 million and $1.6 million, respectively.
4. SHORT-TERM DEBT
Plastofilm Industries, Inc. ("Plastofilm"), a wholly owned subsidiary of
the Company, has a secured loan agreement (the "Agreement") with a financial
institution pursuant to which it has borrowings under a revolving line of
credit, a term loan and a capital expenditure line. The Agreement is secured by
substantially all of Plastofilm's assets. (See Note 5.)
The $2.5 million line of credit bears interest at the prime rate plus 1/4%
(9.25% at June 30, 1995) and is renewable at the option of such financial
institution on November 30, 1995. Plastofilm anticipates that this line of
credit will be renewed. During the fiscal year ended June 30, 1995, maximum
borrowings under this line were $2.0 million and borrowings under this line at
June 30, 1995 were $0.8 million. During the fiscal year ended June 26, 1994,
Plastofilm's line of credit was $2.0 million, maximum borrowings under this line
were $2.0 million and $2.0 million was outstanding at June 26, 1994. Average
borrowings were $1,625,000 and $1,643,000 for the fiscal years ended June 30,
1995 and June 26, 1994, respectively. The weighted average interest rate was
8.61 % in fiscal 1995 and 6.46% in fiscal 1994.
F-8
<PAGE> 52
CFI INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1995, JUNE 26, 1994 AND JUNE 27, 1993
5. LONG-TERM DEBT
Long-term debt consisted of the following as of June 30, 1995 and June 26,
1994:
<TABLE>
<CAPTION>
JUNE 30, JUNE 26,
1995 1994
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Mortgage note, prime rate + 1/2%, due 1998................ $ 292 $ 455
Term loan, prime rate + 1/4%, due 1996.................... 2,130 2,700
Capital expenditure loan, prime rate + 1/2%, due 2000..... 480 --
Lease obligations, 8.65% - 16.92%, due through 1996....... 69 150
------ ------
2,971 3,305
Less current maturities................................... 742 687
------ ------
$2,229 $2,618
====== ======
</TABLE>
The long-term debt matures as follows: $742,000 in 1996, $1,687,000 in
1997, $326,000 in 1998, $96,000 in 1999, $96,000 in 2000 and $24,000 thereafter.
The Agreement between Plastofilm and its lender restricts the transfer of
funds between Plastofilm and the Company through the imposition of tangible net
worth requirements, debt to equity ratios and cash flow requirements. As a
result of these restrictions, approximately 75% of the consolidated net assets
of Plastofilm were restricted from being transferred to the Company as of June
30, 1995.
6. COMMITMENTS
The Company and its subsidiaries lease certain facilities and equipment
under various lease agreements. Total minimum commitments payable under these
leases at June 30, 1995 were:
<TABLE>
<CAPTION>
FISCAL YEAR OPERATING CAPITAL
---------------------------------------------------------- --------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
1996...................................................... $ 304 $69
1997...................................................... 278 --
1998...................................................... 132 --
1999...................................................... 120 --
2000...................................................... 60 --
---- ----
Total minimum lease payments.............................. $ 894 69
====
Less amount representing interest.................................... 4
----
Present value of minimum lease payments.............................. $65
====
</TABLE>
Rent expense for operating leases was $364,000, $279,000 and $305,000 for
fiscal 1995, 1994 and 1993, respectively.
F-9
<PAGE> 53
CFI INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1995, JUNE 26, 1994 AND JUNE 27, 1993
7. INCOME TAXES
The provision (benefit) for income taxes was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Current:
U.S. Federal.......................................... $ 30 $-- $--
Deferred................................................ (530) -- --
------ ---- ----
$(500) $-- $--
====== ==== ====
</TABLE>
The income tax benefit differed from the federal statutory rate as detailed
below:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax computed at the statutory rate...... $ 444 $(286) $(131)
Additional (benefit) provision from:
Utilization of net operating loss carryforwards,
net............................................... (457) -- --
Recognition of future tax benefits previously
generated......................................... (530) -- --
Tax benefits available in future years................. -- 261 106
Goodwill amortization.................................. 25 25 25
Other, net............................................. 18 -- --
------ ------ ------
Total income tax (benefit) $(500) $ -- $ --
====== ====== ======
</TABLE>
At June 30, 1995 and June 26, 1994 the components of deferred income taxes
were as follows:
<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net operating loss and credit
carryforwards.......................... $ 2,999 $ -- $ 3,456 $ --
Depreciation and amortization............ -- 643 -- 762
Provision for soil remediation........... 405 -- 432 --
Other allowances and accruals............ 451 -- 589 --
Valuation reserve........................ (2,682) -- (3,715) --
-------- ---- -------- ----
$ 1,173 $ 643 $ 762 $ 762
======== ==== ======== ====
</TABLE>
A valuation reserve is provided to reduce the deferred tax assets to a
level which management expects will be realized in the future. The valuation
reserve for deferred tax assets as of June 26, 1994 was $3,715,000. The net
change in the total valuation reserve for the year ended June 30, 1995 was a
decrease of $1,033,000. Of this amount, $457,000 resulted from the utilization
of $487,000 of net operating loss carryforwards net of $30,000 of alternative
minimum tax credits generated. The remaining $576,000 decrease resulted
primarily from the Company's reevaluation of the realizability of future income
tax benefits based on the Company's increased future profit expectations and
improving business conditions.
At June 30, 1995, for income tax purposes the Company had net operating
loss carryforwards of $6.7 million and general business credits carryforwards of
$0.7 million. The net operating loss carryforwards expire in years 2001 to 2009;
the general business credits carryforwards expire in years 1999 and 2000.
F-10
<PAGE> 54
CFI INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1995, JUNE 26, 1994 AND JUNE 27, 1993
8. EMPLOYEE RETIREMENT PLANS
Until December 31, 1991, Plastofilm had a non-contributory profit sharing
plan and a non-contributory pension plan. On November 12, 1991, the Board of
Directors of Plastofilm adopted a resolution to curtail future benefit accruals
in both plans as of December 31, 1991 and effective May 31, 1995 the pension
plan was terminated. The pension plan obligation was not settled as of June 30,
1995. The settlement is not expected to have a material effect on the fiscal
1996 financial statements. The vested benefits in the profit sharing plan were
placed in a new cash or deferred arrangement pursuant to Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"), the Plastofilm Employee
Savings Plan ("Savings Plan") which became effective on January 1, 1992.
The Savings Plan is for all employees. Plastofilm's contributions to the
Savings Plan are at the discretion of Plastofilm's Board of Directors. It is
currently Plastofilm's policy to contribute from 1% to 3% of each participant's
compensation by matching 50% of employee voluntary salary deferrals of the first
6% of an employee's salary. A participant's contribution may not exceed 15% of
annual compensation, or the maximum amount allowable as determined by the Code,
if less than 15% of compensation. The amounts expensed under the Savings Plan
for fiscal 1995, 1994 and 1993 were $238,000, $252,000 and $208,000,
respectively.
Plastofilm's net periodic pension credit included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(AMOUNTS IN
THOUSANDS)
<S> <C> <C> <C>
Service costs -- benefits earned during the period....... $ -- $ -- $ --
Interest cost of projected benefit obligations........... 48 54 58
Actual return on assets.................................. (82) (17) (33)
Net amortization and deferral............................ 15 (59) (44)
----- ----- -----
Net pension credit.................................. $(19) $(22) $(19)
===== ===== =====
</TABLE>
The funded status of Plastofilm's retirement plan at June 30, 1995 and June
26, 1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
----- -----
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Accumulated benefit obligations:
Vested.................................................. $ 730 $ 822
Nonvested............................................... -- 11
------ ------
Total accumulated benefit obligations................... 730 833
Effect of projected future compensation levels............ -- --
------ ------
Projected benefit obligation............................ 730 833
Plan assets at fair value................................. 818 844
------ ------
Plan assets in excess of projected benefit obligation... 88 11
Unrecognized net loss..................................... 236 419
Unrecognized net assets and other......................... (215) (238)
------ ------
Net prepaid pension asset............................... $ 109 $ 192
====== ======
</TABLE>
In determining the net periodic pension credit, the weighted average
discount rate used was 6.5% in fiscal 1995 and 6.0% in fiscal 1994 and 1993. The
weighted average expected long-term rate of return on assets was 7.50% in fiscal
1995 and 1994 and 6.75% in fiscal 1993.
F-11
<PAGE> 55
CFI INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1995, JUNE 26, 1994 AND JUNE 27, 1993
9. STOCK OPTIONS
The Company had originally reserved 100,000 shares of its Common Stock for
issuance to Directors, officers, key employees and consultants of the Company
through incentive stock options, non-qualified stock options and stock
appreciation rights to be granted under the Company's 1991 Stock Option Plan
(the "Plan"). In April 1994, the Board of Directors approved a proposed
amendment to the Plan which would increase the number of common shares issuable
upon exercise of stock options by 500,000 shares of Common Stock. The proposed
amendment was approved by stockholders at the Company's Annual Meeting of
Stockholders held on December 6, 1994. The plan is administered by the
Compensation Committee (the "Committee") consisting of three members of the
Board of Directors. The option price is determined by the Committee, but cannot
be less than the fair market value of the common stock of the Company at the
date of grant. The options generally vest, in equal cumulative installments,
after three years and expire ten years after the date of grant.
Transactions involving the plan are summarized as follows:
<TABLE>
<CAPTION>
PRICE RANGE 1995 1994
------------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Outstanding, beginning of year.............................. $2.63 - $4.00 236,167 37,500
Granted..................................................... $2.63 - $4.38 146,000 268,000
Canceled.................................................... $2.63 - $4.00 (1,667) (69,333)
Exercised................................................... -- -- --
-------- --------
Outstanding, end of year............................... $2.63 - $4.38 380,500 236,167
======== ========
Exercisable, end of year.................................................... 236,500 118,500
======== ========
Reserved for future option grants........................................... 219,500 363,833
======== ========
</TABLE>
Included in the fiscal 1994 options outstanding and exercisable were 172,00
shares and 100,000 shares, respectively, which were subject to stockholder
approval.
10. CONTINGENT LIABILITIES
During fiscal 1991, soil conditions at Plastofilm's Wheaton, Illinois
facility were discovered which need remediation. At June 30, 1991, a pre-tax
provision of $1.0 million was recorded for the estimated costs of testing and
remediation. Fiscal 1992 expenditures for testing and remediation were
approximately $535,000. At June 28, 1992, an additional pre-tax provision of
$1.0 million was recorded to reflect the then currently estimated costs to
complete the soil remediation. Expenditures during fiscal 1995, 1994 and 1993
for testing and remediation were approximately $78,000, $67,000 and $127,000,
respectively. During fiscal 1993 the Illinois Environmental Protection Agency
requested certain additional testing to be performed before approval of the
Company's voluntary clean-up plan. These tests were conducted in fiscal 1994 and
submitted to the Illinois Environmental Protection Agency in fiscal 1995 for
approval. The approval of the Company's voluntary clean-up plan is pending.
The Company has received a demand for payment of withdrawal liability in
the amount of approximately $360,000 from a multi-employer pension plan to which
the Company made contributions in connection with a discontinued business. The
Company disputes that it has any withdrawal liability and, in accordance with
the applicable provisions of the Employee Retirement Income Security Act, has
demanded that this dispute be resolved through arbitration. The Company is
making quarterly contributions of approximately $10,000 as required by law
pending arbitration. Through June 30, 1995 the Company has made payments of
F-12
<PAGE> 56
CFI INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1995, JUNE 26, 1994 AND JUNE 27, 1993
approximately $95,000. These payments will be returned to the Company, with
interest, if it is ultimately determined that the Company has no liability.
The Company, in connection with a discontinued business, has been named by
the United States Environmental Protection Agency ("US-EPA") as a potentially
responsible party in a Superfund Proceeding. The US-EPA has determined the
Company to be a de minimus contributor and has offered a settlement agreement to
all de minimus parties. The Company has accepted the settlement agreement which
will require total payments of $80,586. Payments will be made in two equal
installments on January 16, 1996 and July 16, 1996. The settlement amount has
been provided for in the financial statements.
11. MAJOR CUSTOMERS
During fiscal years 1995, 1994 and 1993, net sales to Baxter International,
Inc. and its affiliates accounted for approximately $5.2 million (17%), $4.6
million (16%) and $3.6 million (12%), respectively, of the total net sales of
the Company.
F-13
<PAGE> 57
CFI INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND JUNE 30, 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
----------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................. $ 1,336 $ 1,211
Trade receivables, net allowance for doubtful accounts of $33 in March
and $15 in June.................................................... 4,124 3,706
Inventories........................................................... 2,905 2,818
Prepayments and other................................................. 274 486
Deferred income taxes................................................. 1,173 1,173
------- -------
Total Current Assets.......................................... 9,812 9,394
Property and equipment, at cost, less accumulated depreciation of $8,166
in March and $7,306 in June........................................... 7,009 7,043
Intangible assets, at cost, net of accumulated amortization of $831 in
March and $768 in June................................................ 2,470 2,531
Other assets............................................................ 40 55
------- -------
$19,331 $ 19,023
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt (Note 6).............................................. $ -- $ 800
Current maturities of long-term debt (Note 6)......................... 859 742
Current portion of other long-term liabilities........................ 50 55
Accounts payable...................................................... 1,976 2,388
Accrued liabilities:
Salaries and wages................................................. 807 867
Insurance.......................................................... 147 417
Provision for soil remediation..................................... 1,179 1,193
Other.............................................................. 1,002 859
------- -------
Total Current Liabilities..................................... 6,020 7,321
Long-term debt (Note 6)................................................. 3,063 2,229
Other long-term liabilities............................................. 159 200
Deferred income taxes................................................... 643 643
------- -------
Total Liabilities............................................. 9,885 10,393
------- -------
Commitments and Contingent Liabilities (Note 5)
Stockholders' Equity:
Common stock, $1.00 par value, 10,000 shares authorized, 2,000 and
1,991 shares issued and outstanding in March and June,
respectively....................................................... 2,000 1,991
Paid-in surplus....................................................... 16,408 16,374
Deficit............................................................... (8,966) (9,735)
Cumulative translation adjustment..................................... 4 --
------- -------
Total Stockholders' Equity.................................... 9,446 8,630
------- -------
$19,331 $ 19,023
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-14
<PAGE> 58
CFI INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1996 AND MARCH 26, 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- ----------------------
MARCH 31, MARCH 26, MARCH 31, MARCH 26,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales............................................. $ 8,086 $ 8,032 $22,763 $22,306
Cost of sales......................................... 5,812 6,008 16,897 16,800
------ ------ ------- -------
Gross profit..................................... 2,274 2,024 5,866 5,506
Selling expenses...................................... 979 1,020 2,808 2,969
General and administrative expenses................... 732 558 1,965 1,650
------ ------ ------- -------
Operating income................................. 563 446 1,093 887
Interest expense...................................... 94 87 284 312
Interest income....................................... 4 -- 28 --
Other (income) expense -- net......................... 23 30 68 31
------ ------ ------- -------
Income before income taxes............................ 450 329 769 544
Income tax............................................ -- -- -- --
------ ------ ------- -------
Net income....................................... $ 450 $ 329 $ 769 $ 544
====== ====== ======= =======
Per common share:
Net income....................................... $ 0.20 $ 0.16 $ 0.34 $ 0.26
====== ====== ======= =======
Weighted average common shares outstanding............ 2,195 2,134 2,194 2,103
====== ====== ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-15
<PAGE> 59
CFI INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND MARCH 26, 1995
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
----------------------
MARCH 31, MARCH 26,
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................... $ 769 $ 544
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Depreciation and amortization.......................................... 929 928
Provision for doubtful accounts........................................ 18 --
Provision for losses, asset write-offs and other....................... 65 237
Stock distribution to employees........................................ 25 --
Stock purchased by employees........................................... 18 --
Changes in assets and liabilities:
Trade and other receivables............................................ (436) 167
Inventories............................................................ (152) (935)
Prepayments and other current assets................................... 212 211
Accounts payable and accrued liabilities............................... (613) (465)
Other -- net........................................................... 15 (45)
------ -------
Net cash flows from operating activities............................ 850 642
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................................... (837) (601)
Sales of marketable securities........................................... -- 1,524
Proceeds from sale of property and equipment............................. 4 231
------ -------
Net cash flows from investing activities............................ (833) 1,154
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (re-payments) borrowings under line of credit........................ (800) (400)
Proceeds from long-term debt............................................. 1,345 --
Reduction in long-term debt.............................................. (441) (643)
------ -------
Net cash flows from financing activities............................ 104 (1,043)
------ -------
Effect of exchange rate changes on cash.................................. 4 --
------ -------
Net increase in cash..................................................... 125 753
Beginning cash........................................................... 1,211 267
------ -------
Ending cash.............................................................. $ 1,336 $ 1,020
====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................................... $ 278 $ 310
Income taxes........................................................... $ 25 $ 5
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-16
<PAGE> 60
CFI INDUSTRIES, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
MARCH 31, 1996 AND JUNE 30, 1995
(UNAUDITED)
1. GENERAL
The unaudited financial information furnished herein includes all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results of the periods presented. All such adjustments are
of a normal and recurring nature. The financial results for the interim periods
may not be indicative of the financial results for a full year. These statements
should be read in conjunction with the financial statements and notes thereto
included with the 1995 Form 10-K filed by the Company with the Securities and
Exchange Commission.
2. INVENTORIES
Inventories at March 31, 1996 and June 30, 1995 consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30
1996 1995
--------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Raw material............................................ $ 1,251 $1,018
Work in process......................................... 235 158
Finished Goods.......................................... 1,419 1,642
------- ------
$ 2,905 $2,818
======= ======
</TABLE>
3. CHANGES IN STOCKHOLDERS' EQUITY
Changes in stockholders' equity for the nine month period ended March 31,
1996 are shown below:
<TABLE>
<CAPTION>
CUMULATIVE
COMMON PAID-IN TRANSLATION
STOCK SURPLUS DEFICIT ADJUSTMENT TOTAL
------ ------- ------- ---------- ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995......................... $1,991 $16,374 $(9,735) $ -- $8,630
Stock distribution to employees................ 6 19 25
Stock purchase by employees.................... 3 15 18
Cumulative translation adjustment.............. 4 4
Net Income..................................... 769 769
------ ------- ------- ---- ------
Balance, March 31, 1996........................ $2,000 $16,408 $(8,966) $ 4 $9,446
====== ======= ======= ==== ======
</TABLE>
F-17
<PAGE> 61
CFI INDUSTRIES, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND JUNE 30, 1995
(UNAUDITED)
4. STOCK OPTIONS
Transactions concerning the Company's 1991 Stock Option Plan for the nine
month period ended March 31, 1996 are shown below:
<TABLE>
<CAPTION>
PRICE RANGE 1996
------------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Outstanding, June 30, 1995........................................... $2.63 - $4.38 380,500
Granted.............................................................. $6.75 10,500
Canceled............................................................. $2.63 - $3.00 (20,000)
Exercised............................................................ --
-------
Outstanding, March 31, 1996........................................ $2.63 - $6.75 371,000
=======
Exercisable, March 31, 1996.......................................................... 294,166
=======
Reserved for future option grants.................................................... 229,000
=======
</TABLE>
5. CONTINGENT LIABILITIES
During fiscal 1991 soil conditions at Plastofilm's, (Plastofilm Industries
Inc., a wholly owned subsidiary of the Company) Wheaton, Illinois facility were
discovered which need remediation. At June 30, 1991, a pre-tax provision of $1.0
million was recorded for the estimated costs of testing and remediation. At June
28, 1992, an additional pre-tax provision of $1.0 million was recorded to
reflect the then currently estimated costs to complete the soil remediation.
