SCHEDULE 14A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 |_| Definitive Proxy
Statement |_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Hosposable Products, Inc.
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Item 22(a)(2)
of Schedule 14A.
|_| $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
-Class A Preferred Stock of 3290441 Canada Inc.
-Class B Preferred Stock of 3290441 Canada Inc.
-Class E Preferred Stock of 3290441 Canada Inc.
(2) Aggregate number of securities to which transaction applies
(in U.S dollars assuming an exchange rate of 1.35 Canadian
dollars for every U.S. dollar):
-$3,157,586 aggregate principal amount of a Note that will be
converted into Class A Preferred Stock of 3290441 Canada Inc.
(subject to adjustment, if any).
-3,800,000 shares of Class B Preferred Stock of 3290441 Canada
Inc.
-1,000,000 shares of Class E Preferred Stock of 3290441 Canada
Inc.
(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):
The following underlying value of the transaction is in United States
dollars, assumes an exchange rate of 1.35 Canadian dollars for every one (1)
United States dollar and is based on $4.75 as the average of the high and low
prices of the common stock of Hosposable Products, Inc. on November 11, 1996 on
the Nasdaq National Market: The underlying value of the transaction is
$3,703,704 in cash, $3,157,586 in the form of a note (that will be converted
into Class A Preferred Stock of 3290441 Canada Inc. on a dollar for dollar
basis), $2,814,815 aggregate liquidation preference of Class B Preferred Stock
and $4,750,000 aggregate liquidation preference of Class E Preferred Stock
(based on the average of the high and low prices of the common stock of
Hosposable Products, Inc. on the Nasdaq National Market).
<PAGE>
(4) Proposed maximum aggregate value of transaction: $14,426,105
(5) Total fee paid: $2,886
|_| 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.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
-2-
<PAGE>
PRELIMINARY COPY -- November 14, 1996
CONFIDENTIAL: FOR USE OF THE COMMISSION ONLY
HOSPOSABLE PRODUCTS, INC.
Proxy Statement for Special Meeting of Shareholders
To Be Held December __, 1996
----------------------
This Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Directors (the "Board") of Hosposable
Products, Inc., a New York corporation ("HPI"), from holders of record as of the
close of business on November __, 1996 (the "Record Date") of outstanding shares
of common stock, par value $.01 per share, of HPI ("HPI Common Stock") for use
at a Special Meeting of Shareholders (the "Special Meeting") to be held on
December __, 1996 at the time and place and for the purposes specified in the
accompanying notice and at any adjournments or postponements of the Special
Meeting.
As of November 12, 1996, HPI, 3290441 Canada Inc., a wholly owned and
newly formed Canadian subsidiary of HPI ("HPI Sub"), and G.H. Wood + Wyant Inc.
("Wyant") entered into an Asset Purchase Agreement (the "Purchase Agreement")
pursuant to which HPI Sub agreed to purchase the business and all operating
assets (collectively, the "Acquired Business") and assume the operating
liabilities of Wyant for (w) Cdn$5,000,000 (the "Cash Consideration"), (x) a
promissory note in the principal amount of Cdn$4,262,741, subject to adjustment,
if any, pursuant to the terms of the Purchase Agreement (the "Note"), which Note
will be exchanged for shares of Class A Preferred Stock of HPI Sub immediately
after such adjustment, having a liquidation preference of Cdn$1.00 per share (on
the basis of one share of Class A Preferred Stock of HPI Sub for each Cdn$1.00
of unpaid principal amount of the Note), which shares will have a dividend rate
of 4% per annum and will be mandatorily redeemable pursuant to the terms thereof
(the "Class A Preferred Stock"), (y) 3,800,000 shares of Class B Preferred Stock
of HPI Sub having an aggregate liquidation preference of Cdn$3,800,000, which
shares will have a dividend rate of 3.999999% per annum and will be mandatorily
redeemable pursuant to the terms thereof (the "Class B Preferred Stock"), and
(z) 1,000,000 shares of Class E Preferred Stock of HPI Sub having an aggregate
liquidation preference per share of one share of HPI Common Stock, which shares
will be exchangeable for 1,000,000 shares of HPI Common Stock pursuant to the
terms thereof and will be entitled to dividends equivalent, on a per share
basis, to any dividends paid on the HPI Common Stock (the "Class E Preferred
Stock") (collectively, the "Acquisition"). The total fair value of the foregoing
consideration to be paid in the Acquisition is estimated by the Special
Committee (as defined herein) to be approximately Cdn$18,701,000 (or
US$13,853,000, based on an exchange rate of US$1.00 to Cdn$1.35). The amount of
the Note included in such consideration is based on the assumption that Wyant's
earnings for the period from January 1, 1996 to the Closing Date (as defined
herein) will equal Cdn$2,700,000 (without taking into account a deferred tax
liability that Wyant expects to record in 1996 in the amount of approximately
Cdn$1,000,000). In the event that such earnings are greater or less than
Cdn$2,700,000, then the amount of the Note issued at the closing of the
Acquisition (the "Closing') will be increased or decreased by a corresponding
amount. The liabilities of Wyant to be assumed by HPI Sub in the Acquisition
will include bank term debt in an amount estimated to be approximately
Cdn$5,126,000 (or approximately US$3,797,000). On November 6, 1996, the Board
approved the form of Purchase Agreement.
<PAGE>
In addition, on November 6, 1996 the Board approved the HPI 1997 Stock
Incentive Plan (the "Stock Incentive Plan" or the "Plan") that will permit HPI
to grant compensatory stock options, restricted stock and other stock-related
awards to directors, employees and consultants of HPI, subject to the terms of
the Plan.
Lastly, on November 6, 1996 the Board approved an amendment to HPI's
Certificate of Incorporation that will (i) change the name of HPI to Wyant
Corporation and (ii) increase the number of authorized shares of HPI Common
Stock from 3,000,000 shares to 6,000,000 shares (the "Charter Proposal").
The purpose of the Special Meeting is to consider and vote on (i) the
Purchase Agreement necessary to consummate the Acquisition and the related
transactions provided for in the Purchase Agreement (the "Transactions"), (ii)
the Stock Incentive Plan and (iii) the Charter Proposal.
Shareholder approval of the Transactions is being solicited in
accordance with the rules of the National Association of Securities Dealers,
Inc. (the "NASD") applicable to certain transactions involving issuers whose
shares are traded on the Nasdaq National Market ("Nasdaq") and their affiliates.
Pursuant to such rules, shareholder approval is required in connection with the
acquisition of the stock or assets of another company when, in connection
therewith, the acquiring company issues common stock, or securities convertible
into or exercisable for common stock, and the voting power of such shares is
equal to or in excess of 20% of the voting power or the number of shares of
common stock outstanding before the issuance of such securities. The Class E
Preferred Stock to be issued to Wyant in connection with the Transactions, if
exchanged for HPI Common Stock, would represent approximately 59.1% of the
outstanding HPI Common Stock prior to such issuance.
This Proxy Statement, the enclosed Notice of Special Meeting of
Shareholders, the enclosed letter to shareholders from HPI, and the enclosed
proxy card are first being mailed to HPI shareholders on or about November __,
1996.
-2-
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF PROXY STATEMENT................................................ 1
HPI.............................................................. 1
Wyant............................................................ 1
The Special Meeting.............................................. 2
Purpose of the Special Meeting................................... 2
Votes Required................................................... 2
Change of Vote................................................... 3
Report of the Special Committee.................................. 3
Opinion of the Special Committee's Financial Advisor............. 3
Recommendation of the Board...................................... 3
The Acquisition.................................................. 4
Acquisition Consideration............................... 4
The Note and the Class A Preferred Stock................ 4
Class B Preferred Stock................................. 4
Class E Preferred Stock................................. 4
Representations and Warranties.......................... 4
Covenants............................................... 4
Conditions.............................................. 5
Closing of the Acquisition.............................. 5
Indemnification......................................... 5
Covenant Agreement...................................... 6
Termination............................................. 6
Expenses................................................ 6
Regulatory Requirements and Approvals................... 6
Accounting Treatment............................................. 7
U.S. Federal Income Tax Consequences............................. 7
The Stock Incentive Plan..........................................7
The Charter Proposal............................................. 7
Comparative Market Price and Dividend Information................ 8
Summary Financial Data of HPI.................................... 9
Summary Financial Data of Wyant..................................10
Summary Unaudited Pro Forma Condensed Combined Financial
Information.................................................... 12
Comparative Pro Forma Historical and Unaudited
Per Share Data................................................. 13
THE SPECIAL MEETING...................................................... 14
General..........................................................14
Record Date......................................................14
Votes Required; Effect of Abstentions and Non-Votes..............14
Voting and Revocation of Proxies.................................15
Adjournment of the Special Meeting...............................15
Solicitation of Proxies..........................................16
<PAGE>
DESCRIPTION OF THE TRANSACTIONS...........................................17
Effects of the Acquisition.......................................17
Background of and Reasons for the Transactions...................17
Background..............................................17
Special Committee of the Board..........................17
Reasons for the Transactions............................19
Opinion of the Special Committee's Financial Advisor.............20
Houlihan, Lokey, Howard & Zukin.........................20
Selected Company Analysis...............................21
Historical Stock Trading Analysis.......................23
Selected Acquisition Precedent Analysis.................23
Combination Benefits....................................23
Fees and Expenses.......................................24
Terms of the Acquisition.........................................24
Description of the Note ............................... 24
Description of the Class A Preferred Stock and the
Class B Preferred Stock................................ 24
General....................................... 24
Voting Rights................................. 25
Dividends..................................... 25
Liquidation................................... 25
Mandatory Redemption.......................... 25
Optional Tender............................... 26
Description of the Class E Preferred Stock............. 26
General....................................... 26
Voting Rights................................. 26
Dividends..................................... 26
Liquidation................................... 26
Exchange Rights............................... 27
Registration Rights Agreement.......................... 27
Covenant Agreement......................................27
Effect on HPI Shareholders..............................27
Representations and Warranties..........................28
Covenants...............................................28
Conditions..............................................29
Conduct of Business Prior to the Closing Date...........29
Indemnification.........................................30
Termination.............................................32
Expenses................................................33
Waiver and Amendment....................................33
Regulatory Requirements and Approvals...................33
Accounting Treatment....................................33
U.S. Federal Income Tax Consequences....................33
Interest of Certain Persons in Matters to be Acted Upon.34
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION..............35
PRO FORMA CONDENSED COMBINED BALANCE SHEET................................36
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS.....................37
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION.................................................... 41
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND HPI MANAGEMENT....................................................... 43
EXECUTIVE COMPENSATION................................................... 46
Summary Compensation Table...................................... 46
Report of Compensation Committee................................ 48
Compensation Committee.......................................... 48
Executive Contracts and Compensation Program.................... 48
Additional Employment Agreements................................ 49
Performance Graph............................................... 49
Compensation Committee Interlocks and Insider Participation..... 50
Compensation of Directors....................................... 50
PROPOSED ADOPTION OF THE HPI 1997 STOCK INCENTIVE PLAN................... 51
Plan Administration............................................. 51
Securities to be Offered........................................ 51
Individuals Who May Participate in the Plan..................... 52
Awards.......................................................... 52
Options for Non-Employee Directors..................... 52
Options for Other Participants ........................ 52
Stock Appreciation Rights.............................. 53
Restricted Stock....................................... 53
Performance Shares..................................... 53
Performance Units...................................... 54
Share Withholding............................................... 54
Term of Plan.................................................... 54
Federal Income Tax Consequences Relating to Options............. 54
New Plan Benefits............................................... 55
PROPOSED AMENDMENT TO THE HPI CERTIFICATE OF INCORPORATION............... 57
INFORMATION CONCERNING HPI............................................... 58
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF HPI................... 59
INFORMATION CONCERNING WYANT............................................. 60
General......................................................... 60
Strategy and Marketing.......................................... 61
Services and Operations......................................... 61
Customers....................................................... 61
Technology...................................................... 61
Competition..................................................... 62
Supply of Raw Materials......................................... 62
Employees....................................................... 62
Governmental Regulation......................................... 63
Properties...................................................... 63
Legal Proceedings............................................... 63
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF WYANT..................64
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF WYANT.................66
ACCOUNTANT MATTERS........................................................70
SHAREHOLDER PROPOSALS.....................................................70
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.........................71
FINANCIAL STATEMENTS......................................................F-1
<PAGE>
SUMMARY OF PROXY STATEMENT
The following summary is not intended to be complete and is qualified
in its entirety by reference to the more detailed information included in this
Proxy Statement and the Appendices hereto, including, but not limited to, the
Purchase Agreement and the Stock Incentive Plan included as Appendices A and B
hereto, respectively. Shareholders are urged to read carefully this Proxy
Statement and the Appendices hereto. The information included in this Proxy
Statement with respect to Wyant and its affiliates has been supplied by Wyant
and the information included in this Proxy Statement with respect to HPI, HPI
Sub and their respective affiliates, including the Incorporated Documents (as
defined herein), has been supplied by HPI. Capitalized terms that are used but
not defined in this Proxy Statement are defined in the Purchase Agreement or the
Stock Incentive Plan, as the context indicates.
HPI
HPI, a New York corporation, and its wholly owned subsidiaries,
Bridgewater Manufacturing Corp., a New Jersey corporation, and IFC Disposables,
Inc., a Tennessee corporation, manufacture disposable medical products, wiping
products and nonwoven roll goods. The disposable medical products are produced
by various converting equipment. Some products utilize substrate, which is
manufactured using in-house "airlaid" processing technology and equipment. The
disposable medical products include bedpads incorporating unique designs for
incontinent patients. Wiping products include disposable airlaid nonwoven
patient washcloths and general wiping products in addition to the use of other
nonwoven materials that are purchased and converted in-house.
The majority of the sales of HPI's branded products are to distributors
for eventual use by hospitals, nursing homes and other health care institutions
and to government agencies. The bedpads are HPI's principal products. Their
end-use is for protection against mattress-soiling caused primarily by
incontinence. A portion of HPI's revenues is derived through the sale of
finished products as private label brands for major customers. HPI's airlaid
fabrics (Airlay(R)) are used as components of end-products manufactured by HPI
and also are sold in roll good form to converters that produce a wide range of
health care, consumer and industrial products. In 1995, HPI had sales of
approximately US$40.5 million and currently employs 333 people.
HPI's principal executive offices are located at 100 Readington Road,
Somerville, New Jersey 08876 and its telephone number is (908) 707-1800. See
"INFORMATION CONCERNING HPI."
Wyant
Wyant, a Canadian federal corporation, manufactures and distributes a
broad range of industrial and institutional janitorial products, principally for
the maintenance of washrooms, including paper hand towels, bathroom tissue,
related sanitary paper products, janitorial chemicals, caretaking supplies and
food service and health care products. Wyant is Canada's leading national
manufacturer and distributor of sanitary paper products, janitorial chemicals
and equipment, and sanitation supplies to institutional markets in Canada. Wyant
operates a paper converting plant and a chemical blending facility in Ontario,
Canada and services approximately 20,000 customers through a direct sales
organization supported by customer service centers located across Canada. In
1995, Wyant had sales of approximately US$52.2 million and currently employs 375
people.
<PAGE>
Wyant's principal executive offices are located at 1475, 32nd Avenue,
Lachine, Quebec H8T 3J1 and its telephone number is (514) 636-9926. See
"INFORMATION CONCERNING WYANT."
