FORM 10-Q
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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
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-9600
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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
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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
EXHIBIT INDEX 17
<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 outstanding 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, 1995MARCH 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 Septmeber, 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
EXHIBIT INDEX
-------------
EXHIBIT PAGE
- ------- ----
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 N/A
3. Articles of Incorporation, By-Laws
3.1 Certificate of Incorporation, as amended 18
3.2 By-laws, as amended, incorporated by reference to Form
10-K, filed for period ended March 31, 1989 N/A
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 N/A
9. Voting Trust Agreement N/A
10. Material Contracts N/A
10.1 Employment Agreement between Thomas N. Hendrickson and
CPAC, Inc. dated September 30, 1995 20
11. Statement re: Computation of Per Share Earnings (Loss) N/A
12. Statement re: Computation of Ratios N/A
13. Annual Report to Security Holders N/A
16. Letter re: Change of Certifying Accountant N/A
18. Letter re: Change in Accounting Principles N/A
21. Subsidiaries of the Registrant N/A
22. Published report regarding matters submitted to vote of
security holders N/A
23. Consent of Experts and Counsel N/A
24. Power of Attorney N/A
27. Financial Data Schedule 23
28. Information from reports furnished to state insurance
regulatory authorities N/A
99. Additional Exhibits
99.1 Agreement of Rescission, Repurchase and Settlement, dated
November 1, 1995 24
x
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statemnts of CPAC, Inc., for the period ending September 30, 1995, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000351717
<NAME> CPAC, INC
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 2,506,086
<SECURITIES> 0
<RECEIVABLES> 13,944,420
<ALLOWANCES> 746,000
<INVENTORY> 13,148,709
<CURRENT-ASSETS> 30,675,306
<PP&E> 21,437,274
<DEPRECIATION> 5,811,682
<TOTAL-ASSETS> 58,622,227
<CURRENT-LIABILITIES> 11,359,686
<BONDS> 10,241,411
<COMMON> 54,019
0
0
<OTHER-SE> 35,669,831
<TOTAL-LIABILITY-AND-EQUITY> 58,622,227
<SALES> 44,442,329
<TOTAL-REVENUES> 44,442,329
<CGS> 24,120,058
<TOTAL-COSTS> 24,120,058
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 641,503
<INCOME-PRETAX> 4,572,487
<INCOME-TAX> 1,842,000
<INCOME-CONTINUING> 2,730,487
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,730,487
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
</TABLE>
EXHIBIT 10.1
------------
EMPLOYMENT AGREEMENT
Agreement made this 20th day of September, 1995, between CPAC, INC., a
corporation organized and existing under the laws of the State of New York (the
"Corporation"), and THOMAS N. HENDRICKSON, residing at 5 Simmons Rd., Perry, New
York 14530 (the "Employee").
WITNESSETH:
That in consideration of the mutual covenants and obligations hereinafter
set forth, the parties hereto agree as follows:
1. The Corporation hereby employs the Employee, and the Employee agrees
to serve the Corporation, for a term beginning on September 20, 1995 for a term
of five (5) years, which term shall automatically be extended for an additional
one (1) year period on each of the first three anniversary dates, provided that
Employee is in the employ of the Corporation on that date.
2. So long as this agreement shall continue in effect, the Employee
shall devote his full business time and energies to the business and affairs of
the Corporation; use his best efforts, skill and abilities to promote its
interest; serve as a director and officer of the Corporation if elected by the
board of directors; and perform such duties as may be assigned to him by such
board of directors.
3. Subject to the control of the board of directors, the Employee's
principal areas of responsibility shall be those of Chief Executive Officer of
CPAC, Inc. The Corporation agrees that the duties assigned to the Employee
shall not be inconsistent therewith and that the Employee shall have such
executive powers and authority as shall reasonably be required to enable him to
discharge such duties in an efficient manner.
