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
[ X ] Definitive Proxy Statement
[ X ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11 or Section 240.14a-12
CPAC, Inc.
(Name of Registrant as Specified In Its Charter)
Thomas J. Weldgen, Chief Financial Officer
(Name of Person(s) Filing Proxy Statement)
Payment of Filinig Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a6(i)(1), or 14s6(j)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a6(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:
4) Proposed maximum aggregate value of transaction:
5) Total Fee Paid:
[ X ] Fee paid previously with Preliminary Materials
[ ] 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 dtate of its filing.
(1) Amount Previously Paid:
(2) Form Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
-----------------------------------------
TO BE HELD ON DECEMBER 28, 1995
CPAC, INC.
2364 LEICESTER ROAD
LEICESTER, NEW YORK 14481
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders of CPAC,
Inc. will be held at the principal offices of the Company located at 2364
Leicester Road (Rt. 20A), Leicester, New York 14481 on Thursday, December 28,
1995 at 10:00 A.M., E.S.T. for the following purposes:
1. To approve the sale of 632,000 shares of the $.01 par value, common
stock of the Company to CPAC Investors, L.L.C., a Delaware limited liability
company, for a purchase price of $6,952,000.
2. To adjourn the Special Meeting to another date in the event a quorum
to conduct business is not present either in person or by proxy.
Accompanying this Notice is a Proxy and Proxy Statement. If you are
unable to be present in person, please sign and date the enclosed form of Proxy
and return it in the enclosed envelope which requires no postage. Only
Shareholders of record at the close of business on November 24, 1995 will be
entitled to vote at the Special Meeting and any adjournments thereof. The
prompt return of your Proxy will save the expense of further communications.
By Order of the Board of Directors
/s/ Robert Oppenheimer
-------------------------------------
Robert Oppenheimer, Secretary
DATED: December 4, 1995
PROXY STATEMENT FOR SPECIAL
---------------------------
MEETING OF SHAREHOLDERS
-----------------------
CPAC, INC.
2364 LEICESTER ROAD
LEICESTER, NEW YORK 14481
DATE OF PROXY STATEMENT: NOVEMBER 24, 1995
DATE OF MAILING: DECEMBER 4, 1995
SPECIAL MEETING OF SHAREHOLDERS: DECEMBER 28, 1995
THE ENCLOSED PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF CPAC, INC.
(HEREINAFTER THE "COMPANY"). Any Proxy given pursuant to this solicitation may
be revoked by the Shareholder at any time prior to the voting of the Proxy. The
signing of the form of Proxy will not preclude the Shareholder from attending
the Special Meeting and voting in person. Shares represented by the Proxy will
be voted in accordance with the directions of the Shareholder.
All of the expenses involved in preparing and mailing this Proxy Statement
and the material enclosed herewith will be paid by the Company. The Company
will reimburse banks, brokerage firms and other custodians, nominees and
fiduciaries for expenses reasonably incurred by them in sending Proxy material
to beneficial owners of stock.
Holders of 33 l/3% of the issued and outstanding common stock of the
Company must be present in person or by Proxy in order to establish a quorum for
conducting business at the Special Meeting. Only record holders of the common
stock at the close of business on November 24, 1995 are entitled to vote at the
Special Meeting. On that day, 5,212,364 shares of the $.01 par value common
stock of the Company were issued and outstanding. Each share is entitled to one
vote at the Special Meeting.
SHAREHOLDER PROPOSALS
- ---------------------
Shareholder proposals must be received at the Company's offices no later
than March 12, 1996 in order to be considered for inclusion in the Company's
proxy materials for the 1996 Annual Meeting.
THE PROPOSAL
------------
The Shareholders of the Company will be asked at the Special Meeting to
consider, vote upon and approve a proposal whereby the Company will sell 632,000
shares (the "Shares") of its $.01 par value common stock ("Common Stock") to
CPAC Investors L.L.C., a Delaware limited liability company ("LLC") at $11.00
per share, for an aggregate purchase price of $6,952,000 (the "Proposal").
BACKGROUND
- ----------
At the Annual Meeting of Shareholders held on August 9, 1995, management
sought and the Shareholders approved an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares of Common Stock by
5,000,000 shares to 10,000,000 shares. The Shareholders were advised that the
purpose of the increase was to permit the Company to raise equity in order to
reduce indebtedness and to have flexibility with respect to its acquisition and
other programs. Following the Annual Meeting, management explored alternative
methods to raise significant equity dollars - private placement or public
offering - for these purposes.
After consideration of such alternatives, the Company decided to proceed
with one or more negotiated placements. In early September, 1995, the Company's
investment banker presented the Company with a proposal to sell up to 1,000,000
shares of its Common Stock to the LLC at $11.00 per share. This placement was
closed on September 25, 1995. Contemporaneously with but separate from its
negotiations with respect to the 1,000,000 share placement, the Company was
negotiating with a second set of investors which had been presented to it by its
investment banker for a placement of up to 500,000 shares at $11.00 per share.
The closing for this second placement took place on October 4, 1995. The
Company reported these placements in a Form 8-K filed on October 5, 1995,
attached to this Proxy Statement as Appendix II.
The $11.00 per share price represented a discount of approximately 18.5%
from the $13.50 bid price for the Company's Common Stock (as quoted on the
National Association of Securities Dealers' Automated Quotation System for
National Market Securities ["NASDAQ/NMS"]) on the date the price for the
placements was finalized - see discussion of `Price for the Shares.''
After the two placements were completed and the public advised that the
Company had received approximately $15,482,000 (after placement costs) for
1,500,000 shares, in conjunction with its review of the Company's Form 8-K
reporting both placements, the Staff of The NASDAQ Stock Market (the "Staff")
notified the Company that in accordance with certain corporate governance
policies contained in the Bylaws of the National Association of Securities
Dealers, Inc. applicable to companies whose stock has received the NASDAQ/NMS
designation, explicit Shareholder approval was required for sale at less than
market of more than 868,000 shares. The Staff informed the Company that in
order to continue the NASDAQ/NMS designation for its Common Stock, the Company
should consider the rescission of the sale of the additional 632,000 shares
unless and until Shareholder approval was received. (The exact numbers were
computed by the Company based upon the Staff's determination that not more than
20% of the Company's pre-placement issued and outstanding shares could be sold
without prior shareholder approval, and that the rescission had to reduce the
number sold to less than that percentage.) After discussion, the Company and
the LLC reached agreement to rescind sale of 632,000 of the 1,000,000 shares
that it had sold to the LLC in the first placement. The LLC which had bought
and paid for 1,000,000 shares recognized that it would be prejudicial to the
Company and all of the Company's Shareholders if the Company's Common Stock were
delisted. On November 1, 1995, when the mean price of the Company's Common
Stock was $14.50, the LLC entered into an Agreement of Rescission, Repurchase
and Settlement with the Company whereby the Company repaid $6,952,000 (the
$11.00 per share paid by the LLC) together with interest at the rate of 5.8% per
annum, being the interest the Company had received, and certain costs of the LLC
associated with the rescission, in exchange for the return by the LLC of 632,000
shares. Upon their return, the 632,000 shares were cancelled on the stock
transfer books of the Company and are no longer classified as issued and
outstanding. After the rescission transaction, the LLC owned 368,000 shares.
On November 7, 1995, the Company was informed by the Staff that it was in
compliance with the applicable NASDAQ/NMS corporate governance provisions.
As part of the Agreement of Rescission, the Company promised to use its
best efforts to obtain the approval of the Shareholders for the Proposal to sell
the same 632,000 shares to the LLC on the same terms previously agreed upon.
REASON FOR PROPOSAL; USE OF PROCEEDS
- ------------------------------------
The net proceeds from the sale of the Shares (estimated to be $6,534,880
after payment of a 6% commission to the Company's investment banker and expenses
of closing) will be used, as was stated when the Shareholders were asked to
authorize the 5,000,000 share increase at the August 9, 1995 Annual Meeting, to
provide the Company with capital so that it is in a position to aggressively
pursue additional acquisitions, for working capital and for additional reduction
of Company indebtedness.
More specifically, the Company anticipates using a substantial portion of
the net proceeds of the Proposal to enable it to continue its historic cash-
based acquisition strategy on a less leveraged basis. Beginning in 1984 with
the acquisition of the Trebla Chemical Company, the Company has grown and
diversified its business through acquisitions accomplished in large part through
cash transactions, financed partially through internally generated profits and
partially through sales of its Common Stock to investors. While in some cases,
consideration for an acquisition has taken the form of an assumption of
indebtedness and the direct issuance of Common Stock, as was the case with the
Company's October 1994 acquisition of The Fuller Brush Company, this is not
management's preferred approach.
Although the Company has not entered into formal negotiations with the
principals of any specific acquisition target, it has been and is actively
identifying synergistic companies compatible with its existing two business
segments. The Company anticipates that it will require significant amounts of
cash to finance not only the initial cost of the acquisition(s), but also for
capital expenditures associated with the manufacture of a target(s)' product
line. Cash would also be needed in order to provide working capital for the
development, potential upgrading and/or carrying of a target(s)' product line.
The Company has, as of the date of this Proxy Statement, used
approximately $5,300,000 of the $8,950,000 net proceeds of the previous
placements to reduce indebtedness and anticipates using up to an additional
$1,000,000 for additional debt reduction. The Company estimates that $1,000,000
to $2,000,000 will be used as working capital for the Stanley product line. See
---
the Company's Form 10-Q filed with the Securities and Exchange Commission for
the quarter ended September 30, 1995, which is attached to this Proxy Statement
as Appendix III.
-------------
SALIENT FEATURES OF THE PROPOSAL
- --------------------------------
The Company seeks Shareholder approval for the Proposal. If the Proposal
is approved by the Shareholders, the Company and the LLC will enter into a
Definitive Subscription Agreement ("Subscription Agreement") to consummate the
transaction. The form of Subscription Agreement to be utilized for the
consummation of the Proposal is attached to this Proxy Statement as Appendix IV.
-----------
If the Proposal is approved by the Shareholders, the closing (the "Closing")
with respect to the sale shall occur within ten days after such Shareholder
approval shall have been obtained.
PRICE FOR THE SHARES
- --------------------
In the course of the placement discussions as described on page 2 of this
Proxy Statement, the LLC requested a discount from the market price of the
Company's Common Stock to recognize the size of the placement and the restricted
nature of the shares to be issued therein.
During the six month period prior to the initiation of discussions
concerning the placements, (March-August, 1995), the six month average of the
mean between the low and high bid prices for the Company's Common Stock was
$11.46. As the placement negotiations proceeded, the Company sought and
obtained guidance from a number of knowledgeable investment bankers as to the
size of any proposed discount and was informed orally that a discount in the
range of 15-20% was fair, appropriate and well within the parameters public
companies were offering to private investors in similar circumstances. After
extensive discussions, the price of $11.00 per share was agreed to, which
represented a discount of approximately 18.5% from the $13.50 bid price on the
date when negotiations concerning the price were finalized.