The Special Meeting
The Special Meeting to consider and vote on the Transactions, the Stock
Incentive Plan and the Charter Proposal will be held on December __, 1996 at
10:00 a.m. (EST) at the offices of HPI, 100 Readington Road, Somerville, New
Jersey. Only the holders of record of HPI Common Stock on the Record Date will
be entitled to receive notice of and to vote at the Special Meeting. On the
Record Date there were 1,692,476 shares of HPI Common Stock outstanding, with
each share being entitled to one vote on each matter considered at the Special
Meeting. See "THE SPECIAL MEETING."
Purpose of the Special Meeting
The purpose of the Special Meeting is for the shareholders of HPI to
consider and vote upon proposals to approve the Transactions, to approve and
adopt the Stock Incentive Plan, to approve and adopt the Charter Proposal and to
transact such other business as may properly come before the meeting. See
"DESCRIPTION OF THE TRANSACTIONS", "PROPOSED ADOPTION OF THE HPI 1997 STOCK
INCENTIVE PLAN" and "PROPOSED AMENDMENT TO THE HPI CERTIFICATE OF
INCORPORATION."
Votes Required
Approval of the Transactions by the HPI shareholders requires the
approval of a majority of the total votes cast in person or by proxy at the
Special Meeting. Approval of the Stock Incentive Plan and the Charter Proposal
requires approval of a majority of the outstanding shares of HPI Common Stock
entitled to vote.
Shareholder approval of the Transactions is being solicited in
accordance with the rules of the NASD applicable to certain transactions
involving issuers whose shares are traded on Nasdaq and their affiliates.
Pursuant to such rules, shareholder approval is required in connection with the
acquisition of the stock or assets of another company when, in connection
therewith, the acquiring company issues common stock, or securities convertible
into or exercisable for common stock, and the voting power of such shares is
equal to or in excess of 20% of the voting power of the number of shares of
common stock outstanding before the issuance of such securities. The Class E
Preferred Stock to be issued to Wyant in connection with the Transactions, if
exchanged for HPI Common Stock, would represent approximately 59.1% of the
outstanding HPI Common Stock prior to such issuance.
Each of the directors of HPI holding shares of HPI Common Stock, who
collectively own 3,100 shares of HPI Common Stock, intends to vote in favor of
the Transactions, the Stock Incentive Plan and the Charter Proposal. Such shares
represent less than 1% of the outstanding shares of HPI Common Stock. Wyant,
which owns approximately 55.4% of the outstanding shares of HPI Common Stock,
has undertaken to vote in favor of the Transactions. If Wyant so votes in favor
of the Transactions, then a sufficient number of shares will have been cast in
favor of the Transactions, the Stock Incentive Plan and the Charter Proposal for
each to have been approved. See "THE SPECIAL MEETING -- Votes Required; Effect
of Abstentions and Non-Votes" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND HPI MANAGEMENT."
-2-
<PAGE>
Change of Vote
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before the proxy is voted by (i) filing with the
Secretary of HPI, at or before the Special Meeting, a written notice of
revocation bearing a date later than the date of the proxy, (ii) duly executing
a subsequent proxy relating to the same shares and delivering it to the
Secretary of HPI at or before the Special Meeting or (iii) attending the Special
Meeting and voting in person (although attendance at the Special Meeting will
not in and of itself constitute a revocation of a proxy). See "THE SPECIAL
MEETING -- Voting and Revocation of Proxies."
Report of the Special Committee
The Board has created a special committee consisting of disinterested
directors to consider the Transactions (the "Special Committee"). The Special
Committee has concluded that the Transactions are fair to, and in the best
interests of, the HPI shareholders in their capacity as such and has so reported
this conclusion to the Board. The members of the Special Committee are Ms. Jane
M. Curtis, Mr. Nicholas A. Gallopo and Mr. Joseph H. Weinkam, Jr. See
"DESCRIPTION OF THE TRANSACTIONS --Background of and Reasons for the
Transactions - Special Committee of the Board." Pursuant to the Stock Incentive
Plan, the members of the Special Committee were awarded Options (as defined
herein) as further discussed under "PROPOSED ADOPTION OF THE HPI 1997 STOCK
INCENTIVE PLAN -- New Plan Benefits." The adoption of the Stock Incentive Plan,
and hence the award of such Options, is contingent upon the approval of the Plan
by the shareholders of HPI and the completion of the Transactions.
Opinion of the Special Committee's Financial Advisor
On November 6, 1996, Houlihan, Lokey, Howard & Zukin, Inc., independent
financial advisor to the Special Committee ("Houlihan Lokey"), delivered its
written opinion to the Board that the Transactions are fair, from a financial
point of view, to the shareholders of HPI, in their capacity as such. Houlihan
Lokey subsequently provided to the Board an updated fairness opinion dated
November 12, 1996 to the same effect, based on the final version of the Purchase
Agreement and the exhibits thereto. As a condition to the Closing, Houlihan
Lokey will confirm its fairness opinion as of a date not more than five business
days prior to the Closing Date. A copy of the fairness opinion dated November
12, 1996 is included as Appendix C hereto and should be read carefully by HPI
shareholders in its entirety with respect to the assumptions made, other matters
considered and the limitations of the review undertaken in arriving at such
opinion. See "DESCRIPTION OF THE TRANSACTIONS -- Opinion of the Special
Committee's Financial Advisor."
Recommendation of the Board
The Board has approved the Transactions, the Stock Incentive Plan and
the Charter Proposal and has adopted resolutions recommending that the
shareholders of HPI vote FOR approval and adoption of the Transactions, the
Stock Incentive Plan and the Charter Proposal.
The Board believes that the Transactions are fair to, and in the best
interests of, HPI and its shareholders. In reaching its decision to approve the
Transactions, the Board considered a number of factors, including, but not
limited to, the financial terms of the Transactions, financial information
concerning Wyant, the report of the Special Committee to the effect that the
-3-
<PAGE>
Transactions are fair to, and in the best interests of, the shareholders of HPI,
in their capacity as such, the competitive environment in the institutional
sanitation business and Houlihan Lokey's fairness opinion. For a further
description of the factors considered by the Board and the reasons for its
approval of the Transactions, see "DESCRIPTION OF THE TRANSACTIONS -- Background
of and Reasons for the Transactions."
The Acquisition
Acquisition Consideration. In consideration for the Acquired Business,
HPI Sub will assume the operating liabilities of Wyant. In addition, HPI Sub
will pay and deliver to Wyant (i) the Cash Consideration, (ii) the Note, (iii)
3,800,000 shares of Class B Preferred Stock and (iv) 1,000,000 shares of Class E
Preferred Stock (collectively, the "Acquisition Consideration"). The Acquisition
Consideration is estimated by the Special Committee to be approximately
Cdn$18,701,000 (or US$13,853,000 based on an exchange rate of US$1.00 to
Cdn$1.35). The amount of the Note included in the Acquisition Consideration is
based on the assumption that Wyant's earnings for the period from January 1,
1996 to the Closing Date will equal Cdn$2,700,000 (without taking into account a
deferred tax liability that Wyant expects to record in 1996 in the amount of
approximately Cdn$1,000,000). In the event that such earnings are greater or
less than Cdn$2,700,000, then the amount of the Note issued at the Closing will
be increased or decreased by a corresponding amount. The liabilities of Wyant to
be assumed by HPI Sub in the Acquisition will include bank term debt in an
amount estimated to be approximately Cdn$5,126,000 (or approximately
US$3,797,000).
The Note and the Class A Preferred Stock. At the Closing, HPI Sub will
issue to Wyant the Note in the principal amount of Cdn$4,262,741, subject to the
Adjustment (as defined herein), if any, pursuant to the terms of the Purchase
Agreement and having the terms and conditions set forth in the Purchase
Agreement. Immediately following the Adjustment, the Note will be exchanged for
shares of Class A Preferred Stock (on the basis of one share of Class A
Preferred Stock for each Cdn$1.00 of unpaid principal amount of the Note),
having the rights, privileges, restrictions and conditions set forth in the
Articles of Incorporation, as amended, of HPI Sub (the "HPI Sub Articles"). See
"DESCRIPTION OF THE TRANSACTIONS -- Terms of the Acquisition -- Description of
the Note" and " -- Description of the Class A Preferred Stock and Class B
Preferred Stock."
Class B Preferred Stock. At the Closing, HPI Sub will issue to Wyant
3,800,000 shares of Class B Preferred Stock having the rights, privileges,
restrictions and conditions set forth in the HPI Sub Articles. See "DESCRIPTION
OF THE TRANSACTIONS -- Terms of the Acquisition -- Description of the Class A
Preferred Stock and Class B Preferred Stock."
Class E Preferred Stock. At the Closing, HPI Sub will issue to Wyant
1,000,000 shares of Class E Preferred Stock having the rights, privileges,
restrictions and conditions set forth in the HPI Sub Articles. See "DESCRIPTION
OF THE TRANSACTIONS -- Terms of the Acquisition -- Description of the Class E
Preferred Stock."
Representations and Warranties. The Purchase Agreement contains
customary representations and warranties of Wyant, HPI and HPI Sub. See
"DESCRIPTION OF THE TRANSACTIONS -- Terms of the Acquisition -- Representations
and Warranties."
Covenants. The Purchase Agreement contains customary covenants of
Wyant, HPI and HPI Sub and negative covenants of Wyant relating to the Note, its
capital stock and its business after the Closing. See "DESCRIPTION OF THE
TRANSACTIONS -- Terms of the Acquisition -- Covenants."
-4-
<PAGE>
Conditions. The obligations of HPI, HPI Sub and Wyant to effect the
Acquisition are subject to customary conditions, including, among other things,
the receipt of an updated fairness opinion of Houlihan Lokey, the availability
of financing and the absence of any material adverse change in the business,
financial condition, assets, liabilities (contingent or otherwise) or results of
operations of the Acquired Business. See "DESCRIPTION OF THE TRANSACTIONS --
Terms of the Acquisition --Conditions."
Closing of the Acquisition. The Closing of the Acquisition will occur
upon (a) the execution and delivery by Wyant of (i) the Bill of Sale relating to
the Acquired Business, (ii) assignments with respect to each of the contracts
and other agreements and rights to be assigned to HPI Sub under the Purchase
Agreement and, where required for such assignment, the consent or waiver of any
third party, (iii) a deed in proper form for recordation and sufficient to vest
in HPI Sub good and valid title to the Fee Property free and clear of all
Encumbrances except for Permitted Encumbrances, (iv) assignments sufficient to
convey the Intellectual Property free and clear of all Encumbrances except for
Permitted Liens, (v) assignments sufficient to assign the Real Property Leases,
with the consent to assignment of the other party to the Real Property Leases,
free and clear of all Encumbrances other than Permitted Encumbrances and (vi)
unless the Acquired Subsidiary is merged with Wyant, which is expected prior to
the Closing Date, certificates evidencing all of the issued and outstanding
capital stock of the Acquired Subsidiary, accompanied by stock powers duly
executed in blank (collectively, the "Transfer Instruments") and (b) the
delivery by HPI Sub of the Acquisition Consideration. The Closing may occur at
such later time as may be specified in the Purchase Agreement. It is currently
anticipated that the Transfer Instruments and the Acquisition Consideration will
be delivered, and the Acquisition will be effective, promptly following the
Special Meeting. See "DESCRIPTION OF THE TRANSACTIONS -- Effects of the
Acquisition."
Indemnification. Subject to certain conditions and limitations, Wyant
has agreed to indemnify each of HPI and HPI Sub against losses arising out of
(i) any breach of any representation and warranty of Wyant contained in the
Purchase Agreement, (ii) any failure to perform or otherwise fulfill any
undertaking or other agreement or obligation of Wyant contained in the Purchase
Agreement, (iii) any liability not specifically assumed by HPI Sub pursuant to
the undertaking of HPI Sub set forth in the Purchase Agreement, (iv) information
and financial forecasts provided by or on behalf of Wyant to Houlihan Lokey
being incorrect in any material respect or not having been prepared in good
faith and on a reasonable basis only to the extent such information and
financial forecasts relate to Wyant, (v) claims of any HPI shareholder that the
information provided by or on behalf of Wyant for inclusion in this Proxy
Statement contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements herein, in the light of
the circumstances under which they were made, not misleading only to the extent
such information relates to Wyant and (vi) any and all actions, suits,
proceedings, claims or demands, incident to any of the foregoing or such
indemnification.
Subject to certain conditions and limitations, each of HPI and HPI Sub,
jointly and severally, has agreed to indemnify Wyant against losses arising out
of (i) any breach of any representation and warranty of HPI or HPI Sub contained
in the Purchase Agreement, (ii) any failure to perform or otherwise fulfill any
undertaking or other agreement or obligation of HPI or HPI Sub contained in the
Purchase Agreement, (iii) with respect to HPI Sub, any liability of Wyant
specifically assumed by HPI Sub pursuant to the undertaking of HPI Sub set forth
in the Purchase Agreement and with respect to HPI, any Disclosed Liability and
(iv) any and all actions, suits, proceedings, claims or demands incident to any
of the foregoing or such indemnification.
-5-
<PAGE>
With certain exceptions, the aggregate amount of Buyer Losses
recoverable pursuant to the indemnification provisions of the Purchase Agreement
shall be limited to the aggregate amount of Acquisition Consideration (after
giving effect to the Adjustment) as determined in accordance with the Purchase
Agreement. Pursuant to the Purchase Agreement, Wyant shall satisfy its
indemnification obligations under the Purchase Agreement by surrender of the
shares of Class A Preferred Stock, Class B Preferred Stock, Class E Preferred
Stock, the Underlying Shares, if any, HPI Common Stock and other assets, in each
case held by Wyant and in this order only. It is anticipated that Wyant will not
have more than approximately Cdn$12,040,000 in assets at any time after the
Closing available to satisfy its indemnification obligations under the Purchase
Agreement. See "DESCRIPTION OF THE TRANSACTIONS -- Terms of the Acquisition --
Indemnification."
Pursuant to a guaranty agreement among James A. Wyant, HPI and HPI Sub
to be entered into at Closing (the "Guaranty Agreement"), James A. Wyant will
guarantee the indemnification obligations of Wyant set forth above to the
extent, and only to the extent, (i) Wyant fails to satisfy its obligations under
the Purchase Agreement and (ii) of the excess of the aggregate amount of any
distributions made by Wyant to James A. Wyant over an amount equal to Cdn$35,000
for each successive twelve month period that has elapsed from the Closing Date
to the date as of which the maximum liability of James A. Wyant is determined
under the Guaranty Agreement; provided, however, that the obligations of James
A. Wyant under the Guaranty Agreement will be subject to the limitations on the
indemnification obligations of Wyant set forth in the Purchase Agreement. See
"DESCRIPTION OF THE TRANSACTIONS -- Terms of the Acquisition --
Indemnification."
Covenant Agreement. Pursuant to a covenant agreement among HPI, HPI Sub
and Wyant to be entered into at Closing (the "Covenant Agreement"), HPI will
agree to ensure that HPI Sub is able and has the financial resources to (i) pay
dividends on the Redeemable Preferred Stock (as defined herein) and the Class E
Preferred Stock, (ii) pay the Redemption Price (as defined herein) on the
Redeemable Preferred Stock, (iii) effect the exchange contemplated by the terms
of the Class E Preferred Stock and (iv) pay the liquidation entitlement in
respect of the Redeemable Preferred Stock and the Class E Preferred Stock. In
the event HPI Sub does not have the financial resources to pay any of such
amounts or effect such exchange, the Covenant Agreement provides that HPI may
pay such amounts and effect such exchange directly either at the election of HPI
or the holders of the Class E Preferred Stock. See "DESCRIPTION OF THE
TRANSACTIONS - Terms of the Acquisition - Covenant Agreement."
