<PAGE> 1
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:
[X] Preliminary Proxy Statement [ ] Confidential, for use of the Commission
[ ] Definitive Proxy Statement only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Panatech Research and Development Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
<TABLE>
<S> <C>
(1) Title of each class of securities to which transaction
applies: Common Stock and Class B Warrants
---------------------------------
(2) Aggregate number of securities to which transaction
applies: 4,930,300
---------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set
forth the amount on which the filing fee is calculated
and state how it was determined): $7.00 per Merger Agreement
---------------------------------
(4) Proposed maximum aggregate value of transaction: $34,512,100
---------------------------------
(5) Total fee paid: $6,902.40
---------------------------------
</TABLE>
[ ] 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 date of its filing.
<TABLE>
<S> <C>
(1) Amount Previously Paid:
---------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------
(3) Filing Party:
---------------------------------
(4) Date Filed:
---------------------------------
</TABLE>
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[PANATECH LETTERHEAD]
January 10, 1997
To All Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
Panatech Research and Development Corporation ("Panatech" or the "Company") at
_______________________________________________, Albuquerque, New Mexico, on
February 6, 1997, at 10:00 a.m. local time.
At the Special Meeting, stockholders will be asked to approve and adopt an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Panatech
will become a wholly owned subsidiary of Titan Enterprises, Inc. and each
outstanding share of Panatech Common Stock will be converted into the right to
receive $7.00 in cash (subject to reduction), without interest.
Panatech's Board of Directors has determined that the proposed merger is
fair to, and in the best interests of, Panatech and its stockholders. The Board
has unanimously approved the Merger Agreement and recommends that you vote in
favor of the Merger Agreement.
It is very important that your shares be represented at the Special
Meeting. Whether or not you plan to attend the Special Meeting, please be sure
to date, sign and return the proxy card in the enclosed envelope as promptly as
possible so that your shares may be represented at the Meeting and voted in
accordance with your wishes. This will not prevent you from voting your shares
in person if you subsequently choose to attend the Special Meeting. FAILURE TO
RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT. Please do not send
in your stock certificates at this time. You will be sent a letter of
transmittal for that purpose promptly after the merger is consummated.
Sincerely,
Arthur J. Rosenberg
Chairman of the Board
<PAGE> 3
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PANATECH RESEARCH AND DEVELOPMENT CORPORATION
P.O. BOX 23160
ALBUQUERQUE, NEW MEXICO 87192
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 6, 1997
To The Stockholders:
Notice is hereby given that a Special Meeting of Stockholders of Panatech
Research and Development Corporation, Inc. ("Panatech") will be held at
_______________________________________________________________________________,
Albuquerque, New Mexico, on February 6, 1997, at 10:00 a.m. local time, to vote
with respect to the approval and adoption of the Agreement and Plan of Merger
(the "Merger Agreement") described in the attached Proxy Statement pursuant to
which Panatech will become a wholly owned subsidiary of Titan Enterprises, Inc.
and each outstanding share of Panatech Common Stock will be converted into the
right to receive $7.00 in cash (subject to reduction), without interest.
You are urged to read the accompanying Proxy Statement which provides you
with a description of the terms of the proposed merger. A copy of the Merger
Agreement is included as Appendix A to the Proxy Statement.
Only stockholders of record at the close of business on January 8, 1997,
are entitled to notice of and to vote at the Special Meeting. The affirmative
vote of holders of a majority of the outstanding shares of Common Stock is
required to approve and adopt the Merger Agreement. Failure to vote in person or
by proxy at the Special Meeting will have the same affect as a vote against the
Merger Agreement.
We hope you will be represented at the meeting by signing and returning
the enclosed proxy card in the accompanying envelope as promptly as possible,
whether or not you expect to be present in person. Your proxy may be revoked at
any time by following the procedures set forth in the accompanying Proxy
Statement.
By Order of the Board of Directors,
James R. Hagan
Secretary
January 10, 1997
<PAGE> 4
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PROXY STATEMENT
OF
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 6, 1997
This Proxy Statement is being furnished to the holders of Common Stock,
par value $.01 per share (the "Panatech Shares"), of Panatech Research and
Development Corporation, a Nevada corporation ("Panatech" or the "Company"), in
connection with the solicitation of proxies by the Board of Directors of
Panatech for use at the Special Meeting of Stockholders (including any
postponements or adjournments thereof, the "Special Meeting") to be held on
February 6, 1997 at 10:00 a.m. at ______________________________________________
_____________________________, Albuquerque, New Mexico, and at any adjournments
or postponements thereof. The Board of Directors has fixed the close of business
on January 8, 1997 as the record date (the "Record Date") for the Special
Meeting with respect to this solicitation.
At the Special Meeting the stockholders will consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of
December 6, 1996, by and among Panatech, Titan Enterprises, Inc., a Delaware
corporation ("Titan"), and Panatech Acquisition Corporation, a Nevada
corporation and wholly owned subsidiary of Titan ("Merger Sub") (the "Merger
Agreement"), a copy of which is attached to this Proxy Statement as Appendix A.
Pursuant to the Merger Agreement, and subject to satisfaction of the conditions
set forth therein, (i) Merger Sub will be merged with and into Panatech (the
"Merger"), with Panatech continuing as the surviving corporation, (ii) Panatech
will become a wholly owned subsidiary of the Titan, and (iii) each outstanding
Panatech Share (other than shares owned by Titan, Merger Sub or subsidiaries of
Panatech, if any, which shares will be cancelled) will be converted, upon the
effectiveness of the Merger, into the right to receive $7.00 in cash per share,
without interest, subject to reduction (the "Merger Consideration"). See "THE
MERGER" and "THE MERGER AGREEMENT."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
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Stockholders are urged to read and consider carefully the information
contained in the Proxy Statement and to consult with their personal financial
and tax advisors.
This Proxy Statement, Notice of Special Meeting and the accompanying proxy
are first being mailed to stockholders on or about January 10, 1997.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN, AND
RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT IMPLY THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF
PANATECH, TITAN OR MERGER SUB SINCE THE DATE HEREOF.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder, and in accordance therewith files reports, proxy
statements, and other information with the Securities and Exchange Commission
(the "SEC"). Such reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and the SEC's regional offices located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and Suite 1300, Seven World Trade Center, New
York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC also maintains a Web site at http://www.sec.gov
that contains such reports, proxy statements and other information.
All information contained in this Proxy Statement concerning Titan and
Merger Sub has been supplied by Titan. Except as otherwise indicated, all other
information contained in this Proxy Statement has been supplied by the Company.
Unless the context otherwise requires, the terms "Panatech" and the "Company"
refer to Panatech Research and Development Corporation and its wholly owned
subsidiary, ASM Company, Inc.
2
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TABLE OF CONTENTS
Page
----
SUMMARY.............................................................. 5
THE SPECIAL MEETING.................................................. 14
Purpose of the Meeting......................................... 14
Voting Rights; Record Date..................................... 14
Solicitation of Proxies........................................ 15
Dissenters' Rights............................................. 15
THE MERGER........................................................... 16
General........................................................ 16
Stockholders' Representative................................... 16
Merger Consideration........................................... 17
Background of the Merger....................................... 18
Recommendation of the Board of Directors and Reasons
Therefor....................................................... 20
Opinion of Financial Advisor................................... 21
Exchange of Certificates for Merger Consideration.............. 25
Interests of Certain Persons in the Merger..................... 26
Certain Federal Income Tax Consequences of the Merger.......... 27
THE MERGER AGREEMENT................................................. 29
Representations and Warranties................................. 29
Business of Panatech Pending the Merger........................ 29
Effect on Stock Options and Warrants........................... 30
No Solicitation................................................ 31
Indemnification of Directors and Officers...................... 31
Conditions to the Merger....................................... 31
Amendment/Termination.......................................... 32
Fees and Expenses.............................................. 33
BUSINESS OF PANATECH................................................. 34
Business....................................................... 34
Properties..................................................... 36
Legal Proceedings.............................................. 36
MARKET PRICES OF COMMON STOCK........................................ 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................ 39
Three and Six Month Periods Ended September 30, 1996
Compared to September 30, 1995................................. 39
Fiscal 1996 Compared to Fiscal 1995............................ 40
Liquidity and Capital Resources................................ 41
3
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OWNERSHIP OF COMMON STOCK............................................ 43
INDEPENDENT PUBLIC ACCOUNTANTS....................................... 44
PANATECH CONSOLIDATED FINANCIAL STATEMENTS...........................F-1
APPENDIX A - Agreement and Plan of Merger
APPENDIX B - Opinion of Houlihan, Lokey, Howard & Zukin, Inc.
4
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SUMMARY
The following includes a summary of certain information contained
elsewhere in this Proxy Statement. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained in this
Proxy Statement and the Appendices hereto. Unless otherwise defined herein,
capitalized terms used in this summary have the respective meanings ascribed to
them elsewhere in this Proxy Statement. Stockholders are urged to read this
Proxy Statement and the Appendices hereto in their entirety.
THE SPECIAL MEETING
Time, Date, Place The Special Meeting will be held at 10:00 a.m.,
local time, on February 6, 1997, at ________________
___________________________________________________,
Albuquerque, New Mexico.
Record Date, Shares Holders of record of Panatech Shares at the close of
Entitled to Vote business on January 8, 1997 are entitled to notice
of, and to vote at the Special Meeting. At such date
there were outstanding Panatech Shares, each of
which is entitled to one vote on each matter to be
acted upon or which may properly come before the
Special Meeting.
Purpose of Special The purpose of the Special Meeting is to consider
Meeting and vote upon a proposal to approve and adopt the
Merger Agreement pursuant to which Panatech will
become a wholly owned subsidiary of Titan and each
outstanding Panatech Share will be converted into
the right to receive the Merger Consideration.
Vote Required Approval and adoption of the Merger
Agreement will require the affirmative vote of the
holders of a majority of the outstanding Panatech
Shares.
Dissenters' Rights Under Nevada law, stockholders have no dissenters'
or appraisal rights in connection with the Merger
Agreement and the consummation of the transactions
contemplated thereby.
5
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PARTIES TO THE MERGER AGREEMENT
Panatech Research Through its wholly owned subsidiary, ASM Company,
and Development Inc. ("ASM"), Panatech manufactures and sells
Corporation accessories for high-performance paint spraying
equipment to painting contractors and do-it-yourself
markets on a worldwide basis. Panatech's mailing
address is P.O. Box 23160, Albuquerque, New Mexico,
87192; its telephone number is (505) 271- 2200.
Titan Enterprises, Titan is a privately-owned company which produces
Inc. and sells a full range of airless and hydraulic
paint spraying systems and related products for the
painting contractor and industrial maintenance
markets. Its executive offices are located at 107
Bauer Drive, Oakland, New Jersey 07436; its
telephone number is (800) 526-5362
Merger Sub Merger Sub is a wholly owned subsidiary of Titan,
incorporated in Nevada solely for the purpose of the
Merger, and has engaged in no business other than
incident to its formation and the transactions
contemplated by the Merger Agreement. Its mailing
address is 107 Bauer Drive, Oakland, New Jersey
07436; its telephone number is (800) 526-5362.
6
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THE MERGER
General At the Effective Time (as defined below), pursuant
to the Merger Agreement (i) Merger Sub will be
merged with and into Panatech which will continue as
the surviving corporation and become a wholly owned
subsidiary of Titan, and (ii) each issued and
outstanding Panatech Share (other than certain
shares owned by Titan, Merger Sub or subsidiaries of
Panatech, if any, which shares will be cancelled)
will be converted into the right to receive the
Merger Consideration. The Merger Agreement also
provides for certain payments to be made in
connection with the cancellation of Panatech's
outstanding Class B Warrants and stock options.
Effective Time The Merger will become effective when articles of
merger are filed with the Secretary of State of
Nevada (the "Effective Time"). It is anticipated
that this filing will occur as promptly as
practicable after stockholder approval has been
obtained, assuming all other conditions to the
consummation of the Merger have been satisfied or
waived.
Merger The Merger Consideration will be $7.00 cash per
Consideration share, which amount will be reduced if, as of the
date for the closing of the transactions
contemplated by the Merger Agreement (the "Closing
Date"), the Quick Assets (as defined in the Merger
Agreement) of Panatech are less than the Target
Number (as defined in the Merger Agreement). The
determination of Quick Assets and the Target Number
will be made as soon after the Closing Date as
possible, pursuant to procedures, including binding
arbitration in the event of a dispute between the
parties, set forth in the Merger Agreement. See "THE
MERGER - The Merger Consideration."
7
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Stockholders' Upon their approval of the Merger Agreement, the
Representative stockholders will be deemed to have appointed James
R. Hagan, Secretary and legal counsel to Panatech,
as their agent and attorney-in-fact (the
"Stockholders' Representative") to take certain
actions to facilitate the determination of Quick
Assets pursuant to the Merger Agreement if Panatech
and Titan are unable jointly to agree on the
determination of Quick Assets and the Target
Number.
Recommendation of The Board of Directors of Panatech has determined
the Board of that the Merger is fair and in the best interests
Directors of Panatech and its stockholders. The Board of
Directors unanimously approved the Merger Agreement
and recommends a vote in favor of the approval and
adoption of the Merger Agreement by the stockholders
of Panatech. In determining to approve the Merger
Agreement and to recommend that the stockholders
approve the Merger Agreement, the Board of Directors
considered a number of factors, as more fully
described under "THE MERGER - Background of the
Merger" and "THE MERGER - Recommendation of the
Board of Directors and Reasons Therefor."
8
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Opinion of On December 4, 1996, Houlihan, Lokey, Howard &
Financial Advisor Zukin,Inc. ("Houlihan Lokey"), financial advisor to
Panatech, delivered its opinion to the Board of
Directors that, as of the date of such opinion, the
consideration to be received by the holders of
Panatech Shares, Class B Warrants and stock options
(assuming that Quick Assets equal the Target Number)
pursuant to the Merger Agreement is fair to the
holders of such securities from a financial point of
view. The full text of the opinion, which sets forth
the assumptions made, matters considered, and
limitations on the review undertaken in connection
with the opinion, is attached hereto as Appendix B
and is incorporated herein by reference.
Stockholders should read such opinion in its
entirety. See "THE MERGER - Opinion of Financial
Advisor."
No Solicitation Panatech has agreed that, without the prior written
consent of Titan, prior to the Effective Time,
Panatech will not initiate the direct and active
solicitation of any other party (other than Titan
and Merger Sub) for a proposal that such other party
merge with, consolidate, or acquire the capital
stock or substantially all of the assets of Panatech
or any of its subsidiaries (an "Acquisition
Transaction"); provided, however, that if Panatech,
without direct and active solicitation, receives
from any other party (other than Titan of Merger
Sub) a proposal with respect to an Acquisition
Transaction, then Panatech shall be entitled to
respond thereto in all appropriate ways consistent
with the fiduciary duties of the directors of
Panatech. Panatech has also agreed to advise Titan
of the receipt by it of any proposal from any other
party concerning an Acquisition Transaction.
9
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Termination; The Merger Agreement may be terminated at any time
Termination Fees prior to the Closing Date, notwithstanding
stockholder approval, by the mutual consent of Titan
and Panatech. The Merger Agreement may also be
terminated by action of either Panatech or Titan if
(i) the Merger has not been consummated by July 1,
1997; (ii) the approval of Panatech's stockholders
is not obtained; (iii) a permanent injunction or
other order prohibiting the Merger has become final
and nonappealable; or (iv) any of the conditions to
such party's obligations under the Merger Agreement
have not been met prior to June 4, 1997.
The Merger Agreement may be terminated by Titan in
certain circumstances in connection with a proposed
Acquisition Transaction between Panatech and a third
party or if Panatech's Board of Directors withdraws,
modifies or changes its approval or recommendation
of the Merger Agreement in a manner adverse to Titan
or Merger Sub.
The Merger Agreement may be terminated by action of
Panatech's Board of Directors at any time prior to
the Effective Time if the Board of Directors
determines in good faith on the advice of outside
counsel that its fiduciary duties require it to
approve an Acquisition Transaction with a third
party.
If the Merger Agreement is terminated under the
circumstances described in the two immediately
preceding paragraphs, Panatech has agreed to pay
Titan a fee equal to $994,843.75.
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Certain Federal The Merger will be a taxable transaction to
Income Tax Panatech's stockholders and warrantholders.
Consequences Stockholders and warrantholders will recognize gain
or loss in the Merger in an amount equal to the
difference between the cash received and their tax
basis in the Panatech Shares or Class B Warrants, as
the case may be, exchanged therefor. See "THE MERGER
- Certain Federal Income Tax Consequences of the
Merger."
Interests of In considering the recommendation of the Board of
Certain Persons in Directors with respect to the Merger Agreement,
the Merger stockholders should be aware that the directors and
executive officers of Panatech will receive economic
and other benefits as a result of the Merger,
including payment for the cancellation of
outstanding options, bonus payments and
indemnification arrangements. See "THE MERGER
Interests of Certain Persons in the Merger."
SECURITY OWNERSHIP As of the Record Date, Panatech's directors and
BY DIRECTORS AND executive officers beneficially owned, in the
EXECUTIVE OFFICERS aggregate, ______ Panatech Shares (excluding shares
issuable upon the exercise of options or Warrants),
representing ____% of the outstanding Panatech
Shares, and no Panatech Shares were beneficially
owned by Titan or Merger Sub. To the knowledge of
Panatech, its directors and executive officers
intend, but are not obligated, to vote their
Panatech Shares for the approval and adoption of the
Merger Agreement. See "OWNERSHIP OF COMMON STOCK."
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MARKET PRICES OF The Panatech Shares are traded on the Nasdaq
PANATECH SHARES National Market under the symbol "PNTC." On November
4, 1996, the last trading day before the public
announcement of the execution of a letter of intent
between Panatech and Titan with respect to the
proposed Merger, the reported closing sale price per
Panatech Share was $4.50. On January , 1997, a
recent trading day prior to the date of this Proxy
Statement, the reported closing sale price per
Panatech Share was $ . For additional information
concerning historical market prices of the Panatech
Shares, see "MARKET PRICES OF COMMON STOCK."
ACCOUNTING The Merger will be treated as a "purchase" for
TREATMENT accounting purposes.
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SELECTED FINANCIAL AND PER SHARE DATA OF PANATECH
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth certain historical consolidated financial
information and per share data of Panatech. The financial data for the 1996 and
1995 interim periods are derived from unaudited financial statements. The
following information should be read in conjunction with the consolidated
financial statements and notes thereto of Panatech appearing elsewhere in this
Proxy Statement.
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, March 31,
----------------- -------------------
1996 1995 1996 1995
------ ------ ------- -------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $5,959 $6,281 $11,325 $10,002
Gross profit 3,508 3,681 6,796 5,819
Selling, general and
administrative expenses 1,722 1,820 3,800 3,687
Net income 996 1,025 1,641 1,122
BALANCE SHEET DATA
Working capital 6,343 5,594 5,647 3,782
Total assets 9,205 8,865 9,234 8,342
Long-term debt, less
current portion 0 0 0 300
Shareholders' equity 8,352 7,481 7,784 5,441
COMMON STOCK DATA
Net income per share $ .25 $ .26 $ .41 $ .31
Cash dividends per share .10 .05 .20 .125
Net book value per share 2.06 1.87 1.94 1.52
Weighted average number
of shares outstanding 4,055 4,005 4,021 3,568
</TABLE>
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THE SPECIAL MEETING
PURPOSE OF THE MEETING
At the Special Meeting, the stockholders of Panatech will be asked to
consider and vote upon a proposal to approve and adopt the Merger Agreement
pursuant to which Panatech will become a wholly owned subsidiary of Titan and
each outstanding Panatech Share (other than the shares owned by Titan, Merger
Sub or subsidiaries of Panatech, if any, which shares will be cancelled) will be
converted into the right to receive the Merger Consideration. See "THE MERGER."
Panatech's Board of Directors has unanimously approved the Merger
Agreement and recommends a vote FOR approval and adoption of the Merger
Agreement. See "THE MERGER - Recommendation of the Board of Directors and
Reasons Therefor."
STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. IF THE MERGER IS APPROVED, STOCKHOLDERS WILL BE SENT A LETTER OF
TRANSMITTAL FOR THAT PURPOSE PROMPTLY AFTER THE MERGER IS CONSUMMATED. SEE "THE
MERGER - EXCHANGE OF CERTIFICATES FOR MERGER CONSIDERATION."
VOTING RIGHTS; RECORD DATE
The Board of Directors has established January 8, 1997 as the Record Date
to determine those holders of Panatech Shares entitled to notice of and to vote
at the Special Meeting. On that date, there were ________________ Panatech
Shares outstanding, with each Share entitled to one vote.
The presence, in person or by proxy, of the holders of a majority of the
outstanding Panatech Shares at the Special Meeting is necessary to constitute a
quorum. Abstentions will be treated as present with respect to the determination
of a quorum, but broker non-votes will not be treated as present for this
purpose.
The affirmative vote of the holders of a majority of the outstanding
Panatech Shares is required to approve the Merger Agreement. Abstentions and
broker non-votes have the effect of a vote against the Merger Agreement for
purposes of the required vote.
Panatech Shares represented by properly executed proxies received in time
for the Special Meeting will be voted in the manner specified by the holders
thereof. Proxies that do not contain voting instructions will be voted FOR
approval of the Merger Agreement. The persons named as proxies will have
authority to vote for the approval of one or more adjournments of the Special
Meeting to allow additional time for the solicitation of proxies to obtain a
quorum or to obtain sufficient votes to approve and adopt the Merger Agreement.
It is not expected that any other matter will be brought before the Special
Meeting. If, however, other matters are
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properly presented, the persons named as proxies will vote in accordance with
their judgment with respect to such matters.
Any stockholder has the right to revoke his or her proxy at any time prior
to the voting thereof at the Special Meeting by (i) filing a written revocation
with the Secretary of Panatech prior to the voting of such proxy, (ii) giving a
duly executed proxy bearing a later date, or (iii) attending the Special Meeting
and voting in person. Attendance by a stockholder at the Special Meeting will
not by itself revoke his or her proxy.
SOLICITATION OF PROXIES
Panatech will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by mail, the directors, officers and
employees of Panatech, without additional compensation, may solicit proxies by
telephone, telecopy or telegram or in person. Panatech has requested banking
institutions, brokerage firms, custodians, trustees, nominees and fiduciaries to
forward solicitation materials to the beneficial owners of Panatech Shares held
of record by such entities, and Panatech will, upon the request of such record
holders, reimburse reasonable forwarding expenses.
DISSENTERS' RIGHTS
Under Nevada law, stockholders have no dissenters' or appraisal rights in
connection with the Merger Agreement and the consummation of the transactions
contemplated thereby.
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THE MERGER
The following information, insofar as it relates to matters contained in
the Merger Agreement, is qualified in its entirety by reference to the Merger
Agreement, which is incorporated herein by reference and attached hereto as
Appendix A. Stockholders are urged to read the Merger Agreement in its entirety.
GENERAL
The Merger Agreement provides that, subject to the approval and adoption
of the Merger Agreement by Panatech's stockholders, approval by certain
regulatory authorities, and compliance with certain other covenants and
conditions, Merger Sub, a wholly owned subsidiary of Titan, will be merged with
and into Panatech, at which time the separate corporate existence of Merger Sub
will cease and Panatech will continue as the surviving corporation. Following
consummation of the Merger, Panatech, as the surviving corporation, will be a
wholly owned subsidiary of Titan.
The closing of the transactions contemplated by the Merger Agreement (the
"Closing") will occur no later than three business days after satisfaction or
waiver of all conditions to the consummation of the Merger, including
stockholder approval thereof (the "Closing Date"). The Effective Time of the
Merger will occur upon the filing of articles of merger with the Secretary of
State of the State of Nevada.
At the Effective Time, each issued and outstanding Panatech Share (other
than Panatech Shares owned by Titan, Merger Sub or any subsidiary of Panatech,
if any, which will be cancelled without the payment of any Merger Consideration)
will be converted into the right to receive the Merger Consideration. As of the
Effective Time, all Panatech Shares will no longer be outstanding and will be
automatically cancelled and retired and will cease to exist, and each holder of
a certificate previously representing any Panatech Shares shall cease to have
any rights with respect thereto, except the right to receive the Merger
Consideration, without interest. See "THE MERGER - Exchange of Certificates for
Merger Consideration."
STOCKHOLDERS' REPRESENTATIVE
The Merger Agreement provides that upon approval of the Merger by the
stockholders, the stockholders shall have been deemed to appoint James R. Hagan,
Secretary and legal counsel to Panatech, as their agent and attorney-in-fact
(the "Stockholders' Representative"), with full power and authority (including
power of substitution), except as otherwise expressly provided in the Merger
Agreement, in the name of and for and on behalf the stockholders,
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or in his own name as the Stockholders' Representative, to take certain actions
pursuant to the Merger Agreement (including giving and receiving all
accountings, reports, notices and consents) to facilitate the determination of
Quick Assets, if Panatech and Titan are unable jointly to agree on the
determination of Quick Assets and the Target Number. See, "MERGER
CONSIDERATION." Such authority shall be an agency coupled with an interest, and
all authority conferred shall be irrevocable and not subject to termination by
the stockholders or any of them, or by operation of law, whether by the death or
incapacity of any stockholder, the termination of any trust or estate, or the
occurrence of any other event. If any stockholder should die or become
incapacitated, if any trust or estate should terminate or if any other such
event should occur, any action taken by the Stockholders' Representative
pursuant to the Merger Agreement shall be as valid as if such death or
incapacity, termination or other event had not occurred, regardless of whether
or not the Stockholders' Representative or Titan shall have received notice of
such death, incapacity, termination or other event. Any notice given to the
Stockholders' Representative pursuant to the Merger Agreement shall constitute
effective notice to the stockholders. Any other party to the Merger Agreement or
any other person may rely on any notice, consent, election or other
communication received from the Stockholders' Representative as if such notice,
consent, election or other communication had been received from all
stockholders.