Expenditures during fiscal 1995 and prior years were approximately $807,000.
Expenditures to date during fiscal 1996 have been approximately $14,000. During
fiscal 1993 the Illinois Environmental Protection Agency requested certain
additional testing to be performed before approval of the Company's voluntary
clean-up plan. These tests were conducted in fiscal 1994 and submitted to the
Illinois Environmental Protection Agency in fiscal 1995 for approval. The
approval of the Company's voluntary clean-up is pending.
The Company has received a demand for the payment of withdrawal liability
in the amount of approximately $360,000 from a multi-employer pension plan to
which the Company made contributions in connection with a discontinued business.
The Company disputes that it has any withdrawal liability and, in accordance
with the applicable provisions of the Employee Retirement Income Security Act,
has demanded that this dispute be resolved through arbitration. The Company is
making quarterly contributions of approximately $10,000 as required by law
pending arbitration. Through March 31, 1996 the Company has made payments of
approximately $124,000. These payments will be returned to the Company, with
interest, if it is ultimately determined that the Company has no liability.
The Company, in connection with a discontinued business, has been named by
the United States Environmental Protection Agency ("US-EPA") as a potentially
responsible party in a Superfund Proceeding. The US-EPA has determined the
Company to be a de minimus contributor and has offered a settlement agreement to
all parties. The Company has accepted the settlement agreement which will
require total payments of $80,586. On January 16, 1996, the Company paid the
first installment of $40,293. The second and final installment is due on July
16, 1996. The settlement amount has been provided for in the financial
statements.
F-18
<PAGE> 62
CFI INDUSTRIES, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND JUNE 30, 1995
(UNAUDITED)
6. DEBT
On January 15, 1996, the Company entered into a new long-term debt
agreement. Under the terms of this new agreement, the Company can borrow a
maximum of $3,000,000, at a fixed rate of 7.74% with regular monthly principal
payments of $50,000, maturing on February 1, 2001. The Company used this new
borrowing to retire previous long-term debt of $1,845,000 and also paid down its
secured short-term line of credit by $1,100,000. As of March 31, 1996 the
Company has $3,000,000 available under the secured short-term line of credit,
none of which is outstanding.
The Company, through its wholly owned subsidiary Plastofilm LTD, has
negotiated a $1,600,000 credit facility with a financial institution in Northern
Ireland. As of March 31, 1996, there have been no advances made against the
credit facility.
F-19
<PAGE> 63
ANNEX A
COMPOSITE
CONFORMED
AGREEMENT AND PLAN OF MERGER
DATED AS OF
MAY 17, 1996
AND
AMENDED AS OF JUNE 19, 1996 AND JUNE 26, 1996
AMONG
IPC, INC.,
PACKAGE ACQUISITION, INC.
CFI INDUSTRIES, INC.
AND
EQUITY HOLDINGS
<PAGE> 64
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I DEFINITIONS........................................................... A-1
1.1 Accounts.............................................................. A-1
1.2 Affiliate............................................................. A-1
1.3 Agreement............................................................. A-1
1.4 Agreement Sections.................................................... A-2
1.5 Buildings............................................................. A-2
1.6 Certificate of Merger................................................. A-2
1.7 CFI................................................................... A-2
1.8 CFI Closing Certificate............................................... A-2
1.9 CFI Counsel Opinion................................................... A-2
1.10 CFI Expenses.......................................................... A-2
1.11 CFI Financial Statements.............................................. A-3
1.12 CFI Stock............................................................. A-3
1.13 Code.................................................................. A-3
1.14 Contracts............................................................. A-3
1.15 Control............................................................... A-3
1.16 Disclosure Schedule................................................... A-3
1.17 Dissenting Shares..................................................... A-3
1.18 Employees............................................................. A-3
1.19 Employee Benefit Plans................................................ A-3
1.20 Equipment............................................................. A-3
1.21 ERISA................................................................. A-3
1.22 Existing Bank Accounts................................................ A-3
1.23 Existing Contracts.................................................... A-3
1.24 Existing Corporate Jurisdictions...................................... A-3
1.25 Existing Indebtedness................................................. A-3
1.26 Existing Insurance Policies........................................... A-4
1.27 Existing Intangible Assets............................................ A-4
1.28 Existing Investments.................................................. A-4
1.29 Existing Liens........................................................ A-4
1.30 Existing Litigation................................................... A-4
1.31 Existing Options...................................................... A-4
1.32 Existing Permits...................................................... A-4
1.33 Existing Plans........................................................ A-4
1.34 Indebtedness.......................................................... A-4
1.35 Intangible Assets..................................................... A-4
1.36 Investment............................................................ A-4
1.37 Law................................................................... A-5
1.38 Lien.................................................................. A-5
1.39 Material Adverse Effect............................................... A-5
1.40 Merger................................................................ A-5
1.41 Optionholders......................................................... A-5
1.42 The Parent Closing Certificate........................................ A-5
1.43 The Parent Counsel Opinion............................................ A-5
1.44 Permitted Liens....................................................... A-5
1.45 Person................................................................ A-5
1.46 Real Estate........................................................... A-5
1.47 Shareholders.......................................................... A-5
1.48 Subsidiary............................................................ A-5
</TABLE>
A-i
<PAGE> 65
<TABLE>
<C> <S> <C>
ARTICLE II THE MERGER............................................................ A-5
2.1 The Merger............................................................ A-5
2.2 Effective Time; Filing of Certificate of Merger....................... A-6
2.3 Certificate of Incorporation.......................................... A-6
2.4 By-Laws............................................................... A-6
2.5 Directors and Officers................................................ A-6
2.6 Additional Actions.................................................... A-6
2.7 Time and Place of Closing............................................. A-6
2.8 Conversion of Company Common Stock.................................... A-6
2.9 Exchange of Shares.................................................... A-7
2.10 No Further Rights or Transfers; Cancellation of Treasury Shares....... A-8
2.11 Dissenters' Rights.................................................... A-8
2.12 Special Meeting of Shareholders....................................... A-8
2.13 Commercially Reasonable Efforts....................................... A-9
2.14 Deferred Performance.................................................. A-9
2.15 Existing Options...................................................... A-9
ARTICLE III OTHER AGREEMENTS...................................................... A-10
3.1 Access................................................................ A-10
3.2 Disclosure Schedule................................................... A-10
3.3 Deliveries of Information............................................. A-11
3.4 Acquisition Proposals................................................. A-11
3.5 Public Announcements.................................................. A-11
3.6 Confidentiality Agreement............................................. A-12
3.7 Equity Proxy.......................................................... A-12
3.8 Closing Deliveries.................................................... A-12
3.9 Equity Obligations.................................................... A-12
3.10 The CFI Industries, Inc. Form Your Future Plan........................ A-12
3.11 Regulatory and Other Approvals........................................ A-12
3.12 Rights with respect to Assistance of Company Counsel; Access to
Certain
Books and Records..................................................... A-13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................... A-13
4.1 Organization; Business................................................ A-13
4.2 Capitalization........................................................ A-14
4.3 Authorization; Enforceability......................................... A-14
4.4 No Violation or Conflict.............................................. A-14
4.5 Title to Assets....................................................... A-14
4.6 Litigation............................................................ A-15
4.7 Books and Records; CFI Financial Statements........................... A-15
4.8 Absence of Certain Changes............................................ A-16
4.9 Buildings and Equipment............................................... A-17
4.10 Existing Contracts.................................................... A-17
4.11 Performance of Contracts.............................................. A-17
4.12 Existing Insurance Policies........................................... A-18
4.13 Employee Benefit Plans................................................ A-18
4.14 Brokers............................................................... A-19
4.15 Taxes................................................................. A-19
4.16 Real Estate........................................................... A-19
4.17 Governmental Approvals................................................ A-19
4.18 No Pending Acquisitions............................................... A-19
4.19 Investments........................................................... A-20
4.20 Labor Matters......................................................... A-20
4.21 Indebtedness.......................................................... A-20
</TABLE>
A-ii
<PAGE> 66
<TABLE>
<C> <S> <C>
4.22 Subsidiaries.......................................................... A-20
4.23 Existing Permits and Violations of Law................................ A-20
4.24 Unemployment Compensation............................................. A-21
4.25 Intangible Assets..................................................... A-21
4.26 Customers and Suppliers............................................... A-21
4.27 Environmental Protection.............................................. A-21
4.28 Vote Required......................................................... A-23
4.29 Affiliate Transactions................................................ A-23
4.30 Returns............................................................... A-23
4.31 SEC Reports........................................................... A-23
4.32 Content of Proxy Statement and Other Filings.......................... A-23
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PARENT AND ACQUISITION.......... A-24
5.1 Due Incorporation and Authority....................................... A-24
5.2 Consents and Approvals................................................ A-24
5.3 No Broker's, Finder's or Similar Fees................................. A-25
5.4 No Violation or Conflict.............................................. A-25
5.5 Litigation............................................................ A-25
ARTICLE VI CONDUCT OF BUSINESS OF CFI PENDING THE CLOSING........................ A-25
6.1 Carry on in Regular Course............................................ A-25
6.2 Use of Assets......................................................... A-25
6.3 Preservation of Relationships......................................... A-25
6.4 No Default............................................................ A-26
6.5 Existing Insurance Policies........................................... A-26
6.6 Employment Matters.................................................... A-26
6.7 Indebtedness; Investments............................................. A-26
6.8 Amendments............................................................ A-26
6.9 Dividends; Redemptions; Issuance of Stock............................. A-26
6.10 Taxes................................................................. A-26
6.11 Representations....................................................... A-26
6.12 Releases.............................................................. A-26
ARTICLE VII CONDITIONS PRECEDENT FOR BENEFIT OF THE PARENT AND ACQUISITION........ A-26
7.1 Compliance with Agreement............................................. A-26
7.2 No Litigation......................................................... A-26
7.3 Representations and Warranties of the Company......................... A-26
7.4 No Material Adverse Change............................................ A-27
7.5 Material Damage to Assets............................................. A-27
7.6 No Liabilities........................................................ A-27
7.7 Deliveries at Closing................................................. A-27
7.8 Affiliates............................................................ A-27
7.9 Regulatory Approvals.................................................. A-27
7.10 Approval of Shareholders.............................................. A-27
7.11 Dissenting Shares..................................................... A-27
7.12 Due Diligence......................................................... A-28
7.13 Resignations.......................................................... A-28
ARTICLE VIII CONDITIONS PRECEDENT FOR BENEFIT OF THE COMPANY....................... A-28
8.1 Compliance with Agreement............................................. A-28
8.2 No Litigation......................................................... A-28
8.3 Representations and Warranties of the Parent and Acquisition.......... A-28
8.4 Deliveries at Closing................................................. A-28
8.5 Governmental Approval................................................. A-29
</TABLE>
A-iii
<PAGE> 67
<TABLE>
<C> <S> <C>
8.6 Approval of Shareholders; Certificate of Merger....................... A-29
8.7 Closing Payments...................................................... A-29
ARTICLE IX NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................... A-29
9.1 No Survival of Representations and Warranties......................... A-29
9.2 Directors' and Officers' Indemnification.............................. A-29
ARTICLE X REPRESENTATIONS AND WARRANTIES OF EQUITY.............................. A-29
10.1 Organization and Qualification........................................ A-29
10.2 Authorization; Enforceability......................................... A-29
10.3 No Violation or Conflict.............................................. A-30
10.4 Litigation............................................................ A-30
10.5 Ownership of Stock.................................................... A-30
ARTICLE XI TERMINATION........................................................... A-30
11.1 Termination........................................................... A-30
11.2 Rights on Termination................................................. A-31
11.3 Termination Fee Payable to the Parent................................. A-31
11.4 Termination Fee Payable to the Company................................ A-31
11.5 Other Remedies........................................................ A-32
ARTICLE XII MISCELLANEOUS......................................................... A-32
12.1 Expenses.............................................................. A-32
12.2 Entire Agreement; Amendment........................................... A-32
12.3 Governing Law......................................................... A-32
12.4 Assignment............................................................ A-32
12.5 Notices............................................................... A-32
12.6 Counterparts; Headings................................................ A-33
12.7 Interpretation........................................................ A-33
12.8 Severability.......................................................... A-34
12.9 Specific Performance.................................................. A-34
12.10 No Reliance........................................................... A-34
12.11 Exhibits and Schedules................................................ A-34
12.12 Tax Treatment......................................................... A-34
12.13 Liability............................................................. A-34
12.14 No Third Party Beneficiary............................................ A-34
</TABLE>
EXHIBITS (OMITTED)
<TABLE>
<S> <C>
Exhibit 1 Certificate of Merger
Exhibit 2 CFI Closing Certificate
Exhibit 3 CFI Counsel Opinion
Exhibit 4 The Parent Closing Certificate
Exhibit 5 The Parent Counsel Opinion
Exhibit 6 Form of Release
</TABLE>
SCHEDULES (OMITTED)
<TABLE>
<S> <C>
Schedule 1.11 CFI Financial Statements
Schedule 1.22 Existing Bank Accounts
Schedule 1.23 Existing Contracts
Schedule 1.24 Existing Corporate Jurisdictions
Schedule 1.25 Existing Indebtedness
</TABLE>
A-iv
<PAGE> 68
<TABLE>
<S> <C>
Schedule 1.26 Existing Insurance Policies
Schedule 1.27 Existing Intangible Assets
Schedule 1.28 Existing Investments
Schedule 1.29 Existing Liens
Schedule 1.30 Existing Litigation
Schedule 1.31 Existing Options
Schedule 1.32 Existing Permits
Schedule 1.33 Existing Plans
Schedule 1.44 Permitted Liens
Schedule 1.46 Real Estate
Schedule 3.1 Access
Schedule 4.1(d) CFI Charter Documents
Schedule 4.8 Absence of Certain Changes
Schedule 4.9 Buildings and Equipment
Schedule 4.14 Brokers
Schedule 4.15 Tax Returns
Schedule 4.18 No Pending Acquisitions
Schedule 4.20(a) Employment Claims
Schedule 4.20(b) Labor Disputes
Schedule 4.20(c) NLRB Matters
Schedule 4.20(d) Union Matters
Schedule 4.22 Subsidiaries
Schedule 4.24 Unemployment Compensation
Schedule 4.25(b) Claims
Schedule 4.26 Customers and Suppliers
Schedule 4.27 Environmental Protection
Schedule 4.27(g) Off-Site Locations
Schedule 4.27(i) Tanks
Schedule 4.29 Affiliate Transactions
Schedule 6.6 Employment Matters
Schedule 7.6 No Liabilities
</TABLE>
A-v
<PAGE> 69
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 17, 1996 (the "Agreement"),
among IPC, INC. (formerly named Ivex Packaging Corporation), a Delaware
corporation (the "Parent"), PACKAGE ACQUISITION, INC., a Delaware corporation
("Acquisition"), CFI INDUSTRIES, INC., a Delaware corporation (the "Company")
and owner of all the common stock of Plastofilm Industries, Inc., a Delaware
corporation (the "Operating Subsidiary" or "Plastofilm"), and, solely for the
purposes of Section 3.7 and Article X, EQUITY HOLDINGS, an Illinois general
partnership and the owner of 1,334,592 shares of the Company's common stock
("Equity"). The Company and Acquisition are hereinafter sometimes collectively
referred to as the "Constituent Corporations."
WHEREAS, the Boards of Directors of the Parent, Acquisition and the Company
have approved, and deem it advisable and in the best interests of their
respective shareholders to consummate the acquisition of the Company by the
Parent upon the terms and subject to the conditions set forth herein;
WHEREAS, the Parent, Acquisition and the Company wish to provide for the
terms and conditions upon which a merger of Acquisition with and into the
Company will be consummated, and Equity desires to join in this Agreement as
specifically herein provided; and
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the Parent, Acquisition, the Company and, to the extent specifically
provided for herein, Equity agree as follows:
ARTICLE I
DEFINITIONS
When used in this Agreement, and in addition to the other terms defined
herein, the following terms shall have the meanings specified:
1.1 Accounts. "Accounts" shall mean all accounts receivable, notes and
associated rights owned by CFI.
1.2 Affiliate. "Affiliate" shall mean, in relation to any party hereto, any
entity directly or indirectly controlling, controlled by or under common control
with such party; provided, however, that, notwithstanding the foregoing, the
term "Affiliate" shall not include (i) any corporation or other entity (other
than the Company) having securities that are listed on a national securities
exchange or traded in the national over-the-counter market (a "Public Company"),
(ii) any Subsidiary, whether direct or indirect, of any Public Company or (iii)
Midway Airlines Corporation, Scott Sports Group, Inc. or Sealy Corporation.
1.3 Agreement. "Agreement" shall mean this Agreement and Plan of Merger,
together with the Exhibits attached hereto and the Disclosure Schedule, as the
same may be amended from time to time in accordance with the terms hereof.
A-1
<PAGE> 70
1.4 Agreement Sections. The following terms shall have the meanings
specified in the Sections of this Agreement listed in the following table:
<TABLE>
<CAPTION>
TERM SECTION
----------------------------------------------------------------- ------------
<S> <C>
Acquiring Person 11.1(vii)
Acquisition Transaction 3.4(a)(i)
CERCLA 4.27(f)
CFI Charter Documents 4.1(d)
CFI Special Meeting 2.13(a)
Closing 2.7
Closing Date 2.7
Closing Per Share Amount 2.8
Company ERISA Affiliate 4.13(a)
Company SEC Documents 4.31
Consideration Per Share 2.8
Due Diligence Date 2.15
Effective Time 2.2
Environmental Claim 4.27(a)(i)
Environmental Laws 4.27(a)(iii)
Environmental Permits 4.27(c)
Environmental Release 4.27(a)(iv)
Exchange Act 4.31
Exchange Agent 2.9(a)
Exchange Fund 2.9(a)
Hazardous Materials 4.27(a)(ii)
HSR Act 7.9
GCL 2.1
Governmental Entity 4.17
Material Adverse Effect 1.39
Proxy Statement 2.12(b)
Representative 2.9(a)
SEC 2.12(c)
Securities Act 4.31
Superior Proposal 3.4(b)
Surviving Corporation 2.1
</TABLE>
1.5 Buildings. "Buildings" shall mean all buildings, fixtures, structures
and improvements leased or owned by CFI.
1.6 Certificate of Merger. "Certificate of Merger" shall mean the
Certificate of Merger in substantially the form of Exhibit 1 attached to this
Agreement.
1.7 CFI. "CFI" shall mean CFI Industries, Inc., a Delaware corporation,
together with its Subsidiaries.
1.8 CFI Closing Certificate. "CFI Closing Certificate" shall mean the
Closing Certificate of the Company in the form of Exhibit 2 attached to this
Agreement.
