SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1995
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to ______.
Commission File Number 1-4704
GUARDSMAN PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-0593900
(State of incorporation) (I.R.S. Employer Identification No.)
3033 ORCHARD VISTA DRIVE, S.E., SUITE 200
P.O. BOX 1521, GRAND RAPIDS, MICHIGAN 49501
(Address of principal executive offices) (Zip Code)
(616) 957-2600
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes ___X___ No ________
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $1 Par Value, 9,548,894 shares at October 31, 1995.
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GUARDSMAN PRODUCTS, INC.
TABLE OF CONTENTS
PAGE NO.
PART I - FINANCIAL INFORMATION
Management Representation 3
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 4
Condensed Consolidated Statements of Income -
Three Months and Nine Months Ended September 30,
1995 and 1994 6
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1994 7
Notes to Condensed Consolidated Financial
Statements - September 30, 1995 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
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GUARDSMAN PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
Management Representation
The condensed consolidated financial statements included herein have been
prepared by Guardsman Products, Inc. (the "Company") without an audit
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December
31, 1994.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, which are of a
normal recurring nature, necessary to present fairly the financial
position of the registrant as of September 30, 1995 and December 31, 1994,
the results of operations for the three months and nine months ended
September 30, 1995 and 1994, and cash flows for the nine months ended
September 30, 1995 and 1994. The results of operations for such interim
periods are not necessarily indicative of the results to be expected for
the full fiscal year.
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<TABLE>
GUARDSMAN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited, in thousands)
September 30, December 31,
1995 1994
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7,076 $ 5,630
Accounts receivable, less allowances
of $609 and $808, respectively 36,669 29,517
Inventories 32,799 31,324
Deferred income taxes 2,029 1,866
Other current assets 5,825 5,224
Total current assets 84,398 73,561
Property and equipment 50,250 46,666
Less accumulated depreciation 20,335 18,689
29,915 27,977
Goodwill, less accumulated amortization
of $4,003 and $3,251, respectively 20,262 20,336
Other intangibles, less accumulated
amortization of $5,814 and $5,374,
respectively 12,542 12,587
Other assets 3,543 2,591
$150,660 $137,052
</TABLE>
The accompanying notes are an integral
part of these financial statements
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<TABLE>
GUARDSMAN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited, in thousands except share data)
September 30, December 31,
1995 1994
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 20,659 $ 19,286
Income taxes 644 510
Current maturities of long-term debt 70 93
Other current liabilities 10,612 11,299
Total current liabilities 31,985 31,188
Long-term debt 33,764 27,805
Other liabilities 16,061 13,633
Stockholders' equity
Common stock, $1 par value
Authorized - 30,000,000 shares
Outstanding - 9,548,894 shares
in 1995, 9,482,199 shares in 1994 9,549 9,482
Additional paid-in capital 47,214 46,560
Retained earnings 13,071 9,949
Cumulative translation adjustments (984) (1,565)
68,850 64,426
$ 150,660 $ 137,052
</TABLE>
The accompanying notes are an integral
part of these financial statements
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<TABLE>
GUARDSMAN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(Unaudited, in thousands except share and per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 61,481 $ 51,102 $ 189,138 $ 144,998
Cost of sales 41,482 33,661 126,266 94,618
19,999 17,441 62,872 50,380
Selling, general and
administrative expenses 17,394 14,648 52,543 42,089
Interest expense 568 267 1,615 775
Investment income (180) (104) (434) (280)
Income before income taxes 2,217 2,630 9,148 7,796
Income taxes 863 948 3,745 3,118
Net income $ 1,354 $ 1,682 $ 5,403 $ 4,678
Net income per share $ .14 $ .20 $ .57 $ .58
Weighted average
shares outstanding 9,529,767 8,470,159 9,503,392 8,124,392
</TABLE>
The accompanying notes are an integral
part of these financial statements
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<TABLE>
GUARDSMAN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited, in thousands except per share data)
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
Operations
Net income $ 5,403 $ 4,678
Adjustments to reconcile net income
to cash provided by operations
Depreciation and amortization 5,255 3,820
Deferred income taxes (1,062) (414)
Deferred compensation and pension costs 407 413
Other - net 794 279
Changes in certain working capital items
Accounts receivable (6,171) (4,048)
Inventories (1,025) (2,400)
Other current assets (424) 486
Accounts payable 282 1,755
Accrued expenses (338) 1,379
Cash provided by operations 3,121 5,948
Investing Activities
Purchase of businesses (1,364) (5,513)
Fixed asset additions (4,454) (1,665)
Other - net (193) 211
Cash used in investing activities (6,011) (6,967)
Financing Activities
Cash dividends - $.24 per share in
1995 and 1994 (2,282) (2,029)
Increase in debt 5,585 2,536
Stock issued under employee and
stockholder plans 722 574
Cash provided by financing activities 4,025 1,081
Effect of foreign currency rate changes 311 108
Increase in cash and cash equivalents 1,446 170
Cash and cash equivalents at beginning of
period 5,630 4,472
Cash and cash equivalents at end of period $ 7,076 $ 4,642
</TABLE>
The accompanying notes are an integral
part of these financial statements
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GUARDSMAN PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
NOTE B - ACQUISITION OF BUSINESS
As previously disclosed, on August 31, 1994, the Company purchased 100% of
the stock of Moline Paint Manufacturing Co. ("Moline"). The accompanying
condensed consolidated statements of income reflect the operating results
of Moline since the effective date of the acquisition. Pro forma
unaudited consolidated operating results of the Company and Moline for the
nine months ended September 30, 1994 are summarized below (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1994
<S> <C>
Net sales $ 170,456
Net income 3,431
Earnings per share .36
</TABLE>
These pro forma results have been prepared for comparative purposes only
and include certain adjustments such as additional depreciation expense as
a result of a step-up in the basis of fixed assets, additional
amortization expense as a result of goodwill and other intangible assets,
increased interest expense on acquisition debt and a one-time charge for
the cost of certain environmental matters. They do not purport to be
indicative of the results of operations which actually would have resulted
had the combination been in effect on January 1, 1994 or of future results
of operations of the consolidated entities.