MERGER CONSIDERATION
Pursuant to the Merger Agreement, the Merger Consideration will be an
amount equal to $7.00 in cash, subject to reduction if the Quick Assets (as
defined below) of Panatech on the Closing Date are less than the Target Number
(as defined below). "Quick Assets" is defined to mean the excess of (i) cash
plus accounts receivable of Panatech on a consolidated basis over (ii) current
liabilities of Panatech on a consolidated basis. "Target Number" is defined in
the Merger Agreement as the sum of $4,362,000 plus the amount in cash received
by Panatech upon the exercise of stock options and Class B Warrants from
September 30, 1996 through the Closing Date, minus the amount of expenses
incurred by Panatech in connection with the Merger Agreement up to a maximum of
$225,000. See, "PANATECH'S CONSOLIDATED FINANCIAL STATEMENTS."
The Merger Agreement provides that on the Closing Date, Titan and Panatech
will seek to jointly determine Quick Assets and the Target Number. If they are
unable to agree, then as soon after the Closing Date as possible, the
Stockholders' Representative will prepare a statement of Quick Assets which will
be examined by Panatech's independent accountants. Within five business days
after the Closing Date, such accounting firm shall issue a report to Titan and
the Stockholders' Representative setting forth the results of its examination
and determination of Quick Assets and the Target Number. Titan's independent
accounting firm will have the opportunity to review the documents utilized in
the calculation
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of Quick Assets and the Target Number. If Titan disputes such calculations, it
must provide the Stockholders' Representative with a detailed written
explanation of the basis for its disagreement within five days. The parties will
then have 10 days to attempt to resolve in good faith any disagreements with
respect to the calculation of Quick Assets and the Target Number. If the parties
are unable to resolve their disagreement,the amount of Quick Assets and/or the
Target Number will be resolved by binding arbitration.
Upon the final determination of Quick Assets and the Target Number, by
agreement of the parties or binding arbitration as set forth above, if the
Target Number exceeds Quick Assets, the Merger Consideration amount will be
reduced pro-rata on the basis that all outstanding Panatech stock options and
Class B Warrants are deemed exercised in full at the Effective Time. For
example, if it were determined that Quick Assets as of the Closing Date were
$500,000 less than the Target Number, the Merger Consideration would be $6.90,
calculated as follows:
$34,512,000 (1) - $500,000 = $6.90
--------------------------
4,930,300 (2)
(1) The product of $7.00 times 4,930,300 (2).
(2) The sum of all outstanding Panatech Shares plus the Panatech Shares
issuable upon exercise of outstanding Panatech stock options and Class B
Warrants.
BACKGROUND OF THE MERGER
Panatech conducts its operations through ASM, which specializes in the
manufacture and world-wide sale of accessories for airless paint spraying
equipment to painting contractor and do-it-yourself markets. Titan Tool, Inc., a
wholly owned subsidiary of Titan, produces a full range of hydraulic and airless
paint spraying systems and related products for the industrial and contractor
markets. In April 1995, ASM filed a lawsuit against Titan Tool, claiming that a
new product recently introduced into the marketplace by Titan Tool infringes
three patents relating to ASM's primary ZIP-TIP product line. See "BUSINESS OF
PANATECH - Legal Proceedings." Thereafter, Titan Tool answered and filed certain
cross-claims against ASM. In September 1995, the parties agreed to dismiss all
claims against each other for financial damages and to submit all patent issues
to final and binding arbitration before the Honorable Sherman G. Finesilver, a
recently retired federal district court judge.
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The arbitration hearing was held in Denver, Colorado, in February and
March 1996. On June 11, 1996, before reaching his decision, Judge Finesilver
strongly recommended that the parties explore settlement, and he agreed to serve
as a settlement judge. The parties agreed to settlement discussions under a
protective order and in the context of a possible resolution of the patent
dispute. The first settlement discussions were held in Denver, Colorado, with
Judge Finesilver on July 25 and 26, 1996. Present at these discussions were
Arthur J. Rosenberg, President of Panatech, Robert J. Perret, Jr., President of
ASM, James R. Hagan, legal counsel to Panatech, Dean Harrison, President of
Titan Tool, and Gary Hoffman, legal counsel to Titan Tool. Although many
settlement alternatives were considered, Judge Finesilver advised the parties
that he believed that the only practical settlement approach would be a
combination of the two companies. A proposal involving the acquisition of Titan
Tool by Panatech was not pursued due to unacceptable financial considerations.
Titan, however, expressed interest in considering, pending further study, an
acquisition of Panatech. On August 15, 1996, at the Board of Directors'
organizational meeting held after the Annual Meeting of Stockholders, Panatech's
directors discussed the status of the settlement discussions and authorized Mr.
Rosenberg to continue exploratory discussions concerning a possible sale of the
Company.
Another settlement meeting was held on September 9, 1996 in Denver,
Colorado, at which were present Messrs. Rosenberg, Perret and Hagan, Samuel A.
Hamacher, Executive Vice President of Harbour Group Industries, Inc., the parent
of Titan, Robert W. Hull, Senior Vice President for Harbour Group, Ira H. Polon,
outside legal counsel for Harbour Group, and Judge Finesilver. At this meeting,
Titan proposed to acquire Panatech in a cash merger for $6.50 per share. Based
on the views expressed by the directors at the August 15, 1996 Board meeting,
Mr. Rosenberg rejected such proposal as inadequate. The parties, however, agreed
to continue their discussions and, to that end, Panatech agreed to permit Titan
a limited confidential examination of its operations. Titan representatives met
with Messrs. Rosenberg and Perret at ASM to review ASM's business on October 2
and 3, 1996, and the parties continued their discussions.
On October 11, 1996, Mr. Hamacher telecopied to Mr. Rosenberg a proposed
confidential letter of intent for the acquisition of Panatech in a cash merger
for $7.00 per share. Panatech's Board of Directors held a meeting in Los
Angeles, California, on October 26, 1996 to consider Titan's proposed letter of
intent. After presentations by legal counsel and Houlihan Lokey, and after due
consideration of various factors, certain of which are more fully discussed
under "Recommendation of the Board of Directors and Reasons Therefor" below, the
Board of Directors authorized Mr. Rosenberg to continue further negotiations
with Titan with a view
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to executing a letter of intent on the terms approved at such meeting.
On November 4 and 5, 1996, the parties signed a letter of intent for a
cash merger at $7.00 cash per share, subject to reduction, which was subject to
certain conditions, including the execution of a definitive merger agreement,
approval by the Boards of Directors of both companies and Panatech's
stockholders, receipt by Panatech of a fairness opinion, receipt of requisite
regulatory approvals, approval by the lenders to Titan and continued due
diligence. The letter of intent did not prohibit Panatech from engaging in
discussions or negotiations with third parties concerning an acquisition of
Panatech, and Panatech agreed, on certain conditions, to pay Titan a fee if
Panatech were acquired by a third party. See "THE MERGER AGREEMENT - Fees and
Expenses." Panatech issued a public announcement following the execution of the
letter of intent.
Following the execution of the letter of intent, Titan conducted a due
diligence investigation of Panatech, Panatech retained Houlihan Lokey to render
an opinion with respect to the Merger Consideration (see "Opinion of Financial
Advisor" below), and the parties negotiated the terms of a definitive Merger
Agreement. On December 4, 1996, at a special meeting of Panatech's Board of
Directors, the directors unanimously approved a draft of the Merger Agreement
and authorized Mr. Rosenberg to finalize and execute the agreement on
substantially the terms approved at the meeting. This approval was given after
the Board received Houlihan Lokey's opinion as to the fairness of the $7.00 per
share to be paid in the Merger and after a review by Mr. Rosenberg of previous
discussions concerning the matter, consideration of alternatives to the Merger,
consultation with Panatech's legal counsel, and consideration of the proposed
terms and conditions of the Merger Agreement. Following such approval, the
Merger Agreement was executed on Friday, December 6, 1996. Panatech issued a
public announcement concerning the execution of the Merger Agreement on Monday,
December 9, 1996.
The recommendation of Panatech's Board of Directors with respect to the
Merger Agreement and a description of certain factors considered in reaching
such recommendation, are described below under "Recommendation of the Board of
Directors and Reasons Therefor."
RECOMMENDATION OF THE BOARD OF DIRECTORS AND REASONS THEREFOR
The Board of Directors has determined that the Merger and the Merger
Agreement are advisable and in the best interests of the Company and its
stockholders and has unanimously approved the Merger and the Merger Agreement.
Accordingly, the Board of
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Directors unanimously recommends that the stockholders vote "FOR" approval and
adoption of the Merger Agreement. To the knowledge of Panatech, its directors
and executive officers intend, but are not obligated, to vote their Panatech
Shares for the approval and adoption of the Merger Agreement. See "OWNERSHIP OF
COMMON STOCK."
In reaching its conclusion to approve the Merger Agreement and recommend
its approval to the stockholders, the Board of Directors based its decision on
the following reasons and considered a number of factors including, but not
limited to, the following:
(i) The fact that the Merger Consideration is substantially higher than
recent market prices. The last sale price before the November 5, 1996
announcement of the letter of intent was $4.50 per Panatech Share. Accordingly,
the Merger Consideration of $7.00 per share represents a 55% premium over the
last sale price on November 4, 1996. See "STOCK PRICES OF COMMON STOCK."
(ii) The opinion of Houlihan Lokey that the consideration of $7.00 cash
per share to be received by holders of Panatech Shares pursuant to the Merger
Agreement is fair to such holders from a financial point of view. See "THE
MERGER - Opinion of Financial Advisor."
(iii) The terms and conditions of the Merger Agreement, including the fact
that it is not conditioned on the receipt of financing, and the fact that the
Company may negotiate with (but not solicit bids from) third parties, and may
terminate the Merger Agreement if the Board of Directors determines in good
faith on the advice of counsel that its fiduciary duties require it to approve
an acquisition by a third party, provided that upon such termination the Company
pays to Titan a fee of $994,844. See "THE MERGER AGREEMENT."
(iv) The uncertainty regarding the outcome of the patent infringement
arbitration proceeding between ASM and Titan Tool, and the potential impact of
an adverse result on the future business of Panatech. (The Merger would render
moot this dispute.) See "THE MERGER - Background of the Merger" and "BUSINESS OF
PANATECH - Legal Proceedings."
(v) Alternatives to the Merger, including (a) the fact that during the
period between announcement of the signing of the letter of intent with Titan on
November 5, 1996 and the approval of the Merger Agreement on December 4, 1996,
the Company had received no third party offers to acquire the Company and (b)
Panatech's prospects as an independent company.
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OPINION OF FINANCIAL ADVISOR
Panatech engaged Houlihan Lokey to render an opinion as to the fairness,
from a financial point of view, to the holders of Panatech Shares, Panatech
stock options and Class B Warrants (collectively, the "Securityholders") of the
consideration to be received by them pursuant to the Merger Agreement. Houlihan
Lokey was retained on the basis of its qualifications, expertise and reputation.
Houlihan Lokey is a nationally recognized investment banking firm that is
continually engaged in providing financial advisory services in connection with
mergers and acquisitions, leveraged buyouts, business valuations for a variety
of regulatory and planning purposes, recapitalizations, financial
restructurings, and private placements of debt and equity securities. Houlihan
Lokey has no material prior relationship with Panatech, Titan or any of the
parties to this transaction.
As compensation to Houlihan Lokey for its services, Panatech has agreed to
pay Houlihan Lokey a fee of $75,000. No portion of Houlihan Lokey's fees were
contingent upon the successful completion of the Merger or any related
transaction. Panatech has also agreed to indemnify Houlihan Lokey and related
persons against certain liabilities, including liabilities under Federal
securities laws, arising out of the engagement of Houlihan Lokey, and to
reimburse Houlihan Lokey for certain expenses.
Houlihan Lokey delivered a written opinion to Panatech's Board of
Directors on December 4, 1996, to the effect that, as of such date, and based
upon the assumptions made, general procedures followed, factors considered and
limitations on the review undertaken as set forth in such opinion, the
consideration to be received by the Securityholders (assuming that Quick Assets
equal the Target Number) pursuant to the Merger Agreement is fair to such
Securityholders from a financial point of view. References herein to the
"Opinion" refer to the written opinion of Houlihan Lokey dated December 4, 1996.
The full text of the Opinion, which sets forth the assumptions made,
general procedures followed, factors considered and limitations on the review
undertaken by Houlihan Lokey in rendering its opinion is attached as Appendix B
and is incorporated herein by reference. The Opinion is directed only to the
fairness from a financial point of view of the consideration to be received by
the Securityholders pursuant to the Merger Agreement and does not constitute a
recommendation to any Securityholder as to how such Securityholder should vote
with respect to the Merger Agreement and the transactions contemplated thereby.
The summary of the Opinion set forth in this Proxy Statement is qualified in its
entirety by reference to the full text of the Opinion. Securityholders are urged
to, and should, read the Opinion in its entirety.
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In connection with the Opinion, Houlihan Lokey made such reviews, analyses
and inquiries as it deemed necessary and appropriate under the circumstances.
Among other things, Houlihan Lokey : (i) reviewed the Company's annual reports
to shareholders and on Form 10-KSB for the five fiscal years ended March 31,
1996 and quarterly reports on Form 10-QSB for the two quarters ended September
30, 1996, which Panatech's management identified as being the most current
financial statements available; (ii) reviewed copies of the following documents
and agreements, including: Articles of Incorporation and By-Laws of the
Panatech, 1993 Stock Option Plan of Panatech, Warrant Agreement for Class A and
Class B Warrants of Panatech, Employee Agreements of key management personnel,
Letter of Intent between Titan and Panatech dated November 4, 1996, a draft
Agreement and Plan of Merger between Titan and Panatech dated December 2, 1996
(the "Merger Agreement") in the form provided to Houlihan Lokey and assumed that
the final executed form of such agreement would not vary in any regard that is
material to their analysis; (iii) reviewed the draft proxy statement, dated
November 26, 1996; (iv) met with certain members of the senior management of
Panatech and ASM to discuss the operations, financial condition, future
prospects and projected operations and performance of Panatech, and met with
representatives of Panatech's independent accounting firm and counsel to discuss
certain matters; (v) visited certain facilities and business offices of
Panatech; (vi) reviewed internal, non-public financial and operating data
provided by Panatech, including forecasts and projections prepared by Panatech's
management with respect to Panatech for the years ending March 31, 1997 through
1999; (vii) reviewed the historical market prices and trading volume for
Panatech's publicly traded securities; (viii) reviewed certain other publicly
available financial data for certain companies that Houlihan Lokey deemed
comparable to Panatech, and publicly available prices and premiums paid in other
transactions that Houlihan Lokey considered similar to the Merger; and (ix)
conducted such other studies, analyses and inquiries as Houlihan Lokey deemed
appropriate.
In preparing the Opinion, Houlihan Lokey relied and assumed, without
independent verification, upon the accuracy and completeness of all the
financial and other information (including financial forecasts and projections)
supplied or otherwise made available to it by Panatech, and that such
information was reasonably prepared and reflected the best currently available
estimates of the future financial results and conditions of Panatech and that
there had been no material change in the assets, financial condition, business
or prospects of Panatech since the date of the most recent financial statements
provided to Houlihan Lokey. Houlihan Lokey did not make an independent appraisal
of any of the properties or assets of Panatech. Houlihan Lokey's opinion is
necessarily based on business, economic, market and other
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conditions as they existed and could be evaluated by them at the date of their
Opinion.
Houlihan Lokey did not and was not engaged or requested to initiate any
discussions with third parties or to solicit any third-party indications with
respect to a possible acquisition of Panatech. Furthermore, Houlihan Lokey did
not and was not requested to negotiate the terms of the Merger Agreement or to
advise Panatech with respect to alternatives with respect to the Merger, and
Houlihan Lokey did not make any recommendations as to the form or amount of
consideration to be paid. The terms of the Merger and Merger Agreement,
including the form and amount of consideration, were determined on the basis of
arm's-length negotiations between Panatech and Titan.
In arriving at its opinion, Houlihan Lokey made its determination as to
the fairness, from a financial point of view, of the consideration to be
received by the Securityholders on the basis of the analyses described below. No
restrictions or limitations were imposed by Panatech upon Houlihan Lokey with
respect to the investigation made or the procedures followed in rendering its
opinion. Houlihan Lokey's opinion is not intended to be and does not constitute
a recommendation to any Securityholder as to whether to accept the consideration
to be received by such Securityholder in connection with the Merger Agreement.
Houlihan Lokey has advised Panatech that it used several methodologies to
assess the fairness, from a financial point of view, of the consideration to be
received by the Securityholders pursuant to the Merger Agreement. In each of the
analyses, the estimated value of a Securityholders' interest was lower than the
consideration to be received pursuant to the terms of the Merger Agreement,
leading Houlihan Lokey to conclude that the consideration to be received by the
Securityholders is fair from a financial point of view.
The summary set forth above describes the material points of more detailed
analyses performed by Houlihan Lokey in arriving at its fairness opinion. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its opinion, Houlihan Lokey has advised Panatech that it did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgements as to the significance and relevance of each
analysis and factor. Accordingly, Houlihan Lokey believes that its analyses and
the summary set forth herein must be considered as a whole and that selecting
portions of its analyses, without considering all
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analyses, or portions of this summary, without considering all factors and
analyses, could create an incomplete view of the processes underlying the
analyses undertaken by it in connection with the Opinion. Houlihan Lokey has
advised Panatech that in its analyses, Houlihan Lokey made numerous assumptions
with respect to Panatech, industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Panatech. The estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be more or less favorable than suggested by such analyses.
Additionally, analyses relating to the value of businesses or securities are not
appraisals. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty.
EXCHANGE OF CERTIFICATES FOR MERGER CONSIDERATION
Immediately following the date on which the Merger Consideration has been
finally determined (the "Payment Date"), Titan will deposit with U.S. Stock
Transfer Corporation (the "Exchange Agent") a cash amount equal to the aggregate
of the Merger Consideration for the Panatech Shares and the consideration
payable to the holders of Panatech Class B Warrants (the "Warrants") pursuant to
the Merger Agreement (the "Consideration"). As soon as practicable after the
Effective Time, the Exchange Agent will mail to each holder of record of
Panatech Shares and Warrants entitled to receive Consideration a letter of
transmittal with instructions for the surrender of certificates representing
such securities in exchange for such Consideration. Upon surrender of such
certificates together with the duly completed and executed letter of transmittal
and such other documents as the Exchange Agent may reasonably require, the
Exchange Agent will deliver the Consideration payable with respect to such
Panatech securities in accordance with the instructions in the letter of
transmittal. No interest will be paid or will accrue on the cash payable upon
the surrender of any certificates for Panatech Shares and Warrants.
There will be no further transfers of Panatech Shares or Warrants on the
transfer books of Panatech after the Effective Time.
Any portion of the Consideration which remains undistributed after 120
days after the Payment Date will be returned to Panatech as the surviving
corporation and holders of Panatech Shares and Warrants may thereafter look only
to the surviving corporation as general creditors for the payment of
Consideration. If any certificates for Panatech Shares and Warrants have not
been surrendered prior to six years after the Payment Date (or immediately prior
to such earlier date on which any payment in respect thereof would otherwise
escheat to or become the property
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of any governmental entity), the Consideration payable in respect of such
certificates will, to the extent permitted by applicable law, become the
property of the surviving corporation, free and clear of all claims or interests
of any person previously entitled thereto.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors with respect
to the approval and adoption of the Merger Agreement and the transactions
contemplated thereby, Panatech stockholders should be aware that certain
directors and executive officers of Panatech have certain interests in the
Merger that are different from, or in addition to, the interests of Panatech's
stockholders generally.
As contemplated by the Merger Agreement , Panatech's Board of Directors
has taken action to cause all outstanding stock options to purchase Panatech
Shares ("Panatech Options") to become exercisable in full as of the Effective
Time. Joseph Elmaleh, Paul B. Rosenberg (the brother of Arthur J. Rosenberg,
Chairman and President of Panatech) and James T. Stamas, non-employee directors
of Panatech, each hold Panatech Options for 22,000 Panatech Shares exercisable
at prices ranging from $1.75 to $4.00 per share, of which 13,250 will become
exercisable as of the Effective Time as a result of the Merger Agreement. Robert
J. Perret, Jr., the President of ASM, holds 203,750 Panatech Options, with
exercise prices ranging from $2.625 to $4.00 per share, all of which will become
fully exercisable at the Effective Time as a result of the Merger Agreement.
Under the Merger Agreement, immediately prior to the Effective Time, each
outstanding Panatech Option will be cancelled and after the Effective Time each
optionee will receive a cash payment in an amount equal to the excess of the
Merger Consideration over the exercise price of such Option, multiplied by the
number of Panatech Shares subject to such Option. Messrs. Elmaleh, Paul
Rosenberg and Stamas will each receive $98,500 and Mr. Perret will receive
$655,625 in payment for their cancelled Panatech Options. See "THE MERGER
AGREEMENT - Effect on Stock Options and Warrants."
Arthur J. Rosenberg, Chairman and President, has an Employment Agreement
with Panatech which will expire on March 31, 1997. Mr. Rosenberg has agreed to
terminate such agreement concurrent with the Effective Time. The agreement
entitles Mr. Rosenberg to a bonus equal to at least 30% but not more than 50% of
his annual salary, with the exact amount to be determined by the Board of
Directors. Consistent with the Board's practice each of the last three fiscal
years, the Board has approved an $80,000 bonus for Mr. Rosenberg for the fiscal
year ending March 31, 1997, equal to 50% of his annual salary, pro-rated to the
Effective Time and payable
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on such date. Previous bonuses awarded to Mr. Rosenberg have been deferred and
are held in a Rabbi Trust. Such trust will be terminated and the amount held in
trust ($240,749 at September 30, 1996, including accrued bonus and interest)
will be paid to Mr. Rosenberg on or prior to the Effective Time. The amounts of
Mr. Rosenberg's current and deferred bonuses have been accrued as a current
liability on Panatech's balance sheet and, accordingly, the payment of such
amounts will not reduce the amount of Quick Assets at the Closing Date. See "THE
MERGER - Merger Consideration."
On or before the Effective Time, Paul B. Rosenberg, Joseph Elmaleh and
James T. Stamas will each receive a bonus of $25,000 in recognition of their
services and tenure as directors of Panatech; provided, however, that the amount
of such bonus will be reduced pro-rata to the extent, if any, that Quick Assets
do not exceed the Target Number. See "THE MERGER - Merger Consideration."
On or before the Effective Time, Arthur Rosenberg will purchase for cash
an automobile, a computer and certain office equipment and furniture from
Panatech at the book value thereof, approximately $28,000.
The Merger Agreement provides that for a period of at least six years from
the Effective Time, Titan will indemnify Panatech's directors and officers in
accordance with and subject to the provisions of Panatech's Articles of
Incorporation and Bylaws as in effect prior to execution of the Merger
Agreement. See "THE MERGER AGREEMENT - Indemnification of Directors and
Officers." In addition, Panatech has purchased an insurance policy which
provides coverage for all officers and directors of Panatech for events
occurring prior to the Effective Time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of certain United States federal income tax
consequences of the Merger. EACH HOLDER OF PANATECH SHARES AND WARRANTS IS URGED
TO CONSULT A TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE MERGER,
INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL OR OTHER TAX LAWS.
The receipt of cash in exchange for Panatech Shares or Warrants pursuant
to the Merger will be a taxable transaction for federal income tax purposes and
may also be a taxable transaction under applicable state, local and foreign tax
laws. A holder of such securities will generally recognize gain or loss for
federal income tax purposes in an amount equal to the difference between such
holder's adjusted tax basis in the relevant security and the amount of cash
received in exchange therefore. Such gain or loss will be capital gain or loss
if such security is held as a capital
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asset and will be long term capital gain or loss if, at the Effective Time, such
security was held for more than one year.
The foregoing discussion may not apply to holders who acquired their
Panatech Shares pursuant to the exercise of employee stock options or other
compensation arrangement with the Company or who are not citizens or residents
of the United States or who are otherwise subject to special tax treatment.
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THE MERGER AGREEMENT
The following summary of the Merger Agreement does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement,
which is incorporated herein by reference and attached hereto as Appendix A.
Stockholders are urged to read the Merger Agreement in its entirety.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
the parties thereto. The Merger Agreement includes representations and
warranties by each of Panatech, Titan and Merger Sub as to, among other things:
(i) their corporate organization, standing and power; (ii) the authorization,
execution, delivery, performance and enforceability of the Merger Agreement and
related matters; (iii) the Merger Agreement's non-contravention of any
agreement, law, charter or bylaw provision of such party and the absence of the
need (except as specified) for governmental or third party consents to the
Merger; and (iv) the accuracy of information supplied by such party for
inclusion in this proxy statement. In addition, the Merger Agreement includes
representations and warranties by Panatech as to, among other things: (i) the
capitalization of Panatech and its subsidiaries; (ii) the interest of Panatech
in its subsidiaries or other entities; (iii) the accuracy of Panatech's
financial statements and filings with the Securities and Exchange Commission;
(iv) the absence of certain undisclosed liabilities; (v) the conduct of the
business of Panatech in the ordinary and usual course and the absence of any
material adverse change in the financial condition, assets, liabilities or
business of Panatech since September 30, 1996; (vi) certain tax matters; (vii)
the terms, existence, operations, liabilities and compliance with applicable
laws of Panatech's benefit plans and certain other matters relating to the
Employee Retirement Income Security Act of 1974, as amended; (viii) the
absence of pending or threatened litigation, except as disclosed; (ix) certain
contracts and commitments; (x) ownership of and rights to use certain
intellectual property; (xi) the nature and existence of liens, insurance,
personal property and real property of Panatech; (xii) possession of required
governmental permits and compliance with applicable laws, including
environmental laws and related matters; (xiii) relations with employees,
customers, vendors, distributors and representatives, and transactions with
officers and directors; and (xiv) product safety matters.
BUSINESS OF PANATECH PENDING THE MERGER
Panatech has agreed that, among other things, until the Effective Time,
except as permitted by Titan and Merger Sub, Panatech will conduct its business
in the usual and ordinary course
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consistent with past practice and it will seek to preserve its current business
organization, keep available the services of its present officers and employees,
and preserve its relationships with customers, suppliers and others having
business dealings with it. Panatech has further agreed that, except with the
consent of Titan and Merger Sub, or as otherwise permitted pursuant to the
Merger Agreement, until the Effective Time, Panatech will refrain from taking
certain actions with respect to, among other things, its securities, the payment
of extraordinary dividends, employee compensation and benefits, corporate
existence, litigation, insurance, capital expenditures, assets, indebtedness,
material agreements and material transactions.