1.9 CFI Counsel Opinion. "CFI Counsel Opinion" shall mean the opinion of
Rosenberg & Liebentritt, P.C., in substantially the form of Exhibit 3 attached
to this Agreement.
1.10 CFI Expenses. "CFI Expenses" shall mean all reasonable out-of-pocket
costs, fees and expenses incurred by CFI, including, without limitation, the
fees and expenses of counsel, accountants, brokers, consultants, investment
bankers, financial advisers and other third parties in connection with: (a) the
negotiation, preparation, execution and delivery of and performance under this
Agreement; (b) the preparation and distribution of the Proxy Statement and any
amendment or supplement thereto; and (c) the conduct of the CFI Special Meeting.
A-2
<PAGE> 71
1.11 CFI Financial Statements. "CFI Financial Statements" shall mean (each
of which is attached to this Agreement as Schedule 1.11 of the Disclosure
Schedule):
(a) the audited Consolidated Balance Sheet, Consolidated Statement of
Operations, Consolidated Statement of Cash Flows and Consolidated Statement
of Stockholders' Equity of CFI and related notes for each of the fiscal
years ended on June 27, 1993, June 26, 1994 and June 30, 1995; and
(b) the unaudited Consolidated Balance Sheet, Consolidated Statement
of Operations and Consolidated Statement of Cash Flows of CFI and related
notes for each of the quarters ended September 30, 1995, December 31, 1995
and March 31, 1996.
1.12 CFI Stock. "CFI Stock" shall mean shares of common stock of the
Company, $1.00 par value.
1.13 Code. "Code" shall mean the Internal Revenue Code of 1986, as the same
may be in effect from time to time.
1.14 Contracts. "Contracts" shall mean all of the contracts, agreements,
and obligations, written or oral, to which CFI is a party or by which CFI or any
of its assets are bound, including, without limitation, any loan, bond,
mortgage, indenture, lease, instrument, franchise or license.
1.15 Control. "Control" (including the terms "controlling," "controlled
by," and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities or by contract.
1.16 Disclosure Schedule. "Disclosure Schedule" shall mean the Disclosure
Schedule delivered by the Company to the Parent pursuant to Section 3.2(a) of
this Agreement.
1.17 Dissenting Shares. "Dissenting Shares" shall mean shares of the CFI
Stock which dissent from the Merger in accordance with the provisions of the
GCL.
1.18 Employees. "Employees" shall mean all of the employees of CFI.
1.19 Employee Benefit Plans. "Employee Benefit Plans" shall mean any
pension plan, profit sharing plan, bonus plan, incentive compensation plan,
stock purchase plan, stock ownership plan, stock option plan, stock appreciation
plan, employee benefit plan, employee benefit policy, retirement plan, fringe
benefit program, insurance plan, severance plan, disability plan, health care
plan, sick leave plan, death benefit plan, or any other plan, program or policy
to provide retirement income, fringe benefits or other benefits to former or
current employees of CFI (including, without limitation, any employee pension
benefit plan, employee welfare plan or multi-employer plan as each term is
defined in ERISA).
1.20 Equipment. "Equipment" shall mean all machinery, equipment, boilers,
furniture, fixtures, motor vehicles, furnishings, parts, tools, office
equipment, computers and other items of tangible personal property owned or used
by CFI.
1.21 ERISA. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may be in effect from time to time.
1.22 Existing Bank Accounts. "Existing Bank Accounts" shall mean any and
all checking accounts, savings accounts, money market accounts, custodial
accounts, certificates of deposit, safe deposit boxes and other bank accounts
maintained by CFI, all of which are listed on Schedule 1.22 of the Disclosure
Schedule.
1.23 Existing Contracts. "Existing Contracts" shall mean those Contracts
which are listed on Schedule 1.23 of the Disclosure Schedule.
1.24 Existing Corporate Jurisdictions. "Existing Corporate Jurisdictions"
shall mean those states, provinces and foreign countries in which CFI is
qualified to do business as a foreign corporation as listed on Schedule 1.24 of
the Disclosure Schedule.
1.25 Existing Indebtedness. "Existing Indebtedness" shall mean all
Indebtedness of CFI, all of which is listed on Schedule 1.25 of the Disclosure
Schedule.
A-3
<PAGE> 72
1.26 Existing Insurance Policies. "Existing Insurance Policies" shall mean
all of the insurance policies currently in effect and owned by CFI, all of which
are listed on Schedule 1.26 of the Disclosure Schedule.
1.27 Existing Intangible Assets. "Existing Intangible Assets" shall mean
the Intangible Assets of CFI which are listed or identified on Schedule 1.27 of
the Disclosure Schedule.
1.28 Existing Investments. "Existing Investments" shall mean all
Investments of CFI, all of which are listed on Schedule 1.28 of the Disclosure
Schedule.
1.29 Existing Liens. "Existing Liens" shall mean those Liens affecting any
of the assets or properties of CFI which Liens are listed on Schedule 1.29 of
the Disclosure Schedule.
1.30 Existing Litigation. "Existing Litigation" shall mean all pending or,
to the knowledge of the Company, threatened actions, suits, claims, worker's
compensation claims, litigation or other governmental or judicial proceedings or
investigations, arbitrations and product warranty claims against CFI or any of
its or their properties, assets or business, or, to the knowledge of the Company
and if and to the extent CFI is, through indemnity or otherwise, liable
therefor, any of CFI's current or former directors or officers or any other
person whom CFI has agreed to indemnify, all of which are listed on Schedule
1.30 of the Disclosure Schedule.
1.31 Existing Options. "Existing Options" shall mean any of the following
relating to any capital stock or other equity interest of CFI, all of which are
listed on Schedule 1.31 of the Disclosure Schedule: (a) options or warrants to
purchase or other rights (including registration rights), agreements,
arrangements or commitments of any character to which CFI is a party relating to
the issued or unissued capital stock or other equity or phantom equity interests
of CFI to grant, issue or sell any shares of the capital stock or other equity
or phantom equity interests of CFI by sale, lease, license or otherwise; (b)
rights to subscribe for or purchase; or (c) Contracts with respect to any right
to purchase, put or call.
1.32 Existing Permits. "Existing Permits" shall mean those permits,
licenses, approvals, qualifications, authorizations, and registrations required
by Law which CFI has or holds which are listed on Schedule 1.32 of the
Disclosure Schedule.
1.33 Existing Plans. "Existing Plans" shall mean all Employee Benefit Plans
of CFI, all of which are listed on Schedule 1.33 of the Disclosure Schedule.
1.34 Indebtedness. "Indebtedness" shall mean all liabilities or obligations
of CFI, whether primary or secondary or absolute or contingent, in excess of
$10,000 as to any single item: (a) for borrowed money; or (b) evidenced by
notes, bonds, debentures or similar instruments; or (c) secured by Liens on any
assets of CFI.
1.35 Intangible Assets. "Intangible Assets" shall mean (a) any invention,
United States and foreign patents, pending patent applications, trade names,
trade dress, logos, corporate names, trademarks, service marks, trademark
registrations, service mark registrations, pending trademark applications,
pending service mark applications, registered copyrights, and pending copyright
applications, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith; (b)
proprietary software; and (c) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals).
1.36 Investment. "Investment" by CFI shall mean: (a) any transfer or
delivery of cash, stock or other property or value by CFI in exchange for
equity, debt, preferred stock, partnership interest, participation or any other
security of another Person; (b) any loan or capital contribution to or in any
other Person; (c) any guaranty of any obligation to pay money of any other
Person; and (d) any investments in any fixed property or fixed assets other than
fixed properties and fixed assets acquired and used in the ordinary course of
the business of CFI.
A-4
<PAGE> 73
1.37 Law. "Law" shall mean any foreign, federal, state or local
governmental law, rule, regulation or requirement, including any rules,
regulations and orders promulgated thereunder and any orders, decrees, consents
or judgments of any governmental regulatory agencies and courts having the force
of law, other than any Environmental Laws.
1.38 Lien. "Lien" shall mean, with respect to any asset (real, personal or
mixed): (a) any mortgage, pledge, lien, easement, lease, title defect or
imperfection or any other form of security interest, whether imposed by Law or
by Contract; and (b) the interest of a vendor or lessor under any conditional
sale agreement, financing lease or other title retention agreement relating to
such asset.
1.39 Material Adverse Effect. "Material Adverse Effect" shall mean a
material adverse effect on the business, condition (financial or otherwise),
results of operations, assets, liabilities, prospects, liquidity or properties
of CFI taken as a whole.
1.40 Merger. "Merger" shall mean the merger of Acquisition with and into
the Company pursuant to this Agreement.
1.41 Optionholders. "Optionholders" shall mean all Persons holding the
Existing Options.
1.42 The Parent Closing Certificate. "The Parent Closing Certificate" shall
mean the Closing Certificate of the Parent in the form of Exhibit 4 attached to
this Agreement.
1.43 The Parent Counsel Opinion. "The Parent Counsel Opinion" shall mean
the opinion of Skadden, Arps, Slate, Meagher & Flom in substantially the form of
Exhibit 5 attached to this Agreement.
1.44 Permitted Liens. "Permitted Liens" shall mean those of the Existing
Liens which are expressly noted as Permitted Liens on Schedule 1.44 of the
Disclosure Schedule, and any other Liens that do not materially detract from the
value of the property or assets of CFI taken as a whole subject thereto and do
not materially impair the business or operations of CFI taken as a whole.
1.45 Person. "Person" shall mean a natural person, corporation, limited
liability company, association, joint stock company, trust, partnership,
governmental entity, agency or branch or department thereof, or any other legal
entity.
1.46 Real Estate. "Real Estate" shall mean the parcels of real property
identified in Schedule 1.46 of the Disclosure Schedule.
1.47 Shareholders. "Shareholders" shall mean all Persons owning any shares
of CFI Stock.
1.48 Subsidiary. "Subsidiary" shall mean any corporation, at least a
majority of the outstanding capital stock of which (or any class or classes,
however designated, having ordinary voting power for the election of at least a
majority of the board of directors of such corporation) shall at the time be
owned by the relevant Person directly or through one or more corporations which
are themselves Subsidiaries.
ARTICLE II
THE MERGER
2.1 The Merger. Subject to the terms and conditions of this Agreement and
in accordance with the General Corporation Law of the State of Delaware (the
"GCL"), at the Effective Time (as defined in Section 2.2), Acquisition shall be
merged with and into the Company, and the Company shall be the surviving
corporation in the Merger (in such capacity, the "Surviving Corporation") and
shall continue its corporate existence under the laws of the State of Delaware.
At the Effective Time, the separate existence of Acquisition shall cease. The
Merger shall be pursuant to the provisions of, and shall be with the effect
provided in, the GCL. In accordance with the GCL, all of the rights, privileges,
powers and franchises of the Company and Acquisition shall vest in the Surviving
Corporation, and all of the debts, liabilities and duties of the Company and
Acquisition shall become the debts, liabilities and duties of the Surviving
Corporation.
A-5
<PAGE> 74
2.2 Effective Time; Filing of Certificate of Merger. The Merger shall be
effected by the filing at the time of the Closing (as defined in Section 2.7) of
a properly executed Certificate of Merger (in the form attached as Exhibit 1
hereto) with the Secretary of State of the State of Delaware in accordance with
the provisions of Section 251 of the GCL. The Merger shall become effective at
the time of such filing (the "Effective Time"). At the Closing, the Parent and
the Constituent Corporations shall cause a properly executed Certificate of
Merger to be filed with the Secretary of State of the State of Delaware as
provided in the GCL, and shall take any and all other lawful actions and do any
and all other lawful things to cause the Merger to become effective.
2.3 Certificate of Incorporation. At the Effective Time, the Certificate of
Incorporation of Acquisition as in effect immediately prior to the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended in accordance with applicable law.
2.4 By-Laws. The By-laws of Acquisition, as in effect immediately prior to
the Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended in accordance with applicable law.
2.5 Directors and Officers. The directors and officers of Acquisition
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation. Each director and officer of the Surviving
Corporation shall hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation.
2.6 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that consistent with the
terms of this Agreement any further assignments or assurances in law or any
other acts are necessary or desirable (i) to vest, perfect or confirm, of record
or otherwise, in the Surviving Corporation, title to and possession of any
property or right of either Constituent Corporation acquired or to be acquired
by reason of, or as a result of, the Merger, or (ii) otherwise to carry out the
purposes of this Agreement, then, subject to the terms and conditions of this
Agreement, each such Constituent Corporation and its officers and directors
shall be deemed to have granted to the Surviving Corporation an irrevocable
power of attorney to execute and deliver all such deeds, assignments and
assurances in law and to do all acts necessary or proper to vest, perfect or
confirm title to and possession of such property or rights in the Surviving
Corporation and otherwise to carry out the purposes of this Agreement; and the
officers and directors of the Surviving Corporation are fully authorized in the
name of either Constituent Corporation to take any and all such action.
2.7 Time and Place of Closing. Subject to the provisions of Articles VII,
VIII and XI, the closing of the Merger (the "Closing") shall take place (a) at
the offices of Skadden, Arps, Slate, Meagher & Flom, 333 West Wacker Drive,
Suite 2100, Chicago, Illinois 60606 as soon as practicable following
satisfaction or waiver of all of the conditions set forth in such Articles VII
and VIII, but in no event later than October 31, 1996, or (b) at such other
place, at such other time or on such other date as the Parent and the Company
may mutually agree (the date of the Closing is hereinafter sometimes referred to
as the "Closing Date").
2.8 Conversion of Company Common Stock.
(a) Each share of the CFI Stock issued and outstanding immediately prior to
the Effective Time (except for Dissenting Shares), shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive $6.34 in cash per share (the "Consideration Per
Share"), representing as of this date an aggregate price of $12,679,866.86 for
all 1,999,979 outstanding shares of capital stock of the Company on the date
hereof, subject to payment of certain fees and expenses (if any) as contemplated
by Section 12.1 (the cash amount actually to be received by or on behalf of each
Shareholder at the Effective Time, after the payment of any such fees and
expenses, being hereinafter referred to as the "Closing Per Share Amount"), in
cash payable to the Exchange Agent (as hereinafter defined) on behalf of the
holder thereof, without any interest thereon, as soon as reasonably practicable
after the later to occur of (x) the surrender of the certificate(s) representing
such CFI Stock as provided in Section 2.9 or (y) the Closing Date. It is
presently anticipated by CFI that the Closing Per Share Amount will be
approximately $6.25.
(b) Each share of common stock, par value $0.01 per share, of Acquisition
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into one share of common stock of the Surviving Corporation. Each
certificate
A-6
<PAGE> 75
evidencing ownership of any such shares shall, following the Merger, evidence
ownership of the same number of shares of common stock of the Surviving
Corporation.
(c) Payments in respect of the Existing Options are provided for in Section
2.15 below.
2.9 Exchange of Shares.
(a) Prior to the Effective Time, the Company shall appoint a Person that is
reasonably acceptable to the Parent to act as the exchange agent hereunder (the
"Exchange Agent") for the benefit of the Shareholders for exchange in accordance
with this Section 2.9. Parent hereby acknowledges that American Stock Transfer &
Trust Company would be acceptable as the Exchange Agent.
As soon as reasonably practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of a share certificate which
immediately prior to the Effective Time represented outstanding CFI Stock: (1) a
letter of transmittal (a "Letter of Transmittal") which shall (u) specify that
delivery shall be effected, and risk of loss and title to each such certificate
shall pass, only upon delivery of such certificates to the Exchange Agent, (v)
contain a representation in a form reasonably satisfactory to the Parent as to
the good and marketable title to the CFI Stock held by such holder free and
clear of any Lien, (w) consent to the withholding of the fees and expenses
contemplated by Section 12.1 and (x) contain such other provisions as the
Company and the Parent may reasonably specify; and (2) instructions to effect
the surrender of such certificate(s) in exchange for a check in an amount equal
to the Closing Per Share Amount multiplied by the number of shares of CFI Stock
represented by such certificate(s).
At the Closing, immediately prior to the Effective Time, Parent shall cause
Acquisition to deposit with the Exchange Agent, on behalf of the Shareholders,
an aggregate amount in cash equal to the Closing Per Share Amount times the
number of shares of CFI Stock outstanding as of the Closing (such aggregate
amount being hereinafter referred to as the "Exchange Fund"), and then, upon
surrender to the Exchange Agent of certificate(s) for cancellation together with
a duly executed Letter of Transmittal and such other documents as the Exchange
Agent may reasonably require, make payment of the Closing Per Share Amount
provided for in Section 2.8(a) to the holder of such certificate(s) out of the
Exchange Fund.
Thereafter (except as otherwise provided for in Section 2.9(c)), each
holder of certificate(s) representing CFI Stock not delivered to the Exchange
Agent at the Effective Time may surrender such certificate(s) to the Exchange
Agent and (subject to applicable abandoned property, escheat and similar laws)
receive from the Exchange Agent in exchange therefor an amount equal to the
product of (x) the Closing Per Share Amount and (y) the number of shares of CFI
Stock represented by the certificate(s) so surrendered, without interest, but
such holder shall have no rights whatsoever against the Surviving Corporation.
Upon the surrender of any such certificate(s) to the Exchange Agent, the
Exchange Agent shall promptly surrender such certificate(s) to the Surviving
Corporation for cancellation.
(b) If the consideration payable for any CFI Stock is to be delivered to a
person other than the person in whose name the certificate(s) representing such
CFI Stock is registered, it shall be a condition of such delivery that the
certificate(s) so surrendered shall be properly endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name of the
record holder appears on such certificate, and shall otherwise be in proper form
for transfer, and that the person requesting such delivery shall pay to the
Exchange Agent or the Surviving Corporation, as the case may be, any transfer or
other taxes required by law as a result of such delivery to a person other than
the record holder of the certificate(s) surrendered or shall establish to the
Exchange Agent's and the Surviving Corporation's reasonable satisfaction that
such tax has been paid or is not payable.
(c) Any portion of the Exchange Fund delivered upon the Closing Date to the
Exchange Agent pursuant to this Agreement that remains unclaimed for one (1)
year after the Closing Date shall be delivered by the Exchange Agent to the
Surviving Corporation, upon demand, and any Shareholders who have not
theretofore complied with Section 2.9(a) shall thereafter look only to the
Surviving Corporation for delivery of the Closing Per Share Amount, subject in
all events to all applicable escheat and other similar laws.
A-7
<PAGE> 76
(d) Until surrender as contemplated by this Section 2.9 of this Agreement,
certificate(s) representing CFI Stock shall be deemed at all times after the
Effective Time to represent only the right to receive upon surrender the
consideration to be paid therefor as specified in this Agreement.
(e) No interest shall accrue or be payable with respect to any amounts
which any Shareholder or Optionholder shall be entitled to receive pursuant to
this Agreement. The Exchange Agent shall be authorized to pay the Closing Per
Share Amount attributable to any certificate(s) representing CFI Stock which has
been lost or destroyed upon receipt of evidence of ownership of the CFI Stock
represented thereby and of appropriate indemnification and/or bond in each case
reasonably satisfactory to the Company (but no bond shall be required in cases
of 25 shares or less).
(f) Neither the Exchange Agent nor any party to this Agreement shall be
liable to any Shareholder or Optionholder for any CFI Stock, any Existing
Options, the Closing Per Share Amount or cash delivered to a public official
pursuant to any abandoned property, escheat or similar law.