Effective January 30, 1995, the Company purchased the business and certain
assets (primarily accounts receivable, inventory and intangible assets) of
Soil Shield International, Inc. ("Soil Shield"), a producer and
distributor of retail-applied fabric protection products. The Company is
servicing the former Soil Shield customers from its existing facilities.
The acquisition of Soil Shield did not have a material effect on the
Company's financial statements.
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GUARDSMAN PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1995
CONTINUED
NOTE C - INVENTORIES
Inventories are summarized below (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
Finished products $ 17,671 $ 16,680
Raw materials and work in process 15,128 14,644
$ 32,799 $ 31,324
</TABLE>
NOTE D - INCOME TAXES
The Company's effective income tax rate for the nine months ended
September 30, 1995 was 40.9% compared to 40.0% during the same period in
1994. The effective tax rates for both periods were influenced by the
relationship of permanent differences to estimated taxable income. The
Company's effective income tax rate for the remainder of the year may
either increase or decrease depending upon the components and level of
consolidated pretax income. Income taxes paid totaled $4,694,000 and
$2,189,000 for the nine months ended September 30, 1995 and 1994,
respectively.
NOTE E - CONTINGENCIES
Like other companies in its industry, Guardsman is subject to existing and
evolving standards related to the protection of the environment. As a
result, it is the Company's policy to establish reserves for site
restoration costs and related claims where it is probable a liability
exists and the amount can be reasonably estimated. These reserves are
adjusted as information becomes available upon which a more accurate
estimate of eventual costs can be made. Such estimates are subject to
numerous variables, the effects of which are difficult to measure,
including the stage of the investigations, the nature of potential
remedies, the joint and several liability with other potentially
responsible parties, availability of insurance and government funds and
other issues. Accordingly, the ultimate cost of these matters cannot be
determined at this time and may not be resolved for a number of years.
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GUARDSMAN PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1995
CONTINUED
The net reserves of $3,830,000 at September 30, 1995 represent the
Company's best estimate of probable exposures at this time. Based upon
information currently available, it is not anticipated that the outcome of
these environmental matters will materially affect the Company's
consolidated financial position. The ultimate effect of these matters on
the Company's results of operations cannot be predicted because any such
effect depends on the amount and timing of charges to operations resulting
from new information as it becomes available.
Approximately $626,000 is included as an offset to these net reserves at
September 30, 1995. This amount represents estimated probable
reimbursements from certain insurance carriers and from a state government
agency for costs expended for site restoration.
The Company is also involved in legal proceedings and litigation arising
in the ordinary course of business. In the opinion of management, the
outcome of such proceedings and litigation currently pending will not
materially affect the Company's consolidated financial statements.
NOTE F - INTEREST PAYMENTS
Payment of interest due under the Company's borrowings amounted to
$1,461,000 and $714,000 during the nine month periods ended September 30,
1995 and 1994, respectively.
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GUARDSMAN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. RESULTS OF OPERATIONS - THIRD QUARTER 1995 COMPARED TO THIRD QUARTER
1994
Net sales for the third quarter of 1995 increased 20.3% to $61,481,000
compared to $51,102,000 for the quarter ended September 30, 1994.
Coatings Group sales increased $7,431,000 (18.9%) due primarily to
increases in unit volume and average selling prices. The Group's
liquid and powder coatings product lines realized an increase in net
sales of $6,633,000, which included a sales increase of $7,291,000 for
Moline Paint Manufacturing Co., which was acquired on August 31, 1994,
and thus included in consolidated results for the full quarter of 1995
compared to one month in the 1994 quarter. Excluding Moline, the
Group's liquid coatings product lines realized a unit volume decrease,
due mainly to a reduction in sales of the Group's metal coatings
product lines. The Group's resin product lines experienced an
increase in net sales of $798,000 representing both a volume increase,
due primarily to increased customer demand, and an increase in the
average selling price. Compared to the 1994 period, the Consumer
Products Group's net sales increased $2,947,000 (25.0%).
Approximately 64% of the increase is due to sales for Soil Shield
International, Inc., which was acquired on January 30, 1995. The
Group's Specialty Products and Interior Care divisions continue to
report strong sales growth, which was partially offset by a decrease
in sales of the Group's Household lines.
Consolidated gross margin as a percentage of sales was 32.5% in the
third quarter of 1995 compared to 34.1% in 1994. This decrease
reflects repetitive increases in raw material costs as well as a shift
in product mix toward resin and automotive aftermarket products, which
generate lower margins as a percentage of sales.
Operating expenses for the third quarter of 1995 totaled $17,394,000
compared to $14,648,000 for the 1994 period. The increase in
operating expenses reflects the addition of both Moline's and Soil
Shield's selling and administrative expenses and increased selling
expenses due to additional sales. Current year operating expenses
were also impacted by approximately $500,000 of expenses associated
with studies of reorganization and shareholder value options, as
discussed in Liquidity, Capital Resources and Financial Condition
below. As a percentage of sales, 1995 operating expenses were
comparable to 1994.
Interest expense for the 1995 period totaled $568,000 compared to
$267,000 for the 1994 period. This increase is due to an increase in
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long-term borrowings and variable interest rates. The increase in
long-term borrowings resulted from the purchase of Moline and Soil
Shield as well as from working capital requirements.
The Company's effective tax rate was 38.9% and 36.0% for the quarters
ended September 30, 1995 and 1994, respectively. The effective tax
rates are influenced by the relationship of permanent differences to
estimated taxable income.