EFFECT ON STOCK OPTIONS AND WARRANTS
At the Record Date, Panatech had outstanding _______ Class B Warrants
(the "Warrants") which were issued in accordance with the terms of a Warrant
Agreement dated as of March 17, 1983, between Panatech and U.S. Stock Transfer
Corporation as Warrant Agent. Each Warrant is exercisable for one Panatech Share
at $5.00 per share. By resolution of the Board of Directors on May 17, 1996, the
expiration date of the Warrants was extended to June 30, 1997. The Warrant
Agreement provides that in the case of any merger of Panatech with or into
another corporation, as a condition to such merger, Panatech must file at the
corporate trust office of the Warrant Agent an agreement which makes lawful and
adequate provision for the holders of Warrants to receive on exercise of the
Warrants after such merger, the same kind and amount of property which would
have been received had such Warrants been immediately exercised prior to such
merger. In accordance with the terms of the Warrant Agreement, Panatech has
filed an executed copy of the Merger Agreement with the Warrant Agent.
The Merger Agreement provides that upon the surrender of certificates
representing the Warrants (see "THE MERGER - Exchange of Certificates for Merger
Consideration") the holders of the Warrants shall be entitled to receive in cash
an amount equal to the excess of the Merger Consideration per share over the
exercise price per share of the Warrants, multiplied by the number of Panatech
Shares issuable pursuant to such Warrants (the "Warrant Consideration"). As of
the Effective Time, each holder of Warrants will have no right to exercise such
Warrants for Panatech Shares, but shall have solely the right to receive payment
of the Warrant Consideration, without interest.
As of the Record Date, Panatech had outstanding Panatech Options to
purchase an aggregate of __________ Panatech Shares, all of which will be fully
exercisable immediately prior to the Effective Time. Panatech has obtained from
each holder of Panatech Options an agreement to cancel his Panatech Options
immediately
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prior to the Effective Time in consideration for a cash payment after the
Effective Time in an amount equal to the excess of the Merger Consideration per
share over the exercise price of his Panatech Options, multiplied by the number
of Panatech Shares subject to such Options.
NO SOLICITATION
Panatech has agreed that, without the prior written consent of Titan,
prior to the Effective Time, Panatech will not initiate the direct and active
solicitation of any other party (other than Titan and Merger Sub) for a proposal
that such other party merge with, consolidate, or acquire the capital stock or
substantially all of the assets of Panatech or any of its subsidiaries (an
"Acquisition Transaction"); provided, however, that if Panatech, without direct
and active solicitation, receives from any other party (other than Titan of
Merger Sub) a proposal with respect to an Acquisition Transaction, then Panatech
shall be entitled to respond thereto in all appropriate ways consistent with the
fiduciary duties of the directors of Panatech. Panatech has also agreed to
advise Titan of the receipt by it of any proposal from any other party
concerning an Acquisition Transaction.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Titan has agreed to indemnify persons who served as directors, officers
and agents of Panatech on or before the Effective Time in accordance with and
subject to the provisions of Panatech's Articles of Incorporation and Bylaws as
in effect prior to the execution of the Merger Agreement for a period of not
less than six years (or the period of the applicable statute of limitations, if
longer) with respect to matters occurring on or prior to the Effective Time.
CONDITIONS TO THE MERGER
It is a condition to the obligations of Panatech, on the one hand, and
Titan and Merger Sub, on the other hand, under the Merger Agreement that the
following conditions be satisfied or waived: (i) the representations and
warranties of each party to the other shall be true and correct in all material
respects as of the Closing Date; (ii) the other party shall have performed and
complied in all material respects with all covenants, agreements and conditions
contained in the Merger Agreement required to be performed by or complied with
by it on or prior to the Closing Date; (iii) the other party shall have taken
all corporate and other proceedings and obtained all consents required in
connection with the transactions contemplated by the Merger Agreement; (iv) each
party shall have received from the other a written opinion of such other party's
counsel as to certain matters; (v) there shall be no action or proceeding
pending or threatened or
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any statute, rule, regulation, executive order, decree or injunction by any
court or governmental authority restraining or preventing the consummation of
the transactions contemplated by the Merger Agreement; (vi) all necessary
governmental consents or authorizations required in connection with the
transactions contemplated by the Merger Agreement shall have been received;
(vii) the Merger Agreement shall have been approved by Panatech's stockholders
to the extent required by Nevada law; and (viii) each party shall have delivered
to the other party certain required certificates and other documents. The
obligations of Titan and Merger Sub are also subject to the conditions that (i)
no change which has a material adverse effect on the condition (financial or
otherwise) or earnings of Panatech shall have occurred prior to the Closing
Date; (ii) Panatech and its subsidiaries shall have maintained their insurance
coverage in full force and effect; and (iii) Titan shall be reasonably satisfied
with Panatech's relationships with its customers, vendors and distributors.
AMENDMENT/TERMINATION
The Merger Agreement may be amended by an instrument in writing signed by
each of Titan, Merger Sub and Panatech.
The Merger Agreement may be terminated at any time prior to the Closing,
notwithstanding stockholder approval, by the mutual consent of Titan and
Panatech. The Merger Agreement may also be terminated by action of either
Panatech or Titan if (i) the Merger has not been consummated by July 1, 1997;
(ii) the approval of Panatech's stockholders is not obtained; (iii) any court of
competent jurisdiction or governmental body in the United States has issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger, and such order, decree, ruling or other action
shall have become final and nonappealable if the party seeking to terminate the
Merger Agreement has used its best efforts to remove or lift such order, decree
or ruling; or (iv) any of the conditions to such party's obligations under the
Merger Agreement have not been met prior to June 4, 1997.
The Merger Agreement may be terminated by Titan if at any time prior to
the Effective Time, (i) Panatech enters into a letter of intent or definitive
agreement to enter into any Acquisition Transaction, (ii) the Board of Directors
of Panatech withdraws, modifies or changes its approval or recommendation of the
Merger Agreement or the Merger in a manner adverse to Titan or Merger Sub, (iii)
the Board of Directors recommends to the stockholders of Panatech any
Acquisition Transaction or (iv) the Board of Directors of Panatech resolves to
do any of the foregoing.
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The Merger Agreement may be terminated by action of the Board of Directors
of Panatech at any time prior to the Effective Time if the Board of Directors
determines in good faith on the advice of counsel that its fiduciary duties
require it to approve an Acquisition Transaction.
In the event of the termination of the Merger Agreement, no party (or any
of its directors or officers) will have any liability or further obligation to
any other party, except with respect to certain confidentiality requirements as
provided in the Merger Agreement and the payment of fees and expenses.
Nevertheless, each party to the Merger Agreement will remain liable for any
breach or violation thereof prior to such termination.
FEES AND EXPENSES
Panatech and Titan will each pay their own expenses in connection with the
Merger Agreement whether or not the Merger is consummated. If the Merger
Agreement is terminated for any reason described in the third and fourth
paragraphs under "Amendment/Termination" above, Panatech has agreed to pay Titan
a fee equal to $994,843.75 on the earlier of 90 days from the date of such
termination or the date of the closing of an Acquisition Transaction.
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BUSINESS OF PANATECH
BUSINESS
Panatech conducts its business principally through a wholly owned
subsidiary, ASM Company, Inc. ("ASM"). ASM, which was acquired by the Company in
1989.
ASM designs, manufactures, markets and sells engineered accessories for
airless spray systems, which are today the most favored technology for the
volume application of paints and other coating materials. An airless sprayer
consists of a pump (the "airless pump") which forces paint, coatings or other
viscous fluids at high pressures (2000 - 6000 psi), through a hand-controlled
valve (the "airless spray gun") which incorporates a tungsten carbide nozzle
with a specially designed orifice (the "spray tip"). As the fluid is forced
through the spray tip, it is dispersed by a pressure gradient into a fan-shaped
pattern of fine droplets. The spray patterns and flow rates differ according to
the application.
ASM produces a complete line of airless guns, spray tips and related
accessories. It neither makes nor sells airless pumps. The Company has been
particularly prominent in the development of reversing spray tips which can be
cleaned quickly without disassembling the gun. The ASM QUICK-CHANGE TIP,
MAXI-TIP and, more recently, the ZIP-TIP have gained wide acceptance in the
industry. The ZIP-TIP, which is ASM's primary product, is the subject of a
patent dispute in which ASM has charged a competitor with infringement. See
"Legal Proceedings" below. ASM's spray tips can be used with all models of spray
guns made by ASM and its principal competitors. Despite the extreme hardness of
the tungsten carbide nozzle, the orifice wears with use, and spray tips must be
replaced frequently to control the flow dynamics, and to mitigate the corrosive
effects of particulate suspensions under high pressure gradients.
Other ASM products include the ASM-300, the ASM-400, the PRO-5 and the
PRO-6 spray guns, the wrenchless HAND-TIGHT assembly system, various extension
poles, non-reversible spray tips, and miscellaneous accessories.
ASM's principal marketing approach is to sell its airless accessories to
retail stores or chains which service the after-market needs of painting
contractors. These products are sold primarily under the ASM brand name, but in
some cases are private-labeled under the name of the retailer. Related tiers of
retail distribution involve rental stores and warehouse distributors, both of
which are effective in providing service to smaller customers, and master
distributors, which are particularly suited to foreign
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sales. In addition, ASM sells it products to original equipment manufacturers of
airless pumps who combine the two product lines to create airless spraying
systems for sale through distribution channels which ASM cannot service
economically. In some instances, these customers have contracted with ASM to
design, manufacture and private-label special airless spray products based on
ASM technology for them to offer with both their system sales and their
after-market sales.
ASM's airless spraying accessories are sold through more than 7,500 retail
outlets in North America, Europe, Australia and the Pacific Rim. Many of these
outlets are members of national or regional chains, such as ICI Paints North
America (formerly known as the Glidden Company), the Sherwin-Williams Company,
and the Dunn-Edwards Company. At March 31, 1996, approximately 54% of ASM's
accounts receivable were related to three customers, each of which accounted for
12% to 35% of annual sales. These three customers accounted for approximately
62% of accounts receivable at March 31, 1995. The loss of any of these customers
would have a material adverse effect on the Company's business. (See Note 1 of
Notes to Consolidated Financial Statements - Concentration of Credit Risk).
ASM sales are made against individual purchase orders or volume purchase
agreements. ASM generally fills most of its orders within one to three working
days of receipt, so therefore its backlog is not a meaningful indicator of
future sales.
ASM's foreign sales represented 13% and 15%, respectively, of 1996 and
1995 sales. Foreign sales are made under specific purchase orders in U. S.
dollars. They are made on open account, if insured by the U. S. Ex-Im Bank, or
on a prepayment basis, if not insured. All products are manufactured in the
United States and sold to master distributors and agents overseas who hold the
products in inventory for redistribution in their local markets.
All ASM products are designed and prototyped in-house. Virtually all
manufacturing is performed in-house on a variety of machine tools. Raw
materials, such as tungsten carbide, steel, aluminum, brass and commodity
plastics, and certain components made therefrom, are available from many
sources. All ASM products are subjected to extensive testing before shipment.
Although the airless spray industry is a relatively mature market and thus
not subject to rapid technological change, ASM conducts research and development
to improve the quality and ergonomics of its present product line, to develop
new products which can better serve the customer's functional needs, and to
achieve cost reductions through innovative product designs and manufacturing
techniques.
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ASM is constantly developing proprietary new products, many of which are
the subject of issued or pending patents. These patents, as well as the
Company's trademarks, are an integral part of ASM's market position. As a matter
of policy, therefore, the Company vigorously defends its patents and trademarks
against possible infringement. ASM owns eighteen U.S. patents covering features
of its reversing spray tips and airless spray guns, and several other U.S.
patents are pending. The three U.S. patents relating to ASM's primary product,
the ZIP-TIP, expire in 2001 and 2013. ASM also has three foreign patents on the
ZIP-TIP with several more pending. See "Legal Proceedings" below.
Management believes that the competitive position of ASM depends not only
on such patents, but also on other significant factors, such as the performance
history of its products, its established position in the marketplace, and its
manufacturing know-how. ASM's major competitors are Graco, Inc. and Titan Tool,
Inc.(a wholly owned subsidiary of Titan), which are the dominant suppliers of
airless pumps and accessories to the industry. These companies have
substantially greater financial, manufacturing and marketing resources than ASM.
The principal competitive factors in the industry are product performance
and special sales promotions which are made periodically during the year. ASM
believes that it competes favorably in both these areas. ASM has a rebate
program as a sales incentive, in which customers are given non-refundable rebate
certificates based upon total volume of purchases during the fiscal year. See
Note 1 of Notes to Consolidated Financial Statements.
At September 30, 1996, ASM had 104 full-time personnel, consisting of 15 in
administration, 6 in sales, and 83 in manufacturing.
PROPERTIES
ASM occupies a 20,000 square foot building in Orange, California. The
building is leased under a three-year net lease which expires October 1, 1997 at
an annual rent of approximately $108,000.
LEGAL PROCEEDINGS
ASM is involved in various legal proceedings in the ordinary course of its
business. The Company believes that ASM has sufficient insurance coverage, and
that the ultimate outcome of these proceedings will not have a materially
adverse effect on its financial condition or operating results.
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In April 1995, ASM filed a lawsuit in the United States District Court for
the Central District of California against Titan Tool, Inc.(a wholly owned
subsidiary of Titan), claiming that a new product recently introduced into the
marketplace by Titan Tool infringes three patents relating to ASM's primary
product, the ZIP-TIP. Thereafter, Titan Tool answered and filed certain
cross-claims against ASM. In September 1995, the parties agreed to dismiss all
claims against each other for financial damages and to submit all patent issues
to final and binding arbitration before a single arbitrator. The arbitration
hearing was held in February and March 1996. Prior to receipt of the
arbitrator's decision on the patent dispute, the parties entered into settlement
discussions which culminated in the execution of the Merger Agreement. See "THE
MERGER - Background of the Merger." If the Merger is not consummated and the
parties do not agree to settle their dispute, the arbitrator will render his
decision. The Company believes that an adverse result in this arbitration could
adversely affect its plans to build market share for this product line over the
next three to five years.
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MARKET PRICES OF COMMON STOCK
The Panatech Shares are traded on the Nasdaq National Market under the
symbol PNTC. The following table shows the high and low closing sale prices of
the Panatech Shares as quoted on NASDAQ for the periods indicated, and dividends
paid during such periods.
<TABLE>
<CAPTION>
Quarter Ended High Low Dividend Paid
- - ------------- ---- --- -------------
<S> <C> <C> <C>
June 30, 1994 $ 3 3/8 $ 2 1/4 $ --
September 30, 1994 3 1/8 1 3/4 --
December 31, 1994 2 1/2 1 3/4 --
March 31, 1995 3 1/8 1 3/4 --
June 30, 1995 5 7/8 2 3/4 .05
September 30, 1995 8 3/4 5 --
December 31, 1995 7 1/2 3 7/8 .075
March 31, 1996 4 3/4 2 7/8 --
June 30, 1996 5 7/8 3 1/8 .10
September 30, 1996 5 1/8 3 5/8 --
December 31, 1996 .10
</TABLE>
On November 4, 1996, the last trading day before the public announcement
of the execution of a letter of intent between Panatech and Titan with respect
to the proposed Merger, the reported closing sale price per Panatech Share was
$4.50. On January ___, 1997, a recent trading day prior to the date of this
Proxy Statement, the reported closing sale price per Panatech Share was
$_______.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 1996 COMPARED TO SEPTEMBER 30,
1995
For the three months ended September 30, 1996, the Company had sales of
$3,158,000, an increase of $132,000, or 4%, over the same quarter a year ago,
reflecting increased product shipments. Gross profit was 59.9% of sales compared
to 57.2% of sales in last year's second quarter, largely due to the higher sales
volume. Selling, general and administrative expenses were $872,000, or 27.6% of
sales, compared to $854,000, or 28.2% of sales last year. Operating income was
$961,000 compared to $817,000 in the year-earlier quarter, mainly due to the
greater gross profit generated by sales.
For the three months ended September 30, 1996, interest income was $31,000
compared to $30,000 last year with similar interest rates available on about the
same amount of investment. Income before income taxes rose to $982,000 from
$831,000, a gain of 18%. The provision for income taxes was $409,000 compared to
$337,000 last year. Therefore, net income was $572,000, or $.14 per share,
compared to $494,000, or $.12 per share, last year. This was an increase of 16%.
In 1996, average shares outstanding were 4,061,000 shares compared to 4,190,000
last year.
For the six months ended September 30, 1996, the Company had sales of
$5,959,000, a decrease of $322,000, or 5.1%, from the same period a year ago,
partially reflecting large stocking orders for a new marketing channel opened by
a major OEM customer in the first quarter of the previous fiscal year. Gross
profit was 58.9% of sales compared to 58.6% of sales in last year's six month
period, largely due to the lower volume. Selling, general, and administrative
expenses were $1,722,000, or 28.9% of sales, compared to $1,820,000, or 29.0% of
sales last year, with reductions being made to compensate for lower sales.
Operating income was $1,665,000 compared to $1,740,000 in the year-earlier
period, mainly due to the lower gross profit generated by sales.
For the six months ended September 30, 1996, interest income was $65,000
compared to $59,000 last year principally due to higher levels of investment in
the money markets. Interest expense was $20,000 compared to $46,000 in last
year's six month period mainly due to the payment last year of the outstanding
balance of long-term debt.
Income before income taxes declined 2.5% from $1,753,000 in the six months
ended September 30, 1995 to $1,710,000 in the six
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months ended September 30, 1996. The provision for income taxes was $714,000
compared to $728,000 last year. Therefore, net income was $996,000, or $.25 per
share, in the six months ended September 30, 1996, compared to $1,025,000, or
$.26 per share, in the six months ended September 30, 1995. In 1996, average
shares outstanding were 4,055,000 shares compared to 4,005,000 last year.
Notes 6 and 7 of Notes to Consolidated Financial Statements are hereby
incorporated herein by reference.
FISCAL 1996 COMPARED TO FISCAL 1995
In the fiscal year ended March 31, 1996, the Company had sales of
$11,325,000, an increase of 13% over the $10,002,000 reported in the previous
fiscal year. Price increases accounted for 3% of the gain, while the remaining
10% was attributable largely to growing domestic sales of ASM's spray tip
product line. Foreign sales were approximately $1,500,000 in fiscal 1996 and
fiscal 1995, or 13% and 15% of total sales, respectively. Foreign sales are made
in U. S. dollars and are therefore not subject to foreign currency exchange rate
risk.
While the sales increase in fiscal 1996 was $1,300,000, up 13%, over the
prior year, the increase in fiscal 1995 had been $3,000,000, or 43% higher than
fiscal 1994. Approximately half of the increase in fiscal 1995 reflected large
initial stocking orders, or "pipeline filling" into ASM's new wholesale channels
of distribution. These orders, which only partly resulted in immediate end-user
sales, were shipped primarily in the last two quarters of fiscal 1995, i.e.,
those ended December 31, 1994 and March 31, 1995, and in the first quarter of
fiscal 1996, ended June 30, 1995. In the rest of fiscal 1996, ASM's new
wholesale customers adjusted their inventory levels to match both the actual
part-by-part demands of their retail customers and their overall sales volume.
Consequently, ASM's sales to these wholesalers in the latter part of fiscal 1996
more accurately reflected end-user demand. One effect of these events was to
have temporarily distorted the normal seasonal pattern of ASM sales in which
shipments are historically strongest in the June and September quarters, and
lowest in the December and March quarters.
The results in fiscal 1996 reflected a return to normal seasonality
patterns such as a fourth quarter slowdown which was affected by extreme weather
conditions in many parts of the country during the winter months.
Cost of sales was $4,529,000, or 40.0% of sales, in fiscal 1996 compared to
$4,183,000, or 41.8% of sales, in the prior year. The decrease in cost of sales
as a percentage of sales was due principally to greater unit shipments in fiscal
1996. Labor costs
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were essentially unchanged, while material costs declined mainly due to more
efficient buying resulting from larger quantity purchasing. Gross profit was
$6,796,000 in fiscal 1996, 16.8% higher than the $5,819,000 generated in 1995,
principally due to the higher sales volume.
Selling, general, and administrative expenses were $3,800,000 in fiscal
1996 compared to $3,687,000 in fiscal 1995, an increase of 3.1%. Included in
fiscal 1996 expenses was $565,000 of legal expenses incurred in connection with
the patent arbitration with Titan Tool. See "BUSINESS OF PANATECH - Legal
Proceedings". In fiscal 1995, the Company incurred $471,000 of expenses as the
final obligation in connection with the 1989 acquisition of ASM.
Interest income increased by $60,000 in fiscal 1996, mainly due to income
on proceeds from the exercise of 251,325 Warrants between August and October
1995. In fiscal 1995, royalty income from the fiscal 1991 sale of a business was
$218,000, including a one-time final payment of $120,000. There were no such
payments in fiscal 1996. (See Note 6 of Notes to Consolidated Financial
Statements).
Interest expense was $62,000 in fiscal 1996 compared to $141,000 last year.
The Company prepaid the entire remaining balance of its ASM acquisition-related
bank debt in July 1995.
In fiscal 1996, the Company had a consolidated pretax profit of $2,829,000
compared to $2,021,000 in fiscal 1995, an increase of 39.9%. Net income in
fiscal 1996 was $1,641,000, compared to $1,122,000, last year, an increase of
46%. Average shares outstanding were 4,021,000 in fiscal 1996 compared to
3,568,000 in fiscal 1995, an increase of 12.7%. The increase was due to the
exercise during the year of Warrants and stock options. Therefore, earnings per
share increased from $.31 in fiscal 1995 to $.41 in fiscal 1996, a gain of
32.2%, at a lesser rate than the 46% gain in net income in fiscal 1995 over
fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had cash and cash equivalents of
$3,012,000, working capital of $6,343,000, and no debt. ASM also has a
$1,000,000 revolving credit facility under which no amounts were outstanding at
September 30, 1996. Future capital equipment requirements are not material.
Management believes that its resources are sufficient to finance its operations
for at least the next twelve months.
On April 11, 1995, the Company commenced a semi-annual cash dividend
program. Initially, the dividend was $.05 per share, and has been increased to
$.075 and then $.10 per share. The semi-
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annual dividend requirements are presently approximately $796,000 per year.
At September 30, 1996, the Company had outstanding 620,175 Warrants. Each
Warrant is exercisable for one Panatech Share at $5.00 per share. During the
year ended March 31, 1996, Warrants for 251,325 shares were exercised, for a
total of $1,257,000. In the six months ended September 30, 1996, 2,200 Warrants
were exercised for a total of $11,000. The Warrants expire on June 30, 1997.
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OWNERSHIP OF COMMON STOCK
The following table sets forth certain information with respect to the
beneficial ownership of the Panatech Shares as of the Record Date, by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
Panatech Shares, (ii) each executive officer and director, and (iii) all
executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME* SHARES OWNERSHIP
----- --------- ----------
<S> <C> <C>
Arthur J. and Naomi C. Rosenberg 702,150 %
P.O. Box 23160
Albuquerque, NM 87192
Joseph Elmaleh 22,000(1) **
Paul B. Rosenberg 78,500(1)(2) %
James T. Stamas 47,000(1) **
Robert J. Perret, Jr. 287,100(3) %
All executive officers and
directors as a group (5 persons) 1,136,750(4) %
</TABLE>
* Includes addresses of 5% or more stockholders.
** Less than one percent.
(1) Includes 22,000 shares subject to Panatech Options which are exercisable
within 60 days.
(2) Includes 1,000 shares subject to Warrants.
(3) Includes 203,750 shares subject to Panatech Options which are exercisable
within 60 days.
(4) See Notes (1) through (3).
As of the Record Date, Panatech's directors and executive officers
beneficially owned, in the aggregate, ______ Panatech Shares (excluding shares
issuable upon the exercise of Panatech Options and Warrants), representing ____%
of the outstanding Panatech Shares, and no Panatech Shares were beneficially
owned by Titan or Merger Sub. To the knowledge of Panatech, its directors and
executive officers intend, but are not obligated, to vote their Panatech Shares
for the approval and adoption of the Merger Agreement.
43
<PAGE> 47
PRELIMINARY COPY
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as the Company's independent public accountant.
A representative of Arthur Andersen LLP will be present at the Special Meeting
to answer questions by stockholders and will have the opportunity to make a
statement if so desired.