(g) The Exchange Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any Shareholder or
Optionholder such amounts as the Company reasonably determines are required to
be deducted and withheld with respect to the making of such payment under the
Code, or any provision of state, local or foreign tax Law. To the extent that
amounts are so withheld by the Exchange Agent, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the
Shareholder or Optionholder in respect of which such deduction and withholding
was made by the Exchange Agent.
(h) Notwithstanding the foregoing provisions of this Section 2.9, Equity
and the Optionholders may arrange to receive the respective payments due to such
parties at the Closing directly from the Parent.
2.10 No Further Rights or Transfers; Cancellation of Treasury Shares.
Except for the surrender of the certificate(s) representing the CFI Stock in
exchange for the right to receive the Closing Per Share Amount with respect to
each share of CFI Stock or the perfection of appraisal rights with respect to
the Dissenting Shares, at and after the Effective Time, the holder of shares of
CFI Stock shall cease to have any rights as a stockholder of the Company, and no
transfer of shares of CFI Stock shall thereafter be made on the stock transfer
books of the Surviving Corporation. Each share of CFI Stock held in the
Company's treasury immediately prior to the Effective Time shall, by virtue of
the Merger, be canceled and retired and cease to exist without any conversion
thereof.
2.11 Dissenters' Rights. Shares of CFI Stock which immediately prior to the
Effective Time are held by Shareholders who have properly exercised and
perfected appraisal rights under Section 262 of the GCL (the "Dissenting
Shares") shall not be converted into the right to receive the Consideration Per
Share, but the holders of Dissenting Shares shall be entitled to receive such
consideration as shall be determined pursuant to Section 262 of the GCL;
provided, however, that if any such holder shall have failed to perfect or shall
withdraw or lose his right to appraisal and payment under the GCL, such holder's
shares of CFI Stock shall thereupon be deemed to have been converted as of the
Effective Time into the right to receive the Consideration Per Share (less pro
rata fees and expenses (if any) as contemplated by Section 12.1), without any
interest thereon, and such shares shall no longer be Dissenting Shares. The
Company shall give the Parent, Acquisition and the Exchange Agent prompt notice
of any claim by a Shareholder for payment of fair value for Dissenting Shares as
provided in Section 262 of the GCL.
2.12 Special Meeting of Shareholders.
(a) The Company agrees to promptly take all steps necessary to cause a
special meeting of the Shareholders (the "CFI Special Meeting") to be duly
called, noticed, convened and held as soon as practicable for the purpose of
voting to approve this Agreement and the Merger. In connection with the CFI
Special Meeting, the Board of Directors of the Company shall, subject to Section
11.1(iv) below, unanimously recommend to the Shareholders that the Shareholders
vote in favor of the approval of this Agreement and the Merger.
A-8
<PAGE> 77
(b) In connection with the CFI Special Meeting, the Company agrees to
promptly prepare and cause to be filed with the SEC and, following expiration of
the conditions set forth in Section 7.12 below, mailed to the Shareholders a
notice of the CFI Special Meeting and a definitive proxy statement (the "Proxy
Statement") as soon as practicable and in any event, shall cause such notice to
be mailed no later than the time required by applicable law and the certificate
of incorporation and bylaws of the Company. The Parent and Acquisition agree to
provide the Company with any information for inclusion in the Proxy Statement
(or any amendments or supplements thereto) which is required by applicable law
or which is reasonably requested by the Company. The Company shall consult with
the Parent and Acquisition with respect to the Proxy Statement (and any
amendments or supplements thereto) and shall afford the Parent and Acquisition
reasonable opportunity to comment thereon prior to its finalization. If, at any
time prior to the CFI Special Meeting, any event shall occur relating to Company
or the transactions contemplated by this Agreement which should be set forth in
an amendment or a supplement to the Proxy Statement, the Company will promptly
notify in writing the Parent and Acquisition of such event. In such case, the
Company, with the cooperation of the Parent and Acquisition, will promptly
prepare and mail such amendment or supplement and the Company shall consult with
the Parent and Acquisition with respect to such amendment or supplement and
shall afford the Parent and Acquisition reasonable opportunity to comment
thereon prior to such mailing. The Company agrees to notify the Parent and
Acquisition at least three (3) days prior to the mailing of the Proxy Statement
(or any amendment or supplement thereto) to the Shareholders.
(c) The Parent agrees that if any event with respect to the Parent,
Acquisition or their officers or directors shall occur which is required to be
described in an amendment or supplement to the Proxy Statement or any other
filing with the Securities and Exchange Commission (the "SEC") that may be
required in connection with this Agreement, the Merger and all matters related
thereto, the Parent will promptly inform the Company thereof and the Company
will cause such event to be so described and such amendment or supplement to be
promptly filed with the SEC and, as required by law, disseminated to the
Shareholders; provided, however, that prior to such filing or mailing the
Company shall consult with the Parent and Acquisition with respect to such
amendment, supplement or other filing and shall afford the Parent and
Acquisition a reasonable opportunity to comment thereon.
2.13 Commercially Reasonable Efforts. So long as this Agreement has not
been terminated, the Company, the Parent and Acquisition shall: (i) promptly
make their respective filings and thereafter make any other submissions required
under all applicable laws with respect to this Agreement, the Merger and the
other transactions contemplated hereby and (ii) use their respective
commercially reasonable efforts to promptly take, or cause to be taken, all
other actions and do, or cause to be done, all other things necessary proper or
appropriate to consummate and make effective the Merger as provided for in this
Agreement.
2.14 Deferred Performance. Notwithstanding the foregoing provisions of this
Article II, the Company shall be required to pursue the preparation of the Proxy
Statement but shall not be required to file the Proxy Statement with the SEC,
mail the same to the Shareholders or otherwise pursue the holding of the CFI
Special Meeting until after the date (the "Due Diligence Date") as of which the
Parent no longer has the right to terminate this Agreement pursuant to Section
7.12 below.
2.15 Existing Options. As of the Effective Time, each Existing Option which
is outstanding at the Effective Time will be exchanged for, and the holders of
each such Existing Option will be entitled to receive at the Closing (or
thereafter, if necessary) upon surrender of such Existing Option for
cancellation, cash equal to (i) the product of (a) the difference between $6.34
and the exercise price of each such Existing Option, times (b) the number of
shares of CFI Stock covered by such Existing Option; less (ii) an amount equal
to approximately $0.09 per share for the payment of fees and expenses (if any)
as contemplated by Section 12.1 hereof. It is presently anticipated by CFI that
the payment to be made at the Closing to the Optionholders in respect of the
Existing Options will be approximately $1,232,250 (such amount being net of any
fees and expenses referred to above and before any income taxes and other
required withholdings).
A-9
<PAGE> 78
ARTICLE III
OTHER AGREEMENTS
3.1 Access. Subject to the provisions of the Confidentiality Agreement
referred to in Section 3.6 below, and so long as this Agreement has not been
terminated as herein provided, upon reasonable request, the Company shall grant
to the Parent, Acquisition and their agents, accountants, attorneys and other
advisers reasonable access to all of the books, records, financial statements
and other documents and materials relating to its financial condition, assets,
liabilities and business, including, without limitation, permitting the Parent
(at its expense and subject to the prior approval of the Company, which approval
shall not be unreasonably withheld) to: (a) conduct appraisals of the Equipment,
Buildings, Real Estate and other properties of CFI; and (b) conduct an
environmental and occupational safety inspection of the properties of CFI.
Notwithstanding the foregoing: (i) the Parent shall not have the right to
conduct a so-called Phase II environmental study or other physically invasive
testing without the prior written consent of the Company (which consent may be
conditional upon the execution and delivery by the Parent of an agreement, in
form and substance satisfactory to the Company, concerning matters of
confidentiality and indemnification); and (ii) other than Persons listed on
Schedule 3.1 of the Disclosure Schedule, without the prior written consent of
the Company, neither the Parent nor its agents, accountants, attorneys or other
advisors shall communicate with vendors, customers or any other Persons having
business dealings with CFI concerning this Agreement, the Merger or any matters
related thereto. In addition, the Company shall confer and consult with
representatives of the Parent, as the Parent may reasonably request, to report
on operational matters, financial matters and the general status of ongoing
business operations of CFI.
3.2 Disclosure Schedule.
(a) Disclosure Schedule. The Company will deliver to the Parent the
Disclosure Schedule on or before May 21, 1996, which shall be accompanied by a
certificate signed by the President and the Secretary of the Company stating
that the Disclosure Schedule was delivered pursuant to this Agreement and is the
Disclosure Schedule referred to in this Agreement. The Disclosure Schedule is
deemed to constitute an integral part of this Agreement and to modify the
representations, warranties, covenants or agreements of the Company contained in
this Agreement.
(b) Updates. Not less than two (2) nor more than ten (10) days prior to the
Closing, the Company shall update the Disclosure Schedule (by either (i)
revision of specific Schedules included in the original Disclosure Schedule
referred to in Section 3.2(a) or (ii) addition of new Schedules that were
neither included in said original Disclosure Schedule nor referred to in or
contemplated by this Agreement as of the date of this Agreement) as of a then
current date by written notice to the Parent to reflect any matters which have
occurred from and after the date of this Agreement and which, if existing on the
date of delivery of the Disclosure Schedule, would have been required to be
described in the Disclosure Schedule. If the Disclosure Schedule is updated by
the addition of new Schedules not referred to in or contemplated by this
Agreement as of the date of this Agreement: (i) each new Schedule shall be
numbered to correspond to the applicable section or subsection which such new
Schedule is intended to modify and (ii) the applicable section or subsection
corresponding to such new Schedule shall be read to include the words "except as
set forth in Schedule [insert applicable section or subsection number]" or words
of similar meaning to appropriately connote the modifications created by such
new Schedule. If requested by the Parent prior to the Closing, the Company shall
meet and discuss with the Parent prior to Closing any update to the Disclosure
Schedule disclosed by the Company which is, in the reasonable judgment of the
Parent, adverse in any manner to either the Company or the Parent. The delivery
of an update to the Disclosure Schedule pursuant to this Section 3.2 shall not
cure any breach of any representation or warranty made in this Agreement, have
any effect for the purpose of determining the satisfaction of the conditions set
forth in Article VII of this Agreement or otherwise limit or affect the remedies
available hereunder to any party.
A-10
<PAGE> 79
3.3 Deliveries of Information. From time to time after the date of this
Agreement and prior to the Closing Date (unless this Agreement is terminated),
the Company shall furnish promptly to the Parent:
(a) a copy of each report, schedule and other document filed by the Company
or received by the Company after the date of this Agreement pursuant to the
requirements of federal or state securities Laws promptly after such documents
are available; and
(b) the monthly financial statements of the Company (as prepared by the
Company in accordance with its normal accounting procedures) promptly after such
financial statements are available.
3.4 Acquisition Proposals.
(a) Prior to the Effective Time, the Company agrees that neither it, any of
its respective Subsidiaries or Affiliates, nor any of the respective directors,
officers, employees, agents or representatives of the foregoing, will, directly
or indirectly, (i) solicit, initiate, facilitate or encourage (including by way
of furnishing or disclosing non-public information) any inquiries or the making
of any proposal with respect to any merger, consolidation or other business
combination involving the Company or any Subsidiary of the Company or the
acquisition of all or any significant part of the assets or capital stock of the
Company or any Subsidiary of the Company (an "Acquisition Transaction") or (ii)
negotiate, explore or otherwise engage in discussions with any Person (other
than the Parent and its representatives) with respect to any Acquisition
Transaction, or which may reasonably be expected to lead to a proposal for an
Acquisition Transaction or enter into any agreement, arrangement or
understanding with respect to any such Acquisition Transaction or which would
require it to abandon, terminate or fail to consummate the Merger or any other
transaction contemplated by this Agreement; provided, however, that the Company
may, in response to an unsolicited written proposal from a third party regarding
a Superior Proposal (as hereinafter defined), furnish information to and engage
in discussions and negotiations with such third party, but only if the Board of
Directors of the Company determines in good faith, after consultation with its
financial advisors and based upon the written advice of Richards, Layton &
Finger or other independent Delaware counsel, that failing to take such action
would result in a breach of the fiduciary duties of such Board of Directors
under applicable Law. It is understood and agreed, without limitation of the
Company's obligations, that any violation of this Section 3.4 by any director,
officer, Affiliate, investment banker, financial advisor, attorney or other
advisor or representative of the Company or any Subsidiary of the Company,
whether or not such Person is purporting to act on behalf of the Company or any
other Subsidiary of the Company, or otherwise, shall be deemed to be a breach of
this Section 3.4 by the Company.
(b) The Company agrees that, as of the date hereof, it, its Subsidiaries
and Affiliates, and the respective directors, officers, employees, agents and
representatives of the foregoing, shall immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any Person
(other than the Parent and its representatives) conducted heretofore with
respect to any Acquisition Transaction. The Company agrees to promptly advise
the Parent in writing of the existence of (x) any inquiries or proposals (or
desire to make a proposal) received by (or indicated to), any such information
requested from, or any negotiations or discussions sought to be initiated or
continued with, the Company, its Subsidiaries or Affiliates, or any of the
respective directors, officers, employees, agents or representatives of the
foregoing, in each case from a Person (other than the Parent and its
representatives) with respect to an Acquisition Transaction, and (y) the terms
thereof, including the identity of such third party and the terms of any
financing arrangement or commitment in connection with such Acquisition
Transaction, and to update on an ongoing basis or upon the Parent's reasonable
request, the status thereof. As used herein, "Superior Proposal" means a bona
fide, written and unsolicited proposal or offer made by any Person (or group)
(other than the Parent or any of its Subsidiaries) with respect to an
Acquisition Transaction on terms which, as determined by the Board of Directors
of the Company in good faith and in the exercise of reasonable judgment (based
on the advice of independent financial advisors and Richards, Layton & Finger or
other independent Delaware counsel), could reasonably be likely to be more
favorable to the Company and its Shareholders than the transactions contemplated
hereby.
3.5 Public Announcements. Any public announcement made by or on behalf of
either the Parent or the Company prior to the termination of this Agreement
pursuant to Article XI hereof concerning this
A-11
<PAGE> 80
Agreement, the transactions described herein or any other aspect of the dealings
heretofore had or hereafter to be had between the Company and the Parent and
their respective Affiliates must first be approved by the other party (any such
approval not to be unreasonably withheld), subject to either party's obligations
under applicable Law as a public company (but such party shall use its best
efforts to consult with the other party as to all such public announcements).
3.6 Confidentiality Agreement. The Company and the Parent agree that the
Confidentiality Agreement entered into between the Company and the Parent, dated
August 22, 1995, remains in effect, but shall at the Effective Time be deemed to
have terminated without further action by the parties.
3.7 Equity Proxy. Equity hereby agrees that during the period commencing on
the date hereof and continuing until the first to occur of (i) the Effective
Time or (ii) termination of this Agreement in accordance with its terms, at any
meeting (whether annual or special and whether or not an adjourned or postponed
meeting) of the holders of CFI Stock, however called, or in connection with any
written consent of the holders of CFI Stock, Equity shall vote (or cause to be
voted) the shares of CFI Stock held of record or beneficially owned by Equity or
its Affiliates (i) in favor of the Merger, the execution and delivery by the
Company of this Agreement and the approval and adoption of the terms thereof and
each of the other actions provided for in this Agreement and any actions
required in furtherance thereof and hereof; (ii) against any action or agreement
that would result in a breach in any respect of any covenant, representation or
warranty or any other obligation or agreement of the Company under this
Agreement; and (iii) except as otherwise agreed to in writing in advance by the
Parent, against the following actions (other than the Merger and the
transactions contemplated by this Agreement): (A) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or its Subsidiaries; (B) any sale, lease or transfer of a
material amount of assets of the Company or its Subsidiaries, or a
reorganization, restructuring, recapitalization, special dividend, dissolution
or liquidation of the Company or its Subsidiaries; or (C)(1) any change in a
majority of the persons who constitute the board of directors of the Company;
(2) any change in the present capitalization of the Company including any
proposal to sell a substantial equity interest in the Company and its
Subsidiaries; (3) any amendment of the Company's certificate of incorporation or
by-laws; (4) any other change in the Company's corporate structure or business;
or (5) any other action which, in the case of each of the matters referred to in
clauses (C)(1), (2), (3) or (4) is intended, or could reasonably be expected, to
impede, interfere with, delay, postpone, or materially adversely affect the
Merger and the transactions contemplated by this Agreement. Equity shall not
enter into any agreement or understanding with any Person the effect of which
would be inconsistent or violative of the provisions and agreements contained in
this Section 3.7.
3.8 Closing Deliveries. The Company and the Parent each covenants with the
other that, provided the conditions precedent for its benefit as set forth in
Articles VII and VIII, respectively, are satisfied as therein provided, it shall
make the deliveries provided for in Section 7.7 (as to the Company) and Section
8.4 (as to the Parent).
3.9 Equity Obligations. The Parent hereby acknowledges and agrees that the
only obligations of Equity under this Agreement or in connection herewith or the
Merger are as set forth in Section 3.7 and Article X.
3.10 The CFI Industries, Inc. Form Your Future Plan. The Company hereby
agrees to suspend and discontinue the operation of The CFI Industries, Inc. Form
Your Future Plan on and as of July 1, 1996, immediately after giving effect to
the issuance of shares of CFI Stock pursuant to payroll deductions which have
accrued under such plan up to and as of such date.
3.11 Regulatory and Other Approvals.
(a) Subject to the terms and conditions herein provided, CFI will (i) take
all reasonable steps necessary or desirable, and proceed diligently and in good
faith and use all reasonable efforts to obtain all approvals required by any
Contract to consummate the transactions contemplated hereby, (ii) take all
reasonable steps necessary or desirable, and proceed diligently and in good
faith and use all reasonable efforts to obtain all approvals, authorizations,
and clearances of governmental and regulatory authorities required of CFI to
permit CFI to consummate the transactions contemplated hereby, (iii) provide
such other information and
A-12
<PAGE> 81
communications to such governmental and regulatory authorities as such
authorities may reasonably request, and (iv) cooperate with Parent in obtaining
all approvals, authorizations, and clearances of governmental or regulatory
authorities and others required of Parent to consummate the transactions
contemplated hereby.
(b) CFI and Parent will (i) take all reasonable actions necessary to file
as soon as practicable (which shall in any case be filed prior to expiration of
the period set forth in Section 7.12), notifications under the HSR Act, (ii)
comply at the earliest practicable date with any request for additional
information received from the Federal Trade Commission or Antitrust Division of
the Department of Justice pursuant to the HSR Act, and (iii) request early
termination of the applicable waiting period.
3.12 Rights with respect to Assistance of Company Counsel; Access to
Certain Books and Records.
(a) For a period of five years following the Closing Date, Rosenberg &
Liebentritt, P.C., having been legal counsel to the Company prior to the
Closing, shall provide consultation and assistance at no charge to the Surviving
Corporation with respect to any and all claims, actions, proceedings,
liabilities, damages, deficiencies, costs and expenses that the Surviving
Corporation may suffer, sustain, incur or become subject to arising out of, in
connection with or due to any discontinued operations or businesses of CFI;
provided, however, that the Surviving Corporation shall promptly reimburse
Rosenberg & Liebentritt, P.C. for all out-of-pocket expenses incurred in
connection with its provision of such assistance.