LLC'S POST-SALE OWNERSHIP PERCENTAGE
- ------------------------------------
In the event that Shareholder approval is obtained for the Proposal and
the sale of the Shares to the LLC is consummated, the LLC will own 17.11% of the
total number (as of the date of this Proxy Statement) of the Company's issued
and outstanding shares of Common Stock. The LLC presently owns 7.06%. See the
table setting forth certain pro forma information regarding the dilution of
current Shareholders' beneficial ownership of the Company's Common Stock on page
7 of this Proxy Statement.
REGISTRATION RIGHTS
- -------------------
Pursuant to the terms of the Subscription Agreement, the Company will
agree upon demand of the LLC, to use its best efforts to cause a registration
statement to be filed under the Securities Act of 1933 to enable the LLC to sell
all or a portion of the Shares in open market transactions (the "Demand
Registration"). The Company will not be obligated to effect more than two
Demand Registrations. If so requested, the Company has agreed to use its best
efforts to cause either or both of the Demand Registrations to qualify as "Shelf
Registrations" under Rule 415 promulgated by the Securities and Exchange
Commission. The Demand Registration right pertains to all of the Shares and is
identical to the demand registration rights granted to the LLC under a similar
subscription agreement with respect to the 368,000 shares purchased by the LLC
on September 25, 1995. The Demand Registration is subject to certain
limitations at the discretion of any managing underwriter for an underwritten
distribution of the registered shares.
The LLC is also granted the right under the Subscription Agreement to
participate in any offering proposed by the Company or any secondary offering
requested by any of the Company's other shareholders (the "Piggyback
Registration") with the exception of certain offerings related to the Company's
employee benefit plans. The Piggyback Registration right pertains to all of the
Shares and is identical to the piggyback registration rights granted to the LLC
under a similar subscription agreement with respect to the 368,000 shares
purchased by the LLC on September 25, 1995. The Piggyback Registration right is
subject to certain limitations at the discretion of any managing underwriter in
connection with any underwritten distribution of the Company's Common Stock.
The Company shall pay all expenses incident to any Demand or Piggyback
Registration, including, without limitation, all registration and filing fees,
fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses and fees and disbursements of counsel
for the Company and all independent certified public accountants, underwriters,
(excluding discounts and commissions) and other persons retained by the Company
in connection with any registration. The LLC will be required to pay its
prorata share of any underwriting and/or brokerage commissions attributable to
the inclusion of the shares in the Demand and/or Piggyback Registration.
RIGHT OF FIRST REFUSAL
- ----------------------
Pursuant to the Subscription Agreement, the LLC will agree that if the LLC
desires to sell Shares representing 7.5% (10% after September 22, 1997) or more
of the Company's issued and outstanding Common Stock to the same purchaser or to
any affiliated group of purchasers within the meaning of Section 13 of the
Securities Exchange Act of 1934 in one or more related privately negotiated
transactions, the LLC shall first offer the Shares constituting such percentage
for sale to the Company. Every such offer to sell any or all of the Shares and
the price of the Shares to the Company shall be set forth in writing. Such
price shall reflect a bona fide offer to the LLC (which offer shall be affirmed
in writing by the LLC and/or by its counsel, to the reasonable satisfaction of
the Company).
The Company shall have the right, within 24 hours after receipt by it of
such written offer by the LLC to purchase the Shares offered for sale by the
LLC. If the Company exercises its right to purchase, such purchase shall be
made by the Company by its tendering the full purchase price for the Shares for
which the written offer is received by means of a certified check, bank draft
made payable to the LLC or by federal funds wire transfer to the LLC or its
designee. Payment shall be made to the LLC or to its designee within 20 days
after receipt of the written offer by the LLC to sell the Shares. If the
Company shall have refused in writing or shall have failed to accept the offer
by the LLC for it to purchase all of the Shares offered for sale within 24
hours, then all of such non-accepted Shares of the LLC shall be free from the
provisions of the right of first refusal.
The LLC will also covenant and agree under the Subscription Agreement that
prior to permitting the transfer of greater than 50% of its membership interests
to any person or entity that does not own, or is not a beneficiary of any trust
that owns membership interests in the LLC, (whether in one or more
transactions), it will require such transferee to agree in writing to be bound
by the provisions of the Company's right of first refusal. In addition, the LLC
will covenant and agree that prior to any distribution, by way of dividend or
otherwise, of any of the Shares to any of its members, the LLC shall require
such member to agree in writing to be bound by the provisions of the Company's
right of first refusal.
The Company's right of first refusal pertains to all of the Shares and is
identical to the Company's right of first refusal set forth in a similar
subscription agreement with respect to the 368,000 shares purchased by the LLC
on September 25, 1995. The Shares and the shares sold to the LLC on September
25,1995 are combined to calculate the percentages referred to above.
INDEMNIFICATION
- ---------------
The Subscription Agreement provides for mutual indemnification by the
Company and by the LLC (solely with respect to information furnished by the LLC)
in connection with any Demand and/or Piggyback Registration against all losses,
claims, damages, liabilities and expenses which arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact (or omission
or alleged omission of a material fact) contained in any registration statement
or prospectus. Insofar as indemnification for liabilities under the Securities
Act of 1993 may be permitted to directors, officers or persons controlling the
Company pursuant to such provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
CLOSING CONDITIONS
- ------------------
The obligation of the LLC to purchase the Shares is subject to the
satisfaction of the following conditions: (i) there being no material adverse
changes in the Company's assets, operations, prospects or condition (financial
or otherwise) from November 1, 1995 through and up to the Closing; (ii) the
approval by the Company's Shareholders; (iii) the delivery by the Company prior
to the Closing of a certificate containing warranties and representations by the
Company as to such matters as the LLC may require including, without limitation,
shareholder approval, the issuance, authority and enforceability with respect to
the issuance of such Shares and that said issuance will not result in or
constitute a breach or violation by the Company.
CERTAIN EFFECTS OF THE PROPOSAL
- -------------------------------
INCREASE IN BOOK VALUE
- ----------------------
As of September 30, 1995, the pro forma net book value of the Company's
Common Stock was $34,358,970, or $6.60 per share. "Pro forma net book value"
per share represents the total amount of assets, less the total amount of
liabilities, divided by the number of shares of Common Stock issued and
outstanding, adjusted for the rescission of the 632,000 shares, and the
subsequent sale of 500,000 private placement shares. Assuming the consummation
of the sale of the Shares as of the date of this Proxy Statement, the pro forma
equity position of the Company would increase by $6,534,880 or 19%. The pro
forma net book value of the Company's Common Stock would be $7.00 per share.
This represents an immediate increase in the pro forma net book value of the
Shares held by existing Shareholders of the Company as of November 24, 1995 of
$.40 per share.
DILUTION
- --------
The proposed transaction will result in dilution of the percentage
ownership of the Company's current Shareholders as demonstrated in the following
table:
PRE-SALE POST-SALE
----------------------- ---------------------
No. of Percent of No. of Percent of
Common Beneficial Common Beneficial
Shares Ownership Shares Ownership
------ --------- ------ ---------
Directors,
Executive Officers
and Beneficial
Owners of more
than 5% of
Common Stock (1) 427,932 8.21% 427,932 7.32%
LLC Shareholder 368,000 7.06% 1,000,000 17.11%
------- ---- --------- -----
Subtotal 795,932 15.27% 1,427,932 24.43%
Other
Shareholders 4,416,432 84.73% 4,416,432 75.57%
--------- ----- --------- -----
Total 5,212,364 100.00% 5,844,364 100.00%
(1) Shares shown do not include shares exercisable under any stock option
grants.
CHANGE OF CONTROL
- -----------------
As the above table demonstrates, if the Proposal is approved by the
Shareholders and the sale is consummated, the LLC will own approximately 17.11%
of the total number of issued and outstanding shares of the Company immediately
after the sale. Management does not believe that such percentage ownership
represents a controlling interest in the Company. Neither the LLC nor any of
its members possesses, or as a result of the consummation of the Proposal, will
possess directly or indirectly, the power to direct or cause the direction of
the management and the policies of the Company, whether through the ownership of
voting securities, by contract or otherwise, all within the meaning of Rule 12b-
2. The LLC has stated in its Form 13D filed with the Securities and Exchange
Commission that it acquired the shares sold to it in the initial placement for
investment only and has informed the Company that it would purchase the Shares
for investment only and not with a view to changing control of the Company.
There is no agreement or arrangement whereby the LLC has, or will have, as a
result of the consummation of the sale, the right to elect or appoint one or
more members of the Company's Board of Directors. However, the Company has
indicated that it would be interested in adding an additional outside director,
particularly an individual with strong skills in marketing in the international
market and that it would give favorable consideration to a candidate recommended
by the LLC if such candidate meets these qualifications.
APPRAISAL RIGHTS
- ----------------
The existing holders of the Company's Common Stock are not entitled to
dissenters' rights of appraisal in connection with the consummation of the
Proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
- ----------------------------------------
The Board of Directors has reviewed and considered the Proposal and the
terms and conditions of the Subscription Agreement and believes that the
Proposal and the Subscription Agreement are fair and in the best interest of,
the Company and its Shareholders, and has unanimously approved the Proposal and
the Subscription Agreement.
The November 1, 1995 rescission by the Company of 632,000 shares from the
LLC was accomplished solely to enable the Company to continue to have its Common
Stock listed as a NASDAQ/NMS security. The Board of Directors has concluded
that the reasons for the initial placement to the LLC were valid at the time of
the original placement and remain valid. In recommending Shareholder approval
of the Proposal, the Board of Directors considered a number of material factors
which were: (i) the substantial increase in the Company's equity that will
enable the Company to continue and intensify its cash based, non-leveraged
strategy of acquisition and expansion; (ii) the oral opinions of a number of
knowledgeable investment bankers to the effect that the price is fair; (iii) the
alternative to the LLC's investment and the likelihood of such alternatives,
including the delays and uncertainties associated with a public financing; and
(iv) the terms of the Subscription Agreement. The Board determined that the
capital and liquidity to be provided by the LLC is important to the Company's
growth strategy and that the ownership dilution was outweighed by the
significant impact this capital infusion would have on the Company's operations
and financial condition, especially pursuit of its longestablished acquisition
strategy and the costs and working capital needs associated with acquisitions.
The size of the transaction was, therefore, considered positively by the Board
given the Company's ongoing need for capital for acquisitions and debt
reduction, the uncertainty of the price per share or aggregate sum which would
be realized through a public offering and the considerable additional time
required to complete such an offering. The Board of Directors did carefully
review the consideration to be paid by the LLC and determined that the size of
the discount was appropriate given the size of the LLC's investment.
The Board of Directors unanimously recommends that Shareholders vote FOR
approval of the Proposal. In this connection, the directors and officers of the
Company have agreed that they will vote all of their shares in favor of the
Proposal. The LLC has agreed that it will vote its 368,000 shares in favor of
the Proposal.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWNERSHIP
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock at November 24, 1995 by (i)
each person who is known to the Company to own beneficially more than 5% of the
issued and outstanding shares of Common Stock; (ii) each director of the
Company; (iii) each of the four "named executive officers" as that term is
defined in Item 402(a)(3) of Regulation S-K; and (iv) all directors and officers
as a group.