44
<PAGE> 48
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
of Panatech Research and Development Corporation
We have audited the accompanying consolidated balance sheet of Panatech
Research and Development Corporation and Subsidiary as of March 31, 1996 and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the two years in the period then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Panatech
Research and Development Corporation and Subsidiary as of March 31, 1996, and
the results of their operations and their cash flows for each of the two years
in the period then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
May 21, 1996
F-1
<PAGE> 49
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, September 30,
1996 1996
--------- --------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,046 $ 3,012
Accounts receivable, less allowances of
$144 at 3/31/96 and 9/30/96 (unaudited) 2,240 2,194
Inventories 1,478 1,677
Prepaid expenses 136 116
Deferred income tax asset 197 197
------- -------
Total current assets 7,097 7,196
Property, plant and equipment, net 913 888
Covenants not to compete, net of amortization of $1,393 at
3/31/96 and $1,500 at 9/30/96 (unaudited) 107 ---
Cost of purchased business in excess of net assets acquired, net of
amortization of $148 at 3/31/96 and $162 at 9/30/96 (unaudited) 940 926
Other assets 177 195
------- -------
Total assets $ 9,234 $ 9,205
======= =======
LIABILITIES
Current liabilities
Accounts payable $ 233 $ 146
Income taxes payable 31 22
Accrued payroll and benefits 662 382
Other accrued expenses 524 303
------- -------
Total liabilities 1,450 853
SHAREHOLDERS' EQUITY
Common Stock, par value $.01 per share - authorized 20,000,000 shares;
outstanding 3,987,175 at 3/31/96 and 3,982,375 at
9/30/96 (unaudited) 40 40
Additional paid-in capital 8,951 8,922
Accumulated deficit (1,207) (610)
------- -------
Total shareholders' equity 7,784 8,352
------- -------
Total liabilities and shareholders' equity $ 9,234 $ 9,205
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 50
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Years Ended Six Months Ended
March 31, September 30,
---------------------- --------------------
1995 1996 1995 1996
------- ------- ------- -------
(unaudited)
<S> <C> <C> <C>
Net sales $10,002 $11,325 $ 6,281 $ 5,959
Cost of sales 4,183 4,529 2,600 2,451
Gross profit 5,819 6,796 3,681 3,508
Selling, general and administrative expense 3,687 3,800 1,820 1,722
Amortization 266 243 121 121
------- ------- ------- -------
8,136 8,572 4,541 4,294
------- ------- ------- -------
Operating income 1,866 2,753 1,740 1,665
Other income (expense)
Interest income 78 138 59 65
Interest expense (141) (62) (46) (20)
Royalty income 218 --- --- ---
------- ------- ------- -------
Income before income taxes 2,021 2,829 1,753 1,710
Income tax provision (899) (1,188) (728) (714)
------- ------ ------- -------
Net income $ 1,122 $ 1,641 $ 1,025 $ 996
======= ======= ======= =======
Earnings per common share - primary and fully diluted $ .31 $ .41 $ .26 $ .25
======= ======= ======= =======
Weighted average shares outstanding 3,568 4,021 4,005 4,055
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 51
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
Total
Common Stock Additional Accumulated Shareholders'
$.01 Par Value Paid- in Capital Deficit Equity
------------------ ---------------- ----------- -------------
Shares Amount
------ ------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1994 3,545 $ 35 $ 7,540 $ (3,489) $ 4,086
Repurchase and cancellation of common stock (11) --- (25) --- (25)
Exercise of stock options 158 2 256 --- 258
Net income --- --- --- 1,122 1,122
------ ----- ------- ----- -----
Balance, March 31, 1995 3,692 $ 37 $ 7,771 $ (2367) $ 5,441
Repurchase and cancellation of common stock (32) --- (141) --- (141)
Exercise of stock options 76 1 66 --- 67
Exercise of warrants 251 2 1,255 --- 1,257
Cash dividends paid --- --- --- (481) (481)
Net income --- --- --- 1,641 1,641
------ ----- ------- -------- -------
Balance, March 31, 1996 3,987 $ 40 $ 8,951 $ (1,207) $ 7,784
Repurchase and cancellation of
common stock (unaudited) (13) --- (43) --- (43)
Exercise of stock options (unaudited) 6 --- 3 --- 3
Exercise of warrants (unaudited) 2 --- 11 --- 11
Cash dividends paid (unaudited) --- --- --- (399) (399)
Net income (unaudited) --- --- --- 996 996
------ ----- ------- -------- -------
Balance, September 30, 1996 (unaudited) 3,982 $ 40 $ 8,922 $ (610) $ 8,352
====== ===== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 52
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended Six Months Ended
March 31, September 30,
---------------- -----------------
1995 1996 1995 1996
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
CASH FROM OPERATIONS
Net income $1,122 $1,641 $1,025 $ 996
Adjustments to reconcile net income to net cash provided by operations
Provisions for uncollectible accounts 98 67 49 ---
Amortization 266 243 121 121
Depreciation 133 158 77 101
Changes in current assets and liabilities
(Increase) decrease in receivables (1,082) 36 264 46
(Increase) in inventories (178) (591) (156) (199)
(Increase) decrease in prepaid expenses 122 (11) (89) 20
(Increase) in deferred tax asset (88) (71) --- ---
Increase (decrease) in accounts payable and other accrued expenses (57) 364 241 (586)
Increase (decrease) in income taxes payable 671 (765) (710) (9)
(Increase) in other assets (35) (33) (15) (18)
------ ------ ------ -----
Net cash provided by operations 972 1,038 807 472
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (198) (546) (111) (76)
CASH FLOW FROM FINANCING ACTIVITIES
Payment of note payable (750) (1,050) (1,050) ---
Exercise of stock options 258 67 ---
Exercise of warrants --- 1,257 1,202 14
Purchase and cancellation of common stock (25) (141) --- (45)
Dividends paid to shareholders --- (481) (185) (399)
----- ------ ------ -----
Cash used by financing activities (517) (348) (33) (430)
Net increase in cash 257 144 663 (34)
Beginning balance - cash and cash equivalents 2,645 2,902 2,902 3,046
------ ------ ------ ------
Ending balance - cash and cash equivalents $2,902 $3,046 $3,565 $3,012
====== ====== ====== ======
SUPPLEMENTAL INFORMATION
Interest paid $ 116 $ 32 $ 59 ---
Taxes paid $ 285 $ 2,066 $ 1,439 $ 727
====== ===== ===== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 53
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(including notes applicable to unaudited periods)
1. Nature of Business and Significant Accounting Policies
Nature of Business
Panatech Research and Development Corporation ("Panatech" or the
"Company") was incorporated in Nevada in 1981. Panatech conducts its business
principally through a wholly owned subsidiary, ASM Company, Inc. ("ASM"). ASM,
which was acquired by the Company in 1989, manufactures and sells precision
engineered accessories for high pressure, airless paint spraying equipment used
by industrial, commercial and residential paint contractors.
Principles of Consolidation
The consolidated financial statements include the accounts of Panatech
and ASM. All material intercompany balances and transactions have been
eliminated in consolidation. The preparation of consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Interim Financial Information
The financial statements at September 30, 1996 and for the six months
ended September 30, 1995 and 1996 are unaudited, but include all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a consistent presentation of the financial position at such dates
and the operating results, shareholders' equity and cash flow for those periods.
Results for interim periods are not necessarily indicative of results to be
expected for the entire year.
Cash Equivalents
Cash equivalents are carried at cost, which approximates market value.
Highly liquid money market and debt instruments are considered to be cash
equivalents when purchased with an original maturity of 90 days or less.
Inventories
Inventories are carried at the lower of cost or market value on an
average cost basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Additions and major
improvements are capitalized, and repairs, maintenance, and minor improvements
are charged to expense as incurred. When
F-6
<PAGE> 54
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(including notes applicable to unaudited periods)
1. Nature of Business and Significant Accounting Policies (continued)
properties are retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts. Gains or losses from
retirements and disposals are credited or charged to income. Depreciation is
computed primarily using the straight line method over the following useful
lives:
<TABLE>
<CAPTION>
Years
-------------
<S> <C>
Leasehold improvements Life of lease
Vehicles 4
Office furniture and equipment 3 - 7
Machinery and equipment 5 - 10
</TABLE>
Amortization
The Company amortizes covenants not-to-compete over seven years, the
life of the covenant, and cost of purchased business in excess of net assets
acquired over forty years. These assets were valued at estimated fair value at
date of acquisition, and are amortized on a straight line basis. At each quarter
end, management assesses the performance, growth, market and competitive outlook
of the business acquired to determine if there has been any permanent
impairment. As a result of this assessment, management has determined that the
recorded value of these assets is not impaired.
In March 1995, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 121 "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of" (SFAS No. 121).
The provisions of SFAS No. 121 must be implemented by the Company in fiscal
1997. The Company believes that its current impairment policy is substantially
similar to SFAS No. 121 and, accordingly, the adoption of SFAS No. 121 is not
currently expected to have a significant effect on the Company's financial
position or results of operations when adopted.
Revenue Recognition and Customer Rebates
The Company recognizes revenue upon delivery of goods and accrues sales
rebates based on current sales. The sales rebates are applied to customers'
sales in the following calendar year.
Concentration of Credit Risk
The Company sells its products to customers throughout the United
States (87% of fiscal 1996 sales) and to foreign customers (13% of fiscal 1996
sales). Over the past three years, the Company's uncollectible accounts have
been less than 0.3% of sales and the Company has no reason to believe that its
receivables will not be collected in the normal course of business. Sales are
typically on credit terms of sixty days. At March 31, 1996, approximately 54% of
its accounts receivable was related to three customers, all of whom have
historically had good payment records, are of substantial size and financial
F-7
<PAGE> 55
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(including notes applicable to unaudited periods)
1. Nature of Business and Significant Accounting Policies (continued)
strength and of good reputation. During the year ended March 31, 1996, sales to
each of the Company's three largest customers were between 12-35% of total
sales.
The Company maintains excess cash balances in money market and cash
accounts with several major financial institutions, and has not experienced any
losses on its money market and cash investments.
Research and Development Costs
The Company charges research and development costs to expense when
incurred. In fiscal 1996 and fiscal 1995, the Company incurred approximately
$173,000 and $108,000, respectively, of research and development costs. These
amounts are included in selling, general and administrative expenses in the
accompanying consolidated statements of income.
Income Per Share
Income per share was computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period,
including common stock equivalents for outstanding stock options and Class B
Warrants, where not antidilutive.
The calculation of shares outstanding for primary earnings per share is
as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended Six Months Ended
March 31, September 30,
----------------- ------------------
1995 1996 1995 1996
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Weighted average shares outstanding during the period 3,568 3,837 3,737 3,977
Common stock equivalents for outstanding options --- 121 155 78
Common stock equivalents for outstanding warrants --- 62 113 ---
----- ----- ----- -----
3,568 4,020 4,005 4,055
</TABLE>
The calculation for shares outstanding for computing fully diluted
earnings produced immaterial differences in earnings per share for all periods.
Income Taxes
The Company and ASM file a consolidated Federal income tax return. In
fiscal 1994, the Company adopted Statement of Financial Accounting Standards No.
109 (SFAS 109), "Accounting for Income Taxes." The adoption of SFAS 109 changed
the Company's method of accounting for income taxes from the deferred method
(ABP Opinion No. 11) to an asset and liability approach. Previously, the Company
deferred the past tax effects of temporary differences between financial
reporting and taxable income. The
F-8
<PAGE> 56
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(including notes applicable to unaudited periods)
1. Nature of Business and Significant Accounting Policies (continued)
asset and liability approach requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, receivables,
accounts payable and other accrued expenses approximate fair value due to the
short-term maturity of those instruments.
2. Inventories
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
1996 1996
--------- -------------
(unaudited)
<S> <C> <C>
Raw materials $ 989 $1,212
Work in process 166 209
Finished goods 323 256
------ ------
Total $1,478 $1,677
====== ======
</TABLE>
3. Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
1996 1996
--------- ------------
(unaudited)
<S> <C> <C>
Leasehold improvements $ 10 $ 10
Machinery and equipment 908 1,271
Office furniture and equipment 276 285
Vehicles 82 82
------- --------
1,276 1,648
Construction in progress 347 51
------- --------
1,623 1,699
Less: Accumulated depreciation (710) (811)
------- --------
Property, plant and equipment, net $ 913 $ 888
======= ========
</TABLE>
F-9
<PAGE> 57
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(including notes applicable to unaudited periods)
4. Capital Stock
At March 31, 1996 and September 30, 1996 (unaudited), there were
outstanding Class B warrants for the purchase of 622,375 and 620,175 shares,
respectively, of the Company's common stock at $5.00 per share. During the year
ended March 31, 1996, and the six months ended September 30, 1996 (unaudited),
251,325 and 2,200 warrants were exercised to purchase common stock at $5.00 per
share, for a total of $1,257,000 and $11,000, respectively. No warrants were
exercised in fiscal 1995. The Company announced on May 21, 1996 that the
warrants were extended for a final time, and will expire on June 30, 1997.
On August 16, 1993, the Company's shareholders approved the 1993 Stock
Option Plan which authorizes the granting of incentive and non-qualified options
to purchase up to 400,000 shares of the Company's common stock to employees,
directors, and consultants. The Plan provides that the option price for
incentive options shall not be less than fair market value on the date of the
grant. The option price for non-qualified options is determined by the Board of
Directors on the date of grant.
The Company also has options outstanding under its 1983 Option Plan, as
amended. No further options may be granted under the 1983 Plan.
Option transactions under the 1983 and 1993 Option plans for the two
years ended March 31, 1996 and the six months ended September 30, 1996
(unaudited), were as follows:
<TABLE>
<CAPTION>
Shares
under option Price range
------------ -----------
<S> <C> <C>
Outstanding at March 31, 1994 294,000 $.375 - $2.625
Fiscal 1995 Activity
Granted 76,500 $2.00
Canceled (5,000) $2.625
Exercised - 1983 Plan (158,000) $ .375 - $1.50
------- --------------
Outstanding at March 31, 1995 207,500 $.375 - $2.625
Fiscal 1996 Activity
Canceled (12,000) $2.00 - $2.625
Exercised - 1983 Plan (55,000) $.375
Exercised - 1993 Plan (20,750) $2.00 - $2.625
------- --------------
Outstanding at March 31, 1996 119,750 $.375 - $2.625
Activity for six months ended September 30, 1996
(unaudited)
Granted - 1993 Plan 217,000 $3.375 - $4.00
Exercised - 1983 Plan (6,000) $.375 - $2.625
------- --------------
Outstanding at September 30, 1996 (unaudited) 330,750 $ 1.75 - $4.00
Exercisable at September 30, 1996 (unaudited) 37,875 $ 1.75 - $2.625
Available for future grant at September 30, 1996
(unaudited) 47,500
</TABLE>
F-10
<PAGE> 58
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(including notes applicable to unaudited periods)
4. Capital Stock (continued)
In the years ended March 31, 1995 and 1996, and the six months ended
September 30, 1996 (unaudited), the Company repurchased in the open market and
retired 10,600, 32,200 and 13,000 shares of its common stock for $25,000,
$141,000, and $43,000, respectively.
5. Income Taxes
The provision (benefit) for income taxes consists of the following for
the fiscal years ended March 31, 1995 and 1996 and the six months ended
September 30, 1996 (in thousands):
<TABLE>
<CAPTION>
Years ended March 31,
--------------------- Six months ended
1995 1996 September 30, 1996
---- ---- ------------------
(unaudited)
<S> <C> <C> <C>
Current:
Federal $ 766 $ 979 $ 555
State 221 280 159
----- ------- ---
987 1,259 714
Deferred:
Federal (128) 29 ---
State (55) 5 ---
------ ------- -----
(183) 34 ---
Adjustment to valuation allowance 95 (105) ---
------ ------- -----
Total $ 899 $ 1,188 $ 714
====== ======= =====
</TABLE>
The provision for income taxes as reconciled with the Federal statutory rate for
the fiscal years ended March 31, 1995 and 1996 and the six months ended
September 30, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
Six months ended
Years ended March 31, September 30, 1996
------------------------- ------------------
1995 1996 (unaudited)
---- ----
Tax Tax Rate Tax Tax Rate Tax Tax Rate
--- -------- --- -------- --- --------
<S> <C> <C> <C> <C> <C> <C>
Provisions computed at federal statutory rate $ 687 34% $ 962 34% $581 34%
State taxes, net of federal tax benefit 140 7 181 6 120 7
Amortization of goodwill 10 - 10 - 5 -
Adjustment of beginning of year valuation allowance 95 5 10 - --- -
Other, net (33) (2) 25 2 8 1
----- -- ------ -- ---- --
$ 899 44% $1,188 42% $714 42%
===== == ====== == ==== ==
</TABLE>
F-11
<PAGE> 59
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(including notes applicable to unaudited periods)
5. Income Taxes (continued):
Components of the net deferred income tax asset for the fiscal years
ended March 31, 1995 and 1996 and the six months ended September 30, 1996 are as
follows (in thousands)
<TABLE>
<CAPTION>
Years ended March 31, Six months ended
1995 1996 September 30, 1996
---- ---- ------------------
(unaudited)
<S> <C> <C> <C>
Deferred income tax assets:
Deferred compensation, bonus, and $ 207 $ 200 $ 200
vacation liability
Liability reserves for warranties and rebates 29 42 42
Deferred acquisition cost 16 7 7
Inventory capitalization 58 115 115
Bad debt reserves 39 57 57
Capital loss carry forward 436 341 341
----- ----- -----
Total 785 762 762
Deferred income tax liabilities: depreciation and
amortization (43) (54) (54)
Net deferred tax asset before valuation
allowance 742 708 708
Valuation allowance (616) (511) (511)
----- ------ -----
Net deferred income tax asset $ 126 $ 197 $ 197
===== ===== =====
</TABLE>
The Company conducts a periodic examination of its valuation allowance.
Factors considered in the evaluation include recent and expected future
earnings, the Company's liquidity, and equity positions. Deferred tax assets can
only be realized to the extent the Company generates taxable income in future
periods.
In the fiscal year ended March 31, 1996, the Company recognized the
expiration of $95,000 of capital loss carry forward previously recognized as a
deferred tax asset. This capital loss carry forward reduction was offset by a
corresponding decrease in the valuation allowance. The remaining capital loss
carry forward of $341,000 expires in 1997. The Company anticipates that, if not
utilized, this amount will be offset by a further reduction in the valuation
allowance.
6. Commitments and Contingencies
ASM leases a facility under a renewable operating lease. At March 31,
1996, future minimum rental payments are as follows: year ended March 31, 1997 -
$108,000; March 31, 1998 - $54,000.
F-12
<PAGE> 60
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(including notes applicable to unaudited periods)
6. Commitments and Contingencies (continued)
Rental expense charged to operations for the years ended March 31, 1995
and 1996 was $115,000 and $108,000, respectively.
On March 3, 1994, the Company entered into an extension to an existing
five year Employment Agreement with Arthur J. Rosenberg which would have expired
on August 31, 1995. Under the new Agreement, the Company agreed to employ Dr.
Rosenberg as its President from April 1, 1994, through March 31, 1997, at a base
annual salary of not less than $160,000. In addition to said salary, Dr.
Rosenberg receives ordinary and customary employee fringe benefits, the use of
an automobile paid for by the Company, and a deferred bonus equal to at least
30% but not more than 50%, of his annual salary, the exact amount to be
determined by the Board of Directors. The salary and fringe benefit provisions
are unchanged from the previous Employment Agreement.
The Employment Agreement also provides certain disability income for
Dr. Rosenberg should he be unable to perform his duties due to illness or
injury. Pursuant to the Employment Agreement, the Company also maintains in
force and pays for a universal life insurance policy on Dr. Rosenberg's life in
the face amount of $1,000,000, the cash surrender value of which, presently
$176,000, remains the property of the Company. The Employment Agreement may be
terminated at any time for Good Cause as defined therein and is subject to
customary provisions.
ASM entered into a bank revolving credit agreement (the "Agreement")
effective November 15, 1995. The Agreement provides for borrowings up to
$1,000,000 through October 1, 1997, at which time the Agreement expires. The
interest rate on borrowings is based on the bank's reference rate plus 1/2
percentage point (8.25% at March 31, 1996). The Agreement contains various
financial covenants, including maintenance of a certain quick ratio, maintenance
of certain total liabilities to net worth ratio, positive net income before
taxes and extraordinary items, and restrictions on indebtedness. As of March 31,
1996, and September 30, 1996 (unaudited) ASM was in compliance with all
financial covenants. Included in cash and cash equivalents is $100,000 of
restricted cash which must remain on deposit with the lender for the life of the
Agreement. As of March 31, 1996, and September 30, 1996 (unaudited), ASM had no
amounts outstanding under the Agreement.
ASM had an agreement with Dean Warner, former shareholder and chief
executive officer of ASM's predecessor, pursuant to which Mr. Warner provided
consulting services. Under this agreement, which expired on September 30, 1994,
ASM paid Mr. Warner $71,000 in fiscal 1995. No further amounts are payable to
Mr. Warner under the agreement.
Effective March 31, 1991, the Company sold its former electronic
interconnect subsidiary, AIDCO, Inc., to a group of private investors. As part
of the purchase price, the investors agreed to pay the Company a royalty of 1.5%
of sales for a period of five years. In the year ended March 31, 1995, the
Company received $218,000 of royalty income, including a final one-time payment
of $120,000.
F-13
<PAGE> 61
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(including notes applicable to unaudited periods)
6. Commitments and Contingencies (continued)
Except as described below, the Company is involved in various legal
proceedings in the ordinary course of business, but believes that it has
sufficient insurance coverage, and that the ultimate outcome of these
proceedings will not have a material adverse effect on its financial condition,
results of operations, or liquidity.
In April 1995, ASM filed a lawsuit in the United States District Court
for the Central District of California against Titan Tool, Inc., claiming that a
new product recently introduced into the marketplace by Titan Tool infringes
three patents relating to ASM's primary product, the ZIP-TIP. Thereafter, Titan
Tool answered and filed certain cross-claims against ASM. In September 1995, the
parties agreed to dismiss all claims against each other for financial damages
and to submit all patent issues to final and binding arbitration before a single
arbitrator. The arbitration hearing was held in February and March 1996.
Unaudited - Prior to receipt of the arbitrator's decision on the patent
dispute, the parties entered into settlement discussions which culminated in the
execution of an Agreement and Plan of Merger dated December 6, 1996, pursuant to
which the Company will become a wholly owned subsidiary of Titan Enterprises,
Inc., the parent of Titan Tool. See Note 7, Subsequent Events. If the merger
contemplated by such Agreement is not consummated and the parties do not agree
to settle their dispute, the arbitrator will render his decision. The Company
believes that an adverse result in this arbitration could adversely affect its
plans to build market share for this product line over the next three to five
years.
7. Subsequent Event (Unaudited)
On December 6, 1996, the Company entered into an Agreement and Plan of
Merger with Titan Enterprises, Inc., a Delaware corporation ("Titan"), and
Panatech Acquisition Corporation, a Nevada corporation and wholly owned
subsidiary of Titan ("Merger Sub") (the "Merger Agreement"), pursuant to which,
and subject to satisfaction of the conditions set forth therein, (i) Merger Sub
will be merged with and into the Company (the "Merger"), with the Company
continuing as the surviving corporation, (ii) the Company will become a wholly
owned subsidiary of the Titan, and (iii) each outstanding share of the Company's
common stock (other than shares owned by Titan, Merger Sub or subsidiaries of
the Company, if any, which shares will be canceled) will be converted, upon the
effectiveness of the Merger, into the right to receive $7.00 in cash per share,
without interest, subject to reduction. Consummation of the Merger is subject
to, among other things, approval of the Merger Agreement by the Company's
shareholders and regulatory approvals. If the Merger Agreement is terminated
under certain circumstances relating to an acquisition of the Company by a third
party, the Company has agreed to pay Titan a fee equal to $994,844. The Company
expects to incur merger-related expenses subsequent to September 30, 1996 of
approximately $225,000.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
by and among
Titan Enterprises, Inc.,
Panatech Acquisition Corporation
and
Panatech Research and Development Corporation
December 6, 1996
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TABLE OF CONTENTS
PAGE
RECITALS .................................................................... 1
ARTICLE I DEFINITIONS
Section 1.1 Definitions ............................................. 1
Section 1.2 Interpretive Rules ...................................... 6
ARTICLE II THE MERGER
Section 2.1 The Merger .............................................. 6
Section 2.2 Effective Time of the Merger ............................ 6
Section 2.3 Articles of Incorporation ............................... 7
Section 2.4 By-laws ................................................. 7
Section 2.5 Directors and Officers .................................. 7
Section 2.6 Conversion of Shares .................................... 7
Section 2.7 Cancellation of Stock Options and Warrants .............. 8
Section 2.8 Closing of Panatech Transfer Books ...................... 8
Section 2.9 Supplementary Action .................................... 8
Section 2.10 Appointment of Representative ........................... 9
ARTICLE III MERGER CONSIDERATION
Section 3.1 Merger Consideration .................................... 9
Section 3.2 Payment of Merger Consideration ......................... 11
ARTICLE IV CLOSING
Section 4.1 Closing ................................................. 12
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PANATECH
Section 5.1 Corporate Organization .................................. 13
Section 5.2 Valid and Binding Agreement ............................. 14
Section 5.3 No Violation ............................................ 14
Section 5.4 Consents and Approvals .................................. 14
Section 5.5 Capitalization .......................................... 14
Section 5.6 Subsidiaries and Affiliates ............................. 15
Section 5.7 Financial Statements .................................... 15
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Section 5.8 Absence of Undisclosed Liabilities ...................... 15
Section 5.9 Interim Operations and Absence of Certain Changes ....... 16
Section 5.10 Taxes ................................................... 17
Section 5.11 Employee Benefit Plans .................................. 19
Section 5.12 Compliance with Law ..................................... 21
Section 5.13 Litigation; Claims ...................................... 22
Section 5.14 Contracts and Commitments ............................... 22
Section 5.15 Intellectual Property Rights ............................ 23
Section 5.16 Liens ................................................... 23
Section 5.17 Insurance ............................................... 24
Section 5.18 Disclosure .............................................. 24
Section 5.19 Tangible Personal Property .............................. 24
Section 5.20 Real Property ........................................... 24
Section 5.21 Environmental Matters ................................... 25
Section 5.22 Employees ............................................... 27
Section 5.23 Employee Relations ...................................... 27
Section 5.24 Customers and Vendors; Distributors and
Representatives.......................................... 28
Section 5.25 Governmental Authorizations ............................. 28
Section 5.26 Defects in Products or Designs; Product Safety .......... 29
Section 5.27 Broker's or Finder's Fees ............................... 29
Section 5.28 Certain Transactions .................................... 29
Section 5.29 Absence of Questionable Payments ........................ 29
Section 5.30 SEC Documents ........................................... 30
Section 5.31 Proxy Statement ......................................... 30
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF
PARENT AND SUB
Section 6.1 Corporate Organization .................................. 30
Section 6.2 Valid and Binding Agreement ............................. 31
Section 6.3 No Violation ............................................ 31
Section 6.4 Consents and Approvals .................................. 31
Section 6.5 Proxy Statement ......................................... 32
ARTICLE VII COVENANTS
Section 7.1 Compliance with Law ..................................... 32
Section 7.2 Operation of Business Prior to Closing .................. 32
Section 7.3 Access .................................................. 35
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Section 7.4 Letter of Intent ........................................ 36
Section 7.5 Fiduciary Duty .......................................... 36
Section 7.6 No Solicitation ......................................... 36
Section 7.7 Stockholders' Meeting ................................... 36
Section 7.8 Proxy Statement ......................................... 37
Section 7.9 Best Efforts ............................................ 37
Section 7.10 Press Releases .......................................... 37
Section 7.11 HSR Act ................................................. 37
Section 7.12 Payment of Expenses ..................................... 37
ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND SUB
Section 8.1 Representations and Warranties .......................... 38
Section 8.2 Covenants, Agreements and Conditions .................... 38
Section 8.3 No Material Adverse Effect .............................. 38
Section 8.4 Corporate Proceedings ................................... 38
Section 8.5 Opinion of Counsel ...................................... 39
Section 8.6 Proceedings ............................................. 39
Section 8.7 Governmental Approvals .................................. 39
Section 8.8 HSR Act Requirements .................................... 39
Section 8.9 Deliveries .............................................. 39
Section 8.10 Insurance ............................................... 40
Section 8.11 Stockholder Approval .................................... 40
Section 8.12 Customer and Vendor Relationships ....................... 40
ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF
PANATECH
Section 9.1 Representations and Warranties .......................... 41
Section 9.2 Covenants, Agreements and Conditions .................... 41
Section 9.3 Corporate Proceedings ................................... 41
Section 9.4 Opinion of Counsel ...................................... 41
Section 9.5 Proceedings ............................................. 41
Section 9.6 Governmental Approvals .................................. 42
Section 9.7 HSR Act Requirements .................................... 42
Section 9.8 Deliveries .............................................. 42
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ARTICLE X OTHER MATTERS
Section 10.1 Confidentiality ......................................... 42
Section 10.2 Further Assurances ...................................... 42
Section 10.3 Indemnification of Directors and Officers ............... 43
ARTICLE XI TERMINATION
Section 11.1 Methods of Termination .................................. 43
Section 11.2 Procedure Upon Termination .............................. 44
ARTICLE XII MISCELLANEOUS
Section 12.1 Survival of Representations and Warranties .............. 45
Section 12.2 Service of Process ...................................... 45
Section 12.3 Notices ................................................. 45
Section 12.4 Governing Law ........................................... 46
Section 12.5 Modification; Waiver .................................... 46
Section 12.6 Entire Agreement ........................................ 47
Section 12.7 Assignment; Successors and Assigns ...................... 47
Section 12.8 Severability ............................................ 47
Section 12.9 No Third Party Beneficiary .............................. 47
Section 12.10 Expenses ................................................ 47
Section 12.11 Execution in Counterpart ................................ 47
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EXHIBITS AND SCHEDULES*
Exhibit A Form of Stockholders' Representative Agreement
Exhibit B Principles and Procedures
Exhibit C Form of Opinion of Hagan, Saca & Hagan
Exhibit D Form of Opinion of Dickstein Shapiro Morin & Oshinsky
LLP
Exhibit E Sample Calculation of Pro-Rata Adjustment
Schedule 5.1 Foreign Qualifications
Schedule 5.5 Capitalization
Schedule 5.6 Subsidiaries and Affiliates
Schedule 5.8 Liabilities and Obligations
Schedule 5.9 Changes During Interim Operations
Schedule 5.10 Tax Matters
Schedule 5.11 Employee Benefit Plans
Schedule 5.13 Litigation; Claims
Schedule 5.14 Contracts and Commitments
Schedule 5.15 Intellectual Property
Schedule 5.16 Liens
Schedule 5.17 Insurance
Schedule 5.19 Leased Tangible Personal Property
Schedule 5.20 Leased Real Property
Schedule 5.22 Employees
Schedule 5.23 Employee Relations
Schedule 5.24 Customers and Vendors; Distributors and
Representatives
Schedule 5.25 Governmental Authorizations
Schedule 5.26 Certain Product Defects
Schedule 5.27 Broker's or Finder's Fees
Schedule 5.28 Certain Transactions
Schedule 7.2 Operation of Business Prior to Closing
* Not included in Proxy Statement.