(b) From and after the Closing, (i) the Surviving Corporation shall have
full access during normal business hours to any and all books, records, files
and documents (including internal memoranda) relating to CFI which are under the
control or in the possession of Rosenberg & Liebentritt, P.C. and (ii) Rosenberg
& Liebentritt, P.C. shall not destroy or dispose of any such books, records,
files and documents (including internal memoranda) without first granting to the
Surviving Corporation the right to take possession thereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Parent and Acquisition on
the date of this Agreement that:
4.1 Organization; Business.
(a) Organization. Each of the Company, CFI Recycling, Inc., Plastofilm and
Plastofilm Limited is a corporation duly and validly organized and existing
under the Laws of the State of Delaware (or Northern Ireland in the case of
Plastofilm Limited) and each is qualified to do business as a foreign
corporation and is in good standing in the Existing Corporate Jurisdictions as
indicated on Schedule 1.24 of the Disclosure Schedule. The Existing Corporate
Jurisdictions (as applicable) constitute all jurisdictions where the ownership
or leasing of property or the conduct of its business requires qualification as
a foreign corporation by CFI and where the failure to so qualify would have a
Material Adverse Effect.
(b) Powers. Each of the Company, CFI Recycling, Inc., Plastofilm and
Plastofilm Limited has all requisite corporate power and authority to carry on
its business as it is now conducted and to own, lease and operate its assets and
properties unless the absence of same would not have a Material Adverse Effect.
(c) Business. The only operating business conducted by the Company and its
Subsidiaries is conducted by Plastofilm and Plastofilm Limited.
(d) Certificate; Bylaws. Copies of the Certificate of Incorporation and
Bylaws of each of the Company, CFI Recycling, Inc., Plastofilm and Plastofilm
Limited (the "CFI Charter Documents"), as amended to date and certified by the
Secretary of each such entity, respectively, as of the date of delivery of the
Disclosure Schedule, are included as Schedule 4.1(d) of the Disclosure Schedule
and such copies are complete and correct copies of such documents as then in
effect. Neither the Company, CFI Recycling, Inc., Plastofilm nor Plastofilm
Limited is in violation of any provision of its Certificate of Incorporation,
By-laws or equivalent organizational documents.
A-13
<PAGE> 82
4.2 Capitalization.
(a) Capital Stock. The entire authorized capital stock of the Company
consists of 10,000,000 shares of common stock, $1.00 par value, of which
1,999,979 shares are issued and outstanding as of the date hereof, 1,000,000
shares of preferred stock, no par value, of which no shares are issued and
outstanding. No shares are held by the Company as treasury shares and 371,000
shares are covered by the Existing Options.
(b) Issuance; Ownership. All of the outstanding capital stock of the
Company is duly authorized, validly issued, fully paid and nonassessable and was
not issued in violation of any preemptive rights. Except for the Existing
Options and issuances of CFI Stock pursuant to Section 4 of The CFI Industries,
Inc. Form Your Future Plan: there are no options, warrants, conversion rights or
other rights to subscribe for or purchase, or other contracts with respect to,
any capital stock of the Company, CFI Recycling, Inc., Plastofilm or Plastofilm
Limited, and there are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with respect to the Company or
its Subsidiaries. Except as set forth in this Agreement, to the knowledge of the
Company, there are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of CFI.
4.3 Authorization; Enforceability.
(a) The execution, delivery and performance of this Agreement and, subject
to the provisions hereof, all of the documents and instruments required by this
Agreement to be executed and delivered by the Company, are within the corporate
power and authority of the Company and, subject to the provisions hereof, have
been duly authorized by the Board of Directors of the Company. Except for the
approval of the Shareholders as required by Law and the CFI Charter Documents
and described in Section 4.28 hereof, no other corporate proceeding or action on
the part of the Company is necessary to authorize the execution and delivery by
the Company of this Agreement and the consummation by it of the transactions
contemplated hereby. This Agreement is, and the other documents and instruments
required by this Agreement to be executed and delivered by the Company will be,
when executed and delivered by the Company, the valid and binding obligations of
the Company, enforceable against the Company in accordance with their respective
terms, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar Laws generally
affecting the rights of creditors and subject to general equity principles.
(b) Prior to execution and delivery of this Agreement, the Board of
Directors of the Company has (at a meeting duly called and held) unanimously (i)
approved this Agreement and the Merger and the other transactions contemplated
hereby and thereby, and such approval is sufficient to render the provisions of
Section 203 of the GCL inapplicable to the Merger, Equity's obligations
hereunder or any other transactions contemplated hereby, (ii) determined that
the transactions contemplated hereby are fair to and in the best interests of
the holders of the CFI Stock and (iii) determined to recommend this Agreement,
the Merger and the other transactions contemplated hereby to such holders for
approval and adoption.
4.4 No Violation or Conflict. Subject to the receipt of the approvals and
consents, if any, described in Section 8.5 of this Agreement, the execution and
delivery of this Agreement and all documents and instruments required by this
Agreement to be executed and delivered by the Company do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, (i) result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any Contract or to the loss of a
material benefit under any Contract, or result in the creation of any Lien upon
any of the properties or assets of CFI, (ii) conflict or result in any violation
of any provision of the Certificate of Incorporation or By-Laws or other
equivalent organizational document, in each case as amended, of CFI, (iii)
violate any Existing Permits or any Law applicable to CFI or any of their
respective properties or assets, other than, in the case of clauses (i) and
(iii), any such violations, defaults, rights, losses or Liens that, individually
or in the aggregate, would not have a Material Adverse Effect or would not
affect adversely the ability of CFI to consummate the Merger and the other
transactions contemplated by this Agreement.
4.5 Title to Assets. All of the real property, owned or leased by CFI is
accurately described in Schedule 1.45 of the Disclosure Schedule. CFI owns fee
simple or valid leasehold (as the case may be) title to
A-14
<PAGE> 83
the Real Estate and has valid title to its other tangible assets and properties
which it owns, free and clear of
any and all Liens, except for the Existing Liens and the Permitted Liens.
4.6 Litigation. Except for the Existing Litigation: (a) there are no
actions, suits, claims, worker's com pensation claims, litigation or other
governmental or judicial proceedings or investigations, arbitrations and product
warranty claims against CFI or any of its or their properties, assets or
business, or, to the knowledge of the Company and if and to the extent CFI is,
through indemnity or otherwise, liable therefor, any of CFI's current or former
directors or officers or any other Person whom CFI has agreed to indemnify, as
such, that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect; (b) there are no such actions, suits or
proceedings pending or, to the knowledge of the Company, threatened, against any
one or more of CFI or Equity by any Person which question the legality, validity
or propriety of the transactions contemplated by this Agreement; and (c) there
are no outstanding orders, judgments, injunctions, awards or decrees of any
Governmental Entity against CFI, any of its or their properties, assets or
business, or, to the knowledge of the Company, any of CFI's current or former
directors or officers or any other person whom CFI has agreed to indemnify, as
such, that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
4.7 Books and Records; CFI Financial Statements.
(a) Audited CFI Financial Statements. A true and correct copy of each CFI
Financial Statement is included in the Disclosure Schedule. The CFI Financial
Statements comply in all material respects with the applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles (except, in the case of the unaudited statements, for normal year-end
adjustments and lack of footnotes) applied on a consistent basis by CFI during
the periods involved (except as may be indicated therein or in the notes
thereto). The audited CFI Financial Statements fairly present in all material
respects the financial position of CFI as of the date set forth on each of such
CFI Financial Statements and the results of operations of CFI for the periods
indicated on each of the CFI Financial Statements.
(b) Unaudited CFI Financial Statements. Those CFI Financial Statements
which are unaudited fairly present in all material respects the financial
position of CFI as of the date set forth on each of such CFI Financial
Statements and the results of operations and cash flows of CFI for the periods
indicated on each of such CFI Financial Statements in accordance with generally
accepted accounting principles consistently applied by CFI except that such CFI
Financial Statements do not reflect normal year-end adjustments and do not
contain footnotes.
(c) Monthly Financial Statements. The monthly financial statements which
have been delivered to the Parent or will be delivered to the Parent by the
Company pursuant to Section 3.3(b) of this Agreement fairly present in all
material respects, or when delivered will fairly present in all material
respects, the financial position of CFI as of the date set forth on each such
statement and the results of operations of CFI for the periods indicated on each
such statement in accordance with generally accepted accounting principles
consistently applied by CFI except for normal year-end adjustments and the lack
of footnotes.
(d) Corporate Records. The minute books of the Company, CFI Recycling,
Inc., Plastofilm and Plastofilm Limited contain correct and complete records of
all actions taken by the shareholders and the Board of Directors (including
committees of the Board) of such entities, respectively (except where the
failure to record any such action would not have a Material Adverse Effect),
and, to the knowledge of the Company, all signatures contained therein are the
true signatures of the Persons whose signatures they purport to be. For all
matters since January 1, 1991, the share transfer books of CFI are true,
correct, complete and current in all material respects.
(e) Accounting Records. The accounting books and records of CFI: (i) are in
all material respects correct and complete; (ii) are current in a manner
consistent with past practice; and (iii) to the knowledge of the Company, have
recorded therein all the properties, assets and liabilities of CFI (except where
the failure to so record would not violate generally accepted accounting
principles as consistently applied by CFI).
A-15
<PAGE> 84
(f) Existing Bank Accounts. The Disclosure Schedule includes a list of each
Existing Bank Account and all authorized signatories thereon.
4.8 Absence of Certain Changes.
(a) Except as set forth in Schedule 4.8 of the Disclosure Schedule, to the
knowledge of the Company, since June 30, 1995 there has not been any:
(i) Material Adverse Effect;
(ii) transactions by CFI outside the ordinary course of business of
CFI, except for the transactions contemplated by this Agreement;
(iii) bonus or incentive compensation paid or accrued by CFI;
(iv) declaration or payment of any dividend or any distribution in
respect of the capital stock of the Company or any direct or indirect
redemption, purchase or other acquisition of any such stock by the Company;
or
(v) payments or distributions, other than normal salaries, to the
Shareholders as such or, except for transactions in the ordinary course of
business upon commercially reasonable terms of CFI, any Affiliate of CFI.
(b) Except as set forth in Schedule 4.8 of the Disclosure Schedule, without
limiting the generality of the foregoing, since December 31, 1995:
(i) CFI has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, other than for a fair consideration in the
ordinary course of business and other than the disposition of obsolete or
unusable property;
(ii) CFI has not entered into any Contract (other than purchase and
sales orders in the ordinary course of business in accordance with past
practice) either involving more than $20,000 or outside the ordinary course
of business;
(iii) no party (including CFI) has accelerated, terminated, modified
in any material respect, or cancelled any Contract (other than purchase and
sales orders in the ordinary course of business in accordance with past
practice) involving more than $20,000 to which CFI is a party or by which
any of them is bound;
(iv) CFI has not made any capital expenditure (or series of related
capital expenditures) either involving more than $50,000 (unless such
expenditure is identified in the current business plan of Plastofilm as
disclosed to Parent) or outside the ordinary course of business;
(v) CFI has not delayed or postponed the payment of accounts payable
and other liabilities outside the ordinary course of business;
(vi) CFI has not cancelled, compromised, waived, or released any right
or claim (or series of related rights and claims) not covered by the
reserves or accruals relating to such claim in the CFI Financial Statements
either involving more than $20,000 or outside the ordinary course of
business;
(vii) CFI has not granted any license or sublicense of any rights
under or with respect to any Intangible Assets;
(viii) CFI has not experienced any material damage, destruction, or
loss (whether or not covered by insurance) from fire or other casualty to
its tangible property;
(ix) CFI has not made any loan to, or entered into any other
transaction with, any of its Affiliates, directors, officers, and employees
outside the ordinary course of business;
(x) CFI has not materially increased the base salary of any officer or
employee of CFI, or adopted, amended, modified, or terminated any bonus,
profit-sharing, incentive, severance, or other similar plan for the benefit
of any of its directors, officers or employees; and
A-16
<PAGE> 85
(xi) CFI has not entered into a binding commitment to any of the
foregoing.
4.9 Buildings and Equipment. Except as set forth in Schedule 4.9 of the
Disclosure Schedule: CFI has not received any written notice from any
governmental authority that any of the Buildings or Equipment fail to comply
with any applicable building and zoning or other similar Laws in effect at the
date hereof which notice is still outstanding; and the continuation of the CFI
Business as currently conducted will not result in the enforcement or the threat
of enforcement of any such Laws, except where such enforcement or threat of
enforcement would not result in a Material Adverse Effect. The Buildings and
Equipment are substantially in working condition for property of its type and
age, subject to ordinary wear and tear.
4.10 Existing Contracts. The Existing Contracts are the only Contracts
which constitute:
(a) a lease of, or agreement to purchase or sell, any capital assets
accounted for as such by CFI in the ordinary course of business;
(b) any union labor contract;
(c) any management, consulting, employment, personal service, agency or
other contracts or contracts providing for employment or rendition of personal
services and which: (i) are in writing or oral and create other than an at will
employment relationship; or (ii) provide for any commission, bonus, profit
sharing, incentive, retirement or similar compensation for personal services;
(d) any agreement or note evidencing any Indebtedness or any guaranty of
performance of another Person;
(e) an agreement with a dealer, distributor, sales agent or representative
or franchisee;
(f) an agreement for the storage, transportation, treatment or disposal of
any Hazardous Material;
(g) a power of attorney (whether revocable or irrevocable) given to any
Person by CFI that is in force;
(h) an agreement in effect at the date hereof which purports to limit in
any respect the manner in which, or the localities in which, CFI or any other
entity is entitled to conduct all or any portion of its business;
(i) an agreement restricting the right of CFI to use or disclose any
material information in its possession;
(j) a partnership, joint venture or similar arrangement;
(k) any agreement which cannot be terminated without a penalty or requiring
more than 60 days prior notice;
(l) an agreement or arrangement with any Affiliate;
(m) any agreement by which CFI indemnifies or holds harmless any other
Person;
(n) any agreement pursuant to which a rebate, discount, bonus, commission
or other payment with respect to the sale of any product of CFI is not shown in
the CFI Financial Statements and will be payable after the Effective Time;
(o) any agreement containing "change in control," "antitakeover" or similar
provisions;
(p) any lease of real or personal property; or
(q) any other agreement (other than purchase and sales orders in the
ordinary course of business in accordance with past practice) which involves
annual payments to or from CFI of an amount in excess of $25,000.
4.11 Performance of Contracts. Each of the Existing Contracts is in full
force and effect and constitutes the legal and binding obligation of CFI and, to
the knowledge of the Company, constitutes the legal and binding obligation of
the other parties thereto. There are no existing breaches or defaults by CFI or,
to the knowledge of the Company, any other party to an Existing Contract under
any Existing Contract the effect of which would constitute a Material Adverse
Effect and, to the knowledge of the Company, no event has
A-17
<PAGE> 86
occurred which, with the passage of time or the giving of notice or both, could
reasonably be expected to constitute such a breach or default.
4.12 Existing Insurance Policies. All of the Existing Insurance Policies
are listed in the Disclosure Schedule. The Existing Insurance Policies
constitute all insurance coverage owned by CFI and, to the knowledge of the
Company, are in full force and effect and CFI has not received notice of any
cancellation or threat of cancellation of such insurance. The Disclosure
Schedule sets forth all property damage, personal injury or products liability
claims which have been made since January 1, 1993 or are pending against CFI or,
to the knowledge of the Company, are threatened against CFI. Within the past two
(2) years, no insurance company has canceled any insurance (of any type)
maintained by CFI.
4.13 Employee Benefit Plans.
(a) Existing Plans. Except for the Existing Plans and as otherwise
disclosed on the Disclosure Schedule, neither CFI nor any Company ERISA
Affiliate (defined below) maintains or contributes to, nor is it bound by, nor
has it maintained or contributed to at any time during the six (6) years prior
to the date hereof any Employee Benefit Plan. All of the Existing Plans that are
subject to ERISA or the Code are in compliance in all material respects with
ERISA and the Code. All of the Existing Plans which are intended to meet the
requirements of Section 401(a) of the Code have been determined by the Internal
Revenue Service to be "qualified" within the meaning of the Code or have been
filed with the Internal Revenue Service with a request for a determination
letter on or prior to the end of the applicable remedial amendment period and,
to the knowledge of the Company, there are no facts which would adversely affect
the tax qualified status of any of the Existing Plans. "Company ERISA Affiliate"
shall mean any Person which together with CFI would be deemed a "single
employer" within the meaning of Section 4001 of ERISA.
(b) ERISA; Code. There is no accumulated funding deficiency, within the
meaning of Section 302 of ERISA or Section 412 of the Code, in connection with
the Existing Plans. No reportable event, as defined in ERISA (other than
reportable events for which the 30-day notice requirement has been waived), has
occurred in connection with the Existing Plans. The Existing Plans have not, nor
has any trustee or administrator with respect to the Existing Plans, engaged in
any prohibited transaction as defined in ERISA or the Code. Except as set forth
in the Disclosure Schedule, neither CFI nor a Company ERISA Affiliate is
contributing to, and nor has it contributed to since January 1, 1974, any
multi-employer plan, as defined in ERISA.
(c) Compliance. Neither the Company nor any Company ERISA Affiliate has
incurred, directly or indirectly, any material liability to or on account of an
Existing Plan pursuant to Title IV of ERISA; no proceedings have been instituted
to terminate any Existing Plan that is subject to Title IV of ERISA; and, to the
knowledge of the Company, no condition exists that presents a material risk to
the Company or any Company ERISA Affiliate of incurring a liability to or on
account of a Existing Plan pursuant to Title IV of ERISA.
(d) Funding. The current value of the assets of each of the Existing Plans
that is subject to Title IV of ERISA exceeds the present value of the accrued
benefits under each such Existing Plan, based upon the actuarial assumptions (to
the extent reasonable) presently used for funding purposes in the most recent
actuarial report prepared by such Existing Plan's actuary with respect to such
Existing Plan; and all contributions or other amounts payable by CFI as of the
Effective Time with respect to each Existing Plan in respect of current or prior
plan years have been either paid or accrued on the balance sheet of the Company.
There are no material pending or, to the knowledge of the Company, threatened or
anticipated claims (other than routine claims for benefits) by, on behalf of or
against any of the Existing Plans or any trusts related thereto.
(e) Other Plan Obligations. To the knowledge of the Company, neither CFI
nor any Company ERISA Affiliate, nor any Existing Plan, nor any trust created
thereunder, nor any trustee or administrator thereof has engaged in a
transaction in connection with which CFI or any Company ERISA Affiliate, any
Existing Plan, any such trust, or any trustee or administrator thereof, or any
party dealing with any Existing Plan or any such trust could be subject to
either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a
tax imposed pursuant to Section 4975 or 4976 of the Code. No Existing Plan
provides death or medical benefits
A-18
<PAGE> 87
(whether or not insured), with respect to current or former employees of CFI or
any Company ERISA Affiliate beyond their retirement or other termination of
service other than (i) coverage mandated by applicable Law or (ii) death
benefits under any "employee pension plan," as that term is defined in Section
3(2) of ERISA.