Termination. The Purchase Agreement provides that it may be terminated
at any time prior to the Closing, whether before or after approval of the
Transactions by the shareholders of HPI: (i) by mutual written consent of Wyant
and HPI Sub, (ii) by Wyant or HPI Sub if there has been a material breach on the
part of the other party of any of such other party's representations, warranties
or obligations set forth in the Purchase Agreement that has not been cured on or
prior to the Closing and (iii) by either Wyant or HPI Sub if the Acquisition has
not occurred on or prior to January 31, 1997. See "DESCRIPTION OF THE
TRANSACTIONS -- Terms of the Acquisition -- Termination."
Expenses. All costs and expenses of Wyant will be paid by Wyant, and
all costs and expenses incurred by HPI or HPI Sub, as the case may be, in
connection with the Purchase Agreement will be paid by HPI or HPI Sub, as the
case may be. See "DESCRIPTION OF THE TRANSACTIONS -- Terms of the Acquisition --
Expenses."
Regulatory Requirements and Approvals. Apart from the approval of the
HPI shareholders, which is being solicited by this Proxy Statement, there are no
Canadian federal or provincial nor any United States federal or state regulatory
-6-
<PAGE>
requirements that must be complied with or approvals that must be obtained in
connection with the Transactions. See "DESCRIPTION OF THE TRANSACTIONS --Terms
of the Acquisition -- Regulatory Requirements and Approvals."
Accounting Treatment
The Transactions will be accounted for in a manner similar to a
pooling-of-interests for financial reporting purposes in accordance with
accounting principles generally accepted in the United States ("U.S. GAAP").
Accordingly, upon consummation of the Transactions, the assets and liabilities
of Wyant will be included in the consolidated balance sheet of HPI and its
subsidiaries in the amounts that were included in the books of Wyant immediately
prior to the Transactions, subject to adjustments, if any, required to conform
the accounting policies of Wyant to U.S. GAAP and such other adjustments as may
be necessary to comply with pooling-of-interests rules and regulations. In
addition, any difference between the value of the consideration given and the
book value of the net assets acquired will be recorded as a deemed dividend. For
a more detailed description of the accounting treatment of the Transactions, see
"DESCRIPTION OF THE TRANSACTIONS -- Accounting Treatment."
Representatives of HPI's independent public accountants, Arthur
Andersen LLP, are expected to be present at the Special Meeting. They will have
an opportunity to make a statement if they desire to do so and will be available
to respond to appropriate questions from shareholders. See "ACCOUNTANT MATTERS."
U.S. Federal Income Tax Consequences
Under current law, assuming that the Transactions will take place as
described in the Purchase Agreement, no gain or loss will be recognized by HPI
in the Acquisition. For U.S. federal income tax purposes, there is a step-up in
the tax basis of the underlying assets, up to the non-equity portion of the
Acquisition Consideration. No such step-up in the tax basis applies for Canadian
federal and provincial income tax purposes.
The Stock Incentive Plan
The Stock Incentive Plan will allow HPI to grant incentives to
directors, key employees and consultants in the form of options, stock
appreciation rights, restricted stock and other performance awards. Non-employee
directors of HPI would only be eligible to receive specified stock option
awards, the amount, timing and other terms of which are fixed under the Plan.
With respect to incentives to key employees and consultants, HPI would have
discretion to select the individuals to receive awards and to determine the
type, amount, timing and other terms of such awards. An aggregate of 300,000
shares of HPI Common Stock would be available for awards under the Plan. The
Plan is intended to provide performance incentives that align the efforts of
management and other key personnel with the interests of HPI shareholders. See
"PROPOSED ADOPTION OF THE HPI 1997 STOCK INCENTIVE PLAN."
The Charter Proposal
In connection with the Acquisition, the Board of Directors intends to
change the corporate name of HPI to Wyant Corporation.
-7-
<PAGE>
Of the 3,000,000 currently authorized shares of HPI Common Stock, as of
November 12, 1996, 1,692,476 shares of HPI Common Stock were outstanding, and
249,000 shares of HPI Common Stock were required to be reserved for issuance
relating to outstanding options. The Charter Proposal would increase the number
of authorized shares of HPI Common Stock from 3,000,000 to 6,000,000. The Board
believes that additional shares of HPI Common Stock should be available for
issuance by the Board for future issuance as share dividends, as restricted
stock awards, upon exercise of stock options and exchange rights (including
shares of Class E Preferred Stock to be issued in connection with the
Transactions), for cash, for acquisitions of property or stock of other
corporations and for other purposes as occasion may arise. See "PROPOSED
AMENDMENT TO THE HPI CERTIFICATE OF INCORPORATION."
Comparative Market Price and Dividend Information
HPI Common Stock is traded on Nasdaq under the symbol "HOSP." There is
no established trading market for the Wyant common stock. HPI Common Stock began
trading on Nasdaq on February 7, 1984. Except for cash dividends paid by Wyant
in the amounts of Cdn$120,000 and Cdn$100,000 in 1975 and 1976, respectively,
neither HPI nor Wyant has paid a cash dividend on its respective common stock,
and, except as contemplated by the Purchase Agreement, neither anticipates
paying dividends in the foreseeable future.
On November 11, 1996, the last full trading day prior to the public
announcement of the proposed Transactions, the high and low sale prices per
share of HPI Common Stock as reported on Nasdaq were $4.75 and $4.75,
respectively.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: the statements that are not historical facts contained in this Proxy
Statement are forward looking statements that involve risks and uncertainties,
including, but not limited to, risks associated with HPI's future growth and
profitability, the ability of HPI to successfully integrate the business and
personnel of Wyant into HPI's operations and the effects of competitive and
general economic conditions.
-8-
<PAGE>
Summary Financial Data of HPI
The summary financial data set forth below is derived from the
historical financial statements of HPI. The financial statements for each of the
fiscal years in the three-year period ended December 31, 1995 have been audited
by Arthur Andersen LLP, HPI's independent public accountants. The summary
financial information for the nine months ended September 30, 1996 and 1995 is
derived from the unaudited financial statements which, in the opinion of HPI
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial condition and
the results of operations. Operating results for the nine-month periods ended
September 30, 1996 and 1995 are not necessarily indicative of the results for a
full year. This information should be read in conjunction with HPI's
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes thereto
incorporated herein by reference. All dollar amounts expressed below are in
United States dollars. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31 September 30,
-------------------------------------- -------------------
1993 1994 1995 1995 1996
----------- ------------ ------------ ------------ --------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Sales .......................... $ 29,909,296 $ 34,515,494 $ 40,480,738 $ 30,065,150 $ 31,871,537
Cost of Sales................... 22,253,329 26,534,271 33,000,141 24,375,052 26,473,449
---------- ---------- ---------- ---------- ----------
Gross Profit.................... 7,655,967 7,981,223 7,480,597 5,690,098 5,398,088
Selling, General and
Administrative............. 6,115,045 6,619,308 7,416,448 5,268,409 6,175,297
--------- --------- --------- --------- ---------
Income (loss) from Operations... 1,540,922 1,361,915 64,149 421,639 (777,209)
Other (Income) Expense:
Interest (Income).......... (211,769) (216,638) (148,571) (100,502) (118,315)
Interest Expense........... 161,893 384,638 321,655 247,898 188,852
Other (Income)............. (334,857) (455,783) (286,647) (205,294) (166,558)
Writedown of Assets<F1>... 0 0 550,000 0 0
------------ ------------ ------- ------------ -----------
Income (Loss) Before
Income Taxes............... 1,925,655 1,649,698 (372,288) 479,587 (681,188)
Income Tax (Benefit)
Provision.................. 726,177 613,348 (163,082) 180,500 (268,000)
----------- ----------- --------- ------- ---------
Net Income (Loss)............... $ 1,199,478 $ 1,036,350 $ (209,206) $ 299,087 $ (413,188)
========= ========= ========= ======= =========
Net Income (Loss) Per
Common Share............... 0.70 0.61 (0.12) 0.18 (0.24)
Dividends Declared Per
Common Share............... - - - - -
Weighted Average
Number of Shares Outstanding. 1,704,158 1,691,906 1,692,476 1,692,476 1,692,476
Balance Sheet Data
(at period end):
Working Capital................. 8,859,191 7,835,808 7,950,218 8,205,782 6,874,943
Total Assets.................... 23,023,408 21,571,753 23,531,434 22,776,251 24,250,229
Long-Term Debt.................. 6,097,659 4,637,274 4,289,805 4,400,000 5,386,641
Deferred Income Taxes........... 618,961 580,596 424,419 527,796 387,419
Total Shareholders'
Equity..................... 12,356,782 13,401,632 13,192,426 13,700,721 12,779,238
- -----------------
<FN>
<F1> During the fourth quarter of 1995, HPI recorded a charge of $550,000
($340,000 or $.20 per share after tax) for selected asset writedowns including
machinery and equipment, leasehold improvements, and leased property. The charge
resulted from management's decision to dispose of certain machinery and accrue
for under-utilized space at its IFC facility.
</FN>
</TABLE>
-9-
<PAGE>
Summary Financial Data of Wyant
The summary financial data set forth below is derived from the special
purpose consolidated financial statements of Wyant. The special purpose
consolidated financial statements for each of the fiscal years in the two-year
period ended December 31, 1994 have been audited by Deloitte & Touche, Wyant's
prior independent auditor, and the financial statements for the fiscal year
ended December 31, 1995 have been audited by Ernst & Young, Wyant's current
independent auditor. The special purpose consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in
Canada ("Canadian GAAP"), except that Wyant's investment in HPI has been
accounted for on the equity basis. Accordingly, each element of the statement of
operations represents only Wyant's operating activities, except that Wyant's
proportionate share of HPI's results is included in "share of net income (loss)
of affiliates." The summary financial information for the nine months ended
September 30, 1996 and 1995 is derived from the unaudited interim special
purpose consolidated financial statements which, in the opinion of Wyant
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial condition and
the results of operations. Operating results for the nine-month periods are not
necessarily indicative of the results for a full year. All dollar amounts
expressed below are in Canadian dollars. This information should be read in
conjunction with "INFORMATION CONCERNING WYANT -- Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the special
purpose consolidated financial statements and notes thereto contained elsewhere
herein.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31 September 30,
-------------------------------------------- --------------------
1993 1994 1995 1995 1996
--------------- ------------- ------------- ------------- --------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Sales............................... $74,736,007 $71,331,954 $71,602,554 $53,975,350 $54,174,050
Cost of Sales....................... 44,684,699 44,309,801 41,733,300 31,278,335 31,250,678
---------- ---------- ---------- ---------- ----------
Gross Profit........................ 30,051,308 27,022,153 29,869,254 22,697,015 22,923,372
Selling, General and
Administrative..................... 26,534,314 23,032,274 21,137,552 16,019,921 16,153,098
Shipping............................ 6,932,702 5,564,360 4,846,818 3,760,652 3,387,069
Depreciation and
Amortization....................... 856,576 821,021 784,854 534,987 497,193
----------- ----------- ----------- ----------- -----------
Income (Loss) from
Operations......................... (4,272,284) (2,395,502) 3,100,030 2,381,455 2,886,012
Other Income (Expense):
Interest Expense................... (1,149,454) (922,903) (1,019,147) (803,387) (509,668)
Other Income....................... 38,201 30,878 69,157 53,660 82,401
Unusual and Non-Recurring Items
<F2><F3><F4>....................... (1,852,368) (272,687) (1,594,000) - -
------------ ------------ ----------- ----------- -----------
Income (Loss) Before Income Taxes and
Share of Net Income (Loss) of
Affiliates......................... (7,235,905) (3,560,214) 556,040 1,631,728 2,458,745
Provision for (Recovery) of Income
Taxes.............................. (1,899,807) (749,368) 33,529 97,900 1,080,000
------------ ------------ ----------- ----------- -----------
Income (Loss) Before Share of Net
Income (Loss) of Affiliates........ (5,336,098) (2,810,846) 522,511 1,533,828 1,378,745
Share of Net Income (Loss)
of Affiliates...................... 758,172 657,574 (190,393) 197,360 (331,096)
------------ ------------ ----------- ----------- -----------
Net Income (Loss)................... $(4,577,926) $(2,153,272) $ 332,118 $ 1,731,188 $ 1,047,649
============ ============ =========== =========== ===========
-10-
<PAGE>
December 31 September 30,
--------------------------------------------- ---------------------
1993 1994 1995 1995 1996
---------------- ------------- ------------- ------------- --------
Balance Sheet Data:
Working Capital.................. 3,878,953 4,525,814 3,545,360 5,395,517 4,869,452
Total Assets<F5>................. 55,007,160 43,767,884 40,489,761 43,987,576 38,166,505
Long-Term Debt................... 8,851,029 6,895,090 4,292,285 5,421,258 3,553,999
Retractable Preferred Shares<F6>. 3,399,000 3,399,000 3,399,000 3,399,000 3,399,000
Deferred Income Taxes............ 683,159 -- -- -- 775,408
Total Shareholders' Equity<F6>... 18,136,816 15,983,544 16,315,662 17,714,732 17,363,311
<FN>
1. The Summary Financial Data of Wyant as of December 31, 1993, 1994 and 1995
and for each of the years in the three-year period ended December 31, 1995
have been derived from the audited special purpose consolidated financial
statements of Wyant. The summary financial data as of September 30, 1995 and
1996 and for the nine month periods ended September 30, 1995 and 1996 have
been derived from the unaudited interim special purpose consolidated
financial statements of Wyant. All of these financial statements are
expressed in Canadian dollars and have been prepared in accordance with
Canadian GAAP, except that Wyant's investment in HPI has been accounted for
on the equity basis.
<F2>During 1993, Wyant incurred $791,108 in employee severance expenses and
$1,061,260 in non-recurring transitional expenses related to the integration
of the G.H.Wood operations purchased as of December 31, 1992.
<F3>(a) On February 21, 1994, Wyant sold its investment in Industries Cascades
Inc. for a cash consideration of $10,000,000, resulting in a gain on the
sale of $2,760,424.
(b) During the fourth quarter of 1994, Wyant initiated a program to reduce
the number of its distribution centers and consolidate its paper
converting operations. The resulting restructuring charge comprised:
Employee severance pay $1,582,070
Lease abandonment 628,610
Employee relocation 256,000
Other 566,431
----------
$3,033,111
<F4>(a) On February 17, 1993, as part of an asset purchase agreement, Wyant
entered into a seven-year supply agreement to purchase a specified
minimum volume of chemical products. Included in this agreement was the
assumption of a lease and a requirement to apply a minimum monthly
handling charge over the term of the supply agreement. In addition,
Wyant issued a 5% promissory note payable to Ecolab Ltd., repayable in
monthly installments to January 17, 2000, to finance a portion of the
assets acquired.
On December 29, 1995, Wyant entered in to an agreement to commute the
obligation under the above supply agreement and the related charges and
repay the promissory note. The payment has been allocated as follows:
Supply agreement $749,707
Monthly handling charges 660,292
Lease costs 44,000
Balance to relieve all other obligations 1
----------
Expenses accrued in current liabilities 1,454,000
Promissory note repayment 846,000
----------
$2,300,000
==========
(b) As a result of the wind-up of its wholly owned subsidiary, Papiers
Grande Ville Inc., and the consolidation of the paper converting
operations, Wyant identified surplus machinery. A write-down of $272,444
was recorded in 1995 to reflect the estimated realizable value.
(c) During the year, surplus capital assets were sold resulting in a gain on
disposal of $132,444.
<F5>Wyant's investment in HPI amounting to $6,588,676 in 1993, $8,840,966 in
1994, $9,145,869 in 1995 and $8,814,027 at September 30, 1996 is included in
total assets. These assets are excluded from the sale of assets to HPI.