Number Percent of
Name Beneficially Owned (1) Class (1)(8)
---- ---------------------- ------------
Thomas N. Hendrickson 320,139 shares (2) 6.04%
Chief Executive Officer
and Director
Robert C. Isaacs 32,844 shares (3) 0.62%
Senior Vice President
and Director
Robert Oppenheimer 52,500 shares 0.99%
Secretary and Director
Seldon T. James, Jr. 75,000 shares (4) 1.41%
John C. Burton 9,125 shares (5) 0.17%
Director
Thomas J. Weldgen 23,587 shares (6) 0.45%
Chief Financial Officer
Wendy F. Clay 12,942 shares (7) 0.25%
Executive Vice President,
CPAC Equipment Division;
Vice President of Administration
All executive officers 526,137 shares (8) 9.93%
and directors
(seven persons)
Notes:
- -----
(1) In the case of stock options, the number beneficially owned includes
shares which may be purchased within 60 days of November 24, 1995.
(2) Includes 11,245 shares owned by Mr. Hendrickson's spouse. Includes
14,766 shares under an option granted on June 2, 1992, 9,375 shares under an
option granted on December 8, 1993, and 9,375 shares under an option granted on
February 9, 1994, pursuant to the Company's 1991 Employees' Incentive Stock
Option Plan.
(3) Includes 9,844 shares under an option granted on June 2, 1992, 6,250
shares under an option granted December 8, 1993 pursuant to the Company's 1991
Employees' Incentive Stock Option Plan and 3,125 shares under an option granted
November 18, 1994 pursuant to the Company's Executive Long-Term Stock Investment
Plan.
(4) Includes 16,250 shares owned by Mrs. Seldon T. James, Jr.
(5) Includes 6,563 shares which may be purchased under an option granted
on June 13, 1991.
(6) Includes 15,750 shares under an option granted on April 1, 1992,
1,750 shares under an option granted on December 8, 1993, pursuant to the
Company's 1991 Employees' Incentive Stock Option Plan, and 2,500 shares under an
option granted November 18, 1994, pursuant to the Company's Executive Long-Term
Stock Investment Plan.
(7) Includes 688 shares under an option granted on March 9, 1988
pursuant to the Company's 1983 Employees' Incentive Stock Option Plan, 1,969
shares under an option granted June 2, 1992 and 3,750 shares under an option
granted December 8, 1993 pursuant to the Company's 1991 Employees' Incentive
Stock Option Plan, and 2,500 shares under an option granted November 18, 1994
pursuant to the Company's Executive Long-Term Stock Investment Plan.
(8) Includes 688 shares under an option granted pursuant to the
Company's 1983 Employees' Incentive Stock Option Plan. Includes 72,829 shares
under options granted pursuant to the Company's 1991 Employees' Incentive Stock
Option Plan. Includes 6,563 shares under an option granted on June 13, 1991.
Includes 8,125 shares under options granted pursuant to the Company's Executive
Long-Term Stock Investment Plan.
Percent
Name Amount Beneficially Owned of Class
---- ------------------------- --------
HLELT Enterprises, Inc. 360,386 shares, outright 6.91%
c/o Turner & Boisseau, ownership
Chartered
900 Broadway
Great Bend, Kansas 67530
CPAC Investors, LLC 368,000 shares, outright 7.06%
c/o Eliot Lauer ownership
Curtis, Mallet-Prevost,
Colt & Mosle
101 Park Avenue
New York, New York 10178
VOTING
This Proposal requires a majority of the total number of votes cast at the
Special Meeting on the Proposal (including absentions) in person or by Proxy.
BROKER NON-VOTES AND ABSTENTIONS
- --------------------------------
Broker non-votes will not be treated as votes cast or shares entitled to
vote on matters as to which the applicable rules of the National Association of
Securities Dealers, Inc. withhold the broker's authority to vote in the absence
of direction from the beneficial owner. Non-broker shareholders who are present
in person or by Proxy and have the legal authority to vote their shares but who
abstain from voting will adversely affect the outcome of this Proposal.
VOTING OF PROXIES
- -----------------
The shares represented by all valid Proxies received will be voted in the
manner specified on the Proxies. Where specific choices (including absentions)
are not indicated, THE SHARES REPRESENTED BY ALL VALID PROXIES RECEIVED WILL BE
VOTED FOR APPROVAL OF THE PROPOSAL.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE PROPOSAL.
By Order of the Board of Directors
/s/ Robert Oppenheimer
---------------------------------
December 4, 1995 Robert Oppenheimer, Secretary
APPENDIX I
----------
November 24, 1995
Dear CPAC Shareholders,
THE PRIVATE PLACEMENT
- ---------------------
After the Annual Meeting, your Board of Directors approved two private
placements at my recommendation. The first was the placement of 1,000,000
shares of CPAC stock to a limited liability company ("LLC") which closed on
September 25, 1995. The second placement, also for $11.00 per share, was closed
to a number of different investors on October 4, 1995 for 500,000 shares. Our
action was based on the need for cash to implement our acquisition strategy, for
working capital and a stronger balance sheet. The shareholders approved our
authorized shares for such purposes at the Annual Meeting on August 9, 1995. On
October 9, 1995, the Staff of NASDAQ (the "Staff") notified CPAC that the
placements violated certain NASD By-Laws relating to corporate governance and
jeopardized our ability to remain on the NASDAQ National Market system. We have
resolved the issue with much pain and some added legal expense. I have made
further personal commitments that affect you, our shareholders.
THE PROBLEM
- -----------
The Staff stated that to the extent that the placements constituted more
than 20% of the Company's issued and outstanding shares, shareholder approval of
such placements was required. The excess was 632,000 shares. The Board of
Directors and Counsel did not agree with the Staff position and informed the
Staff that the placements were in the best interest of the Company, and it had
met and followed all legal requirements. When it became clear that contesting
the Staff position would necessitate delay and uncertainty, the Board of
Directors decided that we would be acting in the best interests of the
Shareholders by conforming to the Staff's recommendations.
RESOLUTION
- ----------
Further discussions with the Staff resulted in a single alternative for
CPAC to remain in compliance. CPAC needed to repurchase 632,000 shares of the
Common Stock it sold to the "LLC" at the same price at which the company sold it
- - namely $11.00 per share. Anyone can understand the complex problems
association with such a rescission and repurchase. Such an agreement was
finalized on November 1, 1995 and approved by NASDAQ on November 7, 1995.
MY RESPONSIBILITY AND URGENT REQUEST
- ------------------------------------
As part of the repurchase agreement, we agreed to seek shareholder approval
for the sale of the 632,000 shares back to the "LLC" at the same $11.00 per
share. Our record earnings, inclusion in Forbes "Best 200 Small Companies in
------
America" (November 6, 1995 issue), inclusion in
Kiplinger's Personal Finance Magazine in "Stocks Whose Profits Go Nowhere But
- -------------------------------------
Up" (December, 1995) and significantly strong balance sheet have pushed stock
price well above the price at which CPAC negotiated the original private
placement sale. However, I believe the stock sale was right for the Company
then, and I remain fixed in my enthusiasm of having the "LLC" as a major
shareholder. I am embarrassed that the "LLC" be punished because of this NASD
By-Law, but only you, the shareholders, can remedy the problem by voting for
approval of the resale of these shares.
I am voting my entire block of 275,378 shares to approve this sale. I hope
you will continue to support me by voting to approve this important issue.
Sincerely,
/s/ Thomas N. Hendrickson
Thomas N. Hendrickson
President and Chief Executive Officer
APPENDIX II
-----------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
October 3, 1995
--------------------------------------------------
Date of Report (Date of earliest event reported)
CPAC, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 0-9600
--------------------------- ---------------------------
State or other jurisdiction Commission File Number
of incorporation
16-0961040
------------------------
IRS Employer ID Number
2364 Leicester Road, Leicester, New York 14481
---------------------------------------------------
(Address of Principal Executive Offices)
(716) 382-3223
-----------------------------------------------------
(Registrant's telephone number, including area code)
ITEM 1: CHANGES IN CONTROL OF REGISTRANT
See Answer to ITEM 5 of this Current Report
ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS
Not Applicable
ITEM 3: BANKRUPTCY OR RECEIVERSHIP
Not Applicable
ITEM 4: CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not Applicable
ITEM 5: OTHER EVENTS
On October 3, 1995, the Registrant announced the successful
completion of a private placement, on a best efforts basis, of one million, five
hundred thousand (1,500,000) shares of its $.01 par value common stock to a
number of accredited investors at $11.00 per common share. As a result of the
completion of the placement, the number of the Registrant's issued and
outstanding $.01 par value common stock increased from 4,341,114 common shares
to 5,841,114 common shares. The purchase price for the placement shares
represented a discount of 22.8% from the market price of the Registrant's common
stock on the date of the offering, which discount was considered appropriate by
management in the light of the nature and size of the offering.
One million (1,000,000) of the placement shares representing a
17.12% interest in the Registrant, were sold to a limited liability company
organized under the laws of the State of Delaware. Such investor has informed
the Registrant that it acquired the shares for investment.
In connection with the placement, the Registrant granted demand and
piggyback registration rights to the investors with the expenses of such
registration to be borne by the Registrant.
The Registrant intends to utilize the net proceeds of the placement
(estimated to be $15,482,000, after payment of the expenses incurred in
connection with the issuance and distribution of the placement shares, certain
of which are estimated as of the date of this Current Report) to amortize
existing indebtedness, for working capital and for future acquisitions.
For its services rendered in connection with the placement, the
Registrant's investment banker received a 6% placement agency fee and 50,000
stock options exercisable at the market value of the Registrant's common stock
on the day of the placement's closing.
ITEM 6: RESIGNATIONS OF REGISTRANT'S DIRECTORS
Not Applicable
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION, AND EXHIBITS
A. FINANCIAL STATEMENT OF BUSINESS ACQUIRED
Not Applicable
B. PRO FORMA FINANCIAL INFORMATION
Not Applicable
C. EXHIBITS
The following Exhibits, as applicable, are attached to this
Current Report (Form 8-K). The Exhibit Index is found on the page immediately
succeeding the signature page and the Exhibits follow on the pages immediately
succeeding the Exhibit Index.
ITEM DESCRIPTION PAGE
---- ----------- ----
1. Underwriting Agreement N/A
2. Plan of acquisition, reorganization,
arrangement, liquidation, or succession N/A
4. Instruments defining the rights of security
holders, including indentures N/A
16. Letter re: change in certifying accountant N/A
17. Letter re: director resignation N/A
20. Other documents or statements to security
holders N/A
23. Consents of experts and counsel N/A
24. Power of Attorney N/A
27. Financial Data Schedule N/A
99. Additional Exhibits
99.1 Form of Subscription Agreement
Utilized by the Registrant for
the Private Placement of
500,000 Shares 7
99.2 Form of Amendment No. 1 to
Subscription Agreement
Utilized by Registrant for the
Private Placement of 500,000
Shares 18
99.3 Form of Subscription Agreement
Utilized by Registrant for
Private Placement of 1,000,000
Shares 23
ITEM 8: CHANGE IN FISCAL YEAR
Not Applicable
ITEM 9: CHANGE IN SECURITY RATINGS
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CPAC, INC.