Net income for the quarter of $1,354,000 or $.14 per share is after
approximately $.03 per share associated with the Company's study of
reorganization options. Net income for the third quarter of 1994
amounted to $1,682,000 or $.20 per share.
2. RESULTS OF OPERATIONS - NINE MONTHS 1995 COMPARED TO NINE MONTHS 1994
Net sales for the nine months ended September 30, 1995 totaled
$189,138,000, an increase of $44,140,000 (30.4%) compared to the first
nine months of 1994. Coatings Group sales increased $34,670,000
(31.0%) due primarily to increases in unit volume and average selling
prices. The Group's liquid and powder coatings product lines realized
an increase in net sales of $29,864,000, which included a sales
increase of $30,949,000 for Moline. Excluding Moline, the Group's
liquid coatings product lines realized a unit volume decrease, as
discussed in the third quarter results, which was partially offset by
average selling price increases. The Group's resin product lines
experienced an increase in net sales of $4,602,000 representing both a
volume increase and an increase in the average selling price. The
Consumer Products Group's net sales increased $9,674,000 (29.5%)
compared to the 1994 period. Approximately 53% of the sales increase
represents sales for Soil Shield while the additional increase is
consistent with the third quarter discussed previously.
Consolidated gross margins as a percentage of sales were 33.2% and
34.7% in the first nine months of 1995 and 1994, respectively. This
decline is consistent with the reasons for the decrease reported in
the third quarter.
Operating expenses for the nine-month period in 1995 totaled
$52,543,000 compared to $42,089,000 for the 1994 period. Increases
for the nine months were consistent with those reported for the third
quarter. Current year operating expenses were also impacted by
approximately $500,000 of expenses associated with studies of
reorganization and shareholder value options. As a percentage of
sales, operating expenses decreased to 27.8% in 1995 from 29.0% in
1994.
Interest expense for the 1995 period totaled $1,615,000 compared to
$775,000 for the 1994 period. This increase is due to an increase in
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long-term borrowings and variable interest rates. The increase in
long-term borrowings resulted from the purchase of Moline and Soil
Shield as well as from working capital requirements.
The Company's effective tax rate for the nine months ended September
30, 1995 was 40.9% compared to 40.0% during the same 1994 period. The
effective tax rates are influenced by the relationship of permanent
differences to estimated taxable income.
Net income increased 15.5% to $5,403,000 for the nine months compared
to $4,678,000 for the nine months of 1994. Earnings per share of $.57
for the nine months of 1995, which is after approximately $.03 per
share associated with the Company's study of reorganization options,
compared to $.58 per share in 1994, calculated on 9,503,392 shares
outstanding in 1995 compared to 8,124,392 shares outstanding during
1994.
3. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
During the nine months ended September 30, 1995, the Company's
operations generated net cash flows of $3,121,000. During this
period, the Company invested $4,454,000 in fixed assets, paid
dividends of $2,282,000 and made cash payments of $1,364,000
associated with the acquisitions of Soil Shield and Moline. Cash
balances increased $1,446,000 during the first nine months of 1995 due
mainly to a seasonal cash buildup in the Canadian operations and in
the United Kingdom. These funds are not currently available to pay
down the Company's borrowings under the domestic revolving credit
agreements. As a result of the foregoing, outstanding debt increased
$5,585,000 during the first nine months of 1995.
During the nine-month period ended September 30, 1995, accounts
receivable increased $7,152,000, inventories increased $1,475,000 and
accounts payable increased $1,373,000 primarily as a result of the
Company's increased sales levels. In addition, included in these
amounts is the consolidation of Soil Shield effective January 30,
1995.
Working capital was $52,413,000 at September 30, 1995 compared to
$42,373,000 at December 31, 1994. The current ratio was 2.6 to 1 at
September 30, 1995 and 2.4 to 1 at December 31, 1994.
Management believes that internally generated funds will be adequate
to finance future property and equipment additions and meet existing
obligations under its long-term borrowing agreements. The Company
anticipates that any business acquisitions in the future will be
financed with cash flows from operations and by the issuance of long-
term debt or common stock. At September 30, 1995, the Company had
$7,418,000 of unused credit available under its unsecured long-term
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revolving credit agreements and $6,118,000 available under its
unsecured short-term revolving credit agreements.
Like other companies in its industry, Guardsman is subject to existing
and evolving standards related to the protection of the environment.
For information regarding environmental obligations, see Note E to the
Condensed Consolidated Financial Statements.
The third quarter of 1995 includes approximately $500,000 of
administrative costs associated with special studies of reorganization
options to increase the Company's long-term profitability. While the
Company expects that certain additional one-time costs of
significantly greater magnitude could be incurred in the fourth
quarter due to the potential implementation of our reorganization
plans, execution of these reorganization options is expected to have a
positive effect on future results of operation.
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GUARDSMAN PRODUCTS, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(3) Registrant's Restated Certificate of Incorporation
(10-A) First amendment to the Consulting Agreement between the
Registrant and Paul K. Gaston
(10-B) Second amendment to the Consulting Agreement between the
Registrant and Paul K. Gaston
(11) Statement re: Computation of Per Share Income
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Registrant did not file a Form 8-K Current Report during the
third quarter of 1995.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUARDSMAN PRODUCTS, INC.
Date: November ___, 1995 By___________________________________
Henry H. Graham, Jr.
Vice President of Finance and
Chief Financial Officer (Duly
Authorized Signatory for Registrant
and Principal Financial Officer)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUARDSMAN PRODUCTS, INC.
Date: November ___, 1995 By \S\ HENRY H. GRAHAM, JR.
Henry H. Graham, Jr.
Vice President of Finance and
Chief Financial Officer (Duly
Authorized Signatory for Registrant
and Principal Financial Officer)
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EXHIBIT 3
RESTATED CERTIFICATE OF INCORPORATION
OF
GUARDSMAN PRODUCTS, INC.