<F6>Following a change in accounting standards in 1996, Canadian GAAP requires
the outstanding retractable Class A Preferred Shares to be classified on the
balance sheet as a liability and to be carried at their full redemption
value. The redemption premium of $3,394,001 has been reflected as a charge
against retained earnings. The new accounting standard has been applied
retroactively.
</FN>
</TABLE>
-11-
<PAGE>
Summary Unaudited Pro Forma Condensed Combined Financial Information
The summary unaudited pro forma condensed combined financial
information as of and for each of the periods presented has been derived from
the historical financial statements of HPI and Wyant. The summary unaudited pro
forma financial information gives effect to the Transactions, accounted for in a
manner similar to a pooling-of-interests, as if they had occurred as of
September 30, 1996 for balance sheet purposes and as of January 1, 1993 for
purposes of the pro forma statements of operations. The pro forma information
gives effect to adjustments necessary to conform Wyant's historical financial
statements to U.S. GAAP and all dollar amounts expressed below are in United
States dollars. The pro forma information is presented for informational
purposes only and is not necessarily indicative of the results of operations or
financial position that would have occurred had the Transactions been
consummated as of the dates indicated nor is it necessarily indicative of future
results of operations or financial conditions. The summary unaudited pro forma
condensed combined financial information set forth below should be read in
conjunction with the unaudited pro forma condensed combined financial
information, including the notes thereto, included elsewhere in this Proxy
Statement. See "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
Nine Months
Year Ended Year Ended Year Ended Ended
December 31, December 31, December 31, September 30,
1993 1994 1995 1996
(In thousands, except per share data)
Statement of Operations Data:
<S> <C> <C> <C> <C>
Sales .................................................. $87,330 $86,120 $91,355 $69,724
Cost of Sales........................................... 56,375 58,356 62,113 47,569
------ ------ ------- -------
Gross profit............................................ 30,955 27,764 29,242 22,155
Selling, General and Administrative Expenses............ 31,301 26,594 25,702 20,041
Depreciation and Amortization........................... 783 766 659 425
Other Income............................................ (74) (196) (19) (150)
Interest Expense........................................ 1,053 1,061 1,089 636
Non-Recurring Items..................................... 1,436 62 1,849 -
------ ------ ------ -------
34,499 28,287 29,280 1,203
Income (Loss) Before Income Taxes....................... (3,544) (523) (38) 1,203
Provision for (Recovery of) Income Taxes................ (762) 127 (209) 566
-------- --------- --------- -----------
Net Income (Loss)....................................... (2,782) (650) 171 637
Dividend Requirements and Accretion of
Mandatorily Redeemable Preferred Shares.............. 315 288 261 174
--------- --------- --------- -----------
Net Income (Loss) Attributable to Common
Shares............................................... $ (3,097) $ (938) $ (90) $ 463
======== ========== =========== ===========
Income (Loss) Per Common Share.......................... $ (1.15) $ (0.35) $ (0.03) $ 0.17
Weighted Average Number of Common Shares
Outstanding.................................... 2,704,158 2,691,906 2,692,476 2,692,476
Balance Sheet Data: September 30, 1996
------------------
Working Capital 6,778
Total Assets 44,458
Long-Term Debt 8,020
Redeemable Preferred Shares 4,862
Deferred Income Taxes 961
Total Shareholders' Equity 12,910
</TABLE>
-12-
<PAGE>
Comparative Pro Forma Historical and Unaudited Per Share Data
The table below presents certain historical and pro forma per share
data for HPI giving effect to the Acquisition in a manner similar to a
pooling-of-interests. The historical data for each of the years ended December
31, 1993, 1994 and 1995 is derived from the audited historical financial
statements of HPI and the audited special purpose financial statements of Wyant.
The pro forma information gives effect to adjustments necessary to conform
Wyant's historical financial statements to U.S. GAAP and all dollar amounts
expressed are in United States dollars. The historical data for HPI and Wyant as
of September 30, 1996 and for the nine months then ended and the corresponding
pro forma amounts are unaudited. The following information should be read in
conjunction with and is qualified in its entirety by the selected historical
financial data, the unaudited pro forma condensed combined financial information
and the separate historical financial statements and accompanying notes set
forth or incorporated by reference herein. No dividend information is provided
for HPI or Wyant as no cash dividends have been declared or paid on the common
stock of either company for the periods presented.
The following information is not necessarily indicative of results of
operations or combined financial position that would have resulted had the
Transactions been consummated at the beginning of the periods indicated nor is
it necessarily indicative of the results of operations of future periods or
future combined financial position.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Nine Months Ended
December 31, 1993 December 31, 1994 December 31, 1995 September 30, 1996
----------------- ----------------- ----------------- ------------------
Net Income (Loss) per common share:
<S> <C> <C> <C> <C>
Wyant
Historical....................... Note 1 Note 1 Note 1 Note 1
Pro forma equivalent............. Note 1 Note 1 Note 1 Note 1
HPI
Historical....................... $ 0.70 $ 0.61 $(0.12) $(0.24)
Pro forma........................ $(1.15) $(0.35) $(0.03) $0.17
Book value per common share:
Wyant
Historical....................... Note 1 Note 1 Note 1 Note 1
Pro forma equivalent............. Note 1 Note 1 Note 1 Note 1
HPI
Historical....................... $7.31 $7.92 $7.79 $7.55
Pro forma........................ $3.01 $2.66 $2.63 $2.80
- -------------
(1) Wyant is a private corporation which maintains a capital structure
unlike the capital structure of public companies. Wyant has one (1)
common share outstanding and accordingly, no per common share data has
been presented for Wyant.
</TABLE>
-13-
<PAGE>
THE SPECIAL MEETING
General
This Proxy Statement is being furnished to the shareholders of HPI in
connection with the solicitation of proxies on behalf of the Board for use at
the Special Meeting to be held on December __, 1996 at the time and place
specified in the accompanying Notice of Special Meeting of Shareholders or any
adjournments or postponements thereof. The purpose of the Special Meeting is to
consider and vote upon proposals to approve and adopt the Transactions, the
Stock Incentive Plan and the Charter Proposal and to transact such other
business as may properly come before the Special Meeting or any adjournments or
postponements thereof. Dissenting shareholders in connection with any item
presented herein do not have rights of appraisal.
Each copy of this Proxy Statement mailed to holders of HPI Common Stock
is accompanied by a form of proxy card for use at the Special Meeting.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION
OF (I) THE TRANSACTIONS, INCLUDING THE PURCHASE AGREEMENT, (II) THE STOCK
INCENTIVE PLAN AND (III) THE CHARTER PROPOSAL.
Record Date
The Board has fixed the close of business on November __, 1996 as the
Record Date for the determination of the holders of HPI Common Stock entitled to
receive notice of and to vote at the Special Meeting. Only holders of record of
shares of HPI Common Stock on the Record Date will be entitled to receive notice
of and to vote at the Special Meeting. On the Record Date, 1,692,476 shares of
HPI Common Stock were outstanding and held by approximately 267 holders of
record. Each holder of HPI Common Stock is entitled to one vote per share held
of record on the Record Date.
Votes Required; Effect of Abstentions and Non-Votes
Each share of HPI Common Stock is entitled to one vote per share with
respect to the Transactions, the Stock Incentive Plan and the Charter Proposal
and on each other matter properly submitted at the Special Meeting. Approval and
adoption of the Transactions by the shareholders of HPI requires the affirmative
vote of a majority of the total votes cast at the Special Meeting, in person or
by proxy. Approval of the Stock Incentive Plan and the Charter Proposal requires
the affirmative vote of a majority of the shares of HPI Common Stock entitled to
vote at the Special Meeting.
Pursuant to HPI's Bylaws, the presence, in person or by properly
executed proxy, of the holders of a majority of the shares of HPI Common Stock
outstanding and entitled to vote is necessary to constitute a quorum at the
Special Meeting. Under the rules of Nasdaq, brokers who hold shares in street
name for customers will not have the authority to vote on the Transactions, the
Stock Incentive Plan and the Charter Proposal unless they receive specific
instructions from beneficial owners. Abstentions and broker non-votes will be
included in determining whether a quorum is present. Abstentions and broker
non-votes will have the same effect as a vote against the Stock Incentive Plan
and the Charter Proposal. Abstentions and broker non-votes will not be counted
for purposes of determining whether the Transactions have been approved.
Shareholder approval of the Transactions is being solicited in
accordance with the rules of the NASD applicable to certain transactions
involving issuers whose shares are traded on Nasdaq and their affiliates.
-14-
<PAGE>
Pursuant to such rules, shareholder approval is required in connection with the
acquisition of the stock or assets of another company when, in connection
therewith, the acquiring company issues common stock, or securities convertible
into or exercisable for common stock, and the voting power of such shares is
equal to or in excess of 20% of the voting power or the number of shares of
common stock outstanding before the issuance of such securities. The Class E
Preferred Stock to be issued in connection with the Transactions, if exchanged
for HPI Common Stock, would represent approximately 59.1% of the outstanding HPI
Common Stock prior to such issuance.
Shareholder approval of the Transactions is not required under New York
law; however, such approval is a condition to the Purchase Agreement and is
required by the NASD.
Each of the directors of HPI holding shares of HPI Common Stock, who
collectively own 3,100 shares of HPI Common Stock, intends to vote in favor of
the Transactions, the Stock Incentive Plan and the Charter Proposal. Such shares
represent less than 1% of the outstanding shares of HPI Common Stock. Wyant,
which owns approximately 55.4% of the outstanding shares of HPI Common Stock,
has undertaken to vote in favor of the Transactions. If Wyant so votes in favor
of the Transactions, then a sufficient number of shares will have been cast in
favor of the Transactions, the Stock Incentive Plan and the Charter Proposal for
each to have been approved.
Voting and Revocation of Proxies
Shareholders of record on the Record Date are entitled to cast their
votes, in person or by properly executed proxy, at the Special Meeting. All
shares of HPI Common Stock represented at the Special Meeting by properly
executed proxies received at or prior to the Special Meeting, unless properly
revoked, will be voted at the Special Meeting in accordance with the
instructions indicated on such proxies. If a proxy is signed and returned
without indicating any voting instructions, shares of HPI Common Stock
represented by the proxy will be voted FOR approval of the Transactions, the
Stock Incentive Plan and the Charter Proposal. Any proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before the proxy
is voted by (a) filing with the Secretary of HPI, at or before the Special
Meeting, a written notice of revocation bearing a date later than the date of
the proxy, (b) duly executing a subsequent proxy relating to the same shares and
delivering it to the Secretary of HPI at or before the Special Meeting or (c)
attending the Special Meeting and voting in person (although attendance at the
Special Meeting will not in and of itself constitute a revocation of a proxy).
The Board is not aware of any business to be acted upon at the Special
Meeting other than as described in this Proxy Statement. If, however, other
matters are properly brought before the Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies or their substitutes
will have discretion to vote or act thereon according to their best judgment and
applicable law unless the proxy indicates otherwise.
Adjournment of the Special Meeting
If a quorum is not present at the time the Special Meeting is convened,
or if for any other reason the Board believes that additional time should be
allowed for the solicitation of proxies or for the satisfaction of conditions to
the Transactions, the Stock Incentive Plan or the Charter Proposal, HPI may
adjourn the Special Meeting with a vote of the majority of its shareholders
present or represented at the meeting. To the extent a HPI shareholder intends
to vote against the Transactions, the Stock Incentive Plan or the Charter
Proposal, such shareholder would have no incentive to vote in favor of
discretionary adjournment by the Board, which would allow HPI to adjourn the
meeting in order to solicit additional votes in favor of the Transactions, the
Stock Incentive Plan or the Charter Proposal.
-15-
<PAGE>
The failure to return a proxy or to vote in person will have no effect
on the vote on adjournment at the discretion of the Board, except to reduce the
total number of votes counted. Brokers who hold shares in street name for
customers will not have the authority to vote unless they receive specific
instructions from beneficial owners.
Solicitation of Proxies
Proxies are being solicited by and on behalf of the Board. HPI will
bear the entire cost of the solicitation of proxies of HPI shareholders,
including printing, assembling and mailing of this Proxy Statement, the proxy
and any additional information furnished to its shareholders. In addition to
solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of HPI in person or by telephone, telegram or other means
of communication. Such directors, officers and employees will not be
specifically compensated for such services but may be reimbursed for
out-of-pocket expenses in connection with such solicitation.
-16-
<PAGE>
DESCRIPTION OF THE TRANSACTIONS
This section of the Proxy Statement describes the significant aspects
of the Transactions. To the extent that it relates to the Purchase Agreement the
following description does not purport to be complete and is qualified in its
entirety by reference to the Purchase Agreement which is included as Appendix A
to this Proxy Statement.
Effects of the Acquisition
The Closing will occur on the date of the delivery by Wyant of the
Transfer Instruments and the delivery by HPI Sub of the Acquisition
Consideration, or at such later date as may be specified in the Purchase
Agreement (the "Closing Date"). The Purchase Agreement provides that the Closing
will take place on the day on which the last of the conditions set forth in the
Purchase Agreement have been fulfilled or waived (where permissible) or at such
other time and place as Wyant and HPI Sub may otherwise agree. Assuming that the
holders of HPI Common Stock approve the Transactions, it is expected that the
Closing Date will take place promptly following the Special Meeting. On the
Closing Date, HPI, HPI Sub and Wyant will consummate the Acquisition in which
HPI Sub will purchase the Acquired Business and assume the operating liabilities
of Wyant.
Background of and Reasons for the Transactions
Background
Wyant's involvement with HPI dates to 1989 when, after careful
consideration, the Wyant family expressed a strong interest to Mr. Leonard
Schramm, then President and Chief Executive Officer of HPI, in acquiring HPI
Common Stock. Wyant's interest in HPI was based on a business strategy of
pursuing broader participation in the institutional pulp and paper business. It
was attracted to HPI because of HPI's ability to manufacture and market
value-added pulp and tissue based disposable products targeted to niche segments
of the growing health care industry. An initial purchase of HPI Common Stock by
Wyant was made in July 1990 and was followed by the purchase of Mr. Schramm's
shares of HPI Common Stock in February 1991 and eventually led to Wyant
obtaining majority control of HPI in September 1994.
Special Committee of the Board
By resolutions adopted at a meeting held on June 12, 1996, the Board
created the Special Committee, comprised of Ms. Jane M. Curtis, Mr. Nicholas A.
Gallopo and Mr. Joseph H. Weinkam, Jr., for the purpose of reviewing the
Transactions. Ms. Curtis and Mr. Gallopo are not employees of HPI or of Wyant.
Mr. Weinkam is President of HPI, having joined HPI in 1995, but otherwise has no
affiliation with Wyant or its principals. The Board appointed the Special
Committee to review the Transactions because the Transactions involve Wyant, the
majority shareholder of HPI. In the resolutions appointing the Special
Committee, the Board asked the Special Committee to review the proposed
Transactions and to report to the Board as to (i) whether the terms and
conditions of the proposed Transactions are fair to the HPI shareholders and
(ii) whether the consummation of the proposed Transactions on such terms and
conditions is in the interests of the HPI shareholders, based on the business
judgment of the Special Committee's members and taking into account such facts
and circumstances as the Special Committee deemed appropriate.
The Special Committee selected the investment banking firm of Houlihan
Lokey to act as its independent financial advisors pursuant to an agreement
described below under "--Opinion of the Special Committee's Financial Advisor."
-17-
<PAGE>
The Special Committee also retained independent U.S. legal counsel and
independent Canadian legal counsel to assist it in analyzing and negotiating the
terms of the Transactions. The Special Committee also had access to the analysis
and advice of Arthur Andersen LLP, HPI's independent public accountants, with
respect to the Transactions.