Date October 5, 1995 By /s/ Thomas N. Hendrickson
---------------------------- ------------------------------
Thomas N. Hendrickson,
President and Chief Executive
Officer
APPENDIX III
------------
FORM 10-Q
---------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1995
----------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------------
Commission File No. 0-9600
------------------------------------------------------------
CPAC, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
New York 16-0961040
- ------------------------------------ -------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
2364 Leicester Rd., Leicester, New York 14481
- ------------------------------------------ --------------------------------
(Address of Principal Executive Offices) (ZIP Code)
Registrant's telephone number, including area code: (716) 382-3223
----------------------------
Securities registered under Sec. 12(g) of the Act:
$.01 Par Value Common Stock
- --------------------------------------------------------------------------------
(Title of Class)
The Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months and has
been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
As of September 30, 1995, there were outstanding 5,341,114 shares of the
Company's Common Stock, $.01 Par Value. Options for 321,238 shares of the
Company's Common Stock are outstanding but have not yet been exercised. Shares
to cover the options will not be issued until they are exercised.
CPAC, INC. AND SUBSIDIARIES
---------------------------
INDEX
-----
PART I FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements
CPAC, Inc. and Subsidiaries Consolidated
Balance Sheets - September 30, 1995 (Unaudited),
and March 31, 1995 3
CPAC, Inc. and Subsidiaries Consolidated
Statements of Operations - Six Months Ended
September 30, 1995, and September 30, 1994 (Unaudited) 4
CPAC, Inc. and Subsidiaries Consolidated
Statements of Operations - Three Months Ended
September 30, 1995, and September 30, 1994 (Unaudited) 5
CPAC, Inc. and Subsidiaries Consolidated
Statements of Cash Flows - Six Months Ended
September 30, 1995, and September 30, 1994 (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE PAGE 16
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<CAPTION>
SEPTEMBER 30, 1995 MARCH 31, 1995
------------------ --------------
(Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,506,086 $ 81,891
Accounts receivable (net of allowance for doubtful
accounts of $746,000 and $635,000, respectively) 13,198,420 13,091,450
Inventory 13,148,709 12,736,328
Prepaid expenses and other current assets 1,822,091 2,020,124
----------------- -----------------
Total current assets 30,675,306 27,929,793
Cash equivalents restricted for common stock repurchase (see Note 2) 6,952,000
Property, plant and equipment, net 15,625,592 15,115,576
Goodwill and intangible assets (net of amortization of
$1,130,764 and $1,016,448, respectively) 2,813,908 3,065,581
Other assets 2,555,421 2,883,511
----------------- -----------------
$ 58,622,227 $ 48,994,461
================= =================
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 1,324,756 $ 3,382,848
Accounts payable 4,205,101 4,479,173
Accrued payroll and related expenses 1,262,285 1,187,099
Accrued income taxes payable 57,213 298,803
Other accrued expenses and liabilities 4,510,331 2,507,785
----------------- -----------------
Total current liabilities 11,359,686 11,855,708
Long-term debt, net of current portion 8,916,655 11,914,875
Accrued deferred compensation 432,369 398,190
Accrued royalty 2,084,862 2,084,862
Other long-term liabilities 72,790 60,790
Minority interest in foreign subsidiary 32,015 31,364
Shareholders' equity (see Note 2 - Sale and Repurchase of Common Stock):
Common stock, par value $0.01 per share;
Authorized 10,000,000 shares;
Issued 5,401,881 shares and 4,380,943 shares,
respectively 54,019 43,799
Additional paid-in capital 23,324,743 12,852,270
Retained earnings 13,442,021 10,711,534
Foreign currency translation adjustment (643,022) (602,968)
----------------- -----------------
36,177,761 23,004,635
Less: Treasury stock, at cost, 60,767 and 53,512 shares (453,911) (355,963)
----------------- -----------------
Total shareholders' equity 35,723,850 22,648,672
----------------- -----------------
$ 58,622,227 $ 48,994,461
================= =================
<FN>
NOTE: The balance sheet at March 31, 1995, has been taken from the audited
financial statements of that date.
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE SIX MONTHS ENDED
------------------------
SEPTEMBER 30, 1995, AND SEPTEMBER 30, 1994
------------------------------------------
UNAUDITED
---------
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net sales $ 44,442,329 $ 23,020,724
---------------- -----------------
Costs and expenses:
Cost of sales 24,120,058 13,192,827
Selling, administrative and
engineering expenses 14,806,862 7,022,926
Research and development expense 311,275 144,042
Minority interest in consolidated
foreign subsidiary 651 (994)
Interest expense, net 630,996 185,530
---------------- -----------------
39,869,842 20,544,331
---------------- -----------------
Income before income tax expense 4,572,487 2,476,393
Provision for income tax expense (1,842,000) (1,011,000)
---------------- -----------------
Net income $ 2,730,487 $ 1,465,393
================ =================
Income per common share
(Primary and Fully Diluted):
Net income $ 0.61 $ 0.37
================ ================
Common shares outstanding - fully diluted 4,496,688 3,992,319
================ =================
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE MONTHS ENDED
--------------------------
SEPTEMBER 30, 1995, AND SEPTEMBER 30, 1994
------------------------------------------
UNAUDITED
---------
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net sales $ 22,970,212 $ 11,912,160
---------------- -----------------
Costs and expenses:
Cost of sales 12,531,300 6,887,814
Selling, administrative and
engineering expenses 7,315,936 3,522,858
Research and development expense 152,479 66,395
Minority interest in consolidated
foreign subsidiary 860 (573)
Interest expense, net 307,214 103,650
---------------- -----------------
20,307,789 10,580,144
---------------- -----------------
Income before income tax expense 2,662,423 1,332,016
Provision for income tax expense (1,074,000) (538,000)
---------------- -----------------
Net income $ 1,588,423 $ 794,016
================ =================
Income per common share
(Primary and Fully Diluted):
Net income $ 0.35 $ 0.20
================ ================
Common shares outstanding - fully diluted 4,536,508 4,021,716
================ =================
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE SIX MONTHS ENDED
------------------------
SEPTEMBER 30, 1995, AND SEPTEMBER 30, 1994
------------------------------------------
UNAUDITED
---------
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,730,487 $ 1,465,393
-------------- --------------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 918,662 358,346
Amortization of intangible assets 214,888 175,360
Changes in assets and liabilities, net of effects of
business acquisitions:
Accounts receivable (110,130) (605,838)
Inventory (415,529) (33,619)
Accounts payable (275,079) (215,465)
Accrued expenses & liabilities 1,834,760 29,813
Accrued deferred compensation 34,075 34,647
Other changes, net 604,294 (1,273,688)
-------------- --------------
Total adjustments 2,805,941 (1,530,444)
-------------- --------------
Net cash provided by (used in) operating activities 5,536,428 (65,051)
-------------- --------------
Cash flows from investing activities:
Purchase of property, plant, and equipment, net (1,432,419) (772,644)
-------------- --------------
Net cash used in investing activities (1,432,419) (772,644)
-------------- --------------
Cash flows from financing activities:
Sale of common stock, net (see Note 2) 3,402,288 58,050
Proceeds from borrowings 1,637,461
Repayment of long-term borrowings (5,082,086) (445,637)
Payment of cash dividends (405,930)
--------------- --------------
Net cash provided by (used in) financing activities (1,679,798) 843,944
-------------- --------------
Effect of exchange rate changes on cash (16) (188)
-------------- --------------
Net increase in cash
and cash equivalents 2,424,195 6,061
Cash and cash equivalents - beginning of period 81,891 35,635
-------------- --------------
Cash and cash equivalents - end of period $ 2,506,086 $ 41,696
============== ==============
</TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
UNAUDITED
---------
1 - CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
The consolidated balance sheets, the consolidated statements of operations
and the consolidated statements of cash flows for the six-month periods ended
September 30, 1995, and September 30, 1994, have been prepared by the Company
without audit. In the opinion of management, all adjustments necessary to
present fairly the financial position, results of operations, and changes in
cash flows at September 30, 1995 (which include only normal recurring
adjustments), have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's March 31, 1995, annual report to
shareholders. The results of operations for the six months ended September 30,
1995, are not necessarily indicative of the operating results for the full year.
2 - SALE AND REPURCHASE OF COMMON STOCK
------------------------------------
On October 5, 1995 the Company announced the completion of the placement of
1,500,000 shares of the Company's $.01 par common stock with private investors
at $11 a share. The issuances were comprised of 1,000,000 shares issued to CPAC
Investors, L.L.C., a limited liability company, on September 25, 1995, and
500,000 shares issued to unrelated accredited investors, completed on October
4, 1995.
In response to matters raised by the staff of the NASDAQ Stock Market
(NASDAQ) concerning the number of shares sold, the Company entered into an
Agreement of Rescission, Repurchase and Settlement with CPAC Investors, L.L.C.
on November 1, 1995, to rescind 632,000 previously issued shares of the
Company's $.01 par common stock at $11 a share. The Agreement indicated that
subsequent to the rescission, the Company would immediately begin soliciting
shareholder approval for the reissuance of 632,000 shares, at $11 a share, to
CPAC Investors, L.L.C. If shareholder approval is obtained, the shares will be
reissued allowing the Company to consummate the original private placement and
comply with applicable NASDAQ by-laws.
At September 30, 1995, the Company's Consolidated Balance Sheet reflected
the net cash proceeds received as well as the increase in common shares
outstanding from the issuance of the 1,000,000 shares. The cash proceeds
related to the 632,000 shares that were subsequently rescinded, was segregated
and disclosed as `Cash equivalents restricted for the share repurchase''. The
net proceeds related to the 500,000 shares issued were not recorded at September
30, 1995, as the transaction was not completed until after the end of the
quarter. For purposes of computing the primary and fully diluted earnings per
share, the share numbers shown in the Company's Consolidated Statement of
Operations as weighted average shares for the three and six months ended
September 30, 1995, reflect the issuance of the 1,000,000 shares. The
subsequent issuance of the 500,000 shares and rescission of the 632,000 shares
will be used in computing the earnings per share for the quarter ending December
31, 1995, and future periods.