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated
December 6, 1996, by and among Titan Enterprises, Inc., a corporation organized
in and governed by the laws of the State of Delaware and whose address is 107
Bauer Drive, Oakland, New Jersey 07436 ("Parent"), Panatech Acquisition
Corporation, a corporation organized in and governed by the laws of the State of
Nevada and whose address is c/o Titan Enterprises, Inc., 107 Bauer Drive,
Oakland, New Jersey 07436 ("Sub"), and Panatech Research and Development
Corporation, a corporation organized in and governed by the laws of the State of
Nevada and whose address is 1208 Daskalos Drive NE, Albuquerque, New Mexico
84192 ("Panatech").
WITNESSETH:
WHEREAS, the respective Boards of Directors of Parent, Sub and
Panatech wish to merge Sub with and into Panatech (the "Merger"), pursuant to
and subject to the conditions set forth herein; and
WHEREAS, Parent, Sub and Panatech desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and of the
mutual representations, warranties and covenants which are to be made and
performed by the respective parties, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
The following terms when used in this Agreement have the meanings
set forth below
(a) "ASM Litigation" shall have the meaning set forth in Section 5.13.
(b) "Accountants" shall mean Arthur Andersen LLP, as independent
certified public accountants of Panatech and its Subsidiaries.
(c) "Acquisition Transaction" shall have the meaning set forth in
Section 7.6.
(d) "Affiliate" shall mean any Person now or hereinafter controlling,
controlled by or under common control with another Person.
(e) "Arbitrator" shall have the meaning set forth in Section 3.1(b)(v).
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(f) "Articles of Merger" shall have the meaning set forth in Section
2.2.
(g)"CERCLA" shall have the meaning set forth in Section 5.21(a).
(h)"CERCLIS" shall have the meaning set forth in Section 5.21(f).
(i)"Certificates" shall have the meaning set forth in Section 3.2(b).
(j) "Closing" shall have the meaning set forth in Section 4.1.
(k) "Closing Date" shall have the meaning set forth in Section 4.1.
(l) "Closing Report" shall have the meaning set forth in Section
3.1(b)(ii).
(m) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(n)"Commission" shall mean the Securities and Exchange Commission.
(o) "Constituent Corporations" shall mean Sub and Panatech.
(p) "Effective Time" shall have the meaning set forth in Section 2.2.
(q) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
(r) "Environmental Laws" shall have the meaning set forth in Section
5.21(c).
(s) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(t) "Exchange Agent" shall have the meaning set forth in Section
3.2(a).
(u) "Exchange Fund" shall have the meaning set forth in Section 3.2(a).
(v) "Expenses" shall mean all out-of-pocket fees and expenses paid or
incurred in connection with this Agreement or the transactions contemplated
herein (including filing fees, printing fees and fees and expenses of legal
counsel, accountants and financial advisors).
(w)"GAAP" shall mean generally accepted accounting principles of the
United States applied in a manner consistent with past practice.
(x)"Hazardous Materials" has the meaning set forth in Section 5.21(a).
(y)"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
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(z) "Intellectual Property" means any and all inventions, Marks
(including trademarks, service marks, certification marks, collective marks, and
collective membership marks whether word, logo, or other forms of Marks, all of
the foregoing collectively referred to as "Marks"), trade names, copyrights,
applications therefor, patents thereon, registrations thereof and licenses
thereof, royalty rights, any and all goodwill associated with the business or
represented by the assets of Panatech and the Subsidiaries, trade secrets,
secret processes and procedures, engineering, production, assembly design and
installation encompassed in any and all embodiments including, but not limited
to technical drawings and specifications, working notes and memos, market
studies, consultants' reports, technical and laboratory data, competitive
samples, engineering prototypes, and confidential information, know-how, and all
similar property of any nature, tangible or intangible, including, but not
limited to, all property listed or described on Schedule 5.15.
(aa) "IRS" shall mean the Internal Revenue Service.
(ab) "Knowledge" shall mean the actual knowledge of the executive
officers of Panatech and its Subsidiaries, after due inquiry with respect
thereto.
(ac) "Leased Improvements" shall have the meaning set forth in Section
5.20(b).
(ad) "Leased Property" shall have the meaning set forth in Section
5.20(b).
(ae) "Letter of Intent" shall mean that certain Letter of Intent, dated
November 4 and 5, 1996, by and between Parent and Panatech.
(af) "Marks" shall have the meaning set forth in Section 1.1(x).
(ag)"Material Adverse Effect" shall mean, with respect to any Person,
any event, fact, condition, occurrence or effect which is materially adverse to
the business, properties, assets, liabilities, capitalization, stockholders
equity, financial condition, operations, licenses or other franchises, results
of operations or prospects of such Person.
(ah) "Merger Consideration" shall have the meaning set forth in Section
3.1.
(ai) "NRS" shall mean Chapter 92A of the Nevada Revised Statutes, as
amended.
(aj) "Operating Agreements" shall have the meaning set forth in Section
5.14(b).
(ak)"Panatech Financial Statements" shall mean the consolidated balance
sheets of Panatech for each of the two fiscal years ended March 31, 1996 and
1995 and the related consolidated statements of income, cash flows and changes
in stockholders' equity
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(including related notes thereto) for each of the three fiscal years ended March
31, 1996 1995 and 1994, as filed by Panatech in SEC Documents.
(al) "Panatech Interim Financial Statements" shall mean the
consolidated balance sheets of Panatech and related consolidated statements of
income, cash flows and changes in stockholders' equity (including related notes,
if any) as filed by Panatech in SEC Documents with respect to periods ended
subsequent to March 31, 1996.
(am)"Panatech Stock Option" and "Panatech Stock Options" shall have the
meaning set forth in Section 2.7(a).
(an)"Panatech Warrant" and "Panatech Warrants" shall mean the Class B
Warrants of Panatech.
(ao)"Payment Date" shall mean the third business day following the date
on which either (i) Parent and Panatech agree on the determination of the Quick
Assets and Target Number pursuant to Section 3.1(b)(i), (ii) Parent notifies the
Stockholders' Representative pursuant to Section 3.1(b)(ii) that Parent agrees
with the calculation of Quick Assets and any adjustments to the Merger
Consideration pursuant to 3.1(b)(iii), or (iii) the Arbitrator renders a final
decision pursuant to Section 3.1(b)(v).
(ap) "Pension Plans" shall have the meaning set forth in Section
5.11(c)(i).
(aq)"Permits" shall have the meaning set forth in Section 5.25.
(ar)"Person" shall mean and include an individual, a partnership, a
joint venture, a corporation or trust, an unincorporated organization, a group
or a government or other department or agency thereof.
(as)"Plans" shall have the meaning set forth in Section 5.11(a).
(at)"Price Waterhouse" shall mean Price Waterhouse LLP, as independent
certified public accountants of Parent and Sub.
(au)"Principles and Procedures" means the accounting principles and
procedures set forth in Exhibit B.
(av) "Product" shall have the meaning set forth in Section 5.26(a)
(aw) "Proxy Statement" shall mean the proxy statement of Panatech
together with any supplements thereto sent to the Stockholders to solicit their
votes in connection with this Agreement.
(ax) "Quick Assets" shall mean the excess as of the Closing Date of (i)
cash plus accounts receivable of Panatech on a consolidated basis over (ii)
current liabilities of Panatech on a consolidated basis, each as determined in
accordance with the Principles and Procedures.
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(ay) "Quick Assets Statement" shall have the meaning set forth in
Section 3.1(b)(ii).
(az) "Rights" shall mean warrants, options, rights, convertible
securities and other arrangements or commitments, including pre-emptive rights,
which obligate an entity to issue or dispose of any of its capital stock.
(ba) "SEC Documents" shall mean all reports, proxy statements and
registration statements filed, or required to be filed, by a party hereto
pursuant to the Securities Laws.
(bb) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(bc) "Securities Laws" shall mean the Securities Act; the Exchange Act;
the Investment Company Act of 1940, as amended; the Investment Advisers Act of
1940, as amended; the Trust Indenture Act of 1939, as amended; and the rules and
regulations of the Commission.
(bd) "Stock" shall mean the common stock of Panatech, par value $0.01
per share.
(be) "Stock Option Plans" shall have the meaning set forth in Section
2.7(a).
(bf) "Stockholders" shall mean the stockholders of Panatech.
(bg) "Stockholders' Representative" shall have the meaning set forth in
Section 2.10.
(bh) "Subsidiaries" shall mean ASM Company, Inc., a California
corporation, and Panatech Industries, Inc., a Delaware corporation.
(bi) "Surviving Corporation" shall have the meaning set forth in
Section 2.1.
(bj) "Target Number" shall mean (i) four million three hundred
sixty-two thousand dollars ($4,362,000) plus (ii) the amount in cash received by
Panatech from the exercise of Panatech Stock Options and Panatech Warrants from
September 30, 1996 through the Closing Date (as such amount is determined in
accordance with the Principles and Procedures) minus (iii) Expenses incurred by
Panatech as of the Closing Date up to a maximum of $225,000.
(bk) "Tax" shall mean any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, gains, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty
or addition thereto, whether disputed or not.
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(bl) "Tax Return" shall mean any return, declaration, report,
claim for refund, information return or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
(bm) "Taxing Authority" shall have the meaning set forth in
Section 5.10(a).
(bn) "Titan Personnel" shall include any person who is an
officer, director, employee or agent of Titan Tool other than (excluding Dean
Harrison) persons who are also officers, directors or employees of Harbour Group
Industries, Inc. and its Affiliates.
(bo) "Titan Tool" shall mean Titan Tool, Inc., a Delaware
corporation and wholly-owned subsidiary of Parent.
Section 1.2 Interpretive Rules.
For purposes of this Agreement, except as otherwise expressly
provided herein or unless the context otherwise requires: (a) defined terms
include the plural as well as the singular and the use of any gender shall be
deemed to include the other genders; (b) references to "Articles," "Sections"
and other subdivisions and to "Schedules" and "Exhibits" without reference to a
document, are to Schedules and Exhibits to this Agreement; (c) the use of the
term "including" means "including but not limited to"; and (d) the words
"herein," "hereof," "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular provision.
ARTICLE II
THE MERGER
Section 2.1 The Merger.
At the Effective Time, Sub shall be merged with and into Panatech
in accordance with the applicable provisions of the NRS and the separate
existence of Sub shall thereupon cease, and Panatech, as the surviving
corporation in the Merger (the "Surviving Corporation"), shall continue its
corporate existence in accordance with the NRS.
Section 2.2 Effective Time of the Merger.
At the Closing, Panatech shall cause the Merger to be consummated
by filing with the Secretary of State of Nevada appropriate articles of merger
(the "Articles of Merger"), duly executed in accordance with this Agreement and
the NRS. The date and time at which the Articles of Merger are filed is referred
to herein as the "Effective Time."
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Section 2.3 Articles of Incorporation.
The Articles of Incorporation of Panatech as in effect at the
Effective Time shall be the Articles of Incorporation of the Surviving
Corporation; provided, however, that as of the Effective Time, Article Fourth of
said Articles of Incorporation shall be amended in its entirety to read as
follows:
"FOURTH: The total number of shares of stock which the
corporation shall have authority to issue is one hundred thousand
(100,000), designated as common stock, and the par value of each
such share of common stock is one cent ($0.01), amounting in the
aggregate to one thousand dollars ($1,000.00)."
Section 2.4 By-laws.
The By-laws of Sub as in effect at the Effective Time shall be
the By-laws of the Surviving Corporation.
Section 2.5 Directors and Officers.
The directors of the Surviving Corporation at the Effective Time
shall be the directors of Sub in office immediately prior to the Effective Time,
to serve in accordance with the By-laws of the Surviving Corporation. The
officers of the Surviving Corporation at the Effective Time shall be the
officers of Sub in office immediately prior to the Effective Time, to serve in
accordance with the By-laws of the Surviving Corporation.
Section 2.6 Conversion of Shares.
At the Effective Time, by virtue of the Merger and without any
action on the part of the holder of any securities of the Constituent
Corporations:
(a)each share of Stock then outstanding, other than Stock to be
canceled pursuant to Section 2.6(b), and all rights with respect thereto, shall
be converted into and represent the right to receive $7.00 in cash, subject to
adjustment pursuant to Section 3.1(b) and payable as provided in Section 3.2;
(b)each share of Stock, if any, held in Panatech's treasury or
owned beneficially by Parent or Sub or by any Subsidiary of Panatech shall be
canceled and retired without payment of any consideration therefor and shall
cease to exist; and
(c)each issued and outstanding share of common stock, $0.01 par
value per share, of Sub outstanding immediately prior to the Effective Time
shall remain outstanding and unchanged as a share of common stock of the
Surviving Corporation.
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Section 2.7 Cancellation of Stock Options and Warrants.
(a)Immediately prior to the Effective Time, each option to
purchase shares of Stock (individually, a "Panatech Stock Option" and
collectively, the "Panatech Stock Options") issued pursuant to Panatech's 1993
Stock Option Plan and its 1983 Stock Option Plan (collectively, the "Stock
Option Plans") and each Panatech Warrant, which are then outstanding and
exercisable in full, shall be canceled and the holder thereof shall be entitled
to receive from Parent at the Effective Time an amount equal to the excess, if
any, of (i) $7.00, as adjusted pursuant to Section 3.1(b), multiplied by the
number of shares of Stock subject to the Panatech Stock Option or Panatech
Warrant over (ii) the exercise price of the Panatech Stock Option or Panatech
Warrant multiplied by the number of shares of Stock subject thereto. Appropriate
arrangements shall be made for reduction of the amount to be paid to each holder
of canceled Panatech Stock Options for any applicable withholding taxes or other
amounts required by law to be paid or withheld, either through reducing the
amount paid to or by obtaining a cash payment from, such holder. Prior to the
Effective Time, the Board of Directors of Panatech shall take such action,
including without limitation, actions ensuring that all Panatech Stock Options
outstanding as of the Effective Date shall be exercisable in full, as may be
required under the Stock Option Plans and the governing option agreements to
effectuate the foregoing.
(b)At the Effective Time, upon the payment of the Merger
Consideration, all of Panatech's obligations with respect to options granted
under its Stock Option Plans shall be terminated in accordance with such Stock
Option Plans.
Section 2.8 Closing of Panatech Transfer Books.
At the Effective Time, the stock transfer books of Panatech shall
be closed and there shall be no further registration of transfers of Stock
thereafter.
Section 2.9 Supplementary Action.
If at any time after the Effective Time, any further assignments
or assurances in law or any other things are necessary or desirable to vest or
to perfect or confirm of record in the Surviving Corporation the title to any
property or rights of either of the Constituent Corporations, or otherwise to
carry out the provisions of this Agreement, the officers and directors of the
Surviving Corporation are hereby authorized and empowered on behalf of the
respective Constituent Corporations, in the name of and on behalf of the
appropriate Constituent Corporation, to execute and deliver any and all things
necessary or proper to vest or to perfect or confirm title to such property or
rights in the Surviving Corporation, and otherwise carry out the purposes and
provisions of this Agreement.
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Section 2.10 Appointment of Representative.
Upon approval of the Merger by the Stockholders, the Stockholders
shall have been deemed to appoint James R. Hagan, Esq., as their agent and
attorney-in-fact (the "Stockholders' Representative"), with full power and
authority (including power of substitution), except as otherwise expressly
provided in this Agreement, in the name of and for and on behalf the
Stockholders, or in his own name as the Stockholders' Representative, to take
all actions required or permitted under Section 3.1 of this Agreement (including
giving and receiving all accountings, reports, notices and consents). The
authority conferred under this Section 2.10 shall be an agency coupled with an
interest, and all authority conferred hereby is irrevocable and not subject to
termination by the Stockholders or any of them, or by operation of law, whether
by the death or incapacity of any Stockholder, the termination of any trust or
estate or the occurrence of any other event. If any Stockholder should die or
become incapacitated, if any trust or estate should terminate or if any other
such event should occur, any action taken by a Stockholders' Representative
pursuant to this Section 2.10 shall be as valid as if such death or incapacity,
termination or other event had not occurred, regardless of whether or not the
Stockholders' Representative or Parent shall have received notice of such death,
incapacity, termination or other event. Any notice given to the Stockholders'
Representative pursuant to Section 12.3 shall constitute effective notice to the
Stockholders, and any other party to this Agreement or any other Person may rely
on any notice, consent, election or other communication received from such
Stockholders' Representative as if such notice, consent, election or other
communication had been received from all Stockholders. The responsibilities of
the Stockholders' Representative are subject to that certain Stockholders'
Representative Agreement substantially in the form attached hereto as Exhibit A.
ARTICLE III
MERGER CONSIDERATION
Section 3.1 Merger Consideration.
(a)Subject to adjustment pursuant to Section 3.1(b), the
aggregate merger consideration shall be $7.00 in cash per share of Stock as set
forth in Section 2.6(a) plus amounts payable in cash upon the cancellation of
Panatech Stock Options and Panatech Warrants pursuant to Section 2.7(a) (the
"Merger Consideration").
(b)The Merger Consideration is subject to adjustment in the
following manner:
(i) Parent and Panatech shall attempt to jointly determine the
Quick Assets and Target Number on the Closing Date.
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(ii) If Parent and Panatech cannot agree on the Quick
Assets and Target Number on the Closing Date, then as soon after the Closing
Date as possible, the Stockholders' Representative shall cause to be prepared in
accordance with the Principles and Procedures a statement of Quick Assets (the
"Quick Assets Statement") and shall cause such Quick Assets Statement to be
examined by the Accountants in accordance with the Principles and Procedures. As
soon as possible upon the conclusion of such examination, but in no event later
than five (5) business days after the Closing Date, the Accountants shall issue
a report to Parent and the Stockholders' Representative setting forth the
results of its examination and its determination of the Quick Assets and Target
Number (the "Closing Report"). Price Waterhouse shall have the opportunity to
review and evaluate all working papers, worksheets and other documents utilized
by the Stockholders' Representative in the preparation of the Quick Assets
Statement and by the Accountants in the preparation of the Closing Report. If
Parent agrees with the calculation of Quick Assets and Target Number pursuant to
the Quick Assets Statement and Closing Report, Parent shall notify the
Stockholders' Representative in writing as soon as possible following receipt of
the Quick Assets Statement and Closing Report.
(iii) If the Quick Assets of Panatech on the Closing
Date, as determined in accordance with the Quick Assets Statement and the
Closing Report, are less than the Target Number, and if such difference is not
disputed pursuant to this Section 3.1(b), the Merger Consideration shall be
decreased by the amount by which the Target Number exceeds the Quick Assets, and
the consideration to be paid per share of stock as set forth in Section 2.6(a)
and per cancelled Panatech Stock Option and Panatech Warrant pursuant to Section
2.7(a) shall be reduced pro-rata (a sample calculation of which is set forth on
Exhibit E). If the Quick Assets, as determined in accordance with the Quick
Assets Statement and the Closing Report, is equal to or greater than the Target
Number, the Merger Consideration shall not be adjusted.
(iv) If Parent disputes any items shown on the Quick
Assets Statement or Closing Report, Parent will provide the Stockholders'
Representative within five (5) days of receipt of the Quick Assets Statement and
Closing Report detailed written explanations of any disputed items in the Quick
Assets Statement or Closing Report. The amount of the Quick Assets and Target
Number not affected by the disputed items will be deemed to be as set forth in
the Quick Assets Statement and Closing Report. Within a further period of ten
(10) days from the end of the aforementioned review period, the parties will
attempt to resolve in good faith any disputed items.
(v) Failing resolution pursuant to paragraph (iii)
above, the unresolved disputed items will be referred for final binding
resolution to a nationally-recognized firm of certified public accountants as
the parties may hereafter jointly select (the "Arbitrator"). Such referral shall
be in the form of written statements of position by the Stockholders'
Representative, Parent, Price Waterhouse and the Accountants, with each party
having an opportunity to respond to such written statements and any requests for
statements or information by the Arbitrator. If the Arbitrator
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determines that the resolution of a given disputed item requires an
interpretation of law, then, with the permission of the parties, the Arbitrator
may request a law firm of national standing chosen by it to render a legal
opinion as to such matter. The amount of the Quick Assets and/or Target Number
affected by such unresolved disputed items (if any) will be as determined by the
Arbitrator. The cost of such Arbitrator's review (including reasonable
attorneys' fees, if any) shall be borne by the party or parties as determined by
the Arbitrator.
Section 3.2. Payment of Merger Consideration.
(a)(i) Exchange Agent. Immediately after the
Effective Time and after determination of the Merger Consideration pursuant to
Section 3.1, Parent shall deposit with U.S. Stock Transfer Corporation (the
"Exchange Agent"), a cash amount equal to the aggregate Merger Consideration to
which holders of shares of Stock and Panatech Warrants shall be entitled upon
consummation of the Merger, to be held for the benefit of and distributed to
such holders in accordance with this Section 3.2. The Exchange Agent shall agree
to hold such funds (such funds, together with earnings thereon, being referred
to herein as the "Exchange Fund") for delivery as contemplated by this Section
3.2 and upon such additional terms as may be agreed upon by the Exchange Agent,
Panatech and Parent before the Payment Date.
(ii) Panatech Stock Options. Immediately after the
Effective Time and after determination of the Merger Consideration pursuant to
Section 3.1, Parent shall pay each holder of Panatech Stock Options cancelled
pursuant to Section 2.7, by check or wire transfer, the Merger Consideration per
Panatech Stock Option which such holder has the right to receive pursuant to
Section 2.7. In no event will any such holder be entitled to interest on any
funds to be received in the Merger
(b) Exchange Procedures. Promptly after the Effective
Time, the Surviving Corporation shall cause the Exchange Agent to mail to each
holder of record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Stock and Panatech Warrants
(collectively, the "Certificates") whose shares or warrants are converted
pursuant to Sections 2.6 or 2.7, as the case may be, into the right to receive
the Merger Consideration (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as the Surviving Corporation may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such letter of
transmittal duly executed and completed in accordance with its terms, the holder
of such Certificate shall be entitled to receive in exchange therefor a check
representing the Merger Consideration per share of Stock or Panatech Warrant, as
the case may be, represented thereby which such holder has the right to receive
pursuant to the provision of this Article III, and the Certificate so
surrendered shall forthwith be canceled. In no event
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shall the holder of any Certificate be entitled to receive interest on any funds
to be received in the Merger. In the event of a transfer of ownership of Stock
or Panatech Warrant which is not registered in the transfer records of Panatech,
the Merger Consideration may be issued to a transferee if the Certificate
representing such Stock or Panatech Warrant is presented to the Exchange Agent
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable transfer taxes have been paid. Until surrendered
as contemplated by this Section 3.2, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration per share of Stock or Panatech Warrant, as
the case may be, represented thereby as contemplated by this Article III.