4.14 Brokers. Except as set forth in Schedule 4.14 of the Disclosure
Schedule, CFI has not incurred any brokers', finders' or any similar fee in
connection with the transactions contemplated by this Agreement.
4.15 Taxes.
(a) Tax Returns. For all years for which the applicable statutory period of
limitation has not expired, CFI has timely and properly filed, and will through
the Closing Date timely and properly file, all federal, state, local and foreign
tax returns (including but not limited to income, franchise, sales, payroll,
employee withholding and social security and unemployment) which were or will be
required to be filed. CFI has paid all taxes (including interest and penalties)
and withholding amounts owed by CFI. No tax deficiencies have been proposed or
assessed against CFI. To the knowledge of the Company, no issue has been raised
in any prior tax audit of CFI which, by application of the same or similar
principles, could reasonably be expected upon a future tax audit of CFI to
result in a proposed deficiency for any period. CFI has filed a consolidated
Federal income tax return since June 28, 1992 that includes no other members
other than the members listed on Schedule 4.15. CFI is not liable for any taxes
attributable to any other Person, whether by reason of being a member of another
affiliated group, being a party to a tax sharing agreement, as a transferee or
successor, or otherwise.
(b) Audits. CFI has not consented to any extension of the statute of
limitation with respect to any open federal, state or local tax returns.
(c) Liens. There are no tax Liens upon any property or assets of CFI except
for Liens for current taxes not yet due and payable.
(d) Deliveries. As soon as practicable after the date of this Agreement,
the Company will deliver to the Parent correct and complete copies of all tax
returns and reports of CFI filed for all periods not barred by the applicable
statute of limitations through the Effective Time. No examination or audit of
any tax return or report for any period not barred by the applicable statute of
limitations has occurred, no such examination is in progress and, to the
knowledge of the Company, no such examination or audit is planned.
(e) Withholding Taxes. CFI has properly withheld and timely paid all
withholding and employment taxes which it was required to withhold and pay
relating to salaries, compensation and other amounts heretofore paid to its
employees or other Persons. All Forms W-2 and 1099 required to be filed with
respect thereto have been timely and properly filed.
(f) Other Representations. CFI has not and will not make any elections
under Section 341(f) of the Code and has and will not be subject to Section 280G
of the Code.
4.16 Real Estate. The Real Estate: (a) constitutes all real property and
improvements leased or owned by CFI; and (b) is not subject to any leases,
tenancies, encumbrances or encroachments of any kind except for Existing Liens
and Permitted Liens.
4.17 Governmental Approvals. No permission, approval, determination,
consent or waiver by, or any declaration, filing or registration with, any
federal, state, local or foreign court, arbitral tribunal, administrative agency
or commission or other governmental or regulatory authority or administrative
agency (a "Governmental Entity") is required by CFI in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the Merger, except for: (a) the approvals described in Section
8.5 of this Agreement; and (b) the filing of the Certificate of Merger as
described in this Agreement.
4.18 No Pending Acquisitions. Except for this Agreement and the previously
executed confidentiality agreements set forth on Schedule 4.18 of the Disclosure
Schedule, CFI is not a party to or bound by any agreement, undertaking or
commitment with respect to an Acquisition Transaction.
A-19
<PAGE> 88
4.19 Investments. Except for the Existing Investments, CFI does not own,
and does not have any right or obligation to acquire, any Investment.
4.20 Labor Matters.
(a) Employment Claims. Except as set forth in Schedule 4.20(a) of the
Disclosure Schedule, to the knowledge of the Company, there is no present or
former employee of CFI who has any claim against CFI (whether under Law, under
any employee agreement or otherwise) on account of or for: (i) overtime pay,
other than overtime pay for the current payroll period; (ii) wages or salaries,
other than wages or salaries for the current payroll period; or (iii) vacations,
sick leave, time off or pay in lieu of vacation or time off, other than
vacation, sick leave or time off (or pay in lieu thereof) earned in the period
immediately preceding the date of this Agreement or incurred in the ordinary
course of business and appearing as a liability on the most recent CFI Financial
Statements.
(b) Labor Disputes. Except as set forth in Schedule 4.20(b) of the
Disclosure Schedule: (i) there are no pending and unresolved claims by any
Person against CFI arising out of any statute, ordinance or regulation relating
to unfair labor practices, discrimination or to employees or employee practices
or occupational or safety and health standards; (ii) there is no pending, nor
has CFI experienced since January 1, 1993 any, material labor dispute, strike or
organized work stoppage; and (iii) to the knowledge of the Company, there is no
threatened material labor dispute, strike or organized work stoppage against
CFI.
(c) NLRB Matters. Except as set forth in Schedule 4.20(c) of the Disclosure
Schedule: (i) there is not now pending any charge or complaint against CFI by or
before the National Labor Relations Board or any representative thereof, or any
comparable state agency or authority; and (ii) to the knowledge of the Company,
CFI has not committed any unfair labor practices which have not heretofore been
corrected and fully remedied.
(d) Union Matters. Except as set forth in Schedule 4.20(d) of the
Disclosure Schedule: (i) to the knowledge of the Company, no union organizing
activities are in process or have been proposed or threatened involving any
employees of CFI; and (ii) no petitions have been filed or, to the knowledge of
the Company, have been threatened or proposed to be filed, for union
organization or representation of employees of CFI not presently organized.
4.21 Indebtedness. Except for the Existing Indebtedness, CFI has no
Indebtedness involving more than $25,000.
4.22 Subsidiaries. The Company has no Subsidiaries other than CFI
Recycling, Inc., a Delaware corporation, Plastofilm Limited, a Northern Ireland
corporation, and Plastofilm. Schedule 4.22 of the Disclosure Schedule sets forth
a true, correct and complete list of each Subsidiary of the Company; its
authorized, issued and outstanding capital stock or other equity interests; the
percentage of such capital stock or other equity interests owned by the Company
or its Subsidiary, and the identity of such owner; the capital stock or other
equity interests held in its treasury; the capital stock reserved for future
issuance pursuant to outstanding options or other agreements; and the identity
of all parties to any such option or other agreement. Each Subsidiary of the
Company is a corporation or partnership duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization. All of the outstanding shares of capital stock or other ownership
interests in each of the Subsidiaries of the Company are duly authorized,
validly issued, and are fully paid, nonassessable and, except as set forth in
Schedule 4.22 of the Disclosure Schedule, are owned by the Company or another
Subsidiary of the Company free and clear of all Liens, and are not subject to
preemptive rights created by contract, such Subsidiary's respective Certificate
of Incorporation or By-laws or equivalent organizational documents or any
agreement to which such Subsidiary is a party or by which such Subsidiary is
bound.
4.23 Existing Permits and Violations of Law. The Existing Permits
constitute all licenses, permits, approvals, exemptions, orders, approvals,
franchises, qualifications, permissions, agreements and governmental
authorizations required by Law which CFI currently has and is required to have
for the conduct of the business of CFI as currently conducted, except where the
failure to have the same would not have a Material Adverse Effect. No action or
proceeding is pending or, to the knowledge of the Company, threatened that has
A-20
<PAGE> 89
a reasonable possibility of resulting in a revocation, non-renewal, termination,
suspension or other material impairment of any material Existing Permits. The
business of CFI is not being conducted in violation of any applicable Law,
except for such violations which would not have a Material Adverse Effect. No
Governmental Entity has indicated to the Company an intention to conduct an
investigation or review with respect to CFI other than, in each case, those
which would not have a Material Adverse Effect.
4.24 Unemployment Compensation. CFI has made all required payments to its
unemployment compensation reserve accounts with the appropriate governmental
departments. Except as set forth in the Disclosure Schedule, all such
unemployment compensation accounts have positive balances and there are no
former employees receiving unemployment compensation benefits which are being
currently charged against any of such accounts.
4.25 Intangible Assets.
(a) Existing Intangible Assets. Schedule 1.27 of the Disclosure Schedule
sets forth or identifies: (i) all material common law trademarks, service marks,
tradenames, slogans and logos which are used by CFI in the conduct of its
business; (ii) information concerning all trademark registrations, service mark
registrations and pending applications for the same held by CFI; (iii)
information concerning all United States and foreign patents and pending patent
applications held by CFI; (iv) information concerning all copyrights and pending
applications for the same held by CFI; and (v) all written licenses to CFI of
rights in any material Intangible Assets.
(b) Claims. Except as set forth in Schedule 4.25(b) of the Disclosure
Schedule: (i) there are no claims, demands or proceedings instituted, pending
or, to the knowledge of the Company, threatened by any Person contesting or
challenging the right of CFI to use any of the Existing Intangible Assets; (ii)
each trademark registration, service mark registration, copyright registration
and patent identified in Schedule 1.27 of the Disclosure Schedule exists, is
owned by or licensed to CFI and, with respect to those owned by CFI, has been
maintained in good standing and, with respect to those licensed to CFI, to the
Company's knowledge, has been maintained in good standing; (iii) there are no
Intangible Assets owned by a Person which CFI is using without license to do so,
except where the failure to possess such license could not reasonably be
expected to have a Material Adverse Effect; (iv) CFI owns or possesses adequate
licenses or other rights to use all Intangible Assets necessary to conduct its
business as now conducted, except where the failure to possess such licenses
could not reasonably be expected to have a Material Adverse Effect; and (v) the
consummation of the Merger and the transactions contemplated by this Agreement
will not impair the validity, enforceability, ownership or right of CFI to use
the Existing Intangible Assets.
4.26 Customers and Suppliers. Except as set forth in the Disclosure
Schedule, since December 31, 1995 there has been no termination, cancellation or
material curtailment of the business relationship of CFI with any customer or
supplier or group of affiliated customers or suppliers whose purchases from or
sales to CFI, individually or in the aggregate, constituted more than $1,000,000
of the sales or inventory, respectively, of CFI for the twelve month period
ended December 31, 1995, nor, to the knowledge of the Company, any notice of
intent to so terminate, cancel or materially curtail.
4.27 Environmental Protection.
(a) Definitions. As used in this Agreement:
(i) "Environmental Claim" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, Liens investigations, proceedings or notices of noncompliance or
violation (written or oral) by any Person alleging liability (including,
without limitation, liability for enforcement, investigatory costs, cleanup
costs, governmental response costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from: (A) the presence or
environmental release of any Hazardous Materials at any parcel of real
property; or (B) circumstances forming the basis of any violation or
alleged violation, of any Environmental Law; or (C) any and all claims by
any Person seeking damages, contribution, indemnification, cost, recovery,
compensation or injunctive relief resulting from the presence or
Environmental Release of any Hazardous Materials.
A-21
<PAGE> 90
(ii) "Hazardous Materials" shall mean: (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, and transformers or
other equipment that contain dielectric fluid containing polychlorinated
biphenyls ("PCBs") above regulated levels and radon gas; and (B) any
chemicals, materials or substances which are now defined as or included in
the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "toxic pollutants," or words of similar import, under
any Environmental Law; and (C) any other chemical, material, substance or
waste, exposure to which is now prohibited, limited or regulated by any
governmental authority.
(iii) "Environmental Laws" shall mean any federal, state, local or
foreign statute, Law, rule, ordinance, code, policy, rule of common law and
regulations relating to pollution or protection of human health (excluding
OSHA) or the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata), including,
without limitation, Laws and regulations relating to Environmental Releases
or threatened Environmental Releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials.
(iv) "Environmental Release" shall mean any release, spill, emission,
leaking, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the atmosphere, soil, surface water or groundwater.
(b) Environmental Laws. Except as set forth in Schedule 4.27 of the
Disclosure Schedule, CFI: (i) is in compliance with all applicable Environmental
Laws; and (ii) has not received any communication (written or oral), from a
governmental authority or third party that alleges that CFI or any current or
former Affiliate of CFI is not in compliance with applicable Environmental Laws.
(c) Environmental Permits. Except as set forth in Schedule 4.27 of the
Disclosure Schedule, CFI has obtained all environmental, health and safety
permits and governmental authorizations (collectively, the "Environmental
Permits") required for its operations, and all such permits are in good standing
and CFI is in substantial compliance with all terms and conditions of the
Environmental Permits.
(d) Claims. Except as set forth in Schedule 4.27 of the Disclosure
Schedule, there is no Environmental Claim pending or, to the knowledge of the
Company, threatened against CFI or any current or former Affiliate of CFI (to
the extent such Environmental Claim relates to CFI) or against any Person whose
liability for any Environmental Claim CFI has retained or assumed either
contractually or by operation of Law, or against any real or personal property
or operations which CFI owns, operates, leases, manages or controls or, to the
knowledge of the Company, which CFI owned, operated, leased, managed or
controlled.
(e) Environmental Releases. Except as set forth in Schedule 4.27 of the
Disclosure Schedule, there have been no Environmental Releases of any Hazardous
Material by CFI or any current or former Affiliate of CFI on any parcel of real
property or, to the knowledge of the Company, by any Person on, beneath or
adjacent to any parcel of real property which CFI or any current or former
Affiliate of CFI owned, leased, operated, managed or controlled.
(f) CERCLA. Except as set forth in Schedule 4.27 of the Disclosure
Schedule, CFI has not received any written notice of potential liability from
any Person under or relating to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), or any similar
state or local Law.
(g) Off-Site Locations. Except as set forth in Schedule 4.27(g) of the
Disclosure Schedule, neither CFI nor any current or former Affiliate of CFI has
any liability with respect to any off-site location under CERCLA or any
comparable state or local Law and neither CFI nor any current or former
Affiliate of CFI has received any written notice from any Person with respect to
any off-site location, of potential or actual liability or a written request for
information from any Person under or relating to CERCLA or any similar state or
local Law.
A-22
<PAGE> 91
(h) Reports. The Company has delivered or otherwise made available for
inspection to Parent true, complete and correct copies and results of any
reports, studies, analyses, tests or monitoring possessed by CFI pertaining to
Hazardous Materials in, on, beneath or adjacent to any property currently or
formerly owned, operated or leased by CFI or any current or former Affiliate of
CFI, or regarding CFI's compliance with applicable Environmental Laws.
(i) Tanks. Except as set forth in Schedule 4.27(i) of the Disclosure
Schedule, the Real Estate does not contain any underground storage tanks which
contained or contain any Hazardous Material.
4.28 Vote Required. Pursuant to the CFI Charter Documents and applicable
Laws, the affirmative vote of the holders of at least a majority of the
outstanding shares of CFI Stock is the only vote of the holders of any class or
series of capital stock or other securities of the Company necessary to approve
the Merger, this Agreement and the transactions contemplated by this Agreement.
4.29 Affiliate Transactions. Except as set forth in Schedule 4.29 of the
Disclosure Schedule: since June 30, 1995, CFI has not engaged in any transaction
with, or obtained any services or products from, any Affiliate of CFI and there
are no material Contracts or other transactions between CFI, on the one hand,
and any (i) officer or director of CFI or (ii) Affiliate of CFI, on the other
hand.
4.30 Returns. As of the date of this Agreement, to the knowledge of the
Company, there are no known claims against CFI to return in excess of $10,000
(after giving effect to and exhausting any applicable reserves and/or accruals
therefor contained in the CFI Financial Statements) of merchandise by reason of
alleged overshipments, defective merchandise or otherwise, or of merchandise in
the hands of customers under an understanding that such merchandise would be
returnable for credit. To the knowledge of the Company, there is no reasonable
basis for claims against CFI to return in excess of $10,000 (after giving effect
to and exhausting any applicable reserves and/or accruals therefor contained in
the CFI Financial Statements) if CFI's finished good inventories were sold to
the intended customer therefor.
4.31 SEC Reports. The Company has filed with the SEC, and has heretofore
made available to the Parent true and complete copies of, all forms, reports,
schedules, statements and other documents required to be filed by it and its
Subsidiaries since June 28, 1992 under the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder (collectively, the
"Exchange Act") or the Securities Act of 1933, as amended, and the rules and
regulations thereunder (collectively, the "Securities Act") (as such documents
have been amended since the time of their filing, collectively, the "Company SEC
Documents"). As of their respective dates or, if amended, as of the date of the
last such amendment, the Company SEC Documents, including, without limitation,
any financial statements or schedules included therein (a) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading and (b) complied
in all material respects with the applicable requirements of the Exchange Act
and the Securities Act, as the case may be, and the applicable rules and
regulations of the SEC thereunder.
4.32 Content of Proxy Statement and Other Filings.
(a) Neither the Proxy Statement nor any amendments thereof or supplements
thereto will, on the date the same is first mailed to the Shareholders and at
the time the CFI Special Meeting is convened, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the Company makes
no representation or warranty with respect to any information furnished to it by
the Parent or Acquisition or any of the Parent's or Acquisition's accountants,
counsel or other authorized representatives in writing specifically for
inclusion in the Proxy Statement or any amendment or supplement thereto.
(b) None of the information with respect to the Company or any Affiliate of
the Company that has been supplied by the Company or any of its accountants,
counsel or other authorized representatives in writing specifically for use in
any other filing with the SEC that may be required in connection with this
Agreement and the Merger will, at the time of such filing, contain an untrue
statement of a material fact or omit to state a
A-23
<PAGE> 92
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) The Company represents and warrants that the Proxy Statement shall
comply in all material respects with the applicable requirements of the Exchange
Act.
Except as expressly set forth in this Article IV, the Company makes no express
or implied representation or warranty of any kind whatsoever, including, without
limitation, any representation or warranty as to the condition or value of any
of the assets of CFI or the future profitability or future earnings performance
or potential of CFI. ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED. For purposes of this Agreement, the
"knowledge of the Company" or words of similar import shall be deemed to be
limited to (i) the actual knowledge of Philip Calian, Robert George, Robert
Zimmer, Doug Foos, Richard Partlow, Gary Sowden and Sheila Healy, each of whom
shall be deemed to have conducted a reasonable review with respect to matters
with respect to which such person has responsibility in his or her capacity as
an employee or officer of CFI in connection with which such term is used and
(ii) the actual knowledge of Donald Liebentritt (solely in his capacity as a
vice president of the Company). It being understood and agreed that provisions
of this Agreement calling for the knowledge of Mr. Liebentritt are not intended
to, and shall not constitute, a waiver by CFI of attorney-client privilege.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND ACQUISITION
The Parent and Acquisition represent and warrant to the Company as follows:
5.1 Due Incorporation and Authority. Each of the Parent and Acquisition is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and has all requisite corporate power
and authority to own, lease and operate its assets and business and to carry on
its business as now being and as heretofore conducted. Each of the Parent and
Acquisition has all requisite corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Merger. The execution, delivery and performance by each of the Parent and
Acquisition of this Agreement and, subject to the provisions hereof, all of the
documents and instruments required by this Agreement to be executed and
delivered by the Parent and/or Acquisition, and the consummation by Acquisition
of the Merger, have been duly authorized by all the shareholders of Acquisition
and the Board of Directors of the Parent and Acquisition as required by Law and
the organizational documents of each such entity, and no other corporate
proceedings on the part of the Parent or Acquisition will be necessary to
authorize the execution, delivery and performance by each of the Parent and
Acquisition of this Agreement, or the consummation by Acquisition and Parent of
the transactions contemplated hereby. This Agreement is (and each of the
documents and instruments required by this Agreement to be executed and
delivered by the Parent and/or Acquisition will be, when executed and delivered
by the Parent and/or Acquisition) the valid and binding obligations of the
Parent and Acquisition, as the case may be, enforceable against the Parent and
Acquisition, as the case may be, in accordance with their respective terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar Laws generally affecting the rights
of creditors and subject to general equity principles.