In addition to the customary due diligence procedures followed with
respect to Wyant by Houlihan Lokey in connection with the delivery of its
fairness opinion and by Arthur Andersen LLP with respect to Wyant's accounting
records and procedures, the Special Committee's Canadian legal counsel conducted
a legal due diligence investigation of Wyant. Members of the Special Committee
also had discussions with representatives of Wyant's management regarding
Wyant's business and the potential benefits of the Transactions. Further, Mr.
Weinkam conducted site visits to Wyant's converting facility in Pickering,
Ontario, its chemical blending facility and distribution center in Scarborough,
Ontario and its corporate head offices and distribution center in Lachine,
Quebec.
The Special Committee met either by teleconference or in person, with
each member present, on June 21, June 26, July 18, August 1, August 2, September
6, September 19, October 8, October 17, October 31 and November 6, 1996, and
with Ms. Curtis and Mr. Weinkam present on October 21, 1996. In connection with
its review of the Transactions, the Special Committee, with the assistance of
its independent financial and legal advisors, reviewed documentation and other
information provided by the management of HPI and Wyant, as well as successive
drafts of the Purchase Agreement and related documents. The Special Committee
also considered each of the factors considered by the Board described under
"--Reasons for the Transactions" below. Primarily through its legal advisors,
the Special Committee negotiated with representatives of Wyant as to the terms
of the Purchase Agreement and related documents. At the August 1, 1996 meeting,
the Special Committee received a preliminary presentation by Houlihan Lokey
regarding that firm's analysis of the Transactions and the matters to be
addressed in its fairness opinion. At the October 31, 1996 meeting, the Special
Committee received an updated presentation of Houlihan Lokey with respect to
such matters. At its November 6, 1996 meeting, the Special Committee reviewed a
copy of the fairness opinion of Houlihan Lokey dated the same date, as well as
then-current drafts of the Purchase Agreement and the exhibits thereto.
The Board considered the Transactions at a special meeting held on
November 6, 1996. At this meeting, the Special Committee reported to the Board
that, based on the Special Committee's review of the documents and other
information presented to it, and on the exercise of the business judgment of the
Special Committee members, and taking into account such facts and circumstances
as the Special Committee deemed appropriate, the Special Committee had concluded
that as of the date of such report (i) the terms and conditions of the
Transactions were fair to the HPI shareholders, in their capacity as such, and
(ii) the consummation of the Transactions on such terms and conditions was in
the interests of the HPI shareholders, in their capacity as such.
Following completion of the negotiations and the approval of the
Purchase Agreement by the respective Boards of Directors of HPI, HPI Sub and
Wyant on November 6, November 8 and November 8, 1996, respectively, HPI, HPI Sub
and Wyant executed and delivered the final Purchase Agreement. The final
Purchase Agreement and the exhibits thereto are substantially identical to the
drafts thereof considered by the Special Committee and the Board at their
November 6, 1996 meetings and the Boards of Directors of HPI Sub and Wyant at
their November 8, 1996 meetings.
-18-
<PAGE>
Reasons for the Transactions
The Board believes that the terms of the Transactions are fair to, and
in the best interests of, HPI and its shareholders. In reaching its decision to
approve the Transactions, the Board considered a number of factors, including,
without limitation, the following:
(i) The Board's review of the business, operations,
earnings and financial condition of Wyant on a
historical, prospective and pro forma basis;
(ii) The overall quality and scope of Wyant's business
operations;
(iii) The complementary fit of Wyant's geographical
location in Canada with HPI's in the United States,
Wyant's functions in distribution, with HPI's in
manufacturing, HPI's markets in health care with
Wyant's in hygiene, and similar technologies and
products;
(iv) The interrelationship between HPI's IFC division,
which distributes a broad range of Wyant paper
products and dispensing systems, and Wyant, which
distributes IFC wiper products to its customer base
in Canada. HPI intends to pursue marketing
opportunities for HPI's incontinent bed pads in
Canadian hospitals and nursing homes that are
important distribution channels for Wyant sanitation
products. In addition, IFC's approximately 580
distributors in 45 states may represent an
opportunity to build sales of Wyant chemicals through
sanitation channels in the United States. HPI's
expertise in Airlay(R)cellulose products that
simulate the softness of cloth with improved
absorption can be combined with complementing
elements to create new value-added products for the
health care and sanitation markets;
(v) The overall economies of scale and certain operating
efficiencies that may result from the Transactions
and may further enhance the profitability of the
combined entity;
(vi) The continued recognition of the perceived growth
opportunities in the health care products and
institutional sanitation businesses and the fact that
the Transactions allow HPI to further carry out its
business strategy that includes the acquisition of
businesses engaged in other aspects of the health
care products and institutional sanitation
businesses, permitting the development of a
vertically integrated company;
(vii) Wyant's institutional sanitation business, with
particular strength in paper products and
distribution, and HPI's institutional health care
products, including the IFC division's wiper
products, potentially offer opportunities for growth
in the years ahead;
(viii) The report of the Special Committee that the
Transactions are fair to, and in the best interests
of, the HPI shareholders, in their capacity as such;
(ix) The fairness opinion of Houlihan Lokey; and
(x) The terms of the Purchase Agreement.
-19-
<PAGE>
The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive but is believed to
include the material factors considered by the Board. Furthermore, in making the
determination to approve and recommend the Transactions, in view of the wide
variety of factors considered in connection with its evaluation of the
Transactions, the Board did not find it practical to, and did not qualify or
otherwise attempt to, assign any relative or specific weights to the foregoing
factors and individual directors may have given differing weights to different
factors.
Opinion of the Special Committee's Financial Advisor
Houlihan, Lokey, Howard & Zukin
Houlihan Lokey is a nationally recognized investment banking firm with
special expertise in, among other things, valuing businesses and securities and
rendering fairness opinions. Houlihan Lokey is continually engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, private placements of debt and equity,
corporate reorganizations, employee stock ownership plans, and for corporate and
other purposes. HPI retained Houlihan Lokey at the request and on behalf of the
Special Committee because of Houlihan Lokey's expertise in performing valuation
and fairness analyses. Houlihan Lokey does not beneficially own nor has it ever
beneficially owned any interest in HPI. At the August 1, 1996 meeting of the
Special Committee, Houlihan Lokey delivered a preliminary presentation
regarding, among other things, the value of Wyant, HPI and the combined company.
At the October 31, 1996 meeting of the Special Committee, Houlihan Lokey
delivered its final oral opinion, which it confirmed in a written opinion
addressed to the full Board on November 6, 1996, to the effect that, based upon
the matters presented to the Special Committee and the Board, the Transactions
are fair to the stockholders of HPI in their capacity as such from a financial
point of view. Houlihan Lokey subsequently provided to the Board an updated
fairness opinion dated November 12, 1996 to the same effect, based on the final
version of the Purchase Agreement and the exhibits thereto. As a condition to
the Closing, Houlihan Lokey will confirm its written fairness opinion as of a
date not more than five business days prior to the Closing Date.
The preparation of a fairness opinion is complex and is not necessarily
susceptible to partial analysis or summary description. The following is a
summary and general description of the valuation methodologies followed by
Houlihan Lokey. The summary does not purport to be a complete statement of the
analyses and procedures applied, judgments made or the conclusions reached by
Houlihan Lokey, or a complete description of its presentation. Houlihan Lokey
believes, and so advised the Special Committee and the Board, that its analysis
must be considered as a whole, and that selecting portions of its analyses and
of the factors considered by it, without considering all the analyses and
factors, could create an incomplete view of the process underlying its analyses
and opinion.
In connection with their opinion, Houlihan Lokey has, among other
things:
1. reviewed Wyant's audited financial statements for the fiscal
years ended December 31, 1993, 1994 and 1995 and the unaudited
financial statements for the nine months ended September 30,
1996, which Wyant's management has identified as being the
most current financial statements available;
2. reviewed HPI's audited financial statements for the fiscal
years ended December 31, 1993, 1994 and 1995 and the unaudited
financial statements for the nine months ended September 30,
1996, which HPI's management has identified as being the most
current financial statements available;
-20-
<PAGE>
3. reviewed copies of the following documents and agreements:
(a) the Purchase Agreement, including the exhibits
thereto;
(b) Share Conditions of Class A Preferred Stock in the
form annexed to the Purchase Agreement;
(c) Share Conditions of Class B Preferred Stock in the
form annexed to the Purchase Agreement;
(d) Share Conditions of Class E Preferred Stock in the
form annexed to the Purchase Agreement; and
(e) Covenant Agreement among HPI, HPI Sub and Wyant in
the form annexed to the Purchase Agreement;
4. met with certain members of the senior management of HPI and
Wyant to discuss the operations, financial condition, future
prospects and projected operations and performance of HPI and
Wyant, respectively;
5. reviewed projections prepared by Wyant for the fiscal years
ending December 31, 1996, 1997, 1998 and 1999;
6. reviewed a projected income statement prepared by HPI for the
fiscal year ending December 31, 1996;
7. reviewed the historical market prices and trading volume for
publicly traded shares of HPI Common Stock;
8. reviewed certain publicly available financial data for certain
companies that Houlihan Lokey deemed comparable to Wyant and
HPI;
9. reviewed certain publicly available financial data for certain
transactions that Houlihan Lokey deemed comparable to the
Transactions;
10. reviewed certain alternatives to the Transactions available to
HPI that Houlihan Lokey deemed relevant; and
11. conducted such other studies, analyses and inquiries as
Houlihan Lokey deemed appropriate.
As a starting point for the fairness analysis, Houlihan Lokey
determined an appropriate range of value for Wyant. Houlihan Lokey also
determined an appropriate range of value for HPI Common Stock to assess the
reasonableness of the consideration paid by HPI.
Selected Company Analysis
Houlihan Lokey reviewed financial, operating and stock market
information for Wyant in comparison with two groups of selected public
companies. The companies selected for comparison were: Boise Cascade Office
Products, Ecolab, Inc., Minuteman International, Inc., National Sanitary Supply
Co., United Stationers Inc. and Vallen Corp. In assessing the reasonableness of
HPI's common stock value, Houlihan Lokey reviewed financial, operating and stock
market information for HPI in comparison with a group of selected public
companies. The companies selected for comparison were: Alba- Waldensian Inc.,
Inbrand Corp., Medical Action Industries, Inc., Technol Medical Products, Inc.
and Tranzonic Cos. The purpose of these analyses was to ascertain how Wyant and
-21-
<PAGE>
HPI compared with respective peers in relation to certain financial indicators.
The multiples and ratios for each of the selected companies were based on the
most recent publicly available information and selected analysts' earnings
estimates.
With respect to the selected companies, Houlihan Lokey considered,
among other things, the summation of the current trading market value of common
equity, the redemption value of preferred equity and book value of funded debt
("Enterprise Value") as a multiple of the latest twelve months ("LTM") and
fiscal year revenues, earnings before interest, taxes, depreciation and
amortization ("EBITDA"), and earnings before interest and taxes ("EBIT"). On
this basis, Houlihan Lokey's analyses of the companies compared with Wyant
indicated Enterprise Value multiples as shown in the following table:
<TABLE>
<CAPTION>
=============================================================================================================================
<S> <C> <C> <C>
Results Period Revenues EBITDA EBIT
- -----------------------------------------------------------------------------------------------------------------------------
Latest Twelve Months 0.30x - 1.65x 5.3x - 11.4x 6.7x - 13.9x
- -----------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1995 0.29x - 1.72x 5.7x - 15.0x 7.5x - 18.2x
- -----------------------------------------------------------------------------------------------------------------------------
Estimated Fiscal Year 1996 Not Applicable 6.4x - 9.7.x 7.8x - 11.5x
=============================================================================================================================
</TABLE>
To determine an implied Enterprise Value of Wyant, based on an analyses
of the companies compared to Wyant and their resulting Enterprise Value
multiples, Houlihan Lokey chose the following Enterprise Value multiples to
apply to Wyant's capitalized earnings results as shown in the following table:
<TABLE>
<CAPTION>
=============================================================================================================================
<S> <C> <C> <C>
Results Period Revenues EBITDA EBIT
- -----------------------------------------------------------------------------------------------------------------------------
Latest Twelve Months 0.40x - 0.45x 5.5x - 6.5x 8.5x - 9.5x
- -----------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1995 0.43x - 0.48x 6.5x - 7.5x 9.5x - 10.5x
- -----------------------------------------------------------------------------------------------------------------------------
Estimated Fiscal Year 1996 0.38x - 0.43x 5.0x - 6.0x 7.0x - 8.0x
=============================================================================================================================
</TABLE>
Houlihan Lokey applied the resulting multiples to Wyant's capitalized
LTM revenues, EBITDA and EBIT for fiscal year 1995, LTM and estimated fiscal
year 1996 to determine a range of Enterprise Values.
Houlihan Lokey's analyses of the companies compared with HPI indicated
Enterprise Value multiples as shown in the following table:
<TABLE>
<CAPTION>
=============================================================================================================================
<S> <C> <C> <C>
Results Period Revenues EBITDA EBIT
- -----------------------------------------------------------------------------------------------------------------------------
Latest Twelve Months 0.40x - 2.09x 4.8x - 18.9x 6.9x - 18.8x
- -----------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1995 0.40x - 2.40x 5.9x - 22.7x 9.5x - 18.8x
- -----------------------------------------------------------------------------------------------------------------------------
Estimated Fiscal Year 1996 Not Applicable 7.7x - 9.4x 9.4x - 11.3x
=============================================================================================================================
</TABLE>
-22-
<PAGE>
Based on the HPI Common Stock price as of October 28, 1996, the implied
multiples resulting from HPI's capitalized revenues, EBITDA and EBIT for fiscal
year 1995, LTM and estimated fiscal year 1996 are shown below:
<TABLE>
<CAPTION>
=============================================================================================================================
<S> <C> <C> <C>
Results Period Revenues EBITDA EDIT
- -----------------------------------------------------------------------------------------------------------------------------
Latest Twelve Months 0.33x 30.6x *
- -----------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1995 0.34x 13.0x *
- -----------------------------------------------------------------------------------------------------------------------------
Estimated Fiscal Year 1996 0.30x 5.7x 9.4x
=============================================================================================================================
- ----------------------------
* Not meaningful.
</TABLE>
HPI's implied LTM and fiscal year 1995 EBIT multiples were not
meaningful due to operating losses incurred.
Historical Stock Trading Analysis
Houlihan Lokey reviewed the trading prices and volume for HPI and the
selected companies.
Selected Acquisition Precedent Analysis
Houlihan Lokey performed analyses of certain transactions in the
sanitation and office products industries that have occurred in the last four
years. Houlihan Lokey reviewed the cash value of the consideration paid in these
transactions as a multiple of the target company's most recent fiscal year ended
revenues, EBIT and EBITDA. The analyses indicated mean acquisition multiples of
revenues, EBIT and EBITDA of 0.71x, 23.4x and 12.2x, respectively.
Combination Benefits
In rendering its opinion, Houlihan Lokey also considered the value and
allocation of certain benefits to be obtained through the combination of HPI and
Wyant. Houlihan Lokey valued these benefits based on detailed projections of the
net cash flow impact of combining HPI and Wyant prepared by management of Wyant.
These projections were prepared solely for the purposes of Houlihan Lokey
providing its opinion and are not appraisals or representations of prices at
which businesses or securities may actually be sold.