Holders of Panatech Warrants outstanding at or immediately prior to the
Effective Time shall, subject to Section 3.2(d), be entitled to receive the
appropriate Merger Consideration upon surrender of their Certificates
notwithstanding the fact that such Panatech Warrants are submitted for payment
following their expiration date.
(c) No Further Ownership Rights in Stock. All cash
paid upon the surrender of shares of Stock, Panatech Stock Options or Panatech
Warrants in accordance with the terms hereof shall be deemed to have been paid
in full satisfaction of all rights pertaining to such shares of Stock, Panatech
Stock Options or Panatech Warrants, as the case may be. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Section 3.2.
(d) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the stockholders of Panatech or
holders of Panatech Warrants for one hundred twenty (120) days after the Payment
Date shall be delivered to the Surviving Corporation, upon demand, and any
stockholders of Panatech or holders of Panatech Warrants who have not
theretofore complied with this Section 3.2 shall thereafter look only to the
Surviving Corporation (subject to abandoned property, escheat and other similar
laws) as general creditors for payment of their claim for the Merger
Consideration. Neither Parent nor the Surviving Corporation shall be liable to
any holder of shares of Stock or holders of Panatech Warrants for cash
representing the Merger Consideration delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law. If outstanding
Certificates are not surrendered, or cash payment therefor not claimed prior to
six years after the Payment Date (or, in any particular case, prior to such
earlier date on which such cash payment would otherwise escheat to or become the
property of any governmental unit or agency), the unclaimed amounts shall, to
the extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person previously
entitled thereto.
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ARTICLE IV
CLOSING
Section 4.1. Closing.
The closing of the transactions contemplated hereby
(the "Closing") shall take place at a location to be agreed upon by the parties
hereto, no later than the third business day after satisfaction or waiver of all
conditions set forth in Article VIII and Article IX hereof, or at such other
time or date as may be agreed upon by the parties hereto (the "Closing Date").
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PANATECH
Panatech hereby represents and warrants, as to itself
and each of its Subsidiaries, to each of Parent and Sub as follows, and both
Parent and Sub in agreeing to consummate the transactions contemplated by this
Agreement have relied upon such representations and warranties, that:
Section 5.1 Corporate Organization.
(a) Each of Panatech and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has the requisite power and authority
(corporate and other) to own, lease and operate its properties and to carry on
its business as now being conducted.
(b) Each of Panatech and its Subsidiaries is
qualified as a foreign corporation and is in good standing in each state of the
United States and in each foreign jurisdiction in which the conduct of its
business or the ownership or leasing of its properties requires such
qualification and is not required to be qualified as a foreign corporation in
any other jurisdiction, except where such failure to be qualified would not have
a Material Adverse Effect on Panatech or its Subsidiaries. Schedule 5.1 hereto
sets forth a true and complete list of all jurisdictions in which Panatech and
its Subsidiaries are qualified and licensed to do business as foreign
corporations.
(c) The copies of the articles of incorporation and
all amendments thereto of each of Panatech and its Subsidiaries as certified by
the appropriate authorities of its jurisdiction of incorporation, and the
by-laws, as amended to date, of each of Panatech and its Subsidiaries, as
certified by its secretary, which have heretofore been delivered to Parent and
Sub, are true, complete and correct copies of the articles of incorporation and
by-laws of each of Panatech and its Subsidiaries, as amended and in effect on
the date hereof, and will be true, complete and correct as of the Closing Date.
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(d) The minute books and records of each of Panatech
and its Subsidiaries, copies of which have been delivered to Parent prior to the
date hereof, are the original minute books and records of such company; contain
all proceedings of the stockholders, the Board of Directors and any committees
thereof with respect to such company; are true, correct and complete in all
material respects; and there have been no changes, alterations or additions
thereto which have not been furnished to counsel for Parent and Sub prior to the
date hereof.
Section 5.2 Valid and Binding Agreement.
Panatech has the full right, capacity and power to
enter into this Agreement. All necessary action on the part of Panatech, other
than approval by the Stockholders, has been taken to authorize the execution and
delivery of this Agreement, the performance of its obligations hereunder and the
consummation of the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Panatech, and will constitute a valid
and binding obligation enforceable against Panatech in accordance with its
terms, subject to bankruptcy, insolvency, reorganization or similar laws or
equitable principles relating to creditors' rights generally and the
availability of equitable remedies.
Section 5.3 No Violation.
Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby nor compliance by
Panatech with any of the provisions hereof will (a) violate or conflict with any
provision of the articles of incorporation or by-laws of Panatech or its
Subsidiaries, or any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Panatech or its Subsidiaries, or
(b) violate or conflict with, or result in a breach of any provision of, or
constitute a default (or any event which, with or without due notice or lapse of
time, or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in the creation of any
lien, security interest, charge or other encumbrance upon the Stock or any of
the properties or assets of Panatech or its Subsidiaries under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation of Panatech or its
Subsidiaries.
Section 5.4 Consents and Approvals.
Other than pursuant to the HSR Act, the Securities
Laws and Stockholder approval, and except for permits, consents, approvals or
authorizations which, if not received, or declarations, filings or registrations
which, if not made, would not have a Material Adverse Effect on Panatech or its
Subsidiaries, no permit, consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority or third
party is required to be made or obtained by Panatech or its Subsidiaries
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in connection with the execution, delivery and performance of this Agreement or
the consummation of the transactions contemplated hereby.
Section 5.5 Capitalization.
(a) The authorized, capital stock of Panatech consists of 20,000,000 shares
of common stock, par value $0.01 per share, of which 3,979,375 shares are issued
and outstanding and 16,000 shares are held in treasury by Panatech. The issued
and outstanding shares of common stock are duly authorized, validly issued,
fully paid and nonassessable, and none of the issued and outstanding shares of
common stock were issued in violation of the preemptive rights of any present or
former stockholder of Panatech.
(b) Except as set forth in Section 5.5(a) or Schedule 5.5, (i) there are no
shares of capital stock or other equity securities (as the term "equity
security" is defined in the Exchange Act) of Panatech or its Subsidiaries
outstanding, (ii) there are no outstanding Rights to purchase or acquire any
equity securities of Panatech or its Subsidiaries, (iii) no equity securities of
Panatech or its Subsidiaries are reserved for issuance for any purpose, and (iv)
there are no contracts, commitments, agreements, understandings, arrangements or
restrictions to which Panatech or its Subsidiaries are a party or by which
Panatech or its Subsidiaries are bound relating to any shares of the capital
stock or other equity securities of Panatech (including the Stock) or its
Subsidiaries, whether or not outstanding.
Section 5.6 Subsidiaries and Affiliates.
Except as set forth on Schedule 5.6, neither Panatech nor any of its
Subsidiaries owns any capital stock or other equity securities of any other
corporation or has any other type of interest (whether ownership or other) in
any other corporation, partnership, joint venture or other business organization
or entity. The interests of Panatech in any Person as set forth on Schedule 5.6
are owned by Panatech free and clear of all liens, options, claims or
encumbrances (including without limitation, rights of first refusal or similar
rights) with respect to the ownership thereof. Neither Panatech nor any of its
Subsidiaries are subject to any obligation or requirement to provide funds for,
or to make any investment (in the form of a loan, capital contribution or
otherwise) to or in, any Person, except as set forth on Schedule 5.6.
Section 5.7 Financial Statements.
The Panatech Financial Statements (i) present fairly the financial position
and results of operations of Panatech and its Subsidiaries, as of the statement
dates and for the periods indicated, and (ii) have been prepared in accordance
with GAAP consistently applied throughout and among the periods indicated. The
Panatech Interim Financial Statements (i) present fairly the financial position
and results of operations of Panatech and its Subsidiaries, as of the statement
date(s) and for the period(s) indicated, and (ii) have been prepared in
accordance with GAAP.
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Section 5.8 Absence of Undisclosed Liabilities.
Except as set forth on Schedule 5.8, neither Panatech nor any of its
Subsidiaries has any liability or obligation (absolute, accrued, contingent or
otherwise), including any guaranty with respect to any obligation, except (a)
such liabilities or obligations as are fully reflected or reserved against in
the Panatech Financial Statements or the Panatech Interim Financial Statements,
(b) such liabilities or obligations which are identified in any Schedule to this
Agreement or which are not required to be so identified, and (c) such
liabilities or obligations as have been incurred in the ordinary course of
business, consistent with past practice, since September 30, 1996.
Section 5.9 Interim Operations and Absence of Certain Changes.
Since September 30, 1996, except as set forth on Schedule 5.9, Panatech and
its Subsidiaries have conducted their business in the ordinary course and
consistent with past practice and Panatech and its Subsidiaries did not:
(a) incur any indebtedness or other liabilities (whether absolute, accrued,
contingent or otherwise) or guarantee any such indebtedness, except in the usual
and ordinary course of its business, consistent with past practice;
(b) suffer any damage, destruction or loss of tangible assets, whether or
not covered by insurance, in excess of $50,000;
(c) suffer any change in their financial condition, assets, liabilities or
business or suffer any other event or condition of any character which
individually or in the aggregate had or has a Material Adverse Effect on
Panatech or any of its Subsidiaries;
(d) pay, discharge or satisfy any claims, liabilities or obligations
(whether absolute, accrued, contingent or otherwise) except in each case in the
ordinary course of business;
(e) cancel any debts or waive any claims or rights of substantial value,
except in each case in the ordinary course of business;
(f) permit any material insurance policy to be cancelled or terminated;
(g) pledge or permit the imposition of any lien on or sell, assign,
transfer or otherwise dispose of any of their tangible assets, except the sale
of inventory in the ordinary course of business;
(h) sell, assign or otherwise transfer any patents, trademarks, trade
names, copyrights, licenses or other intangible assets;
(i) make any change in any method of accounting or accounting principle or
practice;
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(j) write up or down the value of inventory or determine as collectible any
notes or accounts receivable that were previously considered to be
uncollectible, except for write-ups or write-downs and other determinations in
accordance with GAAP and in the ordinary course of business and consistent with
past practice;
(k) grant any general increase in the compensation payable or to become
payable to their officers or employees (including any such increase pursuant to
any bonus, pension, profit-sharing or other plan or commitment) or any special
increase in the compensation payable or to become payable to any officer or
employee, except for (i) normal merit and cost of living increases in the
ordinary course of business and in accordance with past practice and (ii)
increases pursuant to collective bargaining agreements;
(l) declare, pay or set aside for payment any extraordinary dividend or
other distribution on any shares of their capital stock; split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock;
(m) or repurchase or otherwise acquire any shares of its capital stock;
make any loans which in the aggregate exceed $5,000 to any employee or make any
loans to any stockholder, officer or director;
(n) make commitments for capital expenditures in excess of $100,000 in the
aggregate; or
(o) agree, whether in writing or otherwise, to take any action described in
this Section 5.9.
Section 5.10 Taxes.
(a) Each of Panatech and its Subsidiaries has duly and timely filed all
Tax Returns required to be filed with any federal, state, local or foreign
governmental entity or other authority ("Taxing Authority"). All such Tax
Returns were true, correct and complete in all material respects. Each of
Panatech and its Subsidiaries has paid all Taxes, which have become due and
payable (whether or not shown on any Tax Return). The liability of each of
Panatech and its Subsidiaries for unpaid Taxes for all periods or portions
thereof ending on or before the Closing Date do not, in the aggregate, exceed
the amount of the current liability accruals for Taxes (excluding reserves for
deferred taxes) as of the Closing Date. There are no liens for Taxes upon any of
the assets of any of Panatech and its Subsidiaries except liens for current
Taxes not yet due. Panatech has delivered to Parent correct and complete copies
of all federal and state income and franchise Tax Returns filed with respect to
any of Panatech and its Subsidiaries for the five (5) most recently completed
taxable years, all examination reports by any Taxing Authority, and any
statements of deficiencies proposed or assessed against or agreed to by any of
Panatech and its Subsidiaries. No audit, examination, investigation, proceeding,
action or claim with respect
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to the Taxes of any of Panatech and its Subsidiaries is pending, proposed
or threatened, and there is no basis for the assessment or collection of
additional Taxes against any of Panatech and its Subsidiaries. Except as set
forth on Schedule 5.10, there has never been an examination or notice of
potential examination of the Tax Returns of any of Panatech and its Subsidiaries
by any Taxing Authority. No extension is in effect for any of Panatech and its
Subsidiaries with respect to the filing of any Tax Return, the payment of any
Taxes, or any limitation period regarding the assessment or collection of any
Taxes.
(b) All Taxes that are required to have been withheld or collected by any
of Panatech and its Subsidiaries have been duly withheld or collected, and to
the extent required, have been properly paid or deposited as required by
applicable laws, and Panatech and its Subsidiaries have complied with all
information reporting and backup withholding requirements, including maintenance
of required records with respect thereto.
(c) Schedule 5.10 lists each jurisdiction in which any of Panatech and its
Subsidiaries either files Tax Returns or pays Taxes with respect to which no
returns are required to be filed. No claim has ever been made by any Taxing
Authority in a jurisdiction where any of Panatech and its Subsidiaries does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction.
(d) No property of any of Panatech and its Subsidiaries is property that it
is or will be required to treat as owned for tax purposes by another person, or
is "tax-exempt use property" as defined in Code section 168(h).
(e) None of Panatech and its Subsidiaries has ever agreed to or been
required to make any adjustment pursuant to Code section 481(a) by reason of any
change in accounting method initiated by it; the IRS has not proposed any such
adjustment or change in accounting method; and none of Panatech and its
Subsidiaries has any application pending with any Taxing Authority requesting
permission for any change in accounting method.
(f) None of Panatech and its Subsidiaries has been a United States real
property holding corporation as defined in Code section 897(c)(2) during the
applicable period specified in Code section 897(c)(1)(A)(ii).
(g) None of Panatech and its Subsidiaries has made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code section 280G.
(h) None of Panatech and its Subsidiaries has filed any consent under Code
section 341(f).
(i) None of Panatech and its Subsidiaries has ever been (i) a member of an
affiliated, consolidated, unitary or
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combined group filing a consolidated, unitary or combined Tax Return (other
than a group the common parent of which was Panatech), or (ii) a party to any
tax allocation, sharing or reimbursement agreement or arrangement.
(j) None of Panatech and its Subsidiaries has any liability for the Taxes
of any Person (other than any of Panatech and its Subsidiaries) under Treas.
Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(k) None of Panatech and its Subsidiaries is an obligor on, and none of its
assets has been financed directly or indirectly by, any tax-exempt bonds.
(l) None of Panatech and its Subsidiaries has executed, become subject to,
or entered into any closing agreement pursuant to Code section 7121 or any
predecessor provision thereof or any similar provision of state, local or
foreign law.
(m) None of Panatech and its Subsidiaries has pending any ruling requests
with any Taxing Authority.
(n) Each of Panatech and its Subsidiaries has disclosed on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Code
section 6662.
Section 5.11 Employee Benefit Plans.
(a) Schedule 5.11 is a true and complete list of all annuity, bonus,
cafeteria, stock option, stock purchase, profit sharing, savings, pension,
retirement, incentive, group insurance, disability, employee welfare, prepaid
legal, nonqualified deferred compensation including, without limitation, excess
benefit plans, top-hat plans, deferred bonuses, rabbi trusts, secular trusts,
nonqualified annuity contracts, insurance arrangements, nonqualified stock
options, phantom stock plans or golden parachute payments, or other similar
fringe benefit plans, and all other employee benefit funds or programs (within
the meaning of Section 3(3) of ERISA), covering employees or former employees of
Panatech and its Subsidiaries (the "Plans"). Except as set forth on Schedule
5.11, Panatech and its Subsidiaries are not parties to any employee agreement,
understanding, plan, policy, procedure or arrangement, whether written or oral,
which provide compensation or fringe benefits to employees and Panatech and its
Subsidiaries are in compliance with their obligations under all such Plans.
Except for changes required by applicable law, there are no negotiations,
demands, commitments or proposals that are pending or that have been made that
concern matters now covered, or that would be covered by the type of agreements
described on Schedule 5.11 or this paragraph.
(b) With respect to each Plan listed on Schedule 5.11, true and complete
copies of (i) all Plan documents (including all amendments and modifications
thereof), and related agreements including, without limitation, the trust
agreement and amendments thereto, insurance contracts and investment management
agreements; (ii) the last three
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filed Form 5500 series and Schedules A, B, P and/or SSA, as applicable, and
Forms PBGC-1, if any; (iii) summary plan descriptions; (iv) summary of material
modifications, if any; (v) the most recent auditor's report, and copies of any
and all tax qualification correspondence including, without limitation, private
letter rulings, applications for determination and determination letters issued
with respect to the Plans; and (vi) the most recent annual and periodic
accounting of related Plan assets, have been delivered to Parent.
(c) With respect to the Plans listed on Schedule 5.11 which are subject to
ERISA:
(i) The Plans are in material compliance with the applicable
provisions of ERISA and each of the employee pension benefit plans, within
the meaning of Section 3(2) of ERISA (the "Pension Plans"), which are intended
to be qualified under Section 401(a) of the Code, have been determined by the
IRS to be so qualified or a request for such determination has been timely filed
with the IRS (and to the Knowledge of Panatech, nothing has occurred to cause
the IRS to revoke such determination and the IRS has not indicated any
disapproval of any request for such a determination);
(ii) Each Plan has been operated in accordance with its terms and all
required filings that are due prior to the date hereof, including, without
limitation, the Forms 5500, for all Plans have been made;
(iii) No prohibited transactions, as defined by Section 406 of ERISA
or Section 4975 of the Code, have occurred with respect to any of the Plans;
(iv) Neither Panatech nor its Subsidiaries have engaged in any
transaction in connection with which Panatech or its Subsidiaries could be
subjected to a criminal or civil penalty under ERISA;
(v) No condition exists which would constitute grounds for
involuntary termination of any of the Pension Plans under Section 4042 of
ERISA, and except as set forth on Schedule 5.11, there have been no reportable
events as defined in Section 4043(b) of ERISA (other than events for which the
30-day notice period has been waived by the Pension Benefit Guaranty Corporation
(the "PBGC")), with respect to any Pension Plan;
(vi) No proceeding or other action been initiated by the PBGC to
terminate any Pension Plan and no notice has been received of any intention
to commence or seek commencement of any such proceeding or action;
(vii) None of the , nor any trust which serves as a funding medium
for any of such Plans, nor any issue relating thereto is currently under
examination by or pending before the IRS, the Department of Labor, the PBGC or
any court, other than applications for determinations pending before the IRS;
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(viii) Except as set forth on Schedule 5.11, of the Pension Plans is
a defined benefit plan within the meaning of Section 414(j) of the Code;
(ix) Except as set forth on Schedule 5.11, none of the Plans is a
"multiemployer plan" as that term is defined in Section 3(37) of ERISA and
Section 414(f) of the Code, nor a plan maintained by more than one employer
(hereinafter referred to as an "multiple employer plan"), nor a single employer
plan under a multiple controlled group within the meaning of Section 4063 of
ERISA, and neither Panatech nor its Subsidiaries nor any entity required to be
aggregated with Panatech under Section 414(b), (c), (m), or (o) of the Code has
incurred any withdrawal liability with respect to any single, multiemployer or
multiple employer plan, which liability could constitute a liability of Parent,
Sub or the Surviving Corporation;
(x) Except as set forth on Schedule 5.11, no benefit claims (except
those submitted in the ordinary course of administration of such Plan) are
currently pending against any Plan;
(xi) Except as set forth on Schedule 5.11, no Plan provides for
retiree medical or retiree life insurance benefits for former employees of
Panatech or its Subsidiaries, and there is no liability for taxes with respect
to disqualified benefits under Section 4976 of the Code; and
(xii) No Pension Plan has been terminated by Panatech or its
Subsidiaries, and there is no liability for taxes with respect to a reversion or
qualified plan assets under Section 4980 of the Code.
(d) There have been no failures to comply with the continuation coverage
provisions required by Sections 601-608 of ERISA and Section 4980B of the Code
under any Plan.
(e) There are no employee benefit plans which cover employees of Panatech
or its Subsidiaries which are required to comply with the provisions of any
foreign law.
(f) All excess contributions, if any (together with any income allocable
thereto), have been distributed (or, if forfeitable, forfeited) before the close
of the first two and one half (2-1/2) months of the following plan year; and
there is no liability for excise tax under Section 4979 of the Code with respect
to such excess contributions, if any, for any Plan.
(g) There is no liability for taxes with respect to: (i) an accumulated
funding deficiency under Section 4971 of the Code and/or (ii) nondeductible
contribution under Section 4972 of the Code.
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Section 5.12 Compliance with Law.
Panatech and its Subsidiaries have been, are and on the Closing Date will
continue to be in compliance with all applicable laws (including duties imposed
by common law), rules, regulations, orders, ordinances, judgments and decrees of
all governmental authorities (federal, state, local and foreign), the
noncompliance with which would be likely to have a Material Adverse Effect on
Panatech or any of its Subsidiaries.
Sectino 5.13 Litigation; Claims.
Except for the suit filed by ASM Company, Inc. against Titan Tool and all
proceedings related thereto (the "ASM Litigation"), Schedule 5.13 hereto
contains a complete and accurate list of (a) all claims, actions, suits,
proceedings or investigations pending or (to the Knowledge of Panatech)
threatened by or against Panatech or its Subsidiaries, and (b) all judgments,
decrees, arbitration awards or orders binding upon Panatech or its Subsidiaries.
Except for the ASM Litigation and except as set forth on Schedule 5.13, no
material claims, including, without limitation, product liability claims, have
been asserted against Panatech or its Subsidiaries during the past five (5)
years, and, to the Knowledge of Panatech, there is no basis for any material
claim, action, suit, proceeding or investigation involving Panatech or its
Subsidiaries, other than as set forth on Schedule 5.13.
Section 5.14 Contracts and Commitments.
(a) Schedule 5.14 contains a complete and accurate list of all contracts,
agreements and commitments (other than the agreements or arrangements set forth
in Schedules 5.11, 5.15, 5.17, 5.19, 5.20, 5.22, 5.23, 5.24 and 5.27), whether
written or oral, of Panatech and its Subsidiaries that involve commitments in
excess of $25,000, have a term of six (6) months or more or that are not in the
ordinary course of business.
(b) The agreements set forth in Schedules 5.11, 5.14, 5.15, 5.17, 5.19,
5.20, 5.22, 5.23, 5.24 and 5.27 are hereinafter referred to collectively as the
"Operating Agreements." None of the Operating Agreements has been assigned or is
the subject of any security agreement, except as set forth on Schedule 5.14.
Except as otherwise set forth on Schedule 5.14, (a) each of the Operating
Agreements is a valid and binding obligation of Panatech or its Subsidiaries and
(to the Knowledge of Panatech) the other party or parties thereto, enforceable
in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization or similar laws or equitable principles
relating to creditors' rights generally and the availability of equitable
remedies; (b) neither Panatech nor its Subsidiaries nor (to the Knowledge of
Panatech) any other party thereto, has terminated, canceled, modified or waived
any material term or condition of any Operating Agreement; and (c) neither
Panatech nor its Subsidiaries nor (to the Knowledge of Panatech) any other party
to any Operating Agreement is in default or alleged to be in
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default in any material respect under any Operating Agreement and there exists
no event, condition or occurrence that, after notice or lapse of time, or both,
would constitute such a default by Panatech or its Subsidiaries or any party to
any such Operating Agreement. None of such Operating Agreements contains any
covenant or other restriction preventing or limiting the consummation of the
transactions contemplated hereby. Neither Panatech nor its Subsidiaries have any
outstanding powers of attorney except routine powers of attorney relating to the
representation of Panatech or its Subsidiaries before governmental agencies or
given in connection with qualification to conduct business or customs matters.
Panatech and its Subsidiaries have delivered to each of Parent and Sub a copy of
each of the written Operating Agreements and a description of the terms and
conditions of any oral Operating Agreements.
Section 5.15 Intellectual Property Rights.
Schedule 5.15 contains a correct and complete list of the following assets
and related matters: (a) all patents and applications for patents, all Marks and
registration of Marks and applications for registration of Marks, all copyright
registrations and applications for copyright registration, and all trade names,
owned or used (pursuant to license agreements or otherwise) by Panatech or its
Subsidiaries, and in the case of any such Intellectual Property that is so
owned, the jurisdictions in or by which such assets or any of them have been
registered, filed or issued and (b) to the extent not listed on Schedule 5.14,
all contracts, agreements or understandings pursuant to which Panatech or its
Subsidiaries has authorized any Person to use any of the Intellectual Property
which is so owned. Panatech and its Subsidiaries own, possess or license and as
of the Closing Date will own, possess or license, all right, title and interest
in and to the items of Intellectual Property that are required to conduct their
businesses as now conducted without conflict with the rights of others. Except
as contended pursuant to the ASM Litigation and except as set forth in Schedule
5.15: (i) Panatech and its Subsidiaries have the right to use and, to Panatech's
Knowledge, the sole and exclusive right to use, the Intellectual Property
(including applications for any of the foregoing) used in connection with the
business of Panatech and its Subsidiaries, and, to Panatech's Knowledge, none of
the past or present employees, officers, directors or stockholders of Panatech
and its Subsidiaries, or anyone else, has any rights with respect thereto; (ii)
the consummation of the transactions contemplated hereby will not alter or
impair any such rights; (iii) none of Panatech or its Subsidiaries has received
any notice or claim of infringement or any claim challenging or questioning the
validity or effectiveness of any of the items of Intellectual Property, and
there is no valid basis for any such claim; and (iv) none of Panatech or its
Subsidiaries is liable, nor have they made any contract or arrangement whereby
they may become liable, to any Person for any royalty or other compensation for
use of any of the items of Intellectual Property.
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Section 5.16 Liens.