5.2 Consents and Approvals. The execution and delivery by each of the
Parent and Acquisition of this Agreement and all documents and instruments
required by this Agreement to be executed and delivered by the Parent and/or
Acquisition, and the performance by each of the Parent and Acquisition of its
obligations hereunder and thereunder do not require the Parent or Acquisition to
obtain any consent, approval or action of, or make any filing with or give any
notice to, any person or any governmental or regulatory body, except (i)
compliance with applicable requirements of the HSR Act and (ii) the filing and
recordation of appropriate merger documents as required by the GCL.
A-24
<PAGE> 93
5.3 No Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with the Parent and/or Acquisition, or any action taken by the
Parent and/or Acquisition.
5.4 No Violation or Conflict. Subject to the receipt of the approvals and
consents, if any, described in Section 7.8 of this Agreement, the execution,
delivery and performance by the Parent and Acquisition of this Agreement and all
documents and instruments required by this Agreement to be executed and
delivered by the Parent and/or Acquisition do not and will not conflict with or
violate any Law, the Certificate of Incorporation or Bylaws of the Parent or
Acquisition or any material contract or agreement to which the Parent or
Acquisition is a party or by which it is bound.
5.5 Litigation. There are no actions, suits or proceedings pending or, to
the knowledge of the Parent, threatened against the Parent or Acquisition or any
shareholder of the Parent, by any Person which question the validity, legality
or propriety of the transactions contemplated by this Agreement.
ARTICLE VI
CONDUCT OF BUSINESS OF CFI PENDING THE CLOSING
From and after the date of this Agreement and until the termination of this
Agreement or the Closing Date (whichever first occurs), CFI shall:
6.1 Carry on in Regular Course.
(a) Carry on its business in the usual, regular and ordinary course
substantially in the same manner as heretofore carried on; and
(b) Not (i) make payments or distributions (other than normal salaries) to
any Affiliate of CFI except for transactions in the ordinary course of business
upon commercially reasonable terms; (ii) sell, lease, transfer or assign any of
its assets, tangible or intangible, other than for a fair consideration in the
ordinary course of business and other than the disposition of obsolete or
unusable property; (iii) enter into any Contract (other than purchase and sales
orders in the ordinary course of business in accordance with past practice)
either involving more than $20,000 or outside the ordinary course of business
without the consent of the Parent (which consent shall not be unreasonably
withheld); (iv) accelerate, terminate, modify in any material respect, or cancel
any Contract (other than purchase and sales orders in the ordinary course of
business in accordance with past practice) involving more than $20,000 to which
CFI is a party or by which any of them is bound without the consent of the
Parent (which consent shall not be unreasonably withheld); (v) make any capital
expenditure (or series of related capital expenditures) either involving more
than $50,000 (unless such expenditure is identified in the current business plan
of Plastofilm as disclosed to Parent) or outside the ordinary course of
business; (vi) delay or postpone the payment of accounts payable and other
liabilities outside the ordinary course of business; (vii) cancel, compromise,
waive or release any right or claim (or series of related rights and claims) not
covered by the reserves or accruals relating to such claim in the CFI Financial
Statements either involving more than $20,000 or outside the ordinary course of
business without the consent of the Parent (which consent shall not be
unreasonably withheld); (viii) grant any license or sublicense of any rights
under or with respect to any Intangible Assets; or (ix) make any loan to, or
enter into any other transaction with, any of its Affiliates, directors,
officers and employees outside the ordinary course of business.
6.2 Use of Assets. Use, operate, maintain and repair all of its assets and
properties in a normal business manner consistent with its past practices.
6.3 Preservation of Relationships. Use commercially reasonable efforts to
preserve in all material respects its business organization intact, to retain
the services of the Employees and to conduct business with suppliers, customers,
creditors and others having business relationships with CFI in the best
interests of CFI.
A-25
<PAGE> 94
6.4 No Default. Not knowingly do any act or knowingly omit to do any act
or, to the extent within CFI's reasonable control, knowingly permit any act or
omission to act, which will cause a breach of any of the Existing Contracts that
would have a Material Adverse Effect.
6.5 Existing Insurance Policies. Use reasonable efforts to maintain all of
the Existing Insurance Policies (or policies substantially equivalent thereto)
in full force and effect.
6.6 Employment Matters. Not: (a) except as required by any Existing
Contracts or in a manner consistent with past practice, grant any increase in
the rate of pay of any of the Employees; (b) institute or amend any Employee
Benefit Plan unless required by Law; (c) enter into or modify any written
employment agreement with any Person; or (d) pay or accrue any bonus or
incentive compensation to any Person; provided, however, that notwithstanding
anything to the contrary contained herein, CFI may pay the bonuses described on
Schedule 6.6 of the Disclosure Schedule at the time consistent with past
practice.
6.7 Indebtedness; Investments. Other than in the ordinary course of
business, not create, incur or assume any Indebtedness or make any Investment.
6.8 Amendments. Not amend the CFI Charter Documents.
6.9 Dividends; Redemptions; Issuance of Stock. Not: (a) issue any
additional shares of stock of any class except pursuant to the Existing Options
or pursuant to Section 4 of The CFI Industries, Inc. Form Your Future Plan, or
grant any warrants, options or rights to subscribe for or acquire any additional
shares of stock of any class (including, without limitation, pursuant to Section
5 of The CFI Industries, Inc. Form Your Future Plan); (b) declare or pay any
dividend or make any capital, surplus or other distributions (other than normal
salaries) of any nature to the Shareholders; or (c) directly or indirectly
redeem, purchase or otherwise acquire, recapitalize or reclassify any of its
capital stock or liquidate in whole or in part.
6.10 Taxes. Timely and properly file, or timely and properly file requests
for extensions to file, all federal, state, local and foreign tax returns which
are required to be filed, and pay or make provision for the payment of all taxes
owed by it.
6.11 Representations. Not knowingly do any act or omit to do any act that
would result in a breach of any representation by the Company set forth in this
Agreement.
6.12 Releases. Use reasonable efforts to obtain releases, in substantially
the form attached as Exhibit 6 hereto, from each of the officers and directors
of CFI.
ARTICLE VII
CONDITIONS PRECEDENT FOR BENEFIT
OF THE PARENT AND ACQUISITION
The obligation of the Parent and Acquisition to consummate the Merger shall
be subject to the satisfaction prior to or at the Closing as hereinafter
provided of the following express conditions precedent:
7.1 Compliance with Agreement. As of Closing, the Company shall have
performed and complied with its obligations under this Agreement in all material
respects which are to be performed or complied with by it prior to or on the
Closing Date and as of the Effective Time of Merger.
7.2 No Litigation. No suit, action or other proceeding shall be pending in
which the consummation of the transactions contemplated by this Agreement is
restrained or enjoined or in which the relief requested is to restrain, enjoin
or prohibit the consummation of such transactions.
7.3 Representations and Warranties of the Company. The representations and
warranties made by the Company in this Agreement shall be true and correct in
all material respects on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date.
A-26
<PAGE> 95
7.4 No Material Adverse Change. During the period from the date of this
Agreement to the Closing Date, there shall not have occurred any Material
Adverse Effect that continues to exist on the Closing Date and as of the
Effective Time.
7.5 Material Damage to Assets. Between the date of this Agreement and the
Closing Date and as of the Effective Time, neither the business nor the assets
and properties of CFI taken as a whole shall have been materially adversely
affected by reason of any taking, condemnation, destruction or other physical
damage, whether or not insured against.
7.6 No Liabilities. Except for liabilities or obligations which are (i)
accrued or reserved against the CFI Financial Statements (or reflected in the
notes thereto), (ii) set forth in Schedule 7.6 of the Disclosure Schedule or
(iii) incurred in the ordinary course of business since December 31, 1995, CFI
does not have any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) which are material to CFI taken as a whole.
7.7 Deliveries at Closing. At or prior to the Closing, the Company shall
have delivered to the Parent:
(a) a copy of the Certificate of Incorporation of each of the Company and
Plastofilm, as amended to date, each certified as of a recent date by the
Secretary of State of Delaware;
(b) all corporate minute books, stock transfer books, blank stock
certificates and corporate seals of CFI;
(c) a certificate of the Secretary of State of Delaware as to the existence
and good standing of CFI, dated as of a recent date;
(d) a Certificate of the Secretary of the Company dated the Closing Date
certifying to: (i) the incumbency and signature of the officers of the Company
who have signed this Agreement and will sign all of the documents, agreements
and instruments to be executed and delivered pursuant to this Agreement; (ii)
the accuracy of a copy of the Bylaws of the Company, as amended to date,
attached thereto; (iii) the names of all officers and directors of the Company
as of 9:00 A.M. on the Closing Date; (iv) the adoption and continued effect of
resolutions by the Shareholders and Board of Directors of the Company
authorizing this Agreement and the Merger; and (v) the nonexistence of any
amendments to the Certificate of Incorporation of the Company since the date of
the certified copy thereof delivered pursuant to Section 7.7(a) of this
Agreement;
(e) a Certificate of the Secretary of Plastofilm dated the Closing Date
certifying to: (i) the accuracy of a copy of the Bylaws of Plastofilm, as
amended to date, attached thereto; (ii) the names of all officers and directors
of Plastofilm as of 9:00 A.M. on the Closing Date; and (iii) the nonexistence of
any amendments to the Certificate of Incorporation of Plastofilm since the date
of the certified copy thereof delivered pursuant to Section 7.7(a) of this
Agreement; and
(f) the following documents, each properly executed and dated the Closing
Date: (i) the CFI Closing Certificate; and (ii) the CFI Counsel Opinion.
7.8 Affiliates. All Accounts owed by an Affiliate of CFI (except
Subsidiaries of the Company) to CFI shall have been paid in full. Any Affiliate
of CFI (except Subsidiaries of the Company) who has an amount owed to it by CFI
shall be paid prior to the Effective Time and shall execute a release, dated the
date of the Closing, in a form reasonably acceptable to the Parent and
Acquisition.
7.9 Regulatory Approvals. Clearance from the appropriate agencies, pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act, as amended (the "HSR Act"),
shall have been obtained by the Company and the Parent or the waiting period
thereby required shall have expired or been terminated.
7.10 Approval of Shareholders. This Agreement, the Merger and the
transactions contemplated by this Agreement shall have received the affirmative
vote of not less than two-thirds (2/3rds) of the outstanding shares of CFI
Stock.
7.11 Dissenting Shares. As of Closing, the number of shares of the CFI
Stock which are qualified to be Dissenting Shares shall not be more than 50,000
of the outstanding shares of CFI Stock.
A-27
<PAGE> 96
7.12 Due Diligence. As of the close of business on June 19, 1996, the
Parent and Acquisition shall have completed their investigation of the financial
condition, assets, liabilities and business of CFI pursuant to Section 3.1 of
this Agreement with results satisfactory to the Parent and Acquisition in their
sole and absolute discretion. If the conditions set forth in this Section 7.12
have not been satisfied or waived by the Parent and Acquisition as of the close
of business on June 19, 1996, then the Parent shall so notify the Company by
notice received by the Company on or before the close of business on such date,
and in such event this Agreement shall terminate. If the Company does not
receive such a notice from the Parent by the close of business on June 19, 1996,
then the Parent shall be deemed to have waived the condition set forth in this
Section 7.12.
(i) the period during which the Parent and Acquisition may (A) complete its
assessment of a driveway encroachment along the west boundary line of the
Company's Wheaton, Illinois facility, (B) complete its environmental assessment
of the Company's Wheaton, Illinois facility, (C) complete its assessment of the
sales and marketing personnel of CFI and (D) complete its evaluation of the
liabilities of CFI (other than those liabilities relating solely to Plastofilm),
shall extend until the close of business on June 26, 1996; and
(ii) accordingly, with respect to the matters described in clauses (A),
(B), (C) and (D) of subsection (i) above, the Parent shall notify the Company by
notice received by the Company on or before the close of business on June 26,
1996 if the results of such investigation are not satisfactory in its sole and
absolute discretion and in such event the Merger Agreement shall terminate. If
the Company does not receive such notice by the close of business on June 26,
1996, then the Parent shall be deemed to have waived the condition set forth in
Section 7.12 as to such matters.
7.13 Resignations. All resignations from directors of the Company which
have been previously requested in writing by Acquisition shall have been
delivered to Acquisition.
ARTICLE VIII
CONDITIONS PRECEDENT FOR BENEFIT
OF THE COMPANY
The obligation of the Company to consummate the Merger shall be subject to
the satisfaction prior to or at the Closing as hereinafter provided of the
following express conditions precedent:
8.1 Compliance with Agreement. As of Closing, the Parent and Acquisition
shall have performed and complied with its obligations under this Agreement in
all material respects which are to be performed or complied with by it prior to
or on the Closing Date and as of the Effective Time of Merger.
8.2 No Litigation. No suit, action or other proceeding shall be pending in
which the consummation of the transactions contemplated by this Agreement is
restrained or enjoined or in which the relief requested is to restrain, enjoin
or prohibit the consummation of such transactions.
8.3 Representations and Warranties of the Parent and Acquisition. The
representations and warranties made by the Parent and Acquisition in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
8.4 Deliveries at Closing. The Parent shall have delivered to CFI the
following documents, each properly executed and dated the Closing Date:
(a) the Parent Closing Certificate;
(b) the Parent Counsel Opinion; and
(c) such certificates and documents of officers of the Parent and of public
officials as shall be reasonably requested by the Company to establish the
existence and good standing of the Parent and Acquisition and the due
authorization by the Parent and Acquisition of this Agreement and the
transactions contemplated by this Agreement.
A-28
<PAGE> 97
8.5 Governmental Approval. Clearance from the appropriate agencies pursuant
to the HSR Act shall have been obtained by the Company and the Parent or the
waiting period thereby required shall have expired or been terminated.
8.6 Approval of Shareholders; Certificate of Merger. This Agreement, the
Merger and the transactions contemplated by this Agreement shall have received
the affirmative vote of not less than two-thirds (2/3rds) of the outstanding
shares of CFI Stock. The Certificate of Merger shall have been executed and
filed by the Company.
8.7 Closing Payments. Acquisition shall have delivered the Exchange Fund to
the Exchange Agent and paid all amounts due to the Optionholders as required by
Section 2.15 above.
ARTICLE IX
NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
9.1 No Survival of Representations and Warranties. None of the
representations, warranties, covenants, agreements and certifications of the
Company and/or Equity and/or any officer of CFI contained herein or in the CFI
Closing Certificate or the Company's Secretary Certificate shall survive the
Effective Time, and, from and after the Effective Time, neither the Parent nor
Acquisition shall be entitled to make any claim for breach of any such
representations, warranties, covenants or certifications.
9.2 Directors' and Officers' Indemnification.
(a) Subsequent to the Effective Time, Acquisition shall cause the Surviving
Corporation to, and the Surviving Corporation shall, indemnify and hold harmless
each present and former director and officer of CFI (collectively, the
"Indemnified Parties") against all losses in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or omission in their
capacity as director or officer occurring before the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, for a period of
six years after the Closing Date, in each case to the fullest extent permitted
under applicable Law (and shall pay any expenses in advance of the final
disposition of such action or proceeding to each Indemnified Party to the
fullest extent permitted under applicable Law, upon receipt from the Indemnified
Party to whom expenses are advanced of an undertaking to repay such advances as
required under applicable Law); provided, however, that, if any claim for
indemnification is asserted or made within such six year period, all rights to
indemnification in respect of such claim shall continue until the disposition of
such claim.
(b) In the event the Surviving Corporation or any of its respective
successors or assigns (i) consolidates with or merges into any other Person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person, then, and in each such case, provision
shall be made by the Surviving Corporation so that the successors and assigns of
the Surviving Corporation shall assume the obligations set forth in this Section
9.2.
ARTICLE X
REPRESENTATIONS AND WARRANTIES OF EQUITY
Equity hereby represents and warrants to the Company that:
10.1 Organization and Qualification. Equity is a general partnership duly
and validly organized and existing and in good standing under the Laws of the
State of Illinois and has the authority to own its assets and properties and to
carry on its business.
10.2 Authorization; Enforceability. The execution, delivery and performance
of this Agreement by Equity as herein provided and all of the documents and
instruments required by this Agreement to be executed and delivered by Equity
are within the power of Equity and have been duly authorized by all necessary
partnership action by Equity. This Agreement is, and the other documents and
instruments required
A-29
<PAGE> 98
by this Agreement to be executed and delivered by Equity will be, when executed
and delivered by Equity, the valid and binding obligations of Equity,
enforceable against Equity in accordance with their respective terms, except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws generally affecting the rights of
creditors and subject to general equity principles.
10.3 No Violation or Conflict. The execution, delivery and performance of
this Agreement by Equity as herein provided do not and will not conflict with or
violate any Laws, the partnership agreement of Equity or any material Contract
or agreement to which Equity is a party or by which it is bound.
10.4 Litigation. There are no actions, suits or proceedings pending or, to
the knowledge of Equity, threatened against Equity by any Person which question
the validity, legality or propriety of the transactions contemplated by this
Agreement.
10.5 Ownership of Stock. On the date of this Agreement, Equity owns
beneficially and is the record owner of, and is entitled to vote in accordance
with applicable provisions of the Certificate of Incorporation of the Company
and GCL, 1,334,592 shares of CFI Stock. Equity agrees that it has not and shall
not pledge or otherwise encumber or transfer any shares of CFI Stock owned by it
in a manner that would prevent it from satisfying its obligations under this
Agreement.
ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated and the transactions
contemplated by this Agreement may be abandoned at any time prior to the Closing
(whether before or after the approval of this Agreement by the Shareholders), as
follows:
(i) by mutual written agreement of the Parent and the Company;
(ii) by the Parent if any one or more of the conditions to the
obligation of the Parent to close set forth in Article VII of this
Agreement shall not have been fulfilled by October 31, 1996 (except that
the Parent shall not have the right to terminate this Agreement pursuant to
this Section 11.1(ii) if the basis therefor is attributable to a breach by
the Parent of any of its obligations hereunder);
(iii) by the Company if any one or more of the conditions to the
obligation of the Company to close set forth in Article VIII of this
Agreement shall not have been fulfilled by October 31, 1996 (except that
the Company shall not have the right to terminate this Agreement pursuant
to this Section 11.1(iii) if the basis therefor is attributable to a breach
by the Company of any of its obligations hereunder);
(iv) by the Company if the Board of Directors of the Company shall
have (A) withdrawn, or modified or changed in a manner adverse to the
Parent or Acquisition its approval or recommendation of this Agreement or
the Merger in order to approve and permit the Company to execute a
definitive agreement relating to an Acquisition Transaction, and (B)
determined, after having received the written advice of Richards, Layton &
Finger or other independent Delaware counsel, that the failure to take such
action as set forth in the preceding clause (A) would result in a breach of
the Board of Directors' fiduciary duties under applicable Law; provided,
however, that the Company shall have given the Parent and Acquisition at
least thirty-six hours advance actual notice of any termination pursuant to
this Section 11.1(iv) and shall make concurrently with such termination the
$750,000 payment referred to in Section 11.3 hereof;
(v) by the Parent or the Company if this Agreement and the Merger
shall not have received the requisite approval and authorization of the
Shareholders by October 31, 1996;
(vi) at the election of the Parent or the Company, if any legal
proceeding is commenced or threatened by any governmental or regulatory
body directed against the consummation of the Closing or any transaction
contemplated by this Agreement and either the Parent or the Company, as the
case may be, reasonably and in good faith deems it impractical or
inadvisable to proceed in view of such legal proceeding or threat thereof;
A-30
<PAGE> 99
(vii) by the Parent if (A) the Board of Directors of the Company shall
have withdrawn, or modified or changed in a manner adverse to the Parent or
Acquisition its approval or recommendation of this Agreement or Merger or
shall have recommended an Acquisition Transaction or other business
combination, or the Company shall have entered into an agreement in
principle (or similar agreement) or definitive agreement providing for an
Acquisition Transaction with a Person other than Parent, Acquisition or
their Subsidiaries (or the Board of Directors of the Company resolves to do
any of the foregoing), or (B) it shall have been publicly disclosed or the
Parent or Acquisition shall have learned that any Person or "group" (as
that term is defined in Section 13(d)(3) of the Exchange Act) (an
"Acquiring Person"), other than the Parent, Acquisition or Equity, after
receiving the approval of the Board of Directors of the Company
contemplated by Section 203 of the GCL, shall have acquired beneficial
ownership (determined pursuant to Rule 13d-3 promulgated under the Exchange
Act) of more than 14.9% of any class or series of capital stock of the
Company, through the acquisition of stock, the formation of a group or
otherwise, or shall have been granted any option, right or warrant,
conditional or otherwise, to acquire beneficial ownership of more than
14.9% of any class or series of capital stock of the Company; or
(viii) by the Parent upon the failure of Equity to perform its
obligations under Section 3.7 hereof.
11.2 Rights on Termination. In the event of termination and abandonment of
the Merger by any party pursuant to Section 7.12 or 11.1, written notice thereof
shall forthwith be given to the other parties and this Agreement shall terminate
and the Merger and the other transactions contemplated hereby shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated and the transactions contemplated hereby are not
consummated pursuant to Section 7.12 or 11.1 of this Agreement, this Agreement
shall become void and of no further force and effect, except for (a) the
provisions of Section 3.1 relating to the obligation of the Parent and
Acquisition to keep confidential and not to use certain information obtained
from the Company, (b) the provisions of Section 11.3 relating to the Company's
obligations to make certain payments to the Parent and (c) the provisions of
Section 11.4 relating to the Parent's obligations to make certain payments to
the Company.
11.3 Termination Fee Payable to the Parent. Notwithstanding any provision
to the contrary contained herein, the Company shall immediately pay to the
Parent (x) the amount of $750,000.00 and (y) all out-of-pocket expenses
reasonably incurred by the Parent and Acquisition in connection with this
Agreement and the Merger in an amount not to exceed $250,000.00 (A) if this
Agreement is terminated by the Parent pursuant to: (aa) Section 11.1(ii) (for
failure of any of the conditions set forth in Section 7.7, 7.8, 7.10 or 7.13);
(bb) Section 11.1(ii) (for failure of any of the conditions set forth (1) in
Section 7.1 as a result of the Company doing any act or omitting to take any act
that would result in the Company's failure to perform or comply with in all
material respects the Company's obligations under this Agreement or (2) in
Section 7.3 as a result of the Company doing any act or omitting to take any act
with the intent that such act or omission would result in the representations
and warranties made by the Company in this Agreement being not true and correct
in all material respects on and as of the Closing Date; (cc) Section 11.1(v);
(dd) Section 11.1(vii); or (ee) Section 11.1(viii); or (B) if this Agreement is
terminated by the Company pursuant to Section 11.1(iv) above, with the $750,000
to be paid concurrently with the occurrence of the event referred to in clauses
(A) or (B) and the expense amount under clause (y) to be paid within five (5)
business days after receipt by the Company of reasonably detailed evidence of
the same. Upon receipt of such payments, the Parent shall not be entitled to and
shall waive the right to seek damages or other amounts or remedies from the
Company for breach of, or otherwise in connection with, this Agreement.
11.4 Termination Fee Payable to the Company. Notwithstanding any provision
to the contrary contained herein, the Parent shall immediately pay to the
Company (x) the amount of $750,000.00 and (y) all out-of-pocket expenses
reasonably incurred by the Company in connection with this Agreement and the
Merger in an amount not to exceed $250,000.00 if terminated pursuant to Section
11.1(iii): (aa) for failure of any of the conditions referred to in Section 8.1
or 8.3 as a result of the Parent or Acquisition knowingly doing any act or
omitting to take any act that would result in (1) the Parent's or Acquisition's
failure to perform or comply with in all material respects their respective
obligations under this Agreement or (2) the representations and warranties made
by the Parent and/or Acquisition in this Agreement being not true and correct in
all
A-31
<PAGE> 100
material respects on and as of the Closing Date); or (bb) for failure of any of
the conditions referred to in Section 8.4 or 8.7. Upon receipt of such payments,
the Company shall not be entitled to and shall waive the right to seek damages
or other amounts or remedies from the Parent or Acquisition for breach of, or
otherwise in connection with, this Agreement.
11.5 Other Remedies. Notwithstanding any provision to the contrary
contained herein, if this Agreement is terminated pursuant to Article XI or
otherwise by the Company, on the one hand, or the Parent or Acquisition, on the
other hand, and the non-terminating party is not entitled to receive the
payments described in Section 11.3 or 11.4 (as the case may be), then the
non-terminating party shall be entitled to pursue any available legal rights to
recover actual damages, including, without limitation, its reasonable costs and
expenses incurred in pursuing such recovery (including, without limitation,
reasonable attorneys' fees); provided, however, that the Parent's and
Acquisition's sole remedy for any breach by the Company of Section 4.27(b),
4.27(c), 4.27(e), 4.27(g) or 4.27(i) shall be to terminate this Agreement as
provided in Section 11.1(ii) hereof, in which event the provisions of Section
11.3 hereof shall not be applicable.
ARTICLE XII
MISCELLANEOUS
12.1 Expenses. If this Agreement and the transactions contemplated hereby
are consummated, all CFI Expenses shall be paid by the Surviving Corporation. In
the event that the CFI Expenses exceed $200,000, the aggregate Closing Per Share
Amount and the amount due to the Optionholders (as contemplated by Section 2.15
hereof) shall be reduced for all CFI Expenses paid by the Surviving Corporation
in excess of $200,000 that are identified on a written notice delivered by the
Company to the Surviving Corporation. It is presently anticipated by CFI that
the Closing Per Share Amount will be approximately $6.25 and that the amount
withheld for expenses with respect to the Existing Options as provided for in
Section 2.15 hereof will be approximately $.09 per share. If this Agreement is
not consummated, the Parent and Acquisition, on the one hand, and the Company,
on the other hand, shall bear their respective legal fees and expenses.
12.2 Entire Agreement; Amendment. This Agreement and the documents referred
to in this Agreement and required to be delivered pursuant to this Agreement
constitute the entire agreement among the parties pertaining to the subject
matter of this Agreement, and supersede all prior and contemporaneous
agreements, understandings, negotiations and discussions of the parties, whether
oral or written, and there are no warranties, representations or other
agreements between the parties in connection with the subject matter of this
Agreement, except as specifically set forth in this Agreement. No amendment,
supplement, modification, waiver or termination of this Agreement shall be
binding unless executed in writing by the party to be bound thereby. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision of this Agreement, whether or not similar, nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
12.3 Governing Law. This Agreement shall be governed and construed (i) with
respect to the Merger, in accordance with the laws of the State of Delaware and
(ii) with respect to all other transactions contemplated hereunder, in
accordance with the laws of the State of Illinois, applicable to agreements made
and to be performed entirely within such States.
12.4 Assignment. Prior to the Closing, this Agreement may not be assigned
by any party hereto, except with the prior written consent of the other parties
hereto.
12.5 Notices. All communications or notices required or permitted by this
Agreement shall be in writing and shall be deemed to have been given at the
earlier of the date personally delivered or sent by telephonic facsimile
transmission or one day after sending via nationally recognized overnight
courier or five days after deposit in the United States mail, certified or
registered mail, postage prepaid, return receipt requested, and
A-32
<PAGE> 101
addressed as follows, unless and until any of such parties notifies the others
in accordance with this Section of a change of address:
<TABLE>
<S> <C>
If to the Parent: IPC, Inc.
c/o Ivex Packaging Corporation
100 Tri-State Drive
Suite 200
Lincolnshire, Illinois 60069
Telephone: (847) 945-9100
Telecopy: (847) 945-2355
Attention: General Counsel
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker
Suite 2100
Chicago, Illinois 60606
Telephone: (312) 407-0700
Telecopy: (312) 407-0411
Attention: William R. Kunkel, Esq.
If to the Company: CFI Industries, Inc.
935 West Union Avenue
Wheaton, IL 60187
Telephone:
Fax No. (708) 668-5431
Attention: Robert W. George
with a copy to:
Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza,
Suite 1515
Chicago, IL 60606
Telephone: (312) 454-0335
Fax No. (312) 906-9225
Attention: Donald Liebentritt
If to Equity: Equity Holdings
Two North Riverside Plaza
Chicago, IL 60606
Telephone: (312) 466-3990
Fax No. (312) 454-0531
Attention: Sheli Z. Rosenberg
</TABLE>
12.6 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement. The Article and
Section headings in this Agreement are inserted for convenience of reference
only and shall not constitute a part hereof.
12.7 Interpretation. Unless the context requires otherwise, all words used
in this Agreement in the singular number shall extend to and include the plural,
all words in the plural number shall extend to and include the singular, and all
words in any gender shall extend to and include all genders.
A-33
<PAGE> 102
12.8 Severability. If any provision, clause, or part of this Agreement, or
the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected thereby unless such
invalidity materially impairs the ability of the parties to consummate the
transactions contemplated by this Agreement.
12.9 Specific Performance. The parties agree that the assets and business
of CFI as a going concern constitute unique property and, accordingly, each
party shall be entitled, at its option and in addition to any other remedies
available as herein provided, to the remedy of specific performance to effect
the Merger as provided in this Agreement.
12.10 No Reliance. Except for the parties to this Agreement: (a) no Person
is entitled to rely on any of the representations, warranties and agreements of
the parties contained in this Agreement; and (b) the parties assume no liability
to any Person because of any reliance on the representations, warranties and
agreements of the parties contained in this Agreement.
12.11 Exhibits and Schedules. The Exhibits and Schedules are a part of this
Agreement as if fully set forth herein. All references herein to Sections,
subsections, clauses, Exhibits and Schedules shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.
12.12 Tax Treatment. The parties agree that for federal and state tax
purposes they will treat the Merger as a sale of the CFI Stock by the
Shareholders to the Company.
12.13 Liability. The liability of the Parent and Acquisition under this
Agreement is joint and several, and their obligations are mutual except with
respect to the obligations of Acquisition pursuant to Section 9.2 which shall be
solely the obligations of Acquisition.
12.14 No Third Party Beneficiary. Except as provided pursuant to Section
9.2 hereof, the terms and provisions of this Agreement are intended solely for
the benefit of the parties hereto and their respective successors and assigns
and it is not the intention of the parties to confer third-party beneficiary
rights upon any other Person.
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Merger to be duly executed as of the day and year first above written.
IPC, INC. (formerly named Ivex
Packaging Corporation)
By: /s/ FRANK TANNURA
------------------------------------
PACKAGE ACQUISITION, INC.
By: /s/ FRANK TANNURA
------------------------------------
CFI INDUSTRIES, INC.
By: /s/ DONALD J. LIEBENTRITT
------------------------------------
Attest: /s/ SUSAN OBUCHOWSKI
----------------------------------
EQUITY HOLDINGS
By: /s/ SHELI Z. ROSENBERG
------------------------------------
Its Co-Trustee
A-34
<PAGE> 103
ANNEX B
SECTION 262 OF THE DGCL
Appraisal Rights. (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale
B-1
<PAGE> 104
of all or substantially all of the assets of the corporation. If the certificate
of incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation that are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Any stockholder entitled to appraisal rights may, within
twenty days after the date of mailing of such notice, demand in writing
from the surviving or resulting corporation the appraisal of such holder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identify of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only to be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive such notice, each constituent corporation may fix, in advance, a
record date that shall be not more than 10 days prior to the date the
notice is given; provided that, if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be the
effective date. If no record date is fixed and the notice is given prior to
the effective date, the record date shall be the close of business on the
next day preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the
B-2
<PAGE> 105
effective date of the merger or consolidation, any stockholder shall have the
right to withdraw his demand for appraisal and to accept the terms offered upon
the merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the requirements
of subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
B-3
<PAGE> 106
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
B-4
<PAGE> 107
ANNEX C
OPINION OF FINANCIAL ADVISOR
DUFF & PHELPS
June 14, 1996
Board of Directors
CFI Industries, Inc.
Two North Riverside Plaza
Suite 200
Chicago, IL 60606
Directors:
You have retained Duff & Phelps Capital Markets Co. ("Duff & Phelps") as
independent financial advisor to CFI Industries, Inc. ("CFI" or the "Company")
in connection with the contemplated acquisition of the Company by IPC, Inc.
(formerly IVEX Packaging Corporation, or "IVEX") in a merger (the "Proposed
Transaction") where the existing shareholders of the Company would receive cash
for their shares in an amount currently estimated to be not less than $6.20 per
share. Specifically, we have been asked to provide an opinion (the "Opinion") as
to whether the Proposed Transaction is fair, from a financial point of view, to
the shareholders of the Company. Prior to this assignment, Duff & Phelps has not
provided financial advisory services to the Company.
In conducting our analysis and arriving at our Opinion, we have reviewed
and analyzed, among other things:
1. the Agreement and Plan of Merger dated as of May 17, 1996;
2. CFI's Annual Reports and Annual Reports on Form 10-K for the three years
ended June 30, 1992 through 1995; Quarterly Reports on Form 10-Q for the
periods ended March 31, 1996, December 31, 1995 and September 30, 1995;
and unaudited income statements for CFI's major operating subsidiary,
Plastofilm Industries, Inc. ("Plastofilm") for the 11-month period ended
May, 1996 and 1995;
3. certain operating and financial information, including financial
projections, estimates of expense reductions, and expansion
opportunities for CFI provided by CFI management;
4. historical prices and trading volume of the common stock of CFI;
5. the Confidential Memorandum most recently prepared (August, 1995) in
connection with the sale of the Company;
6. a list of companies which were contacted as prospective purchasers of
CFI common stock;
7. publicly available financial data and stock market performance data of
companies which we deemed generally comparable, in whole or in part, to
CFI;
8. the terms of recent mergers and acquisitions of companies which we
deemed generally comparable, in whole or in part, to the Proposed
Transaction;
9. certain cost estimates prepared in connection with the Company's soil
remediation efforts; and
10. such other documents, financial studies and analyses deemed necessary
or appropriate by Duff & Phelps.
C-1
<PAGE> 108
Board of Directors
CFI Industries, Inc.
June 14, 1996
Page 2
As background for its analysis, Duff & Phelps held discussions with members
of the senior management of CFI and Plastofilm at corporate headquarters in
Wheaton, Illinois regarding the history, current business operations, financial
condition, future prospects and strategic objectives of CFI/Plastofilm,
supplemented by discussions with a member of the Board of Directors and a
representative of the major holder of CFI common stock who was involved in the
sale process for the Company.
In performing its analysis and rendering its Opinion, Duff & Phelps relied
upon the accuracy of all information provided to it, whether obtained from
public or private sources, and did not attempt to independently verify any such
information. We relied without independent verification upon the information
provided in connection with the process of soliciting buyers conducted on behalf
of the Company by Equity Group Investments, Inc. With respect to financial
forecasts, except as otherwise indicated by management as not indicative of
management's current expectations, we have assumed that these have been
reasonably prepared on bases reflecting the best currently available estimates
of CFI/Plastofilm management and of the expected future financial performance of
CFI. Duff & Phelps also took into account its assessment of general economic,
market and financial conditions, as well as its experience in securities and
business valuation, in general, and with respect to similar transactions, in
particular. Duff & Phelps did not make any independent appraisals of the assets
or liabilities of CFI.
Duff & Phelps has prepared its Opinion effective as of June 14, 1996. Its
Opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of such date.
Based upon and subject to the foregoing, Duff & Phelps is of the opinion
that the Proposed Transaction is fair from a financial point of view to the
shareholders of CFI Industries, Inc.
Respectfully submitted,
Duff & Phelps
Duff & Phelps Capital Markets Co.
C-2
<PAGE> 109
CFI INDUSTRIES, INC.
935 W. UNION AVENUE
WHEATON, IL 60187
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON THURSDAY, AUGUST 15, 1996
Philip C. Calian and Robert W. George, or either of them, with full power
of substitution to each, hereby are appointed proxies and are authorized to
vote, as hereinafter specified, all shares of Common Stock, $1.00 par value,
that the undersigned is entitled to vote at the Special Meeting of Stockholders
of CFI Industries, Inc. ("CFI"), to be held at 10:00 a.m., local time, on
Thursday, August 15, 1996, at Suite 2200, Two North Riverside Plaza, Chicago,
Illinois, or at any adjournment thereof.
Please mark, date and sign this proxy and return it promptly in the
accompanying business reply envelope.
THIS PROXY, IF SIGNED AND RETURNED, WILL BE VOTED AS SPECIFIED ON THE
REVERSE SIDE. IF NO SPECIFICATION IS MADE, YOUR SHARES WILL BE VOTED
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER.
IMPORTANT: PLEASE SIGN AND DATE ON THE REVERSE SIDE.
<PAGE> 110
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE
AND ADOPT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. Approve and adopt the Agreement and Plan of Merger, dated [ ] [ ] [ ]
as of May 17, 1996 and amended as of June 19, 1996 and
June 26, 1996, respectively (the "Merger Agreement", among
IPC, Inc. (formerly named Ivex Packaging Corporation), a
Delaware corporation ("IPC"), Package Acquisition, Inc., a
Delaware corporation and a wholly owned subsidiary of IPC,
the Company and Equity Holdings, an Illinois general
partnership, and the transactions contemplated thereby,
including the Merger (as defined therein).
</TABLE>
The proxies named herein will have discretion to vote upon such other
matters as may properly come before the Special Meeting.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Stockholders to be held on Thursday, August 15, 1996 and the related Proxy
Statement.
PLEASE SIGN BELOW EXACTLY AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
GIVE FULL TITLE AS SUCH. IF SIGNING IN THE NAME OF A CORPORATION OR PARTNERSHIP,
PLEASE SIGN FULL CORPORATE OR PARTNERSHIP NAME AND INDICATE TITLE OF AUTHORIZED
SIGNATORY.
Signature Dated____________
Signature Dated____________