On September 25, 1995, the Company had 4,341,114 shares outstankding prior
to the 1,000,000 share issuance. Since the issuance of the 500,000 shares and
the above mentioned 632,000 share rescission occurred subsequent to the quarter
ended September 30, 1995, the schedule below summarizes the impact, on a
condensed pro forma unaudited basis, on the Company's consolidated balance sheet
as if the transactions had been completed as of September 30, 1995:
<TABLE>
CPAC, INC
---------
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
---------------------------------------------
SEPTEMBER 30, 1995
------------------
<CAPTION>
AS SHARE 500,000
REPORTED RESCISSION SHARE PLACEMENT PRO FORMA
-------- ---------- --------------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash and equivalents $ 2,506,086 $ $ 5,500,000 $ 8,006,086
Other current assets 28,169,220 28,169,220
--------------- --------------- --------------- ---------------
30,675,306 5,500,000 36,175,306
Cash equivalents restricted 6,952,000 (6,952,000) 0
Other long term assets 20,994,921 20,994,921
$ 58,622,227 $ (6,952,000) $ 5,500,000 $ 57,170,227
=============== ============== ============== ===============
Current liabilities:
Current portion of long term debt $ 1,324,756 1,324,756
Other current liablities 10,034,930 (417,120) 330,000 9,947,810
---------- -------- ------- ---------
11,359,686 (417,120) 330,000 11,272,566
Other long term liabilities 11,506,676 11,506,676
Minority interest 32,015 32,015
Shareholders' equity:
Common stock 54,019 (6,320) 5,000 52,699
Additional paid in capital 23,324,743 (6,528,560) 5,165,000 21,961,183
Retained earnings 13,442,021 13,442,021
Foreign currency translation adj. (643,022) (643,022)
--------------- --------------- --------------- ---------------
36,177,761 (6,534,880) 5,170,000 34,812,881
Less: treasury stock (453,911) (453,911)
--------------- --------------- --------------- ---------------
35,723,850 (6,534,880) 5,170,000 34,358,970
--------------- -------------- -------------- ---------------
$ 58,622,227 $ (6,952,000) $ 5,500,000 $ 57,170,227
=============== ============== ============== ===============
Common Stock Share Recap:
- -------------------------
Common stock shares issued 5,401,881 (632,000) 500,000 5,269,881
Less treasury stock shares (60,767) (60,767)
--------------- --------------- --------------- ---------------
Common stock shares outstanding 5,341,114 (632,000) 500,000 5,209,114
=============== ============== ============== ===============
</TABLE>
3 - INVENTORY
---------
Inventory is summarized as follows:
SEPTEMBER 30, 1995 MARCH 31, 1995
------------------ --------------
Raw materials and purchased parts $ 5,718,608 $6,036,693
Work-in-process 963,007 708,143
Finished goods 6,088,746 5,500,090
Promotional supplies 378,348 491,402
----------- ----------
$13,148,709 $12,736,328
=========== ===========
4 - STANLEY HOME PRODUCTS
---------------------
As described in the March 31, 1995, 10-K, on January 16, 1995, the Company
signed an agreement with Stanhome Inc. to license the domestic operations of
Stanhome Inc.'s Worldwide Direct Selling Group, known as Stanley Home Products.
The agreement allows the Company to manufacture and distribute products through
the use of the trademarks and formulas of Stanley Home Products in the U.S.,
Puerto Rico, and Canada, over the life of the 15 year agreement. Stanley Home
Products operates as a division of The Fuller Brush Company, Inc., and its sales
and related expenses have been included with the results of operations of the
Company beginning April 1, 1995.
The Company is required to pay Stanhome Inc. royalties equal to a percentage
(ranging from 1% in the first year to 7.5% in the last six years) of the net
selling price of products sold under the licensing agreement. Based on these
terms, the Company has made a preliminary allocation of the purchase price, and
has recorded a liability equal to the net present value of the estimated minimum
royalty payments. In addition, the Company has capitalized the value of the
license agreement and will amortize it over the contract period. The Company
expects to finalize the acquisition accounting during this fiscal year.
On a pro forma (unaudited) basis, if the license agreement with Stanhome
Inc. and the acquisition of The Fuller Brush Company had occurred as of April 1,
1994 (the beginning of the six months ended September 30, 1994), the
consolidated results of operations of the Company including Stanley Home
Products and Fuller would have been approximately:
SEPTEMBER 30, 1994
------------------
Net sales $53,522,000
Net income $ 1,540,000
Net income per share $ 0.35
(both primary and fully diluted)
The pro forma information has been prepared on the basis of preliminary
assumptions and estimates which are subject to adjustment and may not be
indicative of actual or future results. Sales information for Stanley Home
Products during 1995 indicate that sales will be significantly lower than 1994
historical levels. The reduction is partially attributable to the peso
devaluation which has significantly impacted sales at the United States/Mexican
border as well as the elimination of credit sales and implementation of an `all
cash''sales term policy. It appears that these factors will continue to impact
the Stanley Home Products operations during fiscal 1996, causing sales on a
quarterly and annual basis to be lower than those historically reported.
5 - SEGMENT REPORTING
-----------------
As described in the March 31, 1995, 10-K, following the acquisition of The
Fuller Brush Company, and the signing of the Stanley Home Products licensing
agreement, the Company now operates in the Imaging segment and the Cleaning and
Personal Care Products segment for financial reporting purposes. The Imaging
segment includes the manufacture and sale of prepackaged chemical formulations,
supplies, and equipment systems to the imaging industry. The Cleaning and
Personal Care Products segment includes specialty chemical cleaning products and
related accessories (brushes, brooms, mops) for industrial and consumer use, as
well as personal products such as soaps, shampoos, and skin care.
6 - LITIGATION
----------
No material litigation is pending to which the Company and/or its
subsidiaries are a party, or which property of the Company and/or its
subsidiaries is the subject.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As described in Note 2, the Company obtained approximately $8,900,000 (net
of placement costs and after the rescission of the 632,000 shares at $11 a
share) from the private placement offering. Prior to September 30, 1995, the
Company used approximately $2,500,000 to pay off two term notes with Nations
Bank, as well as pay down the outstanding line of credit. Subsequent to quarter
end, the Company also paid a subordinated note for $1,000,000 which matured on
October 11, 1995. The remaining funds have been invested in short term
investments, and are expected to be used for potential acquisitions, future
capital expenditures and working capital needs, and further debt reductions.
The Company estimates that $1,000,000 to $2,000,000 may be used as working
capital in relation to the product lines of Stanley Home Products. The Company
continues to maintain a $4.5 million line of credit, which expires on October
31, 1996. The Agreement contains a variety of covenants, including specific
working capital and net worth covenants, which are customary in such a credit
facility. During September, 1995, the Company negotiated the interest rate on
the line of credit to `prime'', (down from prime plus .25%) for future line
borrowings.
During September, 1995, the Company also negotiated the renewal of the
Letter of Credit (LC) which backs $6,000,000 of bond financing in connection
with The Fuller Brush Company. The interest rate has been reduced from 2% to
1.5% on the renewed LC.
The Company continues to maintain a line of credit facility with a major
Belgian bank, which at September 30, 1995, was fully utilized at $868,000. The
Company repaid this line of credit in November, 1995. In October, 1995, the
Company negotiated an amendment to this credit facility, increasing the total
availablility to 40 million Belgian francs. Based on average monthly conversion
rates for the Belgian franc, approximately $1,380,000 is now available under the
amended credit facility.
The working capital ratios at September 30, 1995, March 31, 1995, and
September 30, 1994, were 2.70 to 1, 2.36 to 1, and 3.47 to 1, respectively. The
decrease in the working capital ratio compared to September 1994 is primarily
due to the additional debt incurred relating to the Fuller acquisition. The
increase in the working capital ratio at September 30, 1995, is primarily the
result of the repayment of debt, described above.
Management believes that the private placement funds, coupled with the
existing available lines of credit and cash flows from operations, should be
adequate to meet normal working capital needs based on operations as of
September 30, 1995.
ASSET TURNOVER RATIOS
- ---------------------
SEPTEMBER 30, 1995 MARCH 31, 1995 SEPTEMBER 30, 1994
------------------ -------------- ------------------
(1) Receivables-days
outstanding 56.0 days 77.1 days 89.0 days
(2) Annual inventory
turns 3.7 times 3.3 times 3.2 times
At September 30, 1995, the improvement in days outstanding results from the
inclusion of The Fuller Brush Company receivables which generally have short
payment terms and the SHP cash sales which began in April, 1995. The Imaging
segment continues to average 90 days due to extended payment terms for its
dealers and foreign operations.
Inventory turns increased slightly for the periods presented.
RESULTS OF OPERATIONS
---------------------
Sales for the quarter ended September 30, 1995, increased 92.8% over the
quarter ended September 30, 1994, and increased 93.1% for the six months ended
September 30, 1995, versus September 30, 1994. The significant percentage
increases in operating results for the six months ended September 30, 1995, are
primarily the result of the inclusion of The Fuller Brush Company and Stanley
Home Products' sales, which were not included in the period ended September 30,
1994.
For the Imaging segment, overall sales for the quarter ended September 30,
1995, decreased 1% over the quarter ended September 30, 1994, and 5% over the
six months ended September 30, 1995 versus September 30, 1994. The decrease is
primarily the result of the increased competition in the medical chemistry
markets as previously disclosed through the third and fourth quarters of fiscal
1995, coupled with continued efforts to remove low margin bulk medical chemistry
accounts, as disclosed in the first quarter of fiscal 1996.
Sales in the Cleaning and Personal Care Products' segment were approximately
$11,100,000 and $22,600,000 for the quarter and six months ended September 30,
1995. Since the acquisition of The Fuller Brush Company did not occur until the
third quarter of fiscal 1995, and the Stanley Home Products' license agreement
was not effective until April 1, 1995, no comparable quarter or six month
financial information exists.
Net income for the quarter ended September 30, 1995, increased 100% over the
quarter ended September 30, 1994, due primarily to the inclusion of The Fuller
Brush Company, Inc. and Stanley Home Products.
Gross margins have increased to 45.4% for this quarter versus 41.2% for the
year ended March 31, 1995, and 42.0% for the same quarter last year. The
addition of The Fuller Brush Company and Stanley Home Products at 51% margin
levels has blended with the Imaging segment margins at 40%. Year to date gross
margins are 45.7% at September 30, 1995, versus 42.7% through September 30,
1994.
Selling, administrative, and engineering costs this quarter were 31.9% of
sales compared with 30.3% at March 31, 1995, and 29.6% in the same quarter of
last year. The increases for both the quarter and year to date September, 1995,
versus September, 1994 are the result of the inclusion of Fuller and Stanley
Home Products' expenses at 39%, as well as increased marketing expenditures
related to the imaging market.
Net interest expense for the current quarter has increased versus the
quarter ended September 30, 1994, primarily due to increased borrowings related
to the acquisition of The Fuller Brush Company.
FOREIGN OPERATIONS
- ------------------
Combined foreign operations earned a small profit for the quarter ended
September 30, 1995, versus a small loss for the quarter ended September 30,
1994, as each of the foreign subsidiaries showed improved operating results as
compared to the quarter ended September 30, 1994. While the economies of Italy
and Belgium have been suffering from serious general economic slowdowns, sales
volumes and market share of CPAC subsidiaries in these countries have continued
to show solid improvement.
The political situation in Italy continues to be unstable, and management
therefore continues to be concerned about the short-term operating results. It
is difficult to predict the economic situation but at the present time,
management expects the combined Belgian and Italian operations to show continued
growth for the 1996 fiscal year.