GUARDSMAN PRODUCTS, INC., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
The present name of the corporation is Guardsman Products, Inc.
The name under which it was originally incorporated was Guardsman Chemical
Coatings, Inc., and the date of filing of its original Certificate of
Incorporation with the Secretary of State was July 16, 1962. The
corporation's only other previous name was Guardsman Chemicals, Inc.
This Restated Certificate of Incorporation only restates and
integrates and does not further amend the provisions of the Certificate of
Incorporation of this corporation as heretofore amended or supplemented
and there is no discrepancy between those provisions and the provisions of
this Restated Certificate of Incorporation.
The text of the Certificate of Incorporation as amended or
supplemented heretofore is hereby restated without further amendments or
changes to read as herein set forth in full:
* * *
1. The name of the corporation is GUARDSMAN PRODUCTS, INC.
2. The address of its registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address
is The Corporation Trust Company.
3. The nature of the business, or objects or purpose to be
transacted, promoted or carried on are:
To engage in the business of manufacturing, buying and
selling, at wholesale and retail, varnishes, paints, oils,
lacquers, stains, fillers and protective coatings of all kinds,
painters' and manufacturers' supplies, and allied products, and,
in general, to carry on any business in connection therewith.
To manufacture, purchase or otherwise acquire, invest in,
own, mortgage, pledge, sell, assign and transfer or otherwise dispose
of, trade, deal in and deal with goods, wares and merchandise and
personal property of every class and description.
To acquire, and pay for in cash, stock or bonds of this
corporation or otherwise, the good will, rights, assets and
property, and to undertake or assume the whole or any part of the
obligations or liabilities of any person, firm, association or
corporation.
To acquire, hold, use, sell, assign, lease, grant
licenses in respect of, mortgage or otherwise dispose of letters
patent of the United States or any foreign country, patent
rights, licenses, privileges, inventions, improvements and
processes, copyrights, trademarks and trade names, relating to or
useful in connection with any business of this corporation.
To acquire by purchase, subscription or otherwise, and
to receive, hold, own, guarantee, sell, assign, exchange,
transfer, mortgage, pledge or otherwise dispose of or deal in and
with any of the shares of the capital stock, or any voting trust
certificates in respect of the shares of capital stock, scrip,
warrants, rights, bonds, debentures, notes, trust receipts, and
other securities, obligations, choses in action and evidences of
indebtedness or interest issued or created by any corporations,
joint stock companies, syndicates, associations, firms, trusts or
persons, public or private, or by the government of the United
States of America, or by any foreign government, or by any state,
territory, province, municipality or other political subdivision
or by any governmental agency, and as owner thereof to possess
and exercise all the rights, powers and privileges and ownership,
including the right to execute consents and vote thereon, and to
do any and all acts and things necessary or advisable for the
preservation, protection, improvement and enhancement in value
thereof.
To enter into, make and perform contracts of every kind
and description with any person, firm, association, corporation,
municipality, country, state, body politic or government or
colony or dependency thereof.
To borrow or raise moneys for any of the purposes of the
corporation and, from time to time without limit as to amount, to
draw, make, accept, endorse, execute and issue promissory notes,
drafts, bills of exchange, warrants, bonds, debentures and other
negotiable or nonnegotiable instruments and evidences of indebtedness,
and to secure the payment of any thereof and of the interest thereon
by mortgage upon or pledge, conveyance or assignment in trusts of the
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whole or any part of the property of the corporation, whether at the
time owned or thereafter acquired, and to sell, pledge or otherwise
dispose of such bonds or other obligations of the corporation for its
corporate purposes.
To loan to any person, firm or corporation any of its
surplus funds, either with or without security.
To purchase, hold, sell and transfer the shares of its
own capital stock; provided it shall not use its funds or
property for the purchase of its own shares of capital stock when
such use would cause any impairment of its capital except as
otherwise permitted by law, and provided further that shares of
its own capital stock belonging to it shall not be voted upon
directly or indirectly.
To have one or more offices, to carry on all or any of
its operations and business and without restriction or limit as
to amount, to purchase or otherwise acquire, hold, own, mortgage,
sell, convey or otherwise dispose of, real and personal property
of every class and description in any of the states, districts,
territories or colonies of the United States, and in any and all
foreign countries, subject to the laws of such state, district,
territory, colony or country.
In general, to carry on any other business in
connection with the foregoing, and to have and exercise all the
powers conferred by the laws of Delaware upon corporations formed
under the General Corporation Law of the State of Delaware, and
to do any or all of the things hereinbefore set forth to the same
extent as natural persons might or could do.
The objects and purposes specified in the foregoing clauses
shall, except where otherwise expressed, be in no way limited or
restricted by reference to, or inference from, the terms of any other
clause in this Restated Certificate of Incorporation, but the objects
and purposes specified in each of the foregoing clauses of this
article shall be regarded as independent objects and purposes.
4. The total number of shares of stock of all classes
which the corporation shall have authority to issue is Thirty-One
Million (31,000,000) shares, of which One Million (1,000,000)
shares shall be of the par value of $1 each, designated as
"Preferred Stock," and Thirty Million (30,000,000) shares shall
be of the par value of $1 each, designated as "Common Stock."
Unless otherwise determined by the Board of Directors,
no holder of shares of stock of the corporation shall, as such
holder, have any preemptive or other right to purchase or
subscribe for or receive any shares of any class, or series
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thereof, of stock of the corporation, whether now or hereafter
authorized, or any warrants, options, bonds, debentures or other
securities convertible into, exchangeable for or carrying any
right to purchase any shares of any class, or series thereof, of
stock, but such additional shares of stock and such warrants,
options, bonds, debentures or other securities convertible into,
exchangeable for or carrying any right to purchase any shares of
any class, or series thereof, of stock may be issued or disposed
of by the Board of Directors to such persons, and on such terms
and for such lawful consideration, as in its discretion it shall
deem advisable.