Except as set forth on Schedule 5.16, none of the properties or assets,
whether real, personal or mixed, or tangible or intangible, owned or leased by
Panatech or its Subsidiaries are subject to any mortgage, lien, encumbrance or
other security interest, except for (a) liens for taxes and assessments or
governmental charges or levies not at the time due or in respect of which the
validity thereof shall currently be contested in good faith by appropriate
proceedings and (b) liens in respect of pledges or deposits under workmen's
compensation laws or similar legislation, carriers', warehousemen's, mechanics',
laborers' and materialmen's and similar liens, if the obligations secured by
such liens are not then delinquent or are being contested in good faith by
appropriate proceedings.
Section 5.17 Insurance.
All insurance policies and fidelity bonds relating to the assets of
Panatech and its Subsidiaries, including summary descriptions and the
termination dates thereof, are set forth on Schedule 5.17. Except as set forth
on Schedule 5.17, Panatech and its Subsidiaries have not been refused any
insurance with respect to their business or any of their assets, nor has
coverage been limited by any insurance carrier to which they have applied for
insurance or with which they have carried insurance, during the last two (2)
years.
Section 5.18 Disclosure.
To the Knowledge of Panatech, no representation or warranty by Panatech to
each of Parent and Sub contained in this Agreement, and no statement contained
in the Schedules hereto or any certificate furnished to each of Parent and Sub
pursuant to the provisions hereof, contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary in
order to make the statements herein or therein not misleading.
Section 5.19 Tangible Personal Property.
(a) Except as set forth on Schedule 5.16 and except for the leased tangible
personal property set forth on Schedule 5.19, Panatech has good and marketable
title to all of its tangible personal property.
(b) Schedule 5.19 lists all tangible personal property leased by Panatech
or its Subsidiaries with annual lease payments in excess of $10,000 and the
location thereof. None of such leases contains any covenant or restriction
preventing or limiting the consummation of the transactions contemplated
hereunder.
(c) All of the material tangible personal property owned by Panatech and
all of the leased tangible personal property listed in Schedule 5.19 is in good
operating condition, subject to ordinary wear and tear.
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Section 5.20 Real Property.
(a) Panatech owns no real property and has not agreed (and
has no option) to purchase or sell any real property.
(b) Schedule 5.20 identifies all of the real property that
Panatech or its Subsidiaries lease, have agreed to lease or have an obligation
to lease in connection with their business (including a general description of
the improvements thereon). Such leased real property is hereinafter referred to
as the "Leased Property," and the improvements and fixtures thereon are
hereinafter referred to as the "Leased Improvements."
(c) There are no adverse or other parties in possession of
the Leased Property, the Leased Improvements or any portion or portions thereof,
and on the Closing Date the leasehold interests in the Leased Property and the
Leased Improvements will be free and clear of any and all leases, licensees,
occupants or tenants except as set forth on Schedule 5.20. There are no pending
or threatened condemnation, eminent domain or similar proceedings, or litigation
or other proceedings affecting the Leased Property, the Leased Improvements or
any portion or portions thereof. To the Knowledge of Panatech, there are no
pending or threatened requests, applications or proceedings to alter or restrict
any zoning or other use restrictions applicable to the Leased Property or the
Leased Improvements that would interfere with the conduct of the business of
Panatech or its Subsidiaries or the use of the assets consistent with past
practice, which interference would have a Material Adverse Effect on the
business of Panatech or its Subsidiaries.
Section 5.21 Environmental Matters.
(a) As used in this Agreement "Hazardous Material" shall
mean: (i) any "hazardous substance" as now defined pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42
U.S.C. Section 9601(14), or any substance listed or identified by any
characteristic in any regulation adopted pursuant to any statute referred to or
incorporated into such definition, all as in effect on the date hereof; (ii) any
petroleum, including crude oil and any fraction thereof; (iii) natural gas,
natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel;
(iv) any "hazardous chemical" as defined pursuant to 29 C.F.R. Part 1910; and
(v) any asbestos, polychlorinated biphenyl ("PCB"), or isomer of dioxin.
(b) There is no Hazardous Material within, under,
originating from or relating to any real property interest or other location
geologically or hydrologically connected to such properties owned, operated or
controlled by Panatech, its Subsidiaries or their predecessors in interest.
(c) Neither Panatech, its Subsidiaries nor any of their
predecessors in interest has any liability, matured or not matured, absolute or
contingent, assessed or unassessed, imposed or based upon any provision under
any foreign, federal, state or local law, rule, or
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regulation or common law, or under any code, order, decree, judgment or
injunction applicable to Panatech, its Subsidiaries or their predecessors in
interest, nor has Panatech or its Subsidiaries received any notice, or request
for information issued, promulgated, approved or entered thereunder, or under
the common law, or any tort, nuisance or absolute liability theory, relating to
public health or safety, worker health or safety, or pollution, damage to or
protection of the environment including without limitation, laws relating to
emissions, discharges, releases or threatened releases of Hazardous Material
into the environment (including without limitation, ambient air, surface water,
groundwater, land surface or subsurface), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, generation,
disposal, transport or handling of any Hazardous Material (hereinafter
collectively referred to as "Environmental Laws").
(d) Each of Panatech and its Subsidiaries possesses and is
in compliance in all material respects with all permits, licenses, certificates,
franchises and other authorizations relating to the Environmental Laws necessary
to conduct its business or required by environmental regulations.
(e) Neither Panatech nor its Subsidiaries has, during the
past five (5) years, been subject to any civil, criminal or administrative
action, suit, claim, hearing, notice of violation, investigation, inquiry or
proceeding for failure to comply with, or received notice of any violation or
potential liability under the Environmental Laws, nor is Panatech aware of any
information, whether or not confirmed or reported, which could give rise to any
such potential liability.
(f) No real property, site or facility (as defined in
CERCLA, 42 U.S.C. Section 9601(9)) owned or operated by Panatech or its
Subsidiaries is (i) listed or proposed for listing on the National Priority List
or (ii) listed on the Comprehensive Environmental Response, Compensation,
Liability Information System List ("CERCLIS") promulgated pursuant to CERCLA, or
any comparable list maintained by any foreign, state or local government
authority.
(g) There are no underground storage tanks owned or
operated by Panatech or its Subsidiaries, and any prior use and operation of
underground storage tanks owned or operated by Panatech or its Subsidiaries has
been in compliance with all Environmental Laws.
(h) Panatech has provided to Parent an opportunity to
inspect its facilities, and to review and copy documents, and Panatech has
delivered to Parent true, complete and correct copies of results of any reports,
together with supporting studies, analyses and tests in the possession of or
initiated by Panatech or its Subsidiaries pertaining to the existence of
Hazardous Material and any other environmental concerns relating to any of their
facilities, or sites or real property owned, leased, operated, used or
controlled by Panatech, its Subsidiaries or any of their predecessors in
interest, or concerning compliance with or liability under the Environmental
Laws.
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(i) There are no PCBs in or at any premises owned, leased,
operated or controlled by Panatech or its Subsidiaries and their prior use,
handling, storage, transport or disposal of PCBs has been in compliance with all
Environmental Laws.
(j) There is no friable asbestos or asbestos containing
materials on or in the properties and assets owned, leased, operated or
controlled by Panatech or its Subsidiaries and the facilities on such properties
comply with the Environmental Laws including but not limited to, Occupational
Safety and Health Act regulations with respect to ambient air exposure to
asbestos.
(k) Neither Panatech nor its Subsidiaries has, by
contract, agreed to assume the liability of any other person or entity pursuant
to any of the Environmental Laws.
Section 5.22 Employees.
Schedule 5.22 sets forth a complete and accurate list of
all employees of Panatech and its Subsidiaries having total annual compensation
in excess of $35,000, showing for each: name, hire date, current job title or
description, current salary level (including any bonus or deferred compensation
arrangements) and any bonus, commission or other remuneration paid during fiscal
1995 and fiscal 1996, and describing any existing contractual arrangement with
such employee. None of the employees of Panatech or its Subsidiaries is
currently on short-term or long-term disability. Except as set forth on Schedule
5.22, since March 31, 1996 no salaried employee of Panatech or its Subsidiaries
who has been compensated at an annual rate in excess of $35,000 has terminated
his or her employment or had such employment terminated for any reason or for no
reason; no such employee has given notice of his or her intent to terminate such
employment; and no notice of termination has been given to any such employee by
Panatech or its Subsidiaries. Except as set forth on Schedule 5.22 and except
for amounts owed employees upon cancellation of Panatech Stock Options pursuant
to Section 2.7(a), no employees of Panatech or its Subsidiaries shall receive
any compensation as a result of the consummation of the transaction contemplated
by this Agreement.
Section 5.23 Employee Relations.
Except as set forth on Schedule 5.23, neither Panatech nor
its Subsidiaries has at any time during the past five years had, nor is there
now threatened, any labor disputes or any strike, picket, work stoppage, work
slowdowns or other job action due to labor disagreements. Except as set forth on
Schedule 5.23, (a) Panatech and its Subsidiaries are in compliance in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including the
terms and provisions of any collective bargaining agreement or other contract
with a labor union representing any employees of Panatech or its Subsidiaries
and are not engaged in any unfair labor practice which could have a Material
Adverse Effect on Panatech or its Subsidiaries; (b) there is no unfair labor
practice charge or complaint against Panatech or its Subsidiaries, or (to the
Knowledge of Panatech) threatened before the
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National Labor Relations Board or any foreign authority; (c) no question
concerning representation has been raised or is (to the Knowledge of Panatech)
threatened respecting the employees of Panatech or its Subsidiaries; (d) no
grievance that might have Material Adverse Effect on Panatech or its
Subsidiaries, nor any arbitration proceeding arising out of or under any
collective bargaining agreement, is pending and no claims therefor exist; and
(e) no collective bargaining agreement that is binding on Panatech or its
Subsidiaries restricts them from relocating, closing or contracting any of their
operations.
Section 5.24 Customers and Vendors; Distributors and
Representatives.
(a) Schedule 5.24 sets forth correct and complete lists of
the twenty (20) largest (by dollar volume) customers and vendors of Panatech and
its Subsidiaries during the most recently completed fiscal year, indicating the
existing contractual arrangements, if any, with each such customer or vendor.
Except as set forth in Schedule 5.24, there are no outstanding disputes with any
customer or vendor listed thereon and no customer or vendor listed thereon has
refused to continue to do business with Panatech and its Subsidiaries or has
stated its intention not to continue to do business with Panatech and its
Subsidiaries. Since March 31, 1996, there has not been any material shortage or
unavailability of the raw materials necessary to manufacture the products sold
by Panatech and its Subsidiaries and, to the Knowledge of Panatech, there is no
current shortage or unavailability which may lead to such shortages.
(b) Schedule 5.24 sets forth a correct and complete list
of the twenty (20) largest (by dollar volume) distributors, representatives and
agents for the sale of the products of Panatech and its Subsidiaries during the
two most recently completed fiscal years and all distributors, representatives
and agents to whom Panatech and its Subsidiaries have given any exclusive rights
with respect to territories or products. Since March 31, 1996, there has been no
termination of any independent distributor, wholesaler, sales representative or
agent relationship, nor, to the Knowledge of Panatech, has any present
independent distributor, wholesaler, sales representative or agent indicated any
intention to termination or materially change the terms of its relationship with
Panatech and its Subsidiaries.
Section 5.25 Governmental Authorizations.
Except for licenses, permits or authorizations the lack of
which would not have a Material Adverse Effect on Panatech or its Subsidiaries,
Panatech and its Subsidiaries possess all licenses, franchises, permits,
certificates, orders, approvals, exemptions, registrations or other
authorizations (collectively, the "Permits") from governmental, regulatory or
administrative agencies or authorities required for the ownership of their
properties and assets and operation of their businesses in the manner presently
conducted (including those required pursuant to laws or regulations relating to
the protection of the environment), each of which will be in full force and
effect on the Closing Date. A list of all material Permits is set forth on
Schedule 5.25. Except as specified in Schedule 5.25, no
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registrations, filings, applications, notices, transfers, consents, approvals,
orders, qualifications, waivers or other actions of any kind are required by
virtue of the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby to enable Panatech and its Subsidiaries to
continue the possession and operation of their properties and assets and the
businesses of Panatech and its Subsidiaries as presently conducted in all
material respects.
Section 5.26 Defects in Products or Designs; Product
Safety.
(a) Except as set forth in Schedule 5.26, there has been
no pattern of defects in any product line in the design, construction,
manufacturing or installation of any material product ("Product") made,
manufactured, constructed, distributed, sold, leased or installed by Panatech,
its Subsidiaries or their employees, or agents, that would adversely affect the
performance or quality of such Product. Each Product has been designed,
manufactured, packaged and labelled in compliance with all regulatory,
engineering, industrial and other codes applicable thereto, and Panatech has not
received notice of any alleged noncompliance with any such code. Each Product
advertised or represented as being rated or approved by a rating organization,
such as Underwriters' Laboratories or other similar organizations, comply with
all conditions of such rating approval.
(b) Neither Panatech nor its Subsidiaries has been
required to file, and has not filed, a notification or other report with the
United States Consumer Product Safety Commission concerning actual or potential
hazards with respect to any Product manufactured or sold by Panatech or its
Subsidiaries.
Section 5.27 Broker's or Finder's Fees.
Except as set forth in Schedule 5.27 no agent, broker,
investment banker, Person or firm acting on behalf of Panatech or its
Subsidiaries or under the authority of Panatech or its Subsidiaries or any
Stockholder is or will be entitled to any broker's or finder's fee or any other
commission or similar fee directly or indirectly from Panatech or its
Subsidiaries in connection with any of the transactions contemplated hereby.
Schedule 5.27 sets forth a summary of all such broker's or finder's fees and
other commissions or fees payable by Panatech or its Subsidiaries in connection
with any of the transactions contemplated hereby.
Section 5.28 Certain Transactions.
Except as set forth on Schedule 5.28, none of the
directors or officers of Panatech is currently a party to any transaction with
Panatech (other than for services as employees, directors and officers),
including, without limitation, any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from, any
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such Person, or to or from any corporation, partnership, trust or other entity
in which any such Person owns in excess of five percent (5%) of the outstanding
equity interest.
Section 5.29 Absence of Questionable Payments.
To the Knowledge of Panatech, neither Panatech nor any of
its Subsidiaries nor any director, officer, agent, employee or other Person
acting on their behalf has (i) used any corporate or other funds for unlawful
contributions, payments, gifts or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others or
established or maintained any unlawful or unrecorded funds in violation of
Section 30A of the Exchange Act, as amended, or any other applicable foreign,
federal or state law; or (ii) accepted or received any unlawful contributions,
payments, expenditures or gifts.
Section 5.30 SEC Documents.
Panatech has timely filed within the last 12 months all
SEC Documents required by the Securities Laws and such SEC Documents complied in
all material respects with the Securities Laws and no such SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements contained therein not misleading.
Section 5.31 Proxy Statement.
The information contained in the Proxy Statement at the
time the Proxy Statement is mailed to Stockholders up to and including the time
of Panatech's Stockholders' meeting to vote upon the Merger, (i) shall comply in
all material respects with the applicable provisions of the Securities Laws, and
(ii) except with respect to Parent or Sub, shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to Panatech, and Panatech in
agreeing to consummate the transactions contemplated by this Agreement has
relied upon such representations and warranties, that:
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Section 6.1 Corporate Organization.
(a) Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite power and authority (corporate and other) to own, lease and
operate its properties and to carry on its business as now being conducted.
(b) Sub is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada and has the requisite
power and authority (corporate and other) to own, lease and operate its
properties and to carry on its business as now being conducted.
Section 6.2 Valid and Binding Agreement.
Each of Parent and Sub has the full right, capacity and
power to enter into this Agreement. All necessary action on the part of each of
Parent and Sub has been taken to authorize the execution and delivery of this
Agreement, the performance of their obligations hereunder and the consummation
of the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Parent and Sub, and will constitute a valid
and binding obligation enforceable against Parent and Sub in accordance with its
terms, subject to bankruptcy, insolvency, reorganization or similar laws or
equitable principles relating to creditors' rights generally and the
availability of equitable remedies.
Section 6.3 No Violation.
Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby nor compliance by each
of Parent or Sub with any of the provisions hereof will (a) violate or conflict
with any provision of the certificate of incorporation or by-laws of Parent or
the articles of incorporation or by-laws of Sub or any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
Parent or Sub, or (b) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or any event which, with or without due
notice or lapse of time, or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
the creation of any lien, security interest, charge or other encumbrance upon
the stock or any of the properties or assets of Parent or Sub under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation of Parent or
Sub.
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Section 6.4 Consents and Approvals.
Except under the HSR Act, and except for permits,
consents, approvals or authorizations which, if not received, or declarations,
filings or registrations which, if not made, would not have a Material Adverse
Effect on either Parent or Sub, no permit, consent, approval or authorization
of, or declaration, filing or registration with, any governmental or regulatory
authority or third party is required to be made or obtained by Parent or Sub in
connection with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
Section 6.5 Proxy Statement.
The information to be supplied by Parent and Sub to
Panatech for inclusion in the Proxy Statement shall not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading.
ARTICLE VII
COVENANTS
Section 7.1 Compliance with Law.
From the date hereof through the Closing Date, Panatech
and its Subsidiaries will promptly comply in all material respects with all laws
and regulations (including without limitation, those relating to the protection
of the environment and employee benefits) applicable to Panatech's and its
Subsidiaries' business and all laws and regulations with which compliance is
required for the valid consummation of the transactions contemplated hereby and
will promptly notify each of Parent and Sub of any legal, administrative or
other proceedings, investigations, inquiries, complaints, notices of violation
or other asserted claims, judgments, injunctions or restrictions, pending,
outstanding or, to the Knowledge of Panatech, threatened or contemplated, which
could have a Material Adverse Effect on Panatech's or its Subsidiaries'
business.
Section 7.2 Operation of Business Prior to Closing.
Except as set forth on Schedule 7.2, during the period
from the date hereof through the Closing Date, Panatech agrees that (except as
expressly contemplated or permitted by this Agreement or to the extent that
Parent and Sub shall otherwise consent in writing):
(a) Panatech and its Subsidiaries shall carry on their
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and
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shall use all reasonable efforts to preserve intact their present business
organizations, keep available the services of their present officers and
employees and preserve their relationships with customers, suppliers and others
having business dealings with them to the end that their goodwill and ongoing
business shall not be impaired in any material respect at the Closing Date.
(b) Panatech and its Subsidiaries shall not amend or
propose to amend their articles of incorporation or by-laws.
(c) Panatech and its Subsidiaries shall not: (i) except
with respect to the acceleration of Panatech Stock Options outstanding on the
date hereof in accordance with the Stock Option Plans, increase the compensation
payable or to become payable to their officers or employees, except for cash
bonuses consistent with past practice as to the amount and category of
employees, increases in salaries and wages of employees consistent with past
practice, or grant any severance or termination pay to or enter into any
employment or severance agreement with any of their directors, officers or other
employees; (ii) except as otherwise contemplated by this Agreement, establish,
adopt, enter into or make any new grants or awards under or amend any employee
benefit plan or other arrangement, plan or policy between Panatech or any of its
Subsidiaries and one or more of its directors, officers or employees; or (iii)
except as otherwise contemplated by this Agreement, establish, adopt, enter into
or amend any Plan.
(d) Panatech and its Subsidiaries shall not settle or
compromise any material claims or litigation or, except in the ordinary and
usual course of business, modify, amend or terminate any of their material
contracts or waive, release or assign any material rights or claims.
(e) Panatech and its Subsidiaries shall not permit any
material insurance policy to be canceled or terminated without notice to Parent
and Sub, except in the ordinary and usual course of business.
(f) Panatech and its Subsidiaries shall not fail to confer
on a regular and frequent basis with one or more representatives of Parent and
Sub to report material operational matters and the general status of ongoing
operations.
(g) Panatech and its Subsidiaries shall not commit a
breach of, or default under, any material contract, agreement, license or
instrument to which they are a party or to which any of their assets may be
subject, or violate any applicable law, regulation, ordinance, order, injunction
or decree or any other requirement of any governmental body or court, relating
to their assets or business if such breach, default or violation is reasonably
likely to result in a Material Adverse Effect on Panatech.
(h) Panatech and its Subsidiaries shall not, except in the
ordinary course of business, (i) factor, discount or otherwise accept less than
full payment with regard to accounts receivable or other amounts due; (ii) delay
payment on, or otherwise alter the
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payment terms of, accounts payable or pay the amounts due thereunder later than
the stated date for payment thereof; or (iii) sell any inventory at less than
fair market value or make any bulk sale of such inventory, or fail to maintain
inventory at ordinary, customary levels, consistent with Panatech Financial
Statements and Panatech Interim Financial Statements and past practice.
(i) Panatech and its Subsidiaries shall not, except as
expressly permitted by this Agreement, take any action that would or is
reasonably likely to result in any of their representations and warranties set
forth in this Agreement being untrue in any material respect, or in any of the
conditions in this Agreement set forth in Article VIII not being satisfied.
(j) Panatech and its Subsidiaries shall not (i) authorize
capital expenditures in excess of $100,000 or make any acquisition of, or
investment in, assets or stock of any other Person; (ii) acquire (by merger,
consolidation or acquisition of stock or assets) any corporation, partnership or
other business organization or division thereof; (iii) assume, guarantee or
endorse, or otherwise as an accommodation become responsible for, the
obligations of any Person or make any loans or advances; (iv) enter into any
material contract or agreement other than in the ordinary course of business; or
(v) enter into or amend in any respect any material contract, agreement,
commitment or arrangement with respect to any of the matters set forth in this
Section 7.2(j).
(k) Except with respect to the issuance of Stock upon the
exercise of Panatech Stock Options and Panatech Warrants outstanding on the date
hereof, Panatech and its Subsidiaries shall not issue, sell, pledge, lease,
dispose of, encumber, or authorize the issuance, sale, pledge, lease,
disposition or encumbrance of, (i) any shares of capital stock of any class, or
any options, warrants, convertible securities or other rights of any kind to
acquire any shares of capital stock, or any other ownership interest, or (ii)
any assets that are material, alone or in the aggregate, to Panatech except for
the sale of products in the ordinary course of business and consistent with past
practice.
(l) Panatech and its Subsidiaries shall not make any tax
election or settle or compromise any material federal, state, local or foreign
income tax liability.
(m) Neither Panatech nor any of its Subsidiaries shall (i)
declare or pay any extraordinary dividends on or make other distributions in
respect of any of its capital stock, (ii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or (iii) repurchase or otherwise acquire any shares of its capital
stock.
(n) Neither Panatech nor any of its Subsidiaries shall
incur or assume any indebtedness or other liabilities (whether absolute,
accrued, contingent or otherwise) or guarantee any indebtedness or commitments
for the same, except liabilities (other than indebtedness or guarantees of
indebtedness) in the usual and ordinary course of its business, and in amounts
and on terms consistent with past practice.
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(o) Except in the ordinary course of business, neither
Panatech nor any of its Subsidiaries shall pay, loan or advance any amount to,
or sell, transfer or lease any property or asset to, or enter into any agreement
or arrangement with, any of its stockholders, officers, employees or directors.
(p) Panatech and its Subsidiaries shall maintain their
real and personal properties in as good a state of operating condition and
repair as they are on the date of this Agreement, except for ordinary wear and
tear.
(q) Panatech and its Subsidiaries shall not terminate or
modify any leases, contracts, governmental licenses, permits, or other
authorizations or agreements affecting their real and/or personal properties or
the operation thereof or enter into any additional lease or contract of any
nature affecting such properties or the operation thereof.
(r) No liens, encumbrances, obligations or liabilities
relating to Panatech or its Subsidiaries, whether absolute or contingent
(including litigation claims), shall be discharged, satisfied or paid, other
than liabilities shown on Panatech Financial Statements or Panatech Interim
Financial Statements and liabilities incurred after the date thereof in the
ordinary course of business and in normal amounts, and no such discharge,
satisfaction or payment shall be effected other than in accordance with the
ordinary payment terms relating to the liability discharged, satisfied or paid.
(s) Panatech will timely file all SEC Documents and all
such documents shall comply in all material respects with the requirements of
the Securities Laws and none of such documents shall contain an untrue statement
of material fact or omit to state a material fact required, under the
circumstances, to make the statements contained therein not misleading.
(t) Panatech and its Subsidiaries shall not make any
changes in accounting methods, principles or practices.
Section 7.3 Access.
(a) Prior to the Closing Date, Panatech and its
Subsidiaries shall provide Parent and Sub and their representatives (excluding
Titan Personnel) with full access to, and will make available for inspection and
review, all properties, personnel, books, records and accounts of Panatech and
its Subsidiaries in order that Parent and Sub may have full opportunity to make
such investigation as they shall desire to make of the affairs of Panatech and
its Subsidiaries. It is understood that Parent and Sub shall be permitted to
maintain personnel (excluding Titan Personnel) on the premises of Panatech and
its Subsidiaries during customary business hours to observe all aspects of the
operations of Panatech and its Subsidiaries and to confer with their management,
attorneys and other third parties reasonably requested for verification of any
information obtained pursuant to such observations. Panatech also consents to
the examination by Price Waterhouse of
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workpapers and other records of the Accountants pertaining to Panatech and its
Subsidiaries.
(b) Notwithstanding the requirements set forth in Section
7.3(a), Panatech shall restrict the access of Parent and Sub to its customers,
vendors and distributors up until five (5) business days prior to Closing.
During such five (5) day period, Parent and Sub (excluding Titan Personnel)
shall be permitted to make reasonable inquiries of such customers, vendors and
distributors as may be necessary for due diligence purposes.
Section 7.4 Letter of Intent.
Paragraph 3(b) of the Letter of Intent shall remain in
full force and effect and is incorporated into this Agreement the same as if
fully set forth herein. The restrictions set forth in Paragraph 3(b) shall
terminate upon the earlier of (i) the Closing or (ii) the date forty-two (42)
months from the date of termination of this Agreement in accordance with Article
XI.
Section 7.5 Fiduciary Duty.
This Agreement is and shall at all times be subject to the
performance by the Board of Directors of Panatech of the fiduciary duties of its
directors.
Section 7.6 No Solicitation.