4. A. The Corporation shall pay the Employee for all services to be
rendered as hereinbefore set forth a basic salary at an annual rate of Three
Hundred Fifty Thousand Dollars ($350,000.00), payable in twenty-six (26)
installments. The Employee shall also be entitled to all rights and benefits
for which he shall be eligible under any stock option plan, bonus, participation
or extra compensation plans, pensions, group insurance or other benefits which
the Corporation may provide for him or for its employees generally. This
agreement shall not be deemed abrogated or terminated if the Corporation, in its
discretion shall determine to increase the compensation of the Employee for any
period of time, or if the Employee shall accept such increase. Employee shall
receive an increase in base pay each year equal to the percent of increase given
to other senior officers of the Corporation, or such other greater percent as is
determined by the Board of Directors. He will be entitled prior to the start of
each calendar year to advise the Board if he wishes any portion or all of his
compensation to be paid to the Rabbi Trust now in existence for him, or in the
alternative, paid in the form of restricted shares of the Corporation.
B. In addition to his salary, Employee shall participate in the
Corporation's Incentive Compensation Plan. His `Bonus Target'' each year as
defined in the Plan will be 75% of his salary. If the Corporation meets
earnings per share objectives established from time to time by the Board of
Directors, he will be entitled to earn the same percent of his Bonus Target as
is earned by other members of senior management pursuant to the plan.
5. The Corporation shall pay or reimburse the Employee for all
reasonable traveling and other expenses incurred or paid by the Employee in
connection with the performance of his services under this agreement upon
presentation of expense statements or vouchers and such other supporting
information as it may from time to time request; provided, however, that the
amount available for such traveling and other expenses may be fixed in advance
by the board of directors.
6. Any and all improvements, designs, drawings and patentable concepts
developed by the Employee so long as he shall remain in the employ of the
Corporation shall belong to the Corporation; and in the event that the Employee
is discharged for cause, or resigns or departs from the employ of the
Corporation without the approval of the Board of Directors for a period of
twenty-four (24) months after such discharge, resignation or departure, any
and all improvements, designs, drawings and patentable concepts which are
developed by the Employee as a direct result of his relationship to the
Corporation during such employment, shall belong to the Corporation also; and
the Employee shall make such applications and assignments as may in the opinion
of the Corporation be necessary for the purpose.
7. During the term of this agreement and of any payments pursuant to
this agreement, and for a period of twenty-four (24) months thereafter, the
Executive shall not directly or indirectly use or make available to any person,
firm or corporation the knowledge of the products and business of the
Corporation or any of its subsidiaries gained by him during the period of his
employment, whether the Employee be acting as individual, partner, stockholder,
director, officer, engineer, draftsman, principal, agent, employee, trustee or
consultant, or in any other relationship or capacity as provided in this
agreement.
The Executive shall keep confidential any and all information obtained by
him in the course of his employment about the Corporation or any of its
subsidiaries and its affairs, its relationship to actual and potential
customers, and the needs and requirements of any such actual or potential
customers.
8. During the term of this agreement and of any payments pursuant to
this agreement, and for a period of twenty-four (24) months after such
resignation, departure or discharge, the Employee shall not directly or
indirectly enter the employ of or render any service to, any person,
partnership, association or corporation engaged in the businesses of CPAC, Inc.,
or its subsidiaries; he shall not engage in any such business on his own
account; and he shall not become interested in any such business directly or
indirectly as an individual, partner, shareholder, director, officer, principal
agent, employee, trustee, consultant, or in any other relationship or capacity.
9. In the event of Employee's disability, his salary shall be continued
for the remainder of the contract term in effect at the time of his disability,
but he will not be entitled to bonus for the period after his disability other
than a bonus payable at the end of the fiscal year in which he becomes disabled
prorated on the basis of the number of days in which he was employed.
10. If Employee's services are terminated by the Corporation for any
reason other than his willful participation in an activity known by him to be
contrary to the interests of the Corporation he will:
A. For the duration of the contract term in effect on the date of
his termination without further extension, receive a salary equal to his salary
at the time of termination, with annual increments equal to the percent increase
given other senior officers of the Corporation.