Shares of Preferred Stock may be issued from time to
time in one or more series as may be determined from time to time
by the Board of Directors, each such series to be distinctly
designated. Except in respect of the particulars fixed by the
Board of Directors for series provided for by the Board of
Directors as permitted hereby, all shares of Preferred Stock
shall be of equal rank and shall be identical. All shares of any
one series of Preferred Stock so designated by the Board of
Directors shall be alike in every particular except that shares
of any one series issued at different times may differ as to the
dates from which dividends thereon shall be cumulative if that
series provides for cumulative dividends. The voting rights, if
any, of each such series and the preferences and relative,
participating, optional and other special rights of each such
series and the qualifications, limitations and restrictions
thereof, if any, may differ from those of any and all other
series at any time outstanding; and the Board of Directors of the
corporation is hereby expressly granted authority to fix, by
resolutions duly adopted prior to the issuance of any shares of a
particular series of Preferred Stock so designated by the Board
of Directors, the voting powers of stock of such series, if any,
and the designations, preferences and relative, participating,
optional and other special rights and the qualifications,
limitations and restrictions of such series, including, but
without limiting the generality of the foregoing, the following:
(a) The rate and times at which, and the terms and
conditions on which, dividends on Preferred Stock of such
series will be paid;
(b) The right, if any, of the holders of Preferred
Stock of such series to convert the same into, or exchange
the same for, shares of other classes or series of stock of
the corporation and the terms and conditions of such
conversion or exchange, including provision for adjustment
of the conversion price or rate in such events as the Board
of Directors shall determine;
-4-
(c) The redemption price or prices and the time or
times at which, and the terms and conditions on which,
Preferred Stock of such series may be redeemed; and
(d) The rights of the holders of Preferred Stock of
such series upon the voluntary or involuntary dissolution,
liquidation or winding up of the corporation.
Subject to the provisions of this Article 4, shares of
one or more series of Preferred Stock may be authorized or
issued, in an aggregate amount not exceeding the total number of
shares of Preferred Stock authorized by this Restated Certificate
of Incorporation, from time to time as the Board of Directors of
the corporation shall determine, and for such consideration as
shall be fixed by the Board of Directors.
5. The minimum amount of capital with which the
corporation will commence business is One Thousand Dollars
($1,000).
6. The corporation is to have perpetual existence.
7. The private property of the stockholders shall not be
subject to the payment of corporate debts to any extent whatever.
8. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly
authorized:
To make, alter or repeal the Bylaws of the corporation.
To authorize and cause to be executed mortgages and
liens upon the real and personal property of the corporation.
To set apart out of any of the funds of the corporation
available for dividends a reserve or reserves for any proper
purpose and to abolish any such reserve in the manner in which it
was created.
By resolution passed by a majority of the whole Board
of Directors, to designate one or more committees, each committee
to consist of two or more of the directors of the corporation,
which, to the extent provided in the resolution or in the Bylaws
of the corporation, shall have and may exercise the powers of the
Board of Directors in the management of the business and affairs
of the corporation, and may authorize the seal of the corporation
to be affixed to all papers which may require it. Such committee
or committees shall have such name or names as may be determined
from time to time by resolution adopted by the Board of
Directors.
-5-
When and as authorized by the affirmative vote of the
holders of a majority of the stock issued and outstanding having
voting power given at a stockholder's meeting duly called for
that purpose, or when authorized by the written consent of the
holders of a majority of the voting stock issued and outstanding,
to sell, lease or exchange all of the property and assets of the
corporation, including its goodwill and its corporate franchises,
upon such terms and conditions and for such consideration, which
may be in whole or in part shares of stock in, and/or other
securities of, any other corporation or corporations, as its
Board of Directors shall deem expedient and for the best
interests of the corporation.
9. Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them
and/or between this corporation and its stockholders or any class
of them, any court of equitable jurisdiction within the State of
Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this
corporation under the provisions of Section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for this corporation under
the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as
the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in
value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any
reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement,
and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders
or class of stockholders, of this corporation, as the case may
be, and also on this corporation.
10. The corporation shall indemnify any and all its
directors or officers or former directors or officers or any
person who may have served at its request as a director or
officer of another corporation in which it owns shares of capital
stock or of which it is a creditor against expenses actually and
necessarily incurred by them in connection with the defense of
any action, suit or proceeding in which they, or any of them, are
made parties, or a party, by reason of being or having been
directors or officers or a director or officer of the
corporation, or of such other corporation, except in relation to
-6-
matters as to which any such director or officer or former
director or officer or person shall be adjudged in such action,
suit or proceeding to be liable for negligence or misconduct in
the performance of duty. Such indemnification shall not be
deemed exclusive of any other rights to which those indemnified
may be entitled, under any bylaw, agreement, vote of
stockholders, or otherwise.
11. Meetings of stockholders may be held outside the State
of Delaware, if the Bylaws so provide. The books of the
corporation may be kept (subject to any provision contained in
the statutes) outside the State of Delaware at such place or
places as may be designated from time to time by the Board of
Directors or in the Bylaws of the corporation. Elections of
directors need not be by ballot unless the Bylaws of the
corporation shall so provide.
12. The corporation reserves the right to amend, alter,
change or repeal any provision contained in this Restated
Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
13. Except as prohibited by the Delaware General
Corporation Law, no director of the corporation shall be
personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty by such director as
a director. No amendment to or repeal of this Article 13 shall
apply to or have any effect on the liability or alleged liability
of any director of the corporation for or with respect to any
acts or omissions of such director occurring prior to such
amendment or repeal. This Article 13 shall not be amended,
altered, modified or repealed except upon the affirmative vote of
80% of the outstanding shares of capital stock of the corporation
entitled to notice of and vote at any meeting of stockholders;
provided, however, that the foregoing provision regarding
stockholder approval of any amendment to or alteration,
modification or repeal of this Article 13 shall not apply to any
amendment, alteration, modification or repeal which has been
approved by the affirmative vote of 80% of the entire Board of
Directors.