Houlihan Lokey has not independently verified the accuracy and
completeness of the information supplied to it with respect to HPI and Wyant and
does not assume any responsibility with respect to it. Houlihan Lokey has not
made any physical inspection or independent appraisal of any of the properties
or assets of HPI or Wyant. Houlihan Lokey's opinion is necessarily based on
business, economic, market and other conditions as they exist and can be
evaluated by it at the date of its opinion. Analyses based on forecasts of
future results are not necessarily indicative of actual future results, which
may be more or less favorable than suggested by such analyses. These analyses
are based upon numerous factors and events that are beyond the control of the
parties and their respective advisors. Hence none of HPI, Wyant, Houlihan Lokey,
or any other person, assumes responsibility if future results are materially
different from those forecasted.
-23-
<PAGE>
The full text of the fairness opinion of Houlihan Lokey, dated November
12, 1996, is included as Appendix C to this Proxy Statement and sets forth the
assumptions made, matters considered and limits on the review undertaken. HPI
shareholders are advised to read the fairness opinion in its entirety. The
Houlihan Lokey opinion is directed only to the fairness, from a financial point
of view, of the Transactions and does not constitute a recommendation concerning
the Transactions. The summary of the Houlihan Lokey opinion set forth in this
Proxy Statement is qualified in its entirety by reference to the full text of
such opinion included as Appendix C to this Proxy Statement.
Fees and Expenses
Pursuant to an agreement dated July 11, 1996, Houlihan Lokey was
retained by HPI at the request and on behalf of the Special Committee to advise
and assist the Special Committee with respect to the Transactions. HPI has
agreed to pay Houlihan Lokey a fee of $65,000 plus its reasonable out-of-pocket
expenses incurred in connection with the rendering of its fairness opinion. HPI
has further agreed to indemnify Houlihan Lokey against certain liabilities and
expenses in connection with the rendering of its fairness opinion.
Terms of the Acquisition
As set forth in the Purchase Agreement, at the Closing, HPI Sub will
purchase the Acquired Business, including, without limitation, the properties,
assets and other rights referred to in the Bill of Sale, and assume the
operating liabilities of Wyant. In exchange therefor, Wyant will receive the
Acquisition Consideration. The Acquisition Consideration is based on the
December 31, 1995 financial statements of Wyant. The amount of the Acquisition
Consideration is based on the assumption that Wyant's earnings for the period
from January 1, 1996 to the Closing Date will equal Cdn$2,700,000 (without
taking into account a deferred tax liability that Wyant expects to record in
1996 in the amount of approximately Cdn$1,000,000). In the event that such
earnings are greater or less than Cdn$2,700,000, then the amount of the Note
issued at Closing will be increased or decreased by a corresponding amount
pursuant to Section 1.4(e) of the Purchase Agreement (the "Adjustment").
Description of the Note
At the Closing, HPI Sub will issue to Wyant the Note in the principal
amount of Cdn$4,262,741. The unpaid principal of the Note will bear interest at
the rate of six percent (6%) per annum, which will begin to accrue on the
Closing Date, and, unless exchanged, will be payable, together with the unpaid
principal of the Note, sixty days after the Adjustment. Following the Closing
Date, the principal amount of the Note will be increased or decreased pursuant
to the Adjustment. The principal amount of the Note, as adjusted, shall be
deemed to be the original principal amount of the Note as of the Closing Date.
Immediately following the Adjustment, the Note will be exchanged for shares of
Class A Preferred Stock on the basis of one share of Class A Preferred Stock for
each Cdn$1.00 of unpaid principal amount of the Note. See "--Description of the
Class A Preferred Stock and the Class B Preferred Stock."
Description of the Class A Preferred Stock and the Class B Preferred Stock
GENERAL
As of Closing, HPI Sub shall have the authority to issue an unlimited
number of shares of Class A Preferred Stock and Class B Preferred Stock
(collectively, the "Redeemable Preferred Stock"). Immediately following the
Adjustment, HPI Sub will issue to Wyant shares of Class A Preferred Stock
-24-
<PAGE>
in exchange for the Note as described under "--Description of the Note" and at
the Closing HPI Sub will issue to Wyant 3,800,000 shares of Class B Preferred
Stock.
VOTING RIGHTS
The holders of Redeemable Preferred Stock shall not, as such, have any
voting rights and shall not be entitled to attend shareholders' meetings,
subject to the provisions of the Canada Business Corporations Act (the "CBCA")
and the right to elect two members to the Board of Directors of HPI Sub upon a
failure of HPI Sub (or HPI pursuant to the Covenant Agreement) to pay dividends
on, or to redeem, the Redeemable Preferred Stock pursuant to the terms thereof.
DIVIDENDS
Subject to the provisions of the CBCA, each holder of Class A Preferred
Stock and Class B Preferred Stock shall be entitled to a fixed cumulative
preferential dividend in preference and priority to any payment of dividends on
any other class of shares of HPI Sub, at the rate of 4% and 3.999999%,
respectively, of the Redemption Price (as defined herein) from the date of
issuance of such shares, payable in cash on a monthly basis on the last day of
each month of HPI Sub's fiscal year.
The holders of Redeemable Preferred Stock will share equally and
ratably in the dividends declared thereon. No dividends may be declared, paid or
set apart for payment upon any other class of shares of HPI Sub until all
accrued dividends have been declared, paid or set apart for payment in respect
of the shares of Redeemable Preferred Stock. No dividends shall be declared,
paid or set apart for payment in any year on any class of shares of HPI Sub
(other than shares of Redeemable Preferred Stock) that would result in HPI Sub
having insufficient assets to redeem the shares of Redeemable Preferred Stock
scheduled for redemption in such year at the Redemption Price.
LIQUIDATION
In the event of the liquidation, dissolution or winding-up of HPI Sub,
whether voluntary or involuntary, the holders of Redeemable Preferred Stock will
be entitled to receive equally and ratably, before any distribution of any part
of the assets of HPI Sub among the holders of any other class of shares of HPI
Sub, an amount equal to the Redemption Price and will not be entitled to any
other distributions.
MANDATORY REDEMPTION
Subject to the provisions of the CBCA, HPI Sub is obligated to redeem
the Redeemable Preferred Stock at the Redemption Price in ten consecutive annual
tranches, each tranche representing such number of shares of Redeemable
Preferred Stock that is equal to ten percent (10%) of the aggregate number of
shares of Redeemable Preferred Stock outstanding immediately prior to the first
such redemption. The first tranche shall be redeemed on the third day of January
1998, and thereafter on the third day of January of each successive year until
the tenth tranche of shares of Redeemable Preferred Stock shall have been
redeemed. No shares of Class B Preferred Stock shall be redeemed until all
shares of Class A Preferred Stock have been previously redeemed or all of the
then outstanding shares of Class A Preferred Stock are included for redemption
in any such tranche. Upon redemption, shares of Redeemable Preferred Stock shall
be canceled. "Redemption Price" shall mean an amount equal to $1.00 per share
together with all dividends accrued thereon and unpaid to the applicable
redemption date.
-25-
<PAGE>
OPTIONAL TENDER
Subject to the restrictions set forth in the HPI Sub Articles, HPI Sub
shall have the option to purchase all or any part of the Class A Preferred Stock
or Class B Preferred Stock pursuant to tenders received by HPI Sub upon request
for tenders addressed to all of the holders of Class A Preferred Stock or Class
B Preferred Stock, as the case may be, or by the unanimous consent of the
holders of the Class A Preferred Stock or Class B Preferred Stock by private
contract at a price per share equal to the Redemption Price. No shares of Class
B Preferred Stock shall be purchased by HPI Sub until all shares of Class A
Preferred Stock have been previously redeemed or purchased for cancellation by
HPI Sub or all of the then outstanding shares of Class A Preferred Stock are
included in the tender.
Description of the Class E Preferred Stock
GENERAL
As of Closing, HPI Sub shall have the authority to issue an unlimited
number of shares of Class E Preferred Stock. At the Closing, HPI Sub will issue
to Wyant 1,000,000 shares of Class E Preferred Stock.
VOTING RIGHTS
Subject to applicable law, the holders of Class E Preferred Stock shall
not be entitled to receive notice of, or attend, any meetings of the
shareholders of HPI Sub and shall not have any voting rights.
DIVIDENDS
The Board of Directors of HPI Sub shall declare and HPI Sub shall pay
dividends, after payment of the dividends payable on the Redeemable Preferred
Stock, as follows: (i) if cash dividends are declared in United States currency
on the HPI Common Stock, holders of Class E Preferred Stock will be entitled to
receive an equal amount, on a per share basis, of cash, (ii) if stock dividends
are declared on HPI Common Stock in the form of HPI Common Stock, holders of
Class E Preferred Stock will be entitled to receive an equal number, on a per
share basis, of shares of Class E Preferred Stock, and (iii) if dividends in the
form of property other than United States currency or HPI Common Stock are
declared on the HPI Common Stock, holders of Class E Preferred Stock will be
entitled to receive, in such type and amount of property, the economic
equivalent, on a per share basis, of the type and amount of property declared,
which shall be the value of such property to be issued or distributed with
respect to each outstanding share of HPI Common Stock, as determined by the
Board of Directors of HPI Sub, in good faith and in its sole discretion (with
the assistance of such reputable and qualified independent financial advisors
and/or other experts as the Board of Directors of HPI Sub may require). No
dividends may be paid on any share of Class E Preferred Stock until all accrued
dividends have been paid in respect of the shares of the Redeemable Preferred
Stock.
LIQUIDATION
In the event of the liquidation, dissolution or winding-up of HPI Sub
or other distribution of assets of HPI Sub among its shareholders for the
purpose of winding-up its affairs, the holders of Class E Preferred Stock will
be entitled, subject to the CBCA and subject to certain purchase rights of HPI,
to receive from the assets of HPI Sub for each share of Class E Preferred Stock,
after distribution to the holders of Redeemable Preferred Stock of their
respective liquidation entitlements, but before any distribution of any part of
the assets of HPI Sub among the holders of any other class of stock ranking
-26-
<PAGE>
junior to holders of Class E Preferred Stock, one share of HPI Common Stock for
each share of Class E Preferred Stock plus an additional amount in cash
equivalent to the full amount of all accrued but unpaid dividends on such share
of Class E Preferred Stock. Such shares of Class E Preferred Stock will not be
entitled to any other distributions.
EXCHANGE RIGHTS
Subject to certain purchase rights of HPI, at any time and from time to
time, upon the written request of a holder of Class E Preferred Stock, HPI Sub
shall, and HPI shall cause HPI Sub to, within 30 days of receipt of such
request, exchange all or a portion of the outstanding shares of Class E
Preferred Stock registered in the name of such holder for shares of HPI Common
Stock on a share-for-share basis with each share of Class E Preferred Stock
requested to be exchanged plus any additional amount of cash equivalent to the
full amount of all accrued but unpaid dividends on such share of Class E
Preferred Stock.
Registration Rights Agreement
Pursuant to a registration rights agreement among HPI, Wyant and James
A. Wyant to be entered into at Closing (the "Registration Agreement"), HPI will
agree, among other things, to register under the Securities Act of 1933, as
amended (the "Securities Act"), shares of HPI Common Stock (including shares of
HPI Common Stock received in exchange for shares of Class E Preferred Stock)
held by Wyant or James A. Wyant (or certain permitted transferees thereof). The
Registration Agreement provides that, from and after the second anniversary date
of the Closing, each of Wyant and James A. Wyant shall have the one-time right,
exercisable by written notice to HPI, to require HPI to effect such registration
of all or part of the shares of HPI Common Stock held by them (or certain
permitted transferees thereof) and requested to be sold. In addition, if HPI at
any time proposes to register any securities under the Securities Act (subject
to certain exceptions), HPI will notify Wyant and James A. Wyant of such
registration, and shall use its best efforts to register under the Securities
Act all shares of HPI Common Stock which HPI has been so requested to register
by either Wyant or James A. Wyant (or certain permitted transferees thereof).
Covenant Agreement
Pursuant to the Covenant Agreement, HPI will agree to ensure that HPI
Sub is able and has the financial resources to (i) pay dividends on the
Redeemable Preferred Stock and the Class E Preferred Stock, (ii) to pay the
Redemption Price on the Redeemable Preferred Stock, (iii) to effect the exchange
contemplated by the terms of the Class E Preferred Stock and (iv) to pay the
liquidation entitlement in respect of the Redeemable Preferred Stock and the
Class E Preferred Stock. In the event HPI Sub does not have the financial
resources to pay any of such amounts or effect such exchange, the Covenant
Agreement provides that HPI may pay such amounts and effect such exchange
directly either at the election of HPI or the holders of the Class E Preferred
Stock. HPI will also agree in the Covenant Agreement to reserve a sufficient
amount of HPI Common Stock to effect the exchange of the Class E Preferred
Stock. In the event HPI defaults on its obligations to make payments with
respect to the Redeemable Preferred Stock, the holders thereof have the right to
require HPI to purchase the Redeemable Preferred Stock in whole at their
Redemption Price.
Effect on HPI Shareholders
The issuance of the Class A Preferred Stock, the Class B Preferred
Stock and the Class E Preferred Stock by HPI Sub to Wyant in connection with the
Transactions will not affect the relative ownership percentages of the
-27-
<PAGE>
shareholders of HPI. However, upon exercise of the exchange rights of the
holders of the Class E Preferred Stock from time to time, shareholders of HPI
will experience dilution and a reduction in their percentage ownership of the
total outstanding shares of HPI Common Stock. Immediately after the Closing, if
Wyant, as the holder of the Class E Preferred Stock, exercises its exchange
rights in full, HPI would issue 1,000,000 shares of HPI Common Stock to Wyant to
effect such exchange; as a result, Wyant would increase its percentage ownership
of the total outstanding shares of HPI Common Stock held by it from 55.4% to
72%.
Representations and Warranties
The Purchase Agreement contains various representations and warranties
of Wyant, HPI and HPI Sub. Subject to certain exceptions set forth in the
Purchase Agreement, the representations and warranties will terminate two years
after the Closing Date, except for any item as to which, within such period,
HPI, HPI Sub or Wyant (as applicable) shall have asserted as a claim pursuant to
the indemnification provisions set forth in the Purchase Agreement.
The representations and warranties of HPI and HPI Sub in the Purchase
Agreement include, among other things, representations and warranties as to: (i)
corporate organization, good standing and corporate authority to enter into the
transactions contemplated by the Purchase Agreement, (ii) capitalization, (iii)
no violation of applicable laws, instruments or agreements of HPI or HPI Sub,
(iv) authorization and issuance of the Note and the shares of Class A Preferred
Stock, Class B Preferred Stock, Class E Preferred Stock and HPI Common Stock
exchangeable for the Class E Preferred Stock, and (v) the accuracy and delivery
of filings made with the SEC since January 1, 1994.
The representations and warranties of Wyant in the Purchase Agreement
include, among other things, representations and warranties as to: (i) corporate
organization, good standing and corporate authority to enter into the
transactions contemplated by the Purchase Agreement, (ii) validity of the
Transfer Instruments, (iii) subsidiaries and equity investments, (iv) no
violation of applicable laws, instruments or agreements of Wyant, (v) the
absence of certain litigation, changes or events, (vi) the status and payment of
certain taxes, (vii) title to the Fee Property and personal property, (viii)
certain employee matters and the status of certain employee benefit plans, (ix)
the ownership of or right to use the Intellectual Property, (x) compliance with
applicable environmental laws, (xi) certain financial statements of Wyant, (xii)
availability of books and records, (xiii) investment intent of Wyant in
acquiring the shares of Class A Preferred Stock, Class B Preferred Stock and
Class E Preferred Stock, (xiv) certain matters relating to, and compliance with,
contracts and commitments, (xv) insurance, (xvi) affiliate interests in the
Acquired Business, (xvii) certain matters relating to customers and suppliers,
(xviii) claims regarding products manufactured by Wyant, (xix) the absence of
any undisclosed material adverse change, (xx) accounts receivable and inventory,
(xxi) the sufficiency of assets and (xxii) prior corporate names.