B. Receive annually during such term a bonus equal to the highest
annual bonus which he received in the three (3) fiscal years of the Corporation
immediately preceding his termination.
C. Be granted non-qualified stock options at the price and for the
term of the qualified options which he holds at the date of termination, which
options shall be effective upon the first date when he can no longer exercise
his qualified stock options.
11. This agreement shall extend to and be binding upon the Employee, his
legal representative, heirs, and distributees, and upon the Corporation, its
successors and assigns, and the term "Corporation" as used herein shall include
such successors and assigns.
12. This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this agreement
which are not set forth herein. No modification of this agreement shall be
valid unless made in writing and signed by the parties hereto.
13. The waiver or breach of any term or condition of this agreement shall
not be deemed to constitute the waiver of any other breach of the same or any
other term or condition.
14. Both parties have agreed that a breach by the Employee of the
covenants contained herein would cause the Corporation to suffer loss which
could not be compensated for adequately by damages and that, in addition to
claiming damages in respect of any breach of such covenants, the Corporation
shall be entitled as a matter of right to seek an injunction against the
Employee and such right shall be cumulative and in addition to any other
remedies which may be available to the Corporation as a result of such breach.
15. This agreement shall be construed in accordance with the laws of the
State of New York.
IN WITNESS WHEREOF, the Corporation has caused this agreement to be
executed by its officers thereunto duly authorized and its corporate seal to be
hereunto affixed, and the Employee has hereunto set his hand and seal, all as of
the day and year first above written.
CPAC, INC.
By: /s/ Robert C. Isaacs
---------------------------------
Vice-President
[corporate seal]
attest:
/s/ Robert Oppenheimer
- ------------------------------------
Secretary
/s/ Thomas N. Hendrickson
- ------------------------------------
Employee
EXHIBIT 3.1
-----------
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
CPAC, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
The undersigned being the President and Secretary of CPAC, Inc., do hereby
certify and set forth:
1. The name of the Corporation is CPAC, Inc. The name under which the
Corporation was originally formed is Computerized Pollution Abatement
Corporation.
2. The Certificate of Incorporation of the Corporation was filed by the
Department of State on March 27, 1969.
3. The Certificate of Incorporation is hereby amended to effect an
increase in the aggregate number of shares the Corporation has the authority to
issue. Article 7 of the Certificate of Incorporation is hereby amended to add
an additional five million (5,000,000) shares of common stock at $.01 par value
to the existing five million (5,000,000) shares of common stock at $.01 par
value.
To effect these changes, Article 7 of the Corporation's
Certificate of Incorporation is hereby amended to read as follows:
"7. The aggregate number of shares which this Corporation shall
have authority to issue is ten million (10,000,000) common shares,
$.01 par value."
4. This amendment to the Certificate of Incorporation was authorized by
the unanimous vote of the Board of Directors followed by the affirmative vote of
the holders of a majority of all issued and outstanding shares entitled to vote
thereon at the Annual Meeting of Shareholders duly called and held on
August 9, 1995, a quorum being present.
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
17th day of August, 1995, and affirm under penalties of perjury that the
foregoing statements are true and complete.
/s/ Thomas N. Hendrickson
-----------------------------
Thomas N. Hendrickson, President
/s/ Robert Oppenheimer
-----------------------------
Robert Oppenheimer, Secretary
EXHIBIT 99.1
------------
AGREEMENT OF RESCISSION, REPURCHASE AND SETTLEMENT
THIS AGREEMENT OF RESCISSION, REPURCHASE AND SETTLEMENT dated as of
November 1, 1995 is by CPAC Investors, L.L.C., a limited liability company
organized under the laws of the State of Delaware, with its principal business
and office address located at 1209 Orange Street, Wilmington, Delaware 19801
("CPAC Investors") and CPAC, Inc., a New York business corporation with its
principal business headquarters located at 2364 Leicester Road, Leicester, New
York 14481 (the "Company").