This Restated Certificate of Incorporation was duly adopted by
the Board of Directors in accordance with Section 245 of the General
Corporation Law of the State of Delaware.
-7-
IN WITNESS WHEREOF, said GUARDSMAN PRODUCTS, INC. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
Charles E. Bennett, its President, and Jeffrey M. Suerth, its Secretary,
this 1st day of August, 1995.
Attest: GUARDSMAN PRODUCTS, INC.
\S\ JEFFREY M. SUERTH By \S\ CHARLES E. BENNETT
Jeffrey M. Suerth Charles E. Bennett
Secretary President
(CORPORATE
SEAL)
STATE OF MICHIGAN )
: ss.
COUNTY OF KENT )
On this 1st day of August, 1995, personally came before me, a
Notary Public in and for the County and State aforesaid, Charles E.
Bennett and Jeffrey M. Suerth, President and Secretary of Guardsman
Products, Inc., a Delaware corporation, known to me personally to be such,
and they duly executed the foregoing certificate before me and
acknowledged the said certificate to be their act and deed and the act and
deed of said corporation, the facts stated therein to be true, and the
seal affixed to said certificate to be the common or corporate seal of
said corporation. The signatures of the said President and Secretary of
said corporation to the foregoing certificate are in the handwriting of
said President and Secretary of said corporation respectively.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of
office the day and year aforesaid.
(NOTARY)
SEAL) \S\ LOIS BERGY
Notary Public, Kent County, Michigan
My commission expires: 4-20-97
-8-
EXHIBIT 10-A
FIRST AMENDMENT TO AGREEMENT
THIS IS AN AMENDMENT TO THE CONSULTING AGREEMENT dated as of
January 1, 1994, between GUARDSMAN PRODUCTS, INC. ("Guardsman"), and
PAUL K. GASTON ("Mr. Gaston"). This First Amendment is effective
November 9, 1994, and amends the aforementioned Agreement in the following
particulars:
(A) For 1995 the annual consulting fee ($170,000) shall be
allocated between cash and deferred compensation in the same amounts as
provided in Sections 3.1 and 3.2 for 1994.
(B) Paragraph 3. is amended by the addition of a new sub-
paragraph 3.4 as follows:
"3.4 AUTOMOBILE EXPENSES. In addition
to the consulting fee, Mr. Gaston shall
receive reimbursement for the lease expenses
of one automobile of his choice."
(C) Sub-paragraph 4.3 is amended to read as follows:
"4.3 TERMINATION BY MR. GASTON OR
GUARDSMAN BV NOTICE. While it is the general
understanding of the Parties that service
hereunder will continue for a period three
(3) to five (5) years from the date hereof,
either Mr. Gaston or Guardsman may terminate
this Agreement by providing sixty (60) days'
written notice to the other. Termination of
this Agreement by Guardsman under this
Section 4.3 may be at will, with or without
cause. Upon termination under this Section
4.3 by Guardsman, Guardsman shall pay Mr.
Gaston all earned and unpaid cash and
deferred compensation in accordance with
Section 3 and a lump sum severance equal to
one year's consulting fee ($170,000).
Guardsman shall also continue reimbursement
to Mr. Gaston for his automobile lease
expenses for one year following such
termination. All rights of Mr. Gaston to
receive any further compensation or benefits
from Guardsman under this Agreement shall
thereupon terminate."
IN WITNESS WHEREOF, the parties have executed this First Amendment
to Agreement as of November 9, 1994.
GUARDSMAN PRODUCTS, INC.
By \S\ CHARLES E. BENNETT
Charles E. Bennett
President and Chief Executive
Officer
"Guardsman"
And by \S\ PAUL K. GASTON
Paul K. Gaston
"Mr. Gaston"
-2-
EXHIBIT 10-B
SECOND AMENDMENT TO CONSULTING AGREEMENT
THIS IS AN AMENDMENT TO THE CONSULTING AGREEMENT dated as of
January 1, 1994, between GUARDSMAN PRODUCTS, INC. ("Guardsman") and PAUL
K. GASTON ("Mr. Gaston"). This Second Amendment is effective August 10,
1995, and amends the aforementioned Agreement in the following
particulars:
(A) PARAGRAPH 2 OF THE AGREEMENT IS AMENDED TO READ AS FOLLOWS:
2. TERM OF AGREEMENT. This Agreement shall continue in
effect through December 31, 1998.
(B) PARAGRAPH 3 IS AMENDED TO ADD A SENTENCE, TO READ AS
FOLLOWS:
Provided, however, that all allocations of cash and deferred
compensation after a "Change in Control" (as that term is defined
in Guardsman's Long Term Incentive Plan of 1995), shall be in the
same amount as last determined before the Change in Control.
(C) PARAGRAPH 3.2.2 IS AMENDED TO ADD THE FOLLOWING TEXT:
Provided, however, that Guardsman shall maintain the "Trust
Under Consulting Agreement for Paul K. Gaston" dated July 31,
1995 (the "Trust"), and shall make periodic deposits into the
Trust (i.e. accruals of deferred compensation and the rate of
return amounts), in accordance with the terms of the Trust.
(D) PARAGRAPH 4.3 IS AMENDED TO READ AS FOLLOWS:
4.3 TERMINATION BY MR. GASTON OR GUARDSMAN BY NOTICE.
Either Mr. Gaston or Guardsman may terminate this Agreement
(subject to performance of its obligations under this paragraph
4.3) by providing sixty (60) days' written notice to the other.