As we have previously reported, the political and economic situation in
Venezuela is very unstable. Based on the first nine months of operations, sales
for the year are projected to be less than $500,000. Over the last six months,
management of CPAC, Inc., has seriously curtailed these operations to reduce
operating losses caused by lowered sales volumes. Our analyses indicate that
Venezuela will not be a viable marketplace in the near future. Based on this
and other factors, management is evaluating all available options, including the
possibility that the operation may be shut down by the end of this fiscal year.
At the present time, the impact from such a decision should not be material.
The Company has exposure to currency fluctuations and has utilized
conservative hedging programs (primarily forward foreign currency exchange
contracts), to help minimize the impact of these fluctuations on results of
operations. The Company does not hold or issue derivatives for trading purposes
and is not a party to leveraged derivatives transactions. The acquisition of
Chimifoto increased the potential financial statement exposure to currency
fluctuations. Although the Italian lira has been erratic, it settled into a
more stable range over the past fiscal year and continues to slow current
improvement. On a consolidated basis, foreign currency exchange losses are not
material to the results of operations.
ENVIRONMENTAL CONTINGENCY
- -------------------------
As previously disclosed, in connection with the Fuller Brush acquisition,
certain environmental contamination issues were discovered at the Great Bend,
Kansas facility during the due diligence process. As a result of findings
generated by environmental assessments of the facility, the Seller and the
Department of Health and Environment of the State of Kansas entered into a
Consent Order pursuant to which the Seller developed and submitted for the
Department's approval, a comprehensive work plan for remediation of the
environmental problems at the site. The work plan has been approved by the
Department without significant changes, and the Seller has begun the remediation
specified in the work plan.
The Consent Order does not apply, by its terms, to The Fuller Brush Company,
Inc. as the new purchaser of the assets of the Seller as long as the Seller is
performing its obligations under the Consent Order. Estimates of the costs of
the remediation as set forth in the work plan submitted by the Seller range from
$150,000 to $200,000. In order to secure the performance of such obligations by
the Seller and to provide a fund from which the costs of the required
remediation are to be paid, the Company and the Seller established a cash escrow
account in the total amount of $700,000; of this amount $250,000 was provided by
the Seller, with the balance provided by the Company. Based on costs incurred
to date and estimates for completion, the Company's share of the cash escrow
account has been reduced to $50,000.
PART II
-------
OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
1. The Annual Meeting of the Shareholders of the Registrant was held on
August 9, 1995. At such Annual Meeting, the following individuals were
elected as Directors of the Registrant, to serve until the next Annual
Meeting of Shareholders and until their successors are duly elected and
qualified:
Number of Votes:
----------------
For Withheld
--- --------
Thomas N. Hendrickson 2,931,744 8,278
Robert C. Isaacs 2,932,400 7,622
Robert Oppenheimer 2,931,744 8,278
Seldon T. James, Jr. 2,931,744 8,278
John C. Burton 2,932,400 7,622
2. In addition, at such Annual Meeting, the Shareholders:
(a) ratified the appointment of Coopers & Lybrand L.L.P. by the Board
of Directors, as independent auditors of the Registrant for the fiscal
year ending March 31, 1996, with votes cast as follows:
For Against Abstain
--- ------- -------
2,935,638 4009 375
(b) approved an amendment to the Registrant's Certificate of
Incorporation to increase the number of authorized $.01 par value
common shares from 5,000,000 to 10,000,000 authorized $.01 par value
common shares as follows:
For Against Abstain
--- ------- -------
2,853,740 75,405 10,877
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a.Exhibits
The following Exhibits, as applicable, are attached to this Quarterly
Report (Form 10-Q). The Exhibit Index is found on the page immediately
succeeding the signature page and the Exhibits follow on the pages
immediately succeeding the Exhibit Index
(2) Plan of acquisition, reorganization, arrangement, liquidation, or
succession
2.2 Licensing Agreement with Stanhome Inc. incorporated by
reference to Form 8-K (Current Report) filed January 30, 1995
(3) Articles of Incorporation, By-Laws
3.1 Certificate of Incorporation, as amended
3.2 By-laws, as amended, incorporated by reference to Form 10-K,
filed for period ended March 31, 1989
(4) Instruments defining the rights of security holders, including
indentures
4.1 Loan Agreement dated February 9, 1994, and Letter of
Commitment dated December 16, 1993, incorporated by reference to
Form 10-K filed for period ended March 31, 1994, as amended by
Exhibits 99.1 to 99.3 filed as Exhibits to the Form 10-Q for the
quarter ended December 31, 1994
(9) Voting Trust Agreement
Not applicable
(10)Material Contracts
10.1 Employment Agreement between Thomas N. Hendrickson and CPAC,
Inc. dated September 30, 1995
(11)Statement re: Computation of Per Share Earnings (Loss)
Not applicable
(12)Statement re: Computation of Ratios
Not applicable
(13)Annual Report to Security Holders
Not applicable
(16)Letter re: Change of Certifying Accountant
Not applicable
(18)Letter re: Change in Accounting Principles
Not applicable
(21)Subsidiaries of the Registrant
Not applicable
(22)Published report regarding matters submitted to vote of security
holders
Not applicable
(23)Consent of Experts and Counsel
Not applicable
(24)Power of Attorney
Not applicable
(27)Financial Data Schedule
(28) Information from reports furnished to state insurance regulatory
authorities
Not applicable
(99)Additional Exhibits
99.1 Agreement of Rescission, Repurchase and Settlement, dated
November 1, 1995
b. Reports Filed on 8-K
Not applicable
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CPAC, INC.
Date November 14, 1995 By /s/ Thomas N. Hendrickson
---------------------------- ------------------------------
Thomas N. Hendrickson,
President,
Chief Executive Officer,
Treasurer
Date November 14, 1995 By /s/ Thomas J. Weldgen
---------------------------- ------------------------------
Thomas J. Weldgen
Chief Financial Officer
APPENDIX IV
-----------
December , 1995
--
Board of Directors
CPAC, Inc.
2364 Leicester Road
Leicester, New York 14481
Re: Subscription to Purchase 632,000 Shares of CPAC, Inc. Common
Stock, $.01 par value per share
Gentlemen:
(1) Subscription:
------------
The Purchaser, CPAC Investors, L.L.C., a limited liability company
organized under the laws of the State of Delaware (the "Purchaser"), hereby
subscribes to purchase 632,000 shares ("Shares") of the $.01 par value common
stock of CPAC, Inc. at $11.00 per Share and hereby tenders payment for the
subscribed number of Shares by certified check, bank draft or Federal Funds wire
transfer made payable to CPAC, Inc. (the "Company") in the amount of $6,952,000.
In connection with this subscription, the Purchaser hereby executes this
Subscription Agreement and hereby acknowledges that the Purchaser and/or the
Purchaser's authorized representatives have received from the Company or its
counsel, read, reviewed, understand and are familiar with:
(i) the Company's Annual Report (Form 10-K), as well as any
amendments thereof, filed with the Securities and Exchange
Commission for the fiscal years ended March 31, 1992 through and
including 1995;
(ii) the Company's annual reports and definitive proxy statements
distributed to shareholders in connection with the annual
meeting of shareholders held in August 1992 through and
including 1995;
(iii) the Company's definitive Proxy Statement distributed to
shareholders in connection with the special meeting of
shareholders held December 28, 1995 and a certificate of the
duly authorized Inspectors of Election for such meeting
certifying the favorable vote of the shareholders for the
subject sale;
(iv) Quarterly Reports (Form 10-Q) filed with the Securities and
Exchange Commission for the quarters ended June 30, 1992 through
and including September 30, 1995;
(v) Current Reports (Form 8-K, and any amendments thereto) filed
with the Securities and Exchange Commission for reportable
events taking place on October 13, 1994, January 16, 1995 and
October 5, 1995;
(vi) Copies of the Company's Certificate of Incorporation, all
amendments thereto and the Company's By-Laws and all amendments
thereto;
(vii) The Closing Books maintained by the Company with respect to the
acquisition of The Fuller Brush Company on October 13, 1994 as
well as copies of certain documentation detailing the
environmental problems associated with the Company's acquisition
of the Great Bend facility and arrangements for the remediation
thereof;
(viii) Material contracts executed in connection with the Company's
licensing arrangement with Stanhome, Inc.;
(ix) The responses of Company counsel to the Company's request to
provide the Company's independent auditors with certain
information in connection with the preparation of the Company's
audited financial statements for the fiscal years ended March
31, 1992 through and including 1995; and
(x) Certain information, both oral and written, with respect to
developments pertaining to the Company's ongoing operations.
The Purchaser further acknowledges that, except as set forth in such
reports, proxy statements, documents and other information made available by the
Company as described above as well as those representations made by the Company
herein, no representations or warranties have been made to the Purchaser, or to
the Purchaser's authorized representatives by the Company, or by any person
acting on behalf of the Company, with respect to the offer or sale of the Shares
and/or the economic, tax, or any other aspects or consequences of a purchase of
the Shares and/or the investment made thereby. Further, the Purchaser has not
relied upon any information concerning the Company, written or oral, other than
that contained in the aforementioned reports, proxy statements, documents, or
other information.
The Purchaser hereby acknowledges that the Purchaser and/or the
Purchaser's authorized representatives have had an opportunity to ask questions
of, and receive answers from persons acting on behalf of the Company to verify
the accuracy and completeness of the information set forth in such reports,
proxy statements, documents, and other information prior to sale and the
Purchaser hereby acknowledges that the Purchaser and/or the Purchaser's
authorized representatives have not requested the Company to provide any
additional information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to verify the accuracy and
completeness of the information made available.
(2) Purchaser's Representations and Warranties:
------------------------------------------
The Purchaser further represents and warrants to the Company:
(a) The Shares are being purchased by the Purchaser for investment
only, for the Purchaser's own account, and are not being purchased by the
Purchaser with a view to distribution of such Shares, or for the offer and/or
sale in connection with any distribution thereof. The Purchaser is not
participating, directly or indirectly, in an underwriting of the Shares or in
any similar undertaking. The Purchaser has no present plans to enter into any
contract, undertaking, agreement or arrangement which would entail an
underwriting of such Shares or any similar distribution thereof;
(b) The Shares are being purchased by the Purchaser for investment only
and not with a view to changing control of the Company within the meaning of
Rule 12b-2 promulgated by the Securities and Exchange Commission;
(c) The Purchaser is an "accredited investor" as that term is defined
in Rule 501 of Regulation D, promulgated by the Securities and Exchange
Commission;
(d) The Purchaser understands that there is no guarantee of profits or
against loss as a result of purchasing the Shares and the Purchaser hereby
states that the Purchaser can afford a complete loss of the investment in such
Shares. The Purchaser further warrants that the Purchaser's present financial
condition is such that the Purchaser has no present or perceived future need to
dispose of any portion of the Shares to satisfy any existing or contemplated
undertaking, obligation, need or indebtedness. Consequently, the Purchaser
represents that the Purchaser has sufficient liquid assets to pay the full
purchase price of the Shares, has adequate means for providing for the
Purchaser's current needs and possible contingencies and has no current need to
liquidate any of the Purchaser's investment in the Company;
(e) The Purchaser has been represented by such legal counsel and other
advisors, each of whom has been personally selected by the Purchaser, as the
Purchaser has found necessary to consult, concerning the purchase of the Shares,
and such representation has included an examination of applicable documents and
an analysis of all relevant tax, financial and securities law aspects of an
investment in the Shares. The Purchaser, the Purchaser's counsel, advisors, and
such other persons with whom the Purchaser has found it necessary or advisable
to consult, have represented to the Purchaser that they have knowledge or
experience in business and financial matters to evaluate the information set
forth in the aforementioned reports, press releases and/or other public
information statements issued by the Company, the risks associated with this
investment, and to make an informed investment decision with respect hereto. To
the extent that the Purchaser has found it necessary to consult with any such
counsel and/or advisors concerning the purchase of the Shares, the Purchaser has
relied upon their advice and counsel in making such investment decision.