WITNESSETH:
WHEREAS, on September 25, 1995, the Company sold and CPAC Investors
purchased, in a private placement, 1,000,000 shares of the $.01 par value common
stock of the Company at $11.00 per common share, pursuant to the terms and
conditions of a Subscription Agreement executed by the parties hereto on
September 22, 1995; and
WHEREAS, on October 4, 1995, the Company sold and certain other accredited
investors unrelated to CPAC Investors purchased, in a second private placement,
500,000 shares of the Company's $.01 par value common stock at $11.00 per common
share, pursuant to the terms and conditions of subscription agreements executed
by the Company and such other accredited investors on October 4, 1995; and
WHEREAS, in conjunction with its review of the Company's Current Report
(Form 8-K) reporting both placements, received by The NASDAQ Stock Market
("NASDAQ") on October 6, 1995, the Staff of NASDAQ (the "Staff") raised concerns
that, in accordance with certain provisions of the National Association of
Securities Dealers ("NASD") Bylaws dealing with corporate governance, prior
shareholder approval should have been obtained to the extent that the number of
shares sold in the placement equaled or exceeded 20% of the Company's pre-
placement issued and outstanding shares; and
WHEREAS, on October 17, 1995, the Company presented its position to the
Staff that the requisite shareholder approval for the entire number of shares
issued in the placements had been obtained; and
WHEREAS, on October 24, 1995, the Staff disagreed with the Company's
position and advised the Company that in order to remain listed as a National
Market Security on NASDAQ and in order to bring the Company into compliance with
the NASD Bylaw provisions governing shareholder approval of stock issuances in
certain circumstances, the Company should consider rescinding that portion of
the placement as equaled or exceeded 20% of the Company's pre-placement issued
and outstanding shares; and
WHEREAS, although the Company continues to believe that its position
regarding shareholder approval of both placements is correct, the Company has
concluded that the costs and uncertainties associated with an appeal and hearing
with respect to the Staff's conclusions outweigh the benefits to be derived
therefrom; and
WHEREAS, the Company believes that it is in its best interest that it
rescind the sale of that number of shares sold in the placements as equaled or
exceeded 20% of its pre-placement issued and outstanding shares; and
WHEREAS, based upon the Company's 4,341,114 pre-placement issued and
outstanding shares, the number of shares to be rescinded is 632,000 shares; and
WHEREAS, the parties to this Agreement continue to believe that the
purchase by CPAC Investors of all 1,000,000 shares at $11.00 per common share as
originally consummated was and continues to be in their mutual best interests;
and
WHEREAS, the Staff has stated that upon the consummation and final closing
of the rescission of the shares as described herein, a resale by the Company and
a repurchase by CPAC Investors of 632,000 common shares at $11.00 per share is
permissable under the NASD Bylaw corporate governance provisions, provided that
the shareholders of the Company approve such resale and repurchase prior to its
actual consummation.
NOW, THEREFORE, the parties to this Agreement hereby agree as follows:
(1) For the purpose of rescinding that portion of the private placement to
CPAC Investors dated September 25, 1995 of 1,000,000 shares of the Company's
$.01 par value common stock as in the opinion of the Staff require rescission,
the Company agrees to transfer to CPAC Investors, the sum of $6,952,000,
together with interest at the rate of 5.8% per annum commencing on September 25,
1995 to and including the date of the transfer of the funds. In consideration
therefor, CPAC Investors agrees to convey to the Company, 632,000 shares of the
Company's $.01 par value common stock presently owned by CPAC Investors. The
transfer to CPAC Investors of payment in exchange for the reconveyance of such
shares shall be made by way of wire transfer to CPAC Investors of immediately
available funds.
(2) Subject to the provisions of this Agreement and specifically, the
approval of the shareholders of the Company prior to its actual consummation,
the Company will sell and CPAC Investors will purchase 632,000 shares of the
Company's $.01 par value common stock at a purchase price of $11.00 per common
share, subject to and in accordance with the terms and conditions of a
subscription agreement similar to the Subscription Agreement entered into by the
parties to this Agreement dated as of September 22, 1995.