Termination of this Agreement by Guardsman under this Section 4.3
may be at will, with or without cause. Upon termination under
this Section 4.3 by Guardsman, or in the event of any other
termination not authorized by Section 4.1, 4.2, or 4.4:
1. Within 7 days after the termination, Guardsman shall:
(a) Compute an amount equal to the sum of: (i) the
remaining cash compensation portion of the consulting fees that
would have been payable to Mr. Gaston from January 1 of the year
following that in which the termination occurs through December
31, 1998; and (ii) the sum of the monthly deferred compensation
installments accrued through the month of the termination, plus,
for each such installment, the 7% monthly compounded rate of
return factor in paragraph 3.2.2 from the date of accrual to a
date 5 years after such accrual; and (iii) the sum of the monthly
deferred compensation installments that would have accrued from
the month after the termination through December 31, 1998, plus,
for each such installment, the 7% monthly compounded rate of
return factor in paragraph 3.2.2 from the date such installment
would have accrued to a date 5 years thereafter. In addition,
Guardsman shall make subsequent monthly payments (by deposit to
the Trust as described in (b) below) of any additional amounts
accruing under paragraph 3.2.2 of the Agreement because the
United States 30-year Treasury Bond rate exceeds 7%.
(b) Deposit the sum of the amounts computed in
subparagraphs 1(a)(i), (ii) and (iii) (to the extent not already
deposited) in the Trust.
2. Guardsman shall pay to Mr. Gaston:
(a) Any unpaid cash compensation portion of the consulting
fee for the month of termination, payable immediately.
(b) An amount equal to the remaining unpaid cash
compensation portion of the consulting fee which would have been
paid for the year in which the termination occurs, but for such
termination, payable in one lump sum within fifteen (15) days
after the termination.
(c) $90,000 per year, with each $90,000 installment payable
in one lump sum on or before January 15 of each year after the
year in which the termination occurs, until the remaining amount
computed under subparagraph 1(a) above (reduced by the payments
under this subparagraph 2(c)), is less than $90,000; and then a
final payment equal to such remaining amount on the next January
15.
(d) His continuing automobile lease expenses under
paragraph 3.4, through December 31, 1998.
3. Guardsman hereby irrevocably directs the Trustee of the
Trust to make the payments to Mr. Gaston called for under such
subparagraph 2(c), from the Trust, and Guardsman shall confirm
such direction in writing upon request by the Trustee. Guardsman
shall not be excused from its obligations under subparagraph
2(c), however, except to the extent of payments actually made to
Mr. Gaston by the Trust, nor shall Guardsman be excused from such
obligation if it is asserted that any payment made to Mr. Gaston
by the Trustee was improperly made.
-2-
4. Upon the completion of all payments to Mr. Gaston as
provided in this paragraph 4.3, all remaining Trust fund earnings
in the Trust may be returned to the Company.
(E) A NEW PARAGRAPH 4.5 IS ADDED TO THE AGREEMENT, TO READ AS
FOLLOWS:
4.5 TERMINATION BY MR. GASTON FOR GOOD REASON. Mr. Gaston
may terminate this Agreement and the engagement by Guardsman for
Good Reason if Guardsman purports to require him to perform
duties of a nature inconsistent with his duties prior to August
1995, or if Guardsman purports to require him to locate or be
available at any particular place (but this does not prohibit
Guardsman from requesting reasonable travel of Mr. Gaston
consistent in frequency with his business travel for Guardsman
prior to the date to August 1995), or if Guardsman materially
breaches this Agreement (provided that Mr. Gaston has given
notice of the breach and that Guardsman has failed to promptly
cure it).
A termination for Good Reason by Mr. Gaston shall be deemed
a termination by Guardsman under paragraph 4.3, and shall require
Guardsman to make payments and take actions as set forth in
subparagraphs 4.3(1) through (4).
(F) A NEW PARAGRAPH 7.3 IS ADDED TO THE AGREEMENT, TO READ AS
FOLLOWS:
7.3 NON-COMPETITION. During the term of this Agreement,
and for three (3) years following its expiration or termination,
Mr. Gaston shall refrain from owning, engaging in, or providing
services to, any business competitive with Guardsman, provided
that Guardsman fulfills its obligation under this Agreement. The
term "providing services" shall not include legal services
provided as a non-employee attorney, but shall include any other
services provided as an officer, director, employee, consultant,
or contractor. The term "owning" shall not include ownership of
up to five percent (5%) of a class of publicly traded securities,
but shall include any other direct or indirect ownership
interest. The term "business competitive with the Guardsman"
shall mean a business which offers a service or product which
competes in any market with any service or product offered by
Guardsman on the date this Agreement expires of terminates.
(G) A NEW PARAGRAPH 20 IS ADDED TO THE AGREEMENT TO READ AS
FOLLOWS:
20. EXCISE TAX - AFTER TAX REIMBURSEMENT. Notwithstanding
any other provision of this Agreement, if Mr. Gaston is required
-3-
to pay any excise tax under <section> 4999 of the Internal
Revenue Code, or any successor provision, by reason of his
receipt of any payments or benefits from Guardsman (including,
but not limited to, any payments under this Agreement, any
payments made to Mr. Gaston as a Director or former Director of
Guardsman, and any amounts attributable to the grant, exercise or
vesting of stock options granted by Guardsman), then the Company
will make an additional payment or payments to Mr. Gaston
sufficient to reimburse Mr. Gaston, after all federal, state and
local income or excise taxes, for the amount of excise tax under
<section> 4999, and any interest or penalties incurred with
regard to such excise tax. Such payment will be made to Mr.
Gaston using the principles and procedures in "Appendix A" to
this Amendment.
(H) A NEW PARAGRAPH 21 IS ADDED TO THE AGREEMENT TO READ AS
FOLLOWS:
21. DISPUTE RESOLUTION. In the event of any dispute
involving the interpretation or application of this Agreement,
the parties stipulate and agree that jurisdiction and venue shall
lie in the state or federal courts in the state of Delaware in
preference to any other court in which jurisdiction or venue
might otherwise lie.