(f) The Purchaser is a limited liability company organized under the
laws of the State of Delaware.
(3) Company's Representations and Warranties
----------------------------------------
The Company represents and warrants to the Purchaser:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York;
(b) The Company has authorized capital consisting of 10,000,000 shares
of common stock with a par value of $.01 per share, of which 5,212,364 are
issued and outstanding and 60,767 shares are held in its treasury;
(c) When fully paid by the Purchaser, the Shares purchased pursuant to
this Agreement will be properly issued and non-assessable;
(d) The Company has the full right, power, legal capacity and authority
to sell and transfer the Shares, free and clear of any statutory, contractual or
other limitations and to enter into and perform its obligations under the
Subscription Agreement. This Subscription Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding
obligation of the Company, enforceable against it in accordance with the terms
hereof;
(e) The consummation of the transaction contemplated by this
Subscription Agreement will not result in or constitute the following: (i) a
breach or an event that, with notice or lapse of time or both, would be a
default, breach or violation of the Certificate of Incorporation of the Company,
or any material lease, license, promissory note, commitment, indenture,
mortgage, deed of trust, or other material agreement, instrument, or arrangement
to which the Company is a party or by which it or its property is bound; (ii) an
event that would permit any party to terminate any material agreement or to
accelerate the maturity of any indebtedness or other obligation of the Company;
or (iii) the creation or imposition or any lien, charge, or encumbrance of any
of the properties of the Company;
(f) the information contained in the reports, proxy statements,
documents and other information made available by the Company as described in
paragraph (1) of this Subscription Agreement contain no untrue statements of
material fact or omit to state a material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading;
(g) as of the date of the execution of this Subscription Agreement and
closing of the Subscription, there have been no material, adverse changes in the
Company's assets, prospects, operations or financial condition since the
applicable dates of the aforementioned reports, proxy statements, documents, and
other information distributed by the Company.
(4) Securities Law Restrictions on Transfers
----------------------------------------
The Purchaser understands that the offer and/or sale of the Shares to the
Purchaser is not required to be registered under the Securities Act of 1933 (the
"1933 Act") by reason of a specific exemption for the offer and sale of the
Shares under the provisions of Regulation D promulgated by the Securities and
Exchange Commission. The Purchaser further understands that, except as provided
in paragraph (5) below, the Company has not agreed to register the Shares for
distribution and/or resale in accordance with the provisions of the 1933 Act or
the Securities Exchange Act of 1934 (the "1934 Act"), or to register the Shares
for distribution and/or resale under any applicable state securities laws.
Hence, it is the Purchaser's understanding that by virtue of the provisions of
certain rules respecting "restricted securities" promulgated under such federal
and/or state laws, unless such secondary distribution and/or resale is
registered as provided in paragraph (5) below, the Shares which the Purchaser is
purchasing by virtue of this Subscription Agreement must be held indefinitely
and may not be sold, transferred, pledged, hypothecated or otherwise encumbered
for value, unless and until such secondary distribution and/or resale is
subsequently registered under such federal and/or state securities laws or
unless an exemption from registration is available, in which case the Purchaser
still may be limited as to the amount of the Shares that may be sold,
transferred, pledged and/or encumbered for value.
The Purchaser, therefore, agrees that any certificates evidencing the
Shares received by the Purchaser by virtue of this Subscription Agreement shall
be stamped or otherwise imprinted with a conspicuous legend to give notice of
the securities law transfer restrictions set forth herein and the Purchaser
acknowledges that the Company may cause stop transfer orders to be placed on the
Purchaser's account. The legend shall be in substantially the following form:
NO SALE, OFFER TO SELL, OR TRANSFER OF THE COMMON SHARES
REPRESENTED BY THIS CERTIFICATE SHALL BE MADE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE PROPOSED TRANSFER
IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND IS IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.
(5) Registration Rights
-------------------
(a) Registration Rights; Requests for Registration.
(1) The Purchaser shall be entitled at any time after the
expiration of the six month period immediately following September 30, 1995 to
make a written request that the Company register for resale under the 1933 Act,
all or any number of the Shares, provided that with respect to any such request,
the Company shall not be required by the registration rights granted under this
Section (5) to file a Registration Statement or cause a filed Registration
Statement to become effective if such filing, in compliance with and pursuant to
the regulations and rules contained in Regulation S-X dealing with the age of
financial statements at the effective date of a registration statement, would
require the Company to include in such Registration Statement audited financial
statements of the Company which, but for such request, would not otherwise have
been required, in compliance with such applicable rules and regulations, to have
been furnished by the Company in the normal course of its business and
operations. Any registration requested pursuant to this paragraph (5)(a)(1) is
referred to herein as the "Demand Registration".
The Purchaser understands that the Company sold Five Hundred
Thousand (500,000) of its $.01 par value common stock to other "accredited
investors" in a private placement on October 4, 1995. The Purchaser further
understands that such other investors have been granted rights which, if a
majority of the aggregate number of those shares sold so request, would enable
the holders thereof to request registration of their shares (the "Registerable
Shares"). Within thirty days after receipt of the Purchaser's registration
request, the Company will give written notice of such request to all the holders
of Registerable Shares and will include in such registration all Registerable
Shares with respect to which the Company has received written requests for
inclusion therein within 15 days after the Company's notice is mailed.
For purposes of the Purchaser's right to demand registration, a
registation will not count as a Demand Registration until (i) it has become
effective and (ii) the Purchaser is able to sell the Shares requested to be
included in such registration. Any Demand Registration shall be made on a short
registration form (on Form S-3 or any similar short registration form) whenever
the Company is permitted under applicable rules promulgated by the Securities
and Exchange Commission to use such short form.
(2) Whenever the Company proposes to register (either on its own
behalf or on behalf of holders of its equity securities other than the Shares)
any of its equity securities under the 1933 Act including the Registerable
Shares (other than pursuant to the registrations of equity securities to be sold
under one or more of the Company's employee benefit plans on Form S-8), and the
registration form to be used may be used for a registration of the Shares, the
Company will give prompt written notice to Purchaser and to the holders of the
Registerable Shares of its intention to effect such a registration and will
include in such registration, the Purchaser's and all Registerable Shares with
respect to which the Company has received written request by the Purchaser and
by the holders of the Registerable Shares for inclusion therein within 30 days
after the mailing of the Company's notice. Any registrations requested pursuant
to this paragraph (5)(a)(2) are referred to herein as "Piggyback Registrations".
(b) The Demand Registration
(1) Priority of Demand Registration
The Company will not include in the Demand Registration any
other of its equity securities without the written consent of the Purchaser. If
a Demand Registration is an underwritten offering, and the managing underwriters
of such offering advise the Company in writing that, in their opinion, the
number of the Shares, the Registerable Shares and other equity securities to be
included exceeds the number of the Shares, Registerable Shares and other equity
securities which can be sold in such offering, the Company will include in such
registration prior to the inclusion of the Registerable Shares and any other of
the Company's equity securities, the Shares without regard to the inclusion of
any Registerable Shares and/or other equity securities. If in the opinion of
the managing underwriters a number of Registerable Shares requested to be
included in such registration can be sold (in addition to all of the Shares
requested to be sold), such Registerable Shares shall be included pro rata among
the respective holders thereof based on a fraction, with respect to each holder,
the numerator of which is the number of Registerable Shares requested to be sold
by such holder, and the denominator of which is the number of Registerable
Shares requested to be included in such Demand Registration by all holders of
the Registerable Shares.
(2) Restrictions on Demand Registration.
The Company will not be obligated to effect more than two
Demand Registrations. Further, the Company will not be obligated to effect any
Demand Registration within three months after the effective date of a
registration in which the Purchaser exercised its "piggyback registration"
rights pursuant to paragraph (5)(a)(2) hereof and all of the Shares requested by
the Purchaser to be included in the registration were so included.
(3) Selection of Underwriters
The Company shall have the exclusive right to select the
underwriter(s), including the exclusive right to designate the managing
underwriter(s), with respect to any Demand Registration offering, provided that
such selection is acceptable to the Purchaser, which acceptance shall not be
unreasonably withheld.
(4) Expenses of the Demand Registration
The Company shall pay all expenses incident to any Demand
Registration, including, without limitation, all registration and filing fees,
fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, and fees and disbursements of counsel
for the Company and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by the Company
in connection with any Demand Registration. The Purchaser will be required to
pay its pro rata share of any underwriter and/or brokerage commissions
attributable to the inclusion of the Shares in the Demand Registration.
(c) Piggyback Registration.
(1) Priority on Primary Registrations.
If a Piggyback Registration is an underwritten primary
registration on behalf of the Company, and the managing underwriters advise the
Company in writing that, in their opinion, the number of equity securities
requested to be included in such registration exceeds the number which can be
sold in such offering, the Company will include in such registration (i) the
equity securities the Company proposes to sell, (ii) the Shares and the
Registerable Shares requested to be included in such Piggyback Registration, pro
rata among the holders thereof, based upon a fraction, with respect to each
holder, the numerator of which is the number of shares requested to be sold by
such holder, and the denominator of which is the total number of the Purchaser's
and the Registerable Shares requested to be included in such Piggyback
Registration by the Purchaser and by all holders of the Registerable Shares and
(iii) any other equity securities requested to be included in such registration.
(2) Priority on Secondary Registrations.
If a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's equity securities (other than
the Purchaser or the holders of the Registerable Shares in their capacity as the
Purchaser or as holders of the Registerable Shares), and the managing
underwriters advise the Company in writing that, in their opinion, the number of
equity securities requested to be included in such registration exceeds the
number which can be sold in such offering, the Company will include in such
registration (i) the equity securities to be sold in the secondary offering by
the holders of the Company's equity securities requesting such registration,
(ii) the Purchaser's Shares and the Registerable Shares requested to be included
in such Piggyback Registration, pro rata among the holders thereof based upon a
fraction, with respect to each holder, the numerator of which is the number of
shares requested to be sold by such holder and the denominator of which is the
total number of the Purchaser's and the Registerable Shares requested to be
included in such Piggyback Registration by the Purchaser and by all holders of
Registerable Shares, and (iii) any other equity securities requested to be
included in such registration.