Covenants
The Purchase Agreement contains various covenants of Wyant, HPI and HPI
Sub including, among other things, covenants relating to (i) employee matters
and employee benefit plans, (ii) expenses and finder's fees, (iii) access to
information and confidentiality, (iv) press releases, (v) transitional
assistance by Wyant, (vi) transfer taxes, (vii) Canadian tax elections and
(viii) bulk sales legislation. In addition, the Purchase Agreement contains
covenants on the part of HPI and HPI Sub relating to (i) the Special Meeting,
(ii) this Proxy Statement, (iii) the Class E Preferred Stock and (iv) the
guarantee by HPI of HPI Sub's obligations under the Real Property Leases being
assigned to HPI Sub if required by the landlords thereto as a condition of such
assignment or releasing Wyant from liability thereunder.
-28-
<PAGE>
Lastly, the Purchase Agreement contains covenants on the part of Wyant
as follows: (i) Wyant will not engage in any business other than the making of
Permitted Investments for three years after the Closing Date, (ii) Wyant will
not sell or otherwise transfer the Note until it is exchanged for the Class A
Preferred Stock, (iii) within the three-year period following the Closing Date,
to the extent any Undisclosed Liabilities are discharged by HPI or HPI Sub, and
within six months of such discharge, an Event of Insolvency occurs with respect
to HPI Sub, Wyant shall reimburse HPI or HPI Sub, as the case may be, for the
amount so discharged, (iv) Wyant will not issue any preferred stock until the
Redeemable Preferred Stock is no longer outstanding, (v) until six years after
the Closing Date (a) Wyant will not declare and pay distributions with respect
to the X Shares (as defined herein) beyond distributions received by Wyant with
respect to the Excluded Shares (as defined herein), certain dividends in
connection with the corporate reorganization of Wyant and distributions of
certain portions of the Acquisition Consideration and (b) Wyant will not pay any
redemption, retraction or purchase price with respect to the X Shares beyond the
Excluded Shares or the Underlying Shares relating to the Excluded Shares and
(vi) until six years after the Closing Date, Wyant will not issue or sell any
shares of Wyant's capital stock (except for the X Shares) without providing to
HPI and HPI Sub a guaranty of the transferee thereof substantially to the same
effect as the Guaranty Agreement.
Conditions
The obligations of HPI, HPI Sub and Wyant to effect the Acquisition are
subject to the fulfillment or waiver prior to the Closing Date of the following
conditions: (i) the accuracy in all material respects of the respective
representations and warranties of HPI, HPI Sub and Wyant set forth in the
Purchase Agreement, (ii) the performance and compliance by each of HPI, HPI Sub
and Wyant with all agreements and conditions required to be performed or
complied with each of them under the Purchase Agreement prior to the Closing
Date, (iii) the absence of any injunction by any Governmental Authority that
would restrain, prevent or materially change the Transactions, (iv) the receipt
of all necessary consents and approvals of third parties, including approval by
the shareholders of HPI being solicited by this Proxy Statement, to consummate
the Transactions, (v) the receipt of an updated fairness opinion of Houlihan
Lokey dated not more than five business days prior to the Closing Date, (vi) the
receipt of legal opinions from specified legal counsel as to certain matters
relating to the Transactions, (vii) the absence of any material adverse change
in the business, financial condition, assets, liabilities (contingent or
otherwise) or results of operations of the Acquired Business or HPI, as
applicable and (viii) the availability of the necessary financing to consummate
the Acquisition and operate the Acquired Business after the Closing. The
obligations of HPI and HPI Sub to effect the Acquisition are also subject to the
fulfillment or waiver prior to the Closing Date of the following conditions: (i)
the receipt of investment letters from the shareholders of Wyant setting forth
certain representations with respect to the shares of Redeemable Preferred Stock
and Class E Preferred Stock and (ii) the receipt of the Guaranty Agreement. The
obligations of Wyant to effect the Acquisition are also subject to the receipt
of the Covenant Agreement and the Registration Agreement.
Conduct of Business Prior to the Closing Date
The Purchase Agreement provides that, during the period from the date
of the Purchase Agreement through the Closing Date, except as otherwise
contemplated by the Purchase Agreement, or permitted by written consent of HPI
or HPI Sub, Wyant will operate the Acquired Business only in the ordinary course
consistent with prior practice and will not take certain actions, including the
following: (i) mortgage or encumber any property, business or asset of the
Acquired Business, (ii) sell, transfer, lease or otherwise dispose of any of its
assets, except in the ordinary course of business and consistent with prior
practice, (iii) suffer any damage, destruction or loss that has had or could
have a Material Adverse Effect on the Acquired Business, (iv) when considered as
-29-
<PAGE>
a whole, make or commit to make any capital expenditures for the period after
December 31, 1995 in excess of Cdn$1,200,000, (v) encounter any labor union
organizing activities or employee strikes, (vi) institute litigation or other
proceeding relating to it or its property, except in the ordinary course of
business and consistent with prior practice, (vii) except as disclosed to HPI
and HPI Sub, declare or pay any dividend or other payment or distribution in
respect of its capital stock or redeem for consideration any of its capital
stock, (viii) change the certificate or articles of incorporation or by-laws of
Wyant or the Acquired Subsidiary and (ix) terminate any employee benefit fund,
plan or arrangement disclosed to HPI or HPI Sub, amend such fund, plan or
arrangement that would increase the benefits accrued by any participant
thereunder or amend such fund, plan or arrangement in any manner that would
materially increase the cost of HPI Sub of maintaining such fund, plan or
arrangement.
During such period, Wyant shall preserve the business organization of
the Acquired Business, use its best efforts to keep available to HPI Sub the
present officers and preserve the goodwill of the Acquired Business, maintain in
force the insurance policies disclosed to HPI or HPI Sub or insurance policies
providing the same or substantially similar coverage and comply in all material
respects with all laws applicable to the conduct of its business and with the
Purchase Agreement. During such period, Wyant shall also diligently pursue its
rights with respect to pending litigation matters and Intellectual Property
rights, each as set forth in the Purchase Agreement.
Indemnification
Wyant has agreed to indemnify each of HPI, HPI Sub and the other Buyer
Indemnitees against losses arising out of (i) any breach of any representation
and warranty of Wyant contained in the Purchase Agreement, (ii) any failure to
perform or otherwise fulfill any undertaking or other agreement or obligation of
Wyant contained in the Purchase Agreement, (iii) any liability of Wyant not
specifically assumed by HPI Sub pursuant to the Undertaking, (iv) any liability
for the failure of the parties to comply with the provisions of any bulk sales
legislation or similar legislation that may be applicable to the transactions
contemplated by the Purchase Agreement, (v) the invalidity of the Houlihan Lokey
fairness opinion as a result of (a) the data, material and other information
(excluding financial forecasts and projections) provided by or on behalf of
Wyant and identified by Houlihan Lokey in its fairness opinion as being relied
upon by it being incomplete or incorrect in any material respect only to the
extent such data, material and other information relates to Wyant, its
stockholders and the Acquired Subsidiary or (b) the financial forecasts and
projections provided by or on behalf of Wyant and identified by Houlihan Lokey
in its fairness opinion as being relied upon by it not having been prepared in
good faith and on a reasonable basis only to the extent such financial forecasts
and projections relate to Wyant and the Acquired Subsidiary, (vi) (a) the data,
material and other information (excluding financial forecasts and projections)
provided by or on behalf of Wyant and identified by Houlihan Lokey in its
fairness opinion as being relied upon by it being incorrect in any material
respect only to the extent such data, material and other information relates to
Wyant, its stockholders and the Acquired Subsidiary or (b) the financial
forecasts and projections provided by or on behalf of Wyant and identified by
Houlihan Lokey in its fairness opinion as being relied upon by it not having
been prepared in good faith and on a reasonable basis only to the extent such
financial forecasts and projections relate to Wyant and the Acquired Subsidiary,
but, in each case only to the extent losses are incurred by the Buyer
Indemnitees in connection with any claim of Houlihan Lokey relating thereto,
(vii) claims of any HPI shareholder that the information provided by or on
behalf of Wyant for inclusion in this Proxy Statement, at the date of
-30-
<PAGE>
mailing to HPI shareholders and at the time of the meeting of HPI shareholders
as contemplated hereby, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading only to the extent such information relates to Wyant, its
stockholders and the Acquired Subsidiary and (viii) any and all actions, suits,
proceedings, claims or demands incident to any of the foregoing or such
indemnification.
Each of HPI and HPI Sub, jointly and severally, has agreed to indemnify
Wyant and the other Seller Indemnitees against losses arising out of (a) any
breach of any representation and warranty of HPI or HPI Sub contained in the
Purchase Agreement, (b) any failure to perform or otherwise fulfill any
undertaking or other agreement or obligation of HPI or HPI Sub contained in the
Purchase Agreement, (c) with respect to HPI Sub, any liability of Wyant
specifically assumed by HPI Sub pursuant to the Undertaking and, with respect to
HPI, any Disclosed Liability and (d) any and all actions, suits, proceedings,
claims or demands incident to any of the foregoing or such indemnification.
The indemnification obligations of either Wyant or HPI and HPI Sub
under the Purchase Agreement shall be limited by the following: (i) if the
Closing shall not have occurred, recovery of the Buyer Indemnitees or Seller
Indemnitees shall be limited to actual out-of-pocket expenses and shall in no
event include any special, indirect, incidental or consequential damages, (ii)
two years after the Closing Date (or three years after the Closing Date in the
case of a claim for breach of representations and warranties relating to
environmental matters, and six years after the Closing Date in the case of a
claim for breach of representations and warranties relating to tax matters),
Wyant shall have no further obligations under the Purchase Agreement or
otherwise, except for losses with respect to which the Buyer Indemnitees have
given Wyant written notice prior to such date, (iii) two years after the Closing
Date, HPI and HPI Sub shall have no further obligations under the Purchase
Agreement or otherwise, except for losses with respect to which the Seller
Indemnitees have given HPI or HPI Sub written notice prior to such date, (iv) no
losses shall be asserted by any party with respect to any matter that is covered
by insurance to the extent proceeds of such insurance are paid, (v) certain
representations and warranties relating to environmental matters will be deemed
to be breached only to the extent that any such breaches result in Buyer Losses
in excess of Cdn$50,000 (generally in the case of violations of applicable
Environmental Laws) or Cdn$30,000 (generally in the case where there is not a
violation of applicable Environmental Laws) in the aggregate and then only to
the extent such Buyer Losses exceed Cdn$50,000 or Cdn$30,000 in the aggregate,
respectively, (vi) no claim or claims shall be asserted pursuant to the
indemnification provisions of the Purchase Agreement, unless the amount of such
losses equals at least Cdn$350,000 in the aggregate and then only to the extent
such losses exceed Cdn$350,000 in the aggregate, (vii) the aggregate amount of
Buyer Losses recoverable pursuant to the indemnification provisions of the
Purchase Agreement shall be limited to the aggregate amount of Acquisition
Consideration (after giving effect to the Adjustment) as determined in
accordance with the Purchase Agreement (except with respect to claims under
clauses (v), (vi) and (vii) in the first paragraph in this "--Indemnification"
section), and (vii) notwithstanding anything to the contrary contained in the
Purchase Agreement, HPI or HPI Sub shall not be entitled to indemnification by
Wyant for any losses to the extent that HPI or HPI Sub receives at or after the
Closing Date an adjustment to the Acquisition Consideration for such losses
pursuant to the Purchase Agreement. It is anticipated that Wyant will not have
more than approximately Cdn$12,040,000 in assets at any time after the Closing
available to satisfy its indemnification obligations under the Purchase
Agreement.
In addition to the foregoing limitations, HPI or HPI Sub shall not have
any recourse against the Excluded Shares or the Class A Excluded Shares for
purposes of satisfying any claims, including indemnification claims, under the
Purchase Agreement. For purposes of the Purchase Agreement, (x) "Excluded
Shares" means (i) the 83,333 shares of Class E Preferred Stock that will be held
-31-
<PAGE>
by Wyant and upon issuance thereof, will be identified by HPI Sub on its stock
records as being attributable to the holding company of John Derek Wyant after
the Closing through the Xl shares of Wyant held by the holding company of John
Derek Wyant (the "JDW Shares") and (ii) the 83,333 shares of Class E Preferred
Stock that will be held by Wyant and upon issuance thereof, will be identified
by HPI Sub on its stock records as being attributable to the holding company of
Lynne Emond after the Closing through the X shares of Wyant held by the holding
company of Lynne Emond (the "LE Shares" and, together with the JDW Shares, the
"X Shares") and, in each case, any distributions, exchanges or other
substitutions therefor relating thereto and (y) "Class A Excluded Shares" means
the shares of Class A Preferred Stock to be distributed by Wyant to each of John
Derek Wyant's holding company and Lynne Emond's holding company after the
exchange of the Note as discussed under "--Description of the Note."
Pursuant to the terms of the Purchase Agreement, HPI, HPI Sub and Wyant
have agreed that (i) Wyant (or James A. Wyant under the Guaranty Agreement)
shall satisfy its indemnification obligations under the Purchase Agreement (or
James A. Wyant's obligations under the Guaranty Agreement) by surrender of the
certificates representing in this order, and this order only, the shares of
Class A Preferred Stock (or the Note to the extent the Note has not been
exchanged for Class A Preferred Stock as discussed under "-Description of the
Note"), Class B Preferred Stock, Class E Preferred Stock, the Underlying Shares,
if any, and HPI Common Stock in each case held by Wyant (or James A. Wyant),
which surrender shall be automatic and without any further action of Wyant (or
James A. Wyant), until such time as all such shares (or the Note, if applicable)
have been surrendered and (ii) HPI and HPI Sub will have no recourse against any
other assets of Wyant (or James A. Wyant) until the assets set forth in clause
(i) of this sentence have been exhausted in the order so set forth.
Pursuant to the Guaranty Agreement, James A. Wyant will guarantee the
indemnification obligations of Wyant set forth above to the extent, and only to
the extent, (i) Wyant fails to satisfy its obligations under the Purchase
Agreement and (ii) of the excess of the aggregate amount of any distributions
made by Wyant to James A. Wyant over an amount equal to Cdn$35,000 for each
successive twelve month period that has elapsed from the Closing Date to the
date as of which the maximum liability of James A. Wyant is determined under the
Guaranty Agreement; provided, however, that the obligations of James A. Wyant
under the Guaranty Agreement will be subject to the limitations on the
indemnification obligations of Wyant set forth in the Purchase Agreement and
above.
Lastly, under the Guaranty Agreement, until six years after the Closing
Date, James A. Wyant will agree not to sell or otherwise transfer any shares of
Wyant's capital stock, or permit Wyant to issue or sell any shares of Wyant's
capital stock for as long as Mr. Wyant continues to own a majority of the voting
stock of Wyant, to any Person other than Mr. Wyant, without providing to HPI and
HPI Sub a guaranty of the transferee thereof substantially to the same effect as
the Guaranty Agreement.
Termination
The Purchase Agreement may be terminated at any time prior to the
Closing Date, whether before or after any approval by the HPI shareholders: (a)
by mutual written consent of Wyant and HPI Sub, (b) by either Wyant or HPI Sub
if the Closing has not occurred by the close of business on January 31, 1997, or
(c) by either Wyant or HPI Sub if there has been a material breach of any
representation or warranty of the other party that has not been cured by the
Closing Date.