(3) Immediately upon the closing with respect to the rescission agreed to
herein, the Company shall use its best efforts to obtain the approval of its
shareholders for the consummation of the sale to CPAC Investors of 632,000
shares of the Company's $.01 par value common shares at $11.00 per common share
and to this end shall promptly call a special meeting of its shareholders for
the express purpose of soliciting shareholder approval for such transaction. In
connection therewith, the Company shall send to its shareholders and shall file
with the Securities Exchange Commission and The NASDAQ Stock Market a Notice of
Meeting, Proxy Statement and Form of Proxy prepared in accordance with
provisions of Section 14 of the Securities Exchange Act of 1934. The Company
agrees that such Proxy Statement shall contain a statement in which the Board of
Directors recommends that shareholders vote in favor of the purchase by CPAC
Investors of 632,000 shares at $11.00 per share. At such special shareholders'
meeting, the Company agrees that its proxy holders, to the extent not otherwise
directed, officers and directors will vote all of their shares in favor of the
purchase by CPAC Investors of 632,000 shares at a purchase price of $11.00 per
share. CPAC Investors agrees to vote its 368,000 shares in favor of such
proposal.
(4) It is agreed that in accordance with the provisions of the NASD
Bylaws, the minimum vote which will constitute shareholder approval for the sale
to CPAC Investors of 632,000 shares by the Company shall be a majority of the
total votes cast on the proposal in person or by proxy, a quorum being present
in person or by proxy at such special meeting.
(5) The parties agree that closing with respect to the repurchase
transaction shall occur within ten (10) days after approval of the Company's
shareholders shall have been obtained at the offices of the Company or such
other place and date as mutually agreed upon.
(6) The obligation of CPAC Investors to repurchase the 632,000 shares as
described herein is further conditioned upon the following:
(i) there being no material adverse changes in the Company's assets,
operations, prospects or condition (financial or otherwise) from the date of
this Agreement through and up to the actual date of closing of the repurchase of
such shares;
(ii) the approval by the Company's shareholders as described herein,
within one hundred twenty (120) days of the date of this Agreement;
(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 CPAC Investors may require, including without limitation, shareholder
approval, the due issuance, authority and enforceability with respect to the
issuance of said shares and that said issuance will not result in or constitute
a breach or violation by the Company.
(7) Except as set forth herein, each of the parties hereto releases and
discharges the other from all actions, suits, damages, judgments, liabilities,
expenses, costs, interest, penalties, claims and demands of whatever kind,
nature and amount arising out of the original sale of 1,000,000 common shares to
CPAC Investors without shareholder approval and any failure on the part of the
shareholders of the Company to approve the resale-repurchase transaction
described in Section (2) of this Agreement.
(8) The parties agree that each party shall bear the responsibility to
file or cause to be filed, all forms and/or documents necessary for such party
to comply with any and all federal and state securities laws rules and
regulations as well as the rules and regulations specified by the NASD Bylaw
provisions applicable to such party with respect to the rescission and/or the
repurchase contemplated by this Agreement.
(9) The Company agrees to pay CPAC Investors the sum of $75,000 to assist
with its fees and expenses. Such payment shall be made upon the execution of
this Agreement.
(10)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 to the addresses set forth above with copies of
any such notices or other communication sent to:
If to CPAC Investors: c/o 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
(11) This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and to the successors and assigns of the Company, its
affiliates and associates, and to the personal and legal representatives of CPAC
Investors, and to the extent applicable, its members, affiliates, associates,
successors, assigns and beneficiaries.
(12) This Agreement may be executed in any number of counterparts, all of
which shall constitute one and the same instrument, and any party hereto may
execute this Agreement by signing one or more counterparts.
(13) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the Company and CPAC Investors have executed and
delivered this Agreement as of this 1st day of November, 1995.
CPAC Investors, LLC
By:/s/ Eliot Lauer
----------------------------
Eliot Lauer
CPAC, Inc.
By:/s/ Thomas J. Weldgen
----------------------------
Thomas J. Weldgen
Chief Financial Officer