(3) Expenses of Piggyback Registrations
The Company shall pay all expenses incident to the Piggyback
Registration, including, without limitation, all registration and filing fees,
fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, and fees and disbursements of counsel
for the Company and all independent, certified public accountants, underwriters
(excluding discounts and commissions) and any other persons retained by the
Company in connectiion with such Piggback Registrations. The Purchaser will be
required to pay its pro rata share of any underwriter and/or brokerage
commissions attributable to the inclusion of the Shares in the Piggyback
Registration.
(d) Other Registrations
If the Company has previously filed a registration statement with
respect to the Shares pursuant to a Demand Registration and if such previous
registration has not been withdrawn or abandoned, the Company will not file or
cause to be effective any other registration statement with respect to any of
its equity securities or securities convertible or exchangeable into or
exercisable for its equity securities under the 1933 Act (except with respect to
securities to be sold under any of the Company's employee benefit plans
registered on Form S-8), whether on its own behalf or at the request of any
holder or holders of such securities, until a period of at least six months has
elapsed from the effective date of such previous Demand Registration.
(e) Holdback Agreement.
(1) Provided the Company, its Directors and its Officers agrees as
provided in Section 5(e)(2) below, the Purchaser agrees not to effect any public
sale or distribution of equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and the ninety day period beginning on the effective date of
any underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten Registration), unless the underwriters
managing the registered Demand or Piggyback public offering otherwise agree.
This restriction shall not apply in the case of the Shares which have been
registered previously in either the Demand or a Piggyback Registration.
(2) The Company agrees, and shall cause its Directors and Officers
to agree, not to effect any public sale or distribution of its equity
securities, or any securities convertible into or exchangeable or exercisable
for such securities, during the seven days prior to and the ninety day period
beginning on the effective date of any underwritten Demand Registration or any
underwritten Piggyback Registration (except as part of such underwritten
registation or with respect to sales of its securities under any employee
benefit plan pursuant to registration on Form S-8), unless the underwriters
managing the registered Demand or Piggyback public offering otherwise agree.
(f) Scope of Registration Rights; Registration Procedures.
The Company's registration obligations under this Subscription
Agreement are "best efforts" obligations only. Whenever the Purchaser has
requested that any Shares be registered (either Demand or Piggyback), the
Company will use its best efforts to effect the registration and the sale of
such Shares with the intended method of disposition thereof, and pursuant
thereto the Company will as expeditiously as possible:
(1) Prepare and file with the Securities and Exchange Commission a
registration statement (which shall be, to the extent the Company is permitted
to do so under applicable rules promulgated by the Securities and Exchange
Commission, a short-form registation statement) with respect to such Shares and
use its best efforts to cause such registration statement to become effective;
(2) Prepare and file with the Securities and Exchange Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective as permitted by Rule 415 promulgated by the
Securities and Exchange Commission and comply with the provisions of the 1933
Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended method
of distribution by the sellers thereof set forth in such registration statement;
(3) Furnish to each Purchaser such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus,
if any) and such other documents as such Purchaser may reasonably request in
order to facilitate the disposition of the Shares, including copies of any legal
opinions and other "comfort" letters that counsel may prepare in connection with
the registration of such Shares;
(4) Use its best efforts to register or qualify such Shares in
such jurisdictions as any Purchaser reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable such
Purchaser to consummate the disposition in such jurisdictions of the Shares
provided that the Company will not be required to
(i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this subparagraph;
(ii) subject itself to taxation in any jurisdiction
where it would not otherwise be subject to taxation but for this
subparagraph;
(iii) consent to general service of process in any
jurisdiction where it would not otherwise be subject to process but for
this subparagraph;
(5) notify the Purchaser at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the happening of any
event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading, and, at the request of the
Purchaser, the Company will prepare a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such Shares, such
prospectus will not contain an untrue statement of material fact or omit to
state any fact necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading;
(6) enter into any such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the Purchaser or the underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of such registered Shares;
(7) make available for inspection by any Purchaser, any
underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors,
employees and independent accountants to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement and cause the Company's attorneys
and accountants to deliver legal opinions and comfort letters to the Purchaser
which have been delivered in connection therewith.
(g) Indemnification.
(1) The Company agrees to indemnify and hold harmless, to the
extent permitted by law, the Purchaser, each underwriter of such Shares, its
members and managers and each person who controls such person or entity (within
the meaning of the 1933 Act) against all losses, claims, damages, liabilities
and expenses which arise out of or are based on any untrue statement or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or any amendment thereto or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading or in violation of
the 1933 Act or Blue Sky laws except insofar as the same are caused by or
contained in any information furnished in writing to the Company by such holder
expressly for use therein or by such holders' failure to deliver a copy of the
registration statement or prospectus or any amendments of supplements thereto
after the Company has furnished such holder with a sufficient number of copies
of the same;
(2) In connection with any registration statement in which the
Purchaser is participating, the Purchaser will furnish to the Company in writing
such information and affidavits as the Company reasonably requests for use in
connection with any such registration statement or prospectus and, to the extent
permitted by law, will indemnify the Company, its directors and officers and
each person who controls the Company (within the meaning of the 1933 Act)
against any losses, claims, damages, liabilities and expenses resulting from any
untrue statement of material fact contained in the registration statement,
prospectus or preliminary prospectus or any statement thereof or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading or in violation of
the 1933 Act or Blue Sky laws, but only to the extent that such alleged untrue
statement or omission is contained in any information or affidavit so furnished
in writing by such holder; provided that the obligation to indemnify as set
forth herein will be several, not joint and several, among such holders of
Shares and the liability of each such holder of Shares will be in proportion to
and limited to the net amount received by such holder from the sale of the
Shares pursuant to such registration statement;
(3) Any person entitled to indemnification hereunder will
(i) give prompt written notice to the indemnifying
party of any claim with respect to which such person seeks
indemnification, provided, however, that the failure to give such notice
will not relieve the indemnified party of any liability hereunder, and
(ii) unless in such indemnified party's reasonable
judgment, a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit the indemnifying
party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without its consent, but such consent will
not be unreasonably withheld. An indemnifying party who is not entitled
to or elects not to assume the defense of the claim, will not be obligated
to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim unless
in the reasonable judgment of any indemnified party, a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
6) Company's Right of First Refusal
--------------------------------
Reference is hereby made to the Company's right of first refusal contained
in the subscription agreement between the parties hereto dated September 22,
1995. The Purchaser agrees that if the Purchaser desires to sell Shares which,
together with any shares the Purchaser desires to sell governed by the Company's
right of first refusal contained in the September 22, 1995 agreement, represent
7.5 percent or more of the Company's issued and outstanding common stock to the
same purchaser or to any affiliated group of purchasers within the meaning of
Section 13 of the 1934 Act, in one or more related privately negotiated
transactions, the Purchaser shall first offer the Shares constituting such
percentage for sale to the Company to be purchased by the Company. Every such
offer to sell any or all of the Shares and the price of the Shares to the
Company, shall be set forth in writing. Such price shall reflect a bona fide
offer to the Purchaser (which offer shall be affirmed in writing by the
Purchaser and/or its counsel, to the reasonable satisfaction of the Company).
The Company shall have the right, within twenty-four (24) hours after the
receipt by it of such written offer by the Purchaser, to purchase the Shares
offered for sale by the Purchaser. Such purchase shall be made by the Company
by its tendering the full purchase price for the Shares for which the written
offer is received by means of a certified check, bank draft made payable to the
Purchaser, or by federal funds wire transfer to the Purchaser or to its
designee. Payment shall be made to the Purchaser or to its designee within
twenty (20) days after the receipt of the written offer by the Purchaser to sell
the Shares.
It is expressly agreed that if the Company shall have refused in writing,
or shall have failed to accept the offer by the Purchaser for it to purchase all
of the Shares offered for sale within the twenty-four hour period above
specified, then all such non-accepted Shares of the Purchaser shall be free from
the provisions of this Section.
It is expressly agreed that immediately after the date which is two years
from September 22, 1995, the percentage referred to in the first sentence of
this Section (6) shall be 10%.
The Purchaser covenants and agrees that prior to registering the transfer
of greater than fifty percent (50%) of its membership interests to any person or
entity that does not own, or is not a beneficiary of any trust that owns,
membership interests on the date hereof (whether in one or more transactions),
it will require such transferee to agree in writing to be bound by the
provisions of Section (6) hereof. In addition, the Purchaser covenants and
agrees that prior to any distribution, by way of dividend or otherwise, of any
of the Shares to any member thereof, the Purchaser shall require such member to
agree in writing to be bound by the provisions of Section (6) hereof.
The Purchaser agrees that a legend reflecting the Company's right of first
refusal as set forth herein shall be affixed to the certificate(s) represent the
Shares.
(7) Notices
-------
Any notices or other communication required or permitted herein shall be
sufficiently given if sent by registered or certified mail, postage prepaid,
return receipt requested, and if to the Company, to the address set forth above,
and if to the Purchaser, to the address set forth below the Purchaser's
signature hereto, or to such other addresses as the Company or the Purchaser
shall designate to the other by notice in writing, with copies of any such
notices or other communication sent to:
If to the Purchaser: Eliot Lauer, Esq.
Curtis, Mallet-Prevost, Colt
& Mosle
101 Park Avenue
New York, New York 10178
If to the Company: Robert Oppenheimer, Esq.
Chamberlain, D'Amanda, Oppenheimer
& Greenfield
1600 Crossroads Office Building
Rochester, New York 14614
(8) Successors and Assigns
----------------------
This subscription for Shares and Subscription Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and to the successors
and assigns of the Company and to the personal and legal representatives of the
Purchaser, and to the extent applicable, its successors and assigns.
(9) Applicable Law
--------------
Except when an interpretation of federal and/or state securities laws is
necessary or such law governs, this Subscription Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
(10) Certification with Respect to Federal Dividend and Interest Payments;
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Back-up Withholding
-------------------
Under penalties of perjury, the Purchaser hereby certified to the
-----------------------------------------------------------------
Company as follows:
-------------------
(a) The number shown below is the Purchaser's Social Security or
other taxpayer identification number and such number is the Purchaser's
correct taxpayer identification number; and
(b) the Purchaser is not subject to back-up withholding either
because the Purchaser has not been notified by the Internal Revenue
Service that the Purchaser is subject to back-up withholding as a result
of failure to report all interest or dividends, or the Internal Revenue
Service has notified the Purchaser that the Purchaser is no longer subject
to back-up withholding.
IN WITNESS WHEREOF, the Purchaser has executed and delivered this
Subscription Agreement as of this day of December, 1995.
----
Subscription: Six Hundred Thirty-Two Thousand (632,000) Shares of the $.01 par
value common stock of CPAC, Inc. at $11.00 per Share.
- ----------------------- ---------------------------------
Signature of Subscriber Residence and/or Business Address
- ----------------------- ---------------------------------
Typed or Printed Name City State Zip
- --------------------------------
Social Security or Tax
Identification No. of Subscriber
ACCEPTED:
CPAC, INC.
Dated: By:
----------------------- ----------------------
Thomas N. Hendrickson
President and Chief
Executive Officer