(I) A NEW PARAGRAPH 22 IS ADDED TO THE AGREEMENT TO READ AS
FOLLOWS:
22. INDEMNIFICATION. Guardsman shall indemnify Mr. Gaston
against, and pay, any liability or expense, including without
limitation attorney fees, incurred by Mr. Gaston in enforcing his
rights under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Second
Amendment to Agreement as of August 10, 1995.
GUARDSMAN PRODUCTS, INC.
By:\S\ CHARLES E. BENNETT
"Guardsman"
And by \S\ PAUL K. GASTON
Paul K. Gaston
"Mr. Gaston"
-4-
APPENDIX A TO SECOND AMENDMENT
TO CONSULTING AGREEMENT
CERTAIN ADDITIONAL PAYMENTS BY GUARDSMAN
(a) If any payment or distribution by the Company or its affiliated
companies to or for the benefit of Mr. Gaston (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments
required under this Appendix A (a "Payment")) would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code, or any
successor Code provision, or any interest or penalties are incurred by Mr.
Gaston with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as
the "Excise Tax"), then Mr. Gaston shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by Mr. Gaston of all taxes (including any interest or penalties
imposed with respect to such taxes) including, without limitation, any
income and employment taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax, imposed upon the Gross-Up Payment, Mr.
Gaston retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Appendix A, all determinations
required to be made under this Appendix A, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by the public accounting firm that is retained by the Company as of
the date immediately prior to the Change in Control (the "Accounting
Firm") which shall provide detailed supporting calculations both to the
Company and Mr. Gaston within fifteen (15) business days of the receipt of
notice from Mr. Gaston that there has been a Payment, or such earlier time
as is requested by the Company (collectively, the "Determination"). In
the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity, or group affecting the Change in Control, Mr.
Gaston shall appoint another nationally recognized public accounting firm
to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Appendix A, shall be paid
by the Company to Mr. Gaston within five (5) days of the receipt of the
Determination. If the Accounting Firm determines that no Excise Taxes are
payable by Mr. Gaston, it shall furnish Mr. Gaston with a written opinion
that failure to report the Excise Tax on Mr. Gaston's applicable federal
income tax return would not result in the imposition of a negligence or
similar penalty. The Determination by the Accounting Firm shall be
binding upon the Company and Mr. Gaston. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the
A-1
Determination, it is possible that Gross-Up Payments which will not have
been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to subparagraph (c)
below and Mr. Gaston thereafter is required to make payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Mr. Gaston.
(c) Mr. Gaston shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall
be given as soon as practicable but no later than ten (10) business days
after Mr. Gaston is informed in writing of such claim and shall apprise
the Company of the nature of such claim and the date on which such claim
is requested to be paid. Mr. Gaston shall not pay such claim prior to the
expiration of the 30-day period following the date on which Mr. Gaston
gives such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Company notifies Mr. Gaston in writing prior to the expiration of such
period that it desires to contest such claim, Mr. Gaston shall:
(1) give the Company any information reasonably requested by the
Company relating to such claim,
(2) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order effectively to
contest such claim, and
(4) permit the Company to participate in any proceeding relating to
such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify
and hold Mr. Gaston harmless, on an after-tax basis, for any Excise Tax or
income or employment tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs
and expenses. Without limitation on the foregoing provisions of this
Appendix A, the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and
all administrative appeals, proceedings, hearings, and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct Mr. Gaston to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Mr. Gaston agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
A-2
courts, as the Company shall determine; provided further, that if the
Company directs Mr. Gaston to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to Mr. Gaston on an
interest-free basis and shall indemnify and hold Mr. Gaston harmless, on
an after-tax basis, from any Excise Tax or income or employment tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect
to such advance; and provided further, that any extension of the statute
of limitations relating to payment of taxes for the taxable year of Mr.
Gaston with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Mr. Gaston shall be
entitled to settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by Mr. Gaston of an amount advanced by the
Company pursuant to this Appendix A, Mr. Gaston becomes entitled to
receive, and receives, any refund with respect to such claim, Mr. Gaston
shall (subject to the Company's complying with the requirements of
Section 9.2) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Mr. Gaston of an amount
advanced by the Company pursuant to Appendix A, a determination is made
that Mr. Gaston shall not be entitled to any refund with respect to such
claim and the Company does not notify Mr. Gaston in writing of its intent
to contest such denial of refund prior to the expiration of thirty (30)
days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
A-3
EXHIBIT 11
<TABLE>
GUARDSMAN PRODUCTS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE INCOME
<CAPTION>
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Weighted average shares outstanding 9,530 8,470 9,503 8,124
Increase in dilutive incremental
shares issuable upon exercise
of common stock as computed
by maximum dilutive methods 153 33 113 37
Common shares assuming full dilution 9,683 8,503 9,616 8,161
Net income $ 1,354 $ 1,682 $ 5,403 $ 4,678
Fully diluted net income per share $ .14 $ .20 $ .56 $ .57
</TABLE>
NOTE: The income per share calculations noted above differ from the
calculations used in determining income per share reported in the
condensed consolidated financial statements, which were based on weighted
average shares outstanding. These differences result from the inclusion
of outstanding stock options and other shares using maximum dilutive
methods in the above calculations, which were excluded from the
calculation of income per share reported in the condensed consolidated
financial statements because they were not materially dilutive (i.e., less
than 3%).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE THIRD QUARTER 1995 FORM 10-Q OF GUARDSMAN PRODUCTS, INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 7,076
<SECURITIES> 0
<RECEIVABLES> 37,278
<ALLOWANCES> 609
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0
0
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</TABLE>