Panatech agrees that, without the prior written consent of
Parent, prior to the Effective Time, neither Panatech nor any of its
Subsidiaries shall hereafter initiate the direct and active solicitation of any
other party or parties (other than Parent and Sub) for a proposal that said
other party merge with, consolidate, or acquire the capital stock or
substantially all of the assets of Panatech or any of its Subsidiaries (an
"Acquisition Transaction"); provided, however, if Panatech or any of its
Subsidiaries, without the direct and active solicitation hereafter initiated by
Panatech or one of its Subsidiaries, receives from any other party or parties
(other than Parent or Sub) a proposal to merge with, consolidate, or acquire the
capital stock or substantially all of the assets of Panatech or any of its
Subsidiaries, then Panatech or such Subsidiary shall be entitled to respond
thereto in all appropriate ways consistent with the fiduciary duties of the
directors of Panatech. Panatech shall immediately advise Parent of the receipt
by Panatech or any of its Subsidiaries hereafter of a proposal from any other
party or parties (other than Parent or Sub) to merge with, consolidate, or
acquire the capital stock or substantially all of the assets of Panatech or any
of its Subsidiaries, and any such notice shall include a description of the
terms and conditions of any such proposal.
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Section 7.7 Stockholders' Meeting.
In order to consummate the Merger, Panatech, acting through its board
of directors shall in accordance with its Articles of Incorporation and By-laws
and applicable law:
(a) duly call, give notice of and hold a meeting of its Stockholders as
soon as practicable following the date hereof;
(b) subject to the fiduciary duties of its directors, include in the
Proxy Statement the recommendation of its board of directors that the
Stockholders vote in favor of the Agreement and use its best efforts to solicit
votes and proxies in favor of the adoption and approval of this Agreement; and
(c) obtain and furnish any information, with respect to Panatech,
required to be included in the Proxy Statement and cause the Proxy Statement to
be mailed to the Stockholders at the earliest practicable date.
Section 7.8 Proxy Statement.
As promptly as practicable after the date hereof, Parent and Panatech
shall cooperate in the preparation of the Proxy Statement to be mailed to the
Stockholders of Panatech in connection with the Merger.
Section 7.9 Best Efforts.
Subject to the fiduciary duties of their respective directors, Parent
and Panatech shall each use its respective best efforts in good faith, and each
of them shall cause its subsidiaries to use their respective best efforts in
good faith, to take or cause to be taken all actions, and to do or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations so as to permit consummation of the Merger in accordance with this
Agreement at the earliest possible date.
Section 7.10 Press Releases.
Parent and Panatech shall agree with each other as to the form and
substance of any press release related to this Agreement or the transactions
contemplated hereby, and shall consult each other as to the form and substance
of other public disclosures related thereto, provided, however, that nothing
contained herein shall prohibit any party, following notification to the other
parties, from making any disclosure which its counsel deems necessary.
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Section 7.11 HSR Act.
Each of Parent and Panatech will as promptly as reasonably practicable
file the notification and report form, and any supplemental information
requested thereafter, required pursuant to the HSR Act to consummate the
transaction contemplated hereby. Parent and Panatech agree to furnish to the
other such necessary information and reasonable assistance as each may request
in connection with any necessary filings or submissions required pursuant to the
HSR Act.
Section 7.12 Payment of Expenses.
Panatech shall use its best efforts in good faith to cause its legal
counsel, accountants, financial advisors and any other third parties it has
retained in connection with the transactions contemplated by this Agreement to
submit all invoices for payment prior to the Closing Date. Parent shall have
accrued all such fees and expenses, as well as any other out-of-pocket expenses
incurred in connection with the transactions contemplated by this Agreement as
of the Closing Date.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF PARENT AND SUB
All obligations of each of Parent and Sub that are to be discharged
under this Agreement at the Closing are subject to Panatech's fulfillment, at
the Closing or effective as of the Closing Date, of each of the following
conditions (unless expressly waived in writing by Parent and Sub at any time at
or prior to the Closing) and Panatech shall use its reasonable efforts to cause
each of such conditions to be satisfied:
Section 8.1 Representations and Warranties.
On the Closing Date, the representations and warranties of Panatech set
forth in Article V of this Agreement shall be true and correct in all material
respects as though such representations and warranties had been made by Panatech
on and as of the Closing Date, and Parent and Sub shall have received at the
Closing a certificate, dated the Closing Date, signed by the President or a Vice
President of Panatech to such effect.
Section 8.2 Covenants, Agreements and Conditions.
Panatech shall have performed and complied in all material respects
with all covenants, agreements and conditions contained in this Agreement
required to be performed by or complied with by it on or prior to the Closing
Date, and Parent and Sub
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shall have received at the Closing a certificate, dated the Closing Date, signed
by the President or a Vice President of Panatech to such effect.
Section 8.3 No Material Adverse Effect.
During the period from the date hereof through the Closing Date, there
shall not have been any change which has a Material Adverse Effect on the
condition (financial or otherwise) or earnings of Panatech.
Section 8.4 Corporate Proceedings.
All corporate and other proceedings to be taken and all consents to be
obtained by Panatech or its Subsidiaries in connection with the transactions
contemplated by this Agreement and all documents incident thereto shall be
reasonably satisfactory in form and substance to Parent and Sub and their
counsel, Dickstein Shapiro Morin & Oshinsky LLP, each of whom shall have
received all such originals or certified or other copies of such documents as
either may reasonably request.
Section 8.5 Opinion of Counsel.
Parent and Sub shall have received a written opinion dated the Closing
Date from Hagan, Saca & Hagan, counsel to Panatech, in the form attached as
Exhibit C hereto.
Section 8.6 Proceedings.
No action or proceeding shall be pending or threatened, nor shall any
statute, rule, regulation, executive order, decree or injunction have been
enacted, entered, promulgated or enforced by any court or governmental
authority, to restrain or prevent the consummation of the transactions
contemplated hereby.
Section 8.7 Governmental Approvals.
Except for the filing and approval of the Proxy Statement, there shall
have been received all necessary governmental consents or authorizations
required in connection with the transactions contemplated hereby.
Section 8.8 HSR Act Requirements.
Any "waiting periods" (and any extensions thereof) applicable to the
transactions contemplated hereby under the HSR Act shall have expired by the
Closing Date or shall have been terminated.
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Section 8.9 Deliveries.
Panatech shall have delivered to Parent and Sub the following items:
(a) the stock books, stock ledgers, minute books and corporate seals of
Panatech and its Subsidiaries and stock certificates evidencing Panatech's
ownership of its Subsidiaries;
(b) certificates from appropriate authorities, dated as of or about the
Closing Date, as to the good standing, qualification to do business of, and
payment of taxes by Panatech and its Subsidiaries in each jurisdiction where any
such entity is so qualified;
(c) the resignation of each director of Panatech and its Subsidiaries
and the officers of Panatech and its Subsidiaries for whom Parent has previously
requested resignations;
(d) evidence of the exercise or cancellation of all Panatech Stock
Options prior to the Effective Time;
(e) evidence of the assignment (and subsequent recordation), in form
satisfactory to Parent, of the patent application set forth in Schedule 5.15
from the inventors listed in such application to ASM Company, Inc.;
(f) releases or terminations, in form satisfactory to Parent, of the
security interest of Bank of America with respect to certain of the patents set
forth in Schedule 5.15 and any other liens, encumbrances or other security
interests which are not otherwise permitted pursuant to Section 5.16 which are
discovered by Parent or Panatech prior to Closing;
(g) a certificate of the Secretary or Assistant Secretary of Panatech,
certifying as to the Articles of Incorporation, By-Laws, resolutions of the
board of directors, and incumbency and signature of officers of Panatech; and
(h) all other previously undelivered items required to be delivered by
Panatech to Parent or Sub at or prior to the Closing pursuant to this Agreement
or otherwise required in connection herewith unless waived in writing by Parent
or Sub.
Section 8.10 Insurance.
Panatech and its Subsidiaries shall have maintained in full force and
effect the insurance coverage described on Schedule 5.17 hereto or policies
providing substantially equivalent coverage.
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Section 8.11 Stockholder Approval.
This Agreement and the Merger shall have been duly approved and adopted
by an affirmative vote or written consent of the Stockholders to the extent, and
only to the extent, required by the NRS or Panatech's Articles of Incorporation.
Section 8.12 Customer and Vendor Relationships.
Parent shall be reasonably satisfied with Panatech's and its
Subsidiaries' relationships with their customers, vendors and distributors
listed on Schedule 5.24.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF PANATECH
All obligations of Panatech that are to be discharged under this
Agreement at the Closing are subject to Parent's and Sub's fulfillment, at the
Closing or effective as of the Closing Date, of each of the following conditions
(unless expressly waived in writing by Panatech at any time at or prior to the
Closing) and each of Parent and Sub shall use its reasonable efforts to cause
each of such conditions to be satisfied:
Section 9.1 Representations and Warranties.
On the Closing Date, the representations and warranties of each of
Parent and Sub set forth in Article VI of this Agreement shall be true and
correct in all material respects as though such representations and warranties
had been made by Parent and Sub on and as of the Closing Date, and Panatech
shall have received at the Closing a certificate, dated the Closing Date, signed
by the President or a Vice President of each of Parent and Sub to such effect.
Section 9.2 Covenants, Agreements and Conditions.
Parent and Sub shall have performed and complied in all material
respects with all covenants, agreements and conditions contained in this
Agreement required to be performed by or complied with by them on or prior to
the Closing Date, and Panatech shall have received at the Closing a certificate,
dated the Closing Date, signed by the President or a Vice President of each of
Parent and Sub to such effect.
Section 9.3 Corporate Proceedings.
All corporate and other proceedings to be taken and all consents to be
obtained by Parent or Sub in connection with the transactions contemplated by
this Agreement and
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all documents incident thereto shall be reasonably satisfactory in form and
substance to Panatech and its counsel, Hagan, Saca & Hagan, each of whom shall
have received all such originals or certified or other copies of such documents
as either may reasonably request.
Section 9.4 Opinion of Counsel.
Panatech shall have received a written opinion dated the Closing Date
from Dickstein Shapiro Morin & Oshinsky LLP, counsel to each of Parent and Sub,
in the form attached as Exhibit D hereto.
Section 9.5 Proceedings.
No action or proceeding shall be pending or threatened, nor shall any
statute, rule, regulation, executive order, decree or injunction have been
enacted, entered, promulgated or enforced by any court or governmental
authority, to restrain or prevent the consummation of the transactions
contemplated hereby.
Section 9.6 Governmental Approvals.
Except for the filing and approval of the Proxy Statement, there shall
have been received all necessary governmental consents or authorizations
required in connection with the transactions contemplated hereby.
Section 9.7 HSR Act Requirements.
Any "waiting periods" (and any extensions thereof) applicable to the
transactions contemplated hereby under the HSR Act shall have expired or shall
have been terminated.
Section 9.8 Deliveries.
At the Closing, Parent and Sub shall deliver the following items to
Panatech:
(a) a certificate of the Secretary or Assistant Secretary, certifying
as to the Articles of Incorporation, By-Laws, resolutions of the board of
directs, and incumbency and signature of officers of such company; and
(b) all other previously undelivered items required to be delivered by
each of Parent and Sub at or prior to the Closing pursuant to this Agreement or
otherwise required in connection herewith unless waived in writing by Panatech.
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ARTICLE X
OTHER MATTERS
Section 10.1 Confidentiality.
From the date hereof until the earlier of (a) the Closing Date or (b)
the date forty-two (42) months from the date of termination of this Agreement in
accordance with Article (XI), each party hereto and its respective accountants,
attorneys, employees and other agents, will (i) keep confidential all
information, oral and written, obtained from any other party hereto or its
Affiliates, (ii) refrain from using in any manner all such information not
otherwise publicly available and (iii) in the case of Parent, Sub and their
Affiliates, refrain from disclosing any such information to Titan Personnel.
Section 10.2 Further Assurances.
Each party hereto shall cooperate with the others, and execute and
deliver, or cause to be executed and delivered, all such other instruments,
including instruments of conveyance, assignment and transfer, and take all such
other actions as may be reasonably requested by the other parties hereto from
time to time or by the arbitrator in the ASM Litigation from time to time,
consistent with the terms of this Agreement, to effectuate the purposes and
provisions of this Agreement.
Section 10.3 Indemnification of Directors and Officers.
From and after the Effective Date, Parent shall indemnify persons who
served as directors, officers and agents of Panatech or its Subsidiaries on or
before the Effective Date in accordance with and subject to the provisions of
the Articles of Incorporation and By-laws of Panatech and each such Subsidiary,
as delivered to Parent prior to the execution of this Agreement for a period of
not less than six (6) years from the Effective Date with respect to matters
occurring on or prior to the Effective Date, or the period of the applicable
statute of limitations, whichever is longer. This provision shall survive the
Closing and is for the benefit of and may be enforced by each indemnified party
or such person's heirs, successors and representatives.
ARTICLE XI
TERMINATION
Section 11.1 Methods of Termination.
This Agreement may be terminated at any time prior to the Closing,
notwithstanding stockholder approval:
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(a) by the mutual consent of Parent and Panatech;
(b) by Parent at any time after the date which is one hundred eighty
(180) days from the date of this Agreement if any of the conditions provided for
in Article VIII of this Agreement shall not have been met prior to such date;
(c) by Panatech at any time after the date which is one hundred eighty
(180) days from the date of this Agreement if any of the conditions provided for
in Article IX of this Agreement shall not have been met prior to such date;
(d) at any time prior to the Effective Time by either Parent or
Panatech if the Merger shall not have been consummated by July 1, 1997; or
(e) by Parent or Panatech, if any required approval of the Stockholders
shall not have been obtained by reason of failure to obtain the required vote at
a duly held meeting of Stockholders or at any adjournment thereof.
(f) by either Parent or Panatech if any court of competent jurisdiction
in the United States or other governmental body in the United States shall have
issued an order (other than a temporary restraining order), decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
Merger, and such order, decree, ruling or other action shall have become final
and nonappealable; provided that the party seeking to terminate this Agreement
shall have used its best efforts to remove or lift such order, decree or ruling;
(g) at any time prior to the Effective Time, by action of the board of
directors of Panatech, if the board of directors of Panatech determines in good
faith on the advice of counsel that its fiduciary duties require it to approve
an Acquisition Transaction (other than the Merger); or
(h) by Parent, at any time prior to the Effective Time, if (i) Panatech
enters into a letter of intent or definitive agreement to enter into an
Acquisition Transaction (other than the Merger), (ii) the board of directors of
Panatech withdraws, modifies or changes its approval or recommendation of this
Agreement or the Merger in a manner adverse to Parent or Sub, (iii) the board of
directors of Panatech recommends to the Stockholders any Acquisition Transaction
(other than the Merger) or (iv) the board of directors of Panatech resolves to
do any of the foregoing.
Section 11.2 Procedure Upon Termination.
In the event of termination by Parent, Panatech or both, pursuant to
this Article XI, written notice thereof shall promptly be given to the other
party or parties and the obligations of Parent and Sub and Panatech under this
Agreement shall terminate without further action. Upon any such termination:
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(a) each party will redeliver all documents, workpapers and other
materials of the other party or parties relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party or parties furnishing the same;
(b) all information received by any of the parties shall be kept
confidential in accordance with Section 10.1;
(c) except as provided in Sections 11.2(d) or 11.2(e), no party shall
have any liability or further obligation to any other party, except for such
legal and equitable rights and remedies as any party may have under this
Agreement or otherwise, by reason of any breach or violation of this Agreement
by the other party; and
(d) in the event of termination pursuant to Sections 11.1(g) or
11.1(h), Panatech shall pay to Parent in cash a fee equal to $.25 for each share
of Stock issued and outstanding on November 5, 1996, such amounts to be payable
upon the earlier of (i) the date ninety (90) days from the date of such
termination or abandonment or (ii) the date of the closing of an Acquisition
Transaction.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Survival of Representations and Warranties.
All representations and warranties of Parent, Sub and Panatech
contained in Articles V and VI herein and in any certificate executed and
delivered by either Parent, Sub or Panatech in connection with this Agreement
shall terminate and expire at the Effective Time; provided that no such
representations or warranties shall be deemed to be terminated or extinguished
so as to deprive Parent, Sub or Panatech (or any director, officer or
controlling person thereof) of any defense in law or equity which otherwise
would be available against the claims of any person, including without
limitation the Stockholders, the aforesaid representations and warranties being
material inducements to the consummation by Parent, Sub and Panatech of the
transactions contemplated herein.
Section 12.2 Service of Process.
Service of process on Panatech, Parent or Sub for any claim, legal
action or proceeding among the parties hereto in connection with this Agreement
may be made in the manner (excluding by telecopier) set forth in Section 12.3.
Section 12.3 Notices.
All notices, requests, consents and other communications hereunder
shall be deemed given if delivered personally (including by courier), telecopied
(confirmation of such receipt by confirmed facsimile transmission being deemed
receipt of communication
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sent by facsimile) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses or to other such addresses
as may be furnished in writing by one party to the others:
(a) if to Panatech (prior to Closing):
Panatech Research and Development Corporation
1208 Daskalos Drive NE
Albuquerque, New Mexico 84192
Attention: Dr. Arthur J. Rosenberg
with a copy to:
Hagan, Saca & Hagan
350 Cambridge Avenue
Suite 150
Palo Alto, California 94306
Attention: James R. Hagan, Esquire
(b) if to the Stockholders' Representative:
James R. Hagan, Esquire
Hagan, Saca & Hagan
350 Cambridge Avenue
Suite 150
Palo Alto, California 94306
(c) if to Parent, Sub or Surviving Corporation:
Titan Enterprises, Inc.
107 Bauer Drive
Oakland, New Jersey 07436
Attention: Chief Executive Officer
with a copy to:
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
Attention: Ira H. Polon, Esquire
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Section 12.4 Governing Law.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Nevada, without regard to such jurisdiction's conflict
of laws principles.
Section 12.5 Modification; Waiver.
This Agreement shall not be altered or otherwise amended except
pursuant to an instrument in writing signed by each of Parent and Sub and
Panatech. Any party may waive any misrepresentation by any other party, or any
breach of warranty by, or failure to perform any covenant, obligation or
agreement of, any other party, provided that mere inaction or failure to
exercise any right, remedy or option under this Agreement, or delaying in
exercising the same, will not operate as nor shall be construed as a waiver, and
no waiver will be effective unless set forth in writing and only to the extent
specifically stated therein.
Section 12.6 Entire Agreement.
Except as set forth in Section 7.4, this Agreement, the Schedules and
Exhibits hereto and any other agreements or certificates delivered pursuant
hereto constitute the entire agreement of the parties hereto with respect to the
matters contemplated hereby and supersede all previous written or oral
negotiations, commitments, representations and agreements.
Section 12.7 Assignment; Successors and Assigns.
This Agreement may not be assigned by Panatech without the prior
written consent of each of Parent and Sub. Prior to the Closing Date, this
Agreement may not be assigned by Parent or Sub without the prior written consent
of Panatech. After the Closing, each of Parent and the Surviving Corporation may
assign this Agreement. All covenants, representations, warranties and agreements
of the parties contained herein shall be binding upon and inure to the benefit
of their respective successors and permitted assigns.
Section 12.8 Severability.
The provisions of this Agreement are severable, and in the event that
any one or more provisions are deemed illegal or unenforceable, the remaining
provisions shall remain in full force and effect.
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Section 12.9 No Third Party Beneficiary.
Except as provided in Section 10.3, this Agreement is intended and
agreed to be solely for the benefit of the parties hereto and their
stockholders, and no other party shall accrue any benefit, claim or right of any
kind whatsoever pursuant to, under, by or through this Agreement.
Section 12.10 Expenses.
Except as otherwise expressly provided herein, each party to this
Agreement will pay its own expenses in connection with the negotiation of this
Agreement, the performance of its obligations hereunder, and the consummation of
the transactions contemplated herein.
Section 12.11 Execution in Counterpart.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.
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<PAGE> 116
IN WITNESS WHEREOF, the parties have executed this Agreement and Plan
of Merger as of the date first written above.
TITAN ENTERPRISES, INC.
By: /s/ Samuel A. Hamacher
-------------------------------------
Name: Samuel A. Hamacher
Title: Executive Vice President
PANATECH ACQUISITION CORPORATION
By: /s/ Samuel A. Hamacher
-------------------------------------
Name: Samuel A. Hamacher
Title: Executive Vice President
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
By: /s/ Arthur J. Rosenberg
-------------------------------------
Name: Arthur J. Rosenberg
Title: President
A-49
<PAGE> 117
APPENDIX B
[LETTERHEAD OF HOULIHAN, LOKEY, HOWARD & ZUKIN]
December 4, 1996
To the Board of Directors
Panatech Research and Development Corporation
c/o Arthur J. Rosenberg
President
P.O. Box 23160
Albuquerque, NM 84192
Gentlemen:
We understand that Panatech Research and Development Corporation (the "Company")
conducts its business principally through a wholly owned subsidiary, ASM
Company, Inc. ("ASM"). ASM, which was acquired by the Company in 1989,
manufactures and sells precision engineered accessories for high pressure,
airless paint spraying equipment used by industrial, commercial and residential
paint contractors. The capital structure of Panatech includes 3,979,375 issued
and outstanding shares of common stock, 620,175 shares subject to Class B
warrants (with exercise prices of $5.00 per share) and 330,750 shares subject to
stock options (with exercise prices ranging from $1.75 to $4.00 per share). We
also understand that the Company, pursuant to a letter of intent, dated November
4, 1996, may enter into a transaction whereby (i) Titan Enterprises, Inc.
("Titan") will acquire all of Panatech's common stock, at a price of $7.00 per
share, in a cash merger transaction and (ii) the warrants and options will be
canceled and holders of the warrants and options will have the right to receive
from Titan an amount equal to the difference between the respective exercise
prices of the warrants and options and the $7.00 per-share purchase price for
the common stock. The $7.00 per share price and our opinion assume that, as
provided in the "Merger Agreement" (defined below), that "Quick Assets" (as
defined in the Merger Agreement) will equal the "Target Number" (as defined in
the Merger Agreement). Such transaction and all related transactions disclosed
to Houlihan Lokey are referred to collectively herein as the "Transaction." The
holders of Panatech's common stock, options and warrants are referred to
collectively herein as the "Securityholders."
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or
B-1
<PAGE> 118
Mr. Arthur J. Rosenberg
Panatech Research and Development Corporation
December 4, 1996 -2-
any part of the Company. Furthermore, at your request, we have not negotiated
the Transaction or advised you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders and on Form
10-KSB for the fiscal years ending March 31, 1992, 1993, 1994, 1995
and 1996 and quarterly reports on Form 10-QSB for the two quarters
ended September 30, 1996, which the Company's management has
identified as being the most current financial statements available;
2. reviewed copies of the following documents and agreements:
- Articles of Incorporation and By-Laws of the Company,
- 1993 Stock Option Plan of the Company,
- Warrant Agreement for Class A and Class B Warrants of the
Company,
- Employee Agreements of key management personnel,
- Letter of Intent between Titan and the Company dated November
4, 1996,
- A draft Agreement and Plan of Merger between Titan and the
Company dated December 2, 1996 (the "Merger Agreement") in the
form provided to us and we have assumed that the final
execution form of such agreement will not vary in any regard
that is material to our analysis;
3. reviewed the draft proxy statement, dated November 26, 1996;
4. met with certain members of the senior management of the Company and
ASM to discuss the operations, financial condition, future prospects
and projected operations and performance of the Company, and met
with representatives of the Company's independent accounting firm
and counsel to discuss certain matters;
5. visited certain facilities and business offices of the Company;
6. reviewed internal, non-public financial and operating data provided
by the Company, including forecasts and projections prepared by the
Company's management with respect to the Company for the years
ending March 31, 1997 through 1999;
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<PAGE> 119
Mr. Arthur J. Rosenberg
Panatech Research and Development Corporation
December 4, 1996 -3-
7. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;
8. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company, and publicly
available prices and premiums paid in other transactions that we
considered similar to the Transaction; and
9. conducted such other studies, analyses and inquiries as we have
deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, and that there has been no material change
in the assets, financial condition, business or prospects of the Company since
the date of the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any independent appraisal of
any of the properties or assets of the Company. Our opinion is necessarily based
on business, economic, market and other conditions as they exist and can be
evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that the
consideration to be received by the Securityholders of the Company in connection
with the Transaction is fair to them from a financial point of view.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
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<PAGE> 120
PRELIMINARY COPY
PANATECH RESEARCH AND DEVELOPMENT CORPORATION
PROXY FOR
SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 6, 1997
KNOW ALL MEN BY THESE PRESENTS that the undersigned hereby constitutes and
appoints ARTHUR J. ROSENBERG and JAMES R. HAGAN, and each of them, the attorneys
and proxies of the undersigned with full power of substitution to appear and to
vote all of the shares of Common Stock of Panatech Research and Development
Corporation ("Panatech") held of record by the undersigned on January 8, 1997 at
the Special Meeting of Stockholders to be held on February 6, 1997 or any
adjournment thereof, as designated below:
(1) To approve and adopt an Agreement and Plan of Merger pursuant to which
Panatech will become a wholly owned subsidiary of Titan Enterprises, Inc.
and each outstanding share of Panatech Common Stock will be converted into
the right to receive $7 in cash, subject to reduction, without interest.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE TO ADJOURN THE
MEETING AND ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
OR ANY ADJOURNMENT THEREOF.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PANATECH. IF
NO VOTE IS INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSAL (1).
YOU ARE URGED TO DATE, SIGN AND RETURN PROMPTLY THIS PROXY IN THE ENVELOPE
PROVIDED. IT IS IMPORTANT FOR YOU TO BE REPRESENTED AT THE MEETING. THE
EXECUTION OF YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ARE
PRESENT AT THE MEETING.
IMPORTANT: Please sign exactly as your name or names appear on the share
certificates, and when signing as an attorney, executor, administrator, trustee
or guardian, give your full title as such. If the signatory is a corporation,
sign the full corporate name by duly authorized officer, or if a partnership,
sign in partnership name by authorized person.
<TABLE>
<S> <C>
Date: ------------------------ , 1997 Signature:
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