If the Purchase Agreement is terminated as described above, the
Purchase Agreement shall be void and of no further effect and there shall be no
further liability by reason of the Purchase Agreement or the termination thereof
on the part of any party thereto (other than for breach of a representation,
-32-
<PAGE>
warranty or obligation contained therein), or on the part of the respective
directors, officers, employees, agents or shareholders of any of them.
Expenses
The Purchase Agreement provides that each of the parties to the
Purchase Agreement will bear its own expenses in connection with the Purchase
Agreement and the transactions contemplated thereby.
Waiver and Amendment
Any failure of Wyant to comply with any of its obligations or
agreements contained in the Purchase Agreement may be waived only in writing by
HPI or HPI Sub, after the consent of a majority of the Special Committee. Any
failure of HPI or HPI Sub to comply with any of its respective obligations or
agreements contained in the Purchase Agreement may be waived only in writing by
Wyant. The Purchase Agreement may be amended at any time upon the written
agreement of the parties to the Purchase Agreement.
Regulatory Requirements and Approvals
Apart from the approval of the HPI shareholders, which is being
solicited by this Proxy Statement, there are no Canadian federal or provincial
nor United States federal or state regulatory requirements that must be complied
with or approvals that must be obtained in connection with the Transactions.
Accounting Treatment
The Transactions will be accounted for in a manner similar to a
pooling-of-interests for financial reporting purposes in accordance with U.S
GAAP. Accordingly, upon consummation of the Transactions, the assets and
liabilities of Wyant will be included in the consolidated balance sheet of HPI
and its subsidiaries in the amounts that were included on the financial
statements of Wyant immediately prior to the Transactions, subject to
adjustments, if any, required to conform the accounting policies of Wyant to
U.S. GAAP and such other adjustments as may be necessary to comply with
pooling-of-interests rules and regulations. In addition, any difference between
the value of the consideration given and the book value of the net assets
acquired will be recorded as a deemed dividend.
U.S. Federal Income Tax Consequences
Under current law, assuming that the Transactions will take place as
described in the Purchase Agreement, no gain or loss will be recognized by HPI
in the Acquisition. For U.S. federal income tax purposes, there is a step-up in
the tax basis of the underlying assets, up to the non-equity portion of the
Acquisition Consideration. No such step-up in the tax basis applies for Canadian
federal and provincial income tax purposes.
THE DISCUSSION OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE
IS INCLUDED FOR GENERAL INFORMATION ONLY. IT DOES NOT ADDRESS THE STATE AND
LOCAL TAX ASPECTS OF THE TRANSACTIONS. THE DISCUSSION IS BASED ON CURRENTLY
EXISTING PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, EXISTING
AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS
AND COURT DECISIONS.
-33-
<PAGE>
Interest of Certain Persons in Matters to be Acted Upon
In consideration for the Acquired Business, HPI Sub will assume the
operating liabilities of Wyant and will pay and deliver to Wyant the Acquisition
Consideration. The portion of the Acquisition Consideration attributable to
James A. Wyant, a director of HPI and shareholder of Wyant, will be Cdn$600,000,
762,741 shares of the Class A Preferred Stock, subject to adjustment, 3,800,000
shares of Class B Preferred Stock and 833,334 shares of Class E Preferred Stock.
The portion of the Acquisition Consideration attributable to Gerald W. Wyant, a
director of HPI and, indirectly, a shareholder of Wyant, will be Cdn$2.4
million. The portion of the Acquisition Consideration attributable to Lynne
Emond and John Derek Wyant, as siblings of James A. Wyant and, indirectly, as
shareholders of Wyant, will be 1,750,000 shares of Class A Preferred Stock each,
Cdn$1,000,000 each and 83,333 shares of Class E Preferred Stock each.
-34-
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial information as of
September 30, 1996 and for the nine month period ended September 30, 1996 and
for each of the years in the three-year period ended December 31, 1995 are set
forth on the following pages. The pro forma information has been prepared
utilizing the historical financial statements of HPI and the special purpose
financial statements of Wyant. The pro forma financial information gives pro
forma effect to the Wyant acquisition as if it had occurred on September 30,
1996 for balance sheet purposes and as of January 1, 1993 for purposes of the
pro forma statements of operations. All dollar amounts expressed below are in
United States dollars.
The Transactions will be accounted for in a manner similar to a
pooling-of-interests for financial reporting purposes in accordance with U.S.
GAAP. Accordingly, upon consummation of the Transactions, the assets and
liabilities of Wyant will be included in the consolidated balance sheet of HPI
and its subsidiaries in the amounts that were included in the financial
statements of Wyant immediately prior to the Transactions, subject to
adjustments, if any, required to conform the accounting policies of Wyant to
U.S. GAAP and such other adjustments as may be necessary to comply with
pooling-of-interests rules and regulations. The pro forma financial information
has been prepared on such basis of accounting utilizing estimates and
assumptions as set forth below and in the notes thereto. The pro forma financial
information is presented for informational purposes and is not necessarily
indicative of the future financial position or results of operations of the
combined companies, or of the financial position or the results of operations of
the combined companies that would have actually occurred had the Transactions
been consummated on such date or as of the periods described above. Certain
amounts in the historical financial statements of Wyant have been classified to
conform to the financial presentation of HPI. The unaudited pro forma condensed
combined financial information should be read in conjunction with HPI's
historical and Wyant's special purpose historical financial statements
incorporated herein by reference or appearing elsewhere in this Proxy Statement.
-35-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
September 30, 1996
(Unaudited)
(Dollars in Thousands)
Subtotal
Historical Historical Pro Forma Pro Forma Pro Forma
HPI Wyant Combined Adjustments Combined
ASSETS
Current Assets
<S> <C> <C> <C> <C> <C>
Cash and Cash Equivalents........................... $ 686 $ -- $ 686 $ (686)(1) $ --
Accounts Receivable - Net........................... 6,509 7,523 14,032 (450)(4) 13,582
Income Taxes Recoverable............................ 537 (245) 292 -- 292
Inventories......................................... 4,574 5,344 9,918 -- 9,918
Prepaid Expenses.................................... 266 425 691 691
------- ------- ------- --------- --------
Total Current Assets.................................... 12,572 13,047 25,619 (1,136) 24,483
Investments............................................. -- 6,531 6,531 (6,529)(2) 2
Property, Plant and Equipment, Net...................... 11,280 7,740 19,020 -- 19,020
Goodwill................................................ -- 451 451 -- 451
Other Assets............................................ 398 257 655 (153)(3) 502
--------- -------- -------- ---------- --------
Total Assets............................................ $24,250 $28,026 $52,276 $(7,818) $44,458
======= ======= ======= ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank Indebtedness................................... $ -- $ 1,186 $ 1,186 $ 3,018(1) $ 4,204
Accounts Payable and Accrued Expenses............... 5,347 6,703 12,050 (450)(4) 11,600
Current Portion of Long-Term Debt................... 350 1,551 1,901 -- 1,901
------ ------- ------- ---------- -------
Total Current Liabilities............................... 5,697 9,440 15,137 2,568 17,705
Long Term Debt.......................................... 5,387 2,633 8,020 -- 8,020
Redeemable Preferred Shares ........................... -- -- -- 4,862(1) 4,862
Class A Preferred Shares................................ -- 2,518 2,518 (2,518)(5) --
Deferred Income Taxes................................... 387 574 961 -- 961
------- ------- --------- ---------- --------
Total Liabilities....................................... 11,471 15,165 26,636 4,912 31,548
Stockholders' Equity
10(1)
Common Stock..................................... 17 1 18 (1)(5) 27
5,110(1)
Additional Paid-in Capital....................... 6,894 -- 6,894 (4,989)(1) 7,015
Retained Earnings................................ 5,899 12,860 18,759 (12,860)(5) 5,899
------ ------ -------- -------
12,810 12,861 25,671 (12,730) 12,941
Less: Treasury Stock Held, At Cost 31 -- 31 -- 31
--------- --------- --------- --------- ---------
Total Stockholders' Equity.............................. 12,779 12,861 25,640 (12,730) 12,910
------- ------- ------- -------- -------
Total Liabilities and Stockholders' Equity.............. $24,250 $28,026 $52,276 $(7,818) $44,458
======= ======= ======= ======== =======
See accompanying notes to unaudited pro forma condensed combined financial
information.
</TABLE>
-36-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1996
(Unaudited)
(Dollars in Thousands except per share amounts)
Subtotal U.S.
Historical Historical Pro Forma Pro Forma GAAP Pro Forma
HPI Wyant Combined Adjustments Adjs. Combined
<S> <C> <C> <C> <C> <C> <C>
Sales............................... $31,871 $39,601 $71,472 $(1,748)(6) $ -- $69,724
Cost of Sales....................... 26,473 22,844 49,317 (1,748)(6) -- 47,569
------- ------- ------- -------- -------- ------
Gross Profit........................ 5,398 16,757 22,155 -- -- 22,155
------ ------- ------- -------- -------- ------
Selling, General and
Administrative.................. 6,113 14,284 20,397 (386)(9) 30(11) 20,041
Depreciation and
Amortization.................... 62 363 425 -- -- 425
Other Income........................ (285) (60) (345) 195(7)(9) -- (150)
Interest Expense.................... 189 373 562 74(7) 636
------- ------- ------- ------ ------ -------
6,079 14,960 21,039 (117) 30 20,952
------ ------ ------ ------- ------- ------
Income (Loss)
Before Income Tax............... (681) 1,797 1,116 117 (30) 1,203
Provision for (Recovery of)
Income Taxes.................... (268) 789 521 57(8) (12)(13) 566
------- ------- ------ ------- --------- --------
Net Income (Loss)................... (413) 1,008 595 60 (18) 637
Dividend Requirements and Accretion
of Mandatorily Redeemable Preferred
Shares.......................... -- -- -- 174 -- 174
-------- -------- -------- ------------ ---------- ------------
Net Income (Loss) Attributable
to Common Shares................ $ (413) $ 1,008 $ 595 $ (114) $ (18) $ 463
========= ========= ======== ------------- ----------- ------------
Income (Loss) Per Common Share:..... $(0.24) -- -- -- -- $0.17
Weighted Average Number
of Common Shares
Outstanding..................... 1,692,476 1,000,000(10) 2,692,476
See accompanying notes to unaudited pro forma condensed combined financial
information.
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1995
(Unaudited)
(Dollars in Thousands except per share amounts)
Subtotal U.S.
Historical Historical Pro Forma Pro Forma GAAP Pro Forma
HPI Wyant Combined Adjustments Adjs. Combined
<S> <C> <C> <C> <C> <C> <C>
Sales............................... $40,481 $52,165 $92,646 $(1,291)(6) $ -- $91,355
Cost of Sales....................... 33,000 30,404 63,404 (1,291)(6) -- 62,113
------ ------ ------ -------- -------- ---------
Gross Profit........................ 7,481 21,761 29,242 -- -- 29,242
------ ------- ------- --------- -------- ---------
Selling, General and
Administrative.................. 7,329 18,930 26,259 (609)(9) 52(11) 25,702
Depreciation and
Amortization.................... 87 572 659 -- -- 659
Other Income........................ (435) (50) (485) 466(7)(9) -- (19)
Interest Expense.................... 322 742 1,064 25(7) -- 1,089
Non-Recurring Items................. 550 1,161 1,711 -- 138(12) 1,849
------ ------- ------- -------- ------- ---------
7,853 21,355 29,208 (118) 190 29,280
------ ------- ------- --------- ------- ---------
Income (Loss)
Before Income Tax............... (372) 406 34 118 (190) (38)
Provision for (Recovery of)
Income Taxes.................... (163) 24 (139) 42(8) (112)(13) (209)
------- ----- ------ -------- ----------- -----------
Net Income (Loss)................... (209) 382 173 76 (78) 171
Dividend Requirements and Accretion
of Mandatorily Redeemable Preferred
Shares.......................... -- -- -- 261 -- 261
-------- -------- -------- -------- --------- ----------
Net Income (Loss) Attributable
to Common Shares................ $ (209) $ 382 $ 173 $ (185) $ (78 ) $ (90)
========= ======== ======== ---------- ---------- ------------
Income (Loss) Per Common Share:..... $(0.12) -- -- -- -- $(0.03)
Weighted Average Number
of Common Shares
Outstanding..................... 1,692,476 1,000,000(10) 2,692,476
See accompanying notes to unaudited pro forma condensed combined financial
information.
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
(Unaudited)
(Dollars in Thousands except per share amounts)
Subtotal U.S.
Historical Historical Pro Forma Pro Forma GAAP Pro Forma
HPI Wyant Combined Adjustments Adjs. Combined
<S> <C> <C> <C> <C> <C> <C>
Sales............................... $34,515 $52,223 $86,738 $ (618)(6) $ -- $86,120
Cost of Sales....................... 26,534 32,440 58,974 (618)(6) -- 58,356
------- ------- ------- ------- ------- -------
Gross Profit........................ 7,981 19,783 27,764 -- -- 27,764
------ ------- ------- ------- -------- -------
Selling, General and
Administrative.................. 6,454 20,936 27,390 (591)(9) (205)(11) 26,594
Depreciation and
Amortization.................... 165 601 766 -- -- 766
Other Income........................ (672) (23) (695) 499(7)(9) -- (196)
Interest Expense.................... 385 676 1,061 -- -- 1,061
Non-Recurring Items................. -- 200 200 -- (138)(12) 62
-------- ------- ------- -------- ------ -------
6,332 22,390 28,722 (92) (343) 28,287
----- ------ ------ ------- ------ -------
Income (Loss)
Before Income Tax............... 1,649 (2,607) (958) 92 343 (523)
Provision for (Recovery of)
Income Taxes.................... 613 (549) 64 37(8) 26(13) 127
------- --------- -------- ------- ------- ----------
Net Income (Loss)................... 1,036 (2,058) (1,022) 55 317 (650)
Dividend Requirements and Accretion
of Mandatorily Redeemable Preferred
Shares.......................... -- -- -- 288 -- 288
-------- -------- -------- ------- -------- -----------
Net Income (Loss) Attributable
to Common Shares................ $ 1,036 $ (2,058) $ (1,022) $ (233) $ 317 $ (938)
======== ========== ========= ========= ======= ===========
Income (Loss) Per Common Share:..... $ 0.61 $ (0.35)
Weighted Average Number
of Common Shares
Outstanding..................... 1,691,906 1,000,000(10) 2,691,906
See accompanying notes to unaudited pro forma condensed combined financial
information.
</TABLE>
-39-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1993
(Unaudited)
(Dollars in Thousands except per share amounts)
Subtotal U.S.
Historical Historical Pro Forma Pro Forma GAAP Pro Forma
HPI Wyant Combined Adjustments Adjs. Combined
<S> <C> <C> <C> <C> <C> <C>
Sales............................... $29,909 $57,944 $87,853 $(523)(6) $ -- $87,330
Cost of Sales....................... 22,253 34,645 56,898 (523)(6) -- 56,375
------- ------- ------- ------- -------- -------
Gross Profit........................ 7,656 23,299 30,955 -- -- 30,955
------- ------- ------- ------- -------- -------
Selling, General and
Administrative................. 5,996 25,947 31,943 (664)(9) 22(11) 31,301
Depreciation and
Amortization................... 119 664 783 -- -- 783
Other Income........................ (547) (29) (576) 502(7)(9) -- (74)
Interest Expense.................... 162 891 1,053 -- -- 1,053
Non-Recurring Items................. -- 1,436 1,436 -- -- 1,436
-------- ------- ------- -------- ------- --------
5,730 28,909 34,639 (162) 22 34,499
----- ------ ------ -------- -------- -------
Income (Loss) Before Income Tax..... 1,926 (5,610) (3,684) 162 (22) (3,544)
Provision for (Recovery of)
Income Taxes................... 726 (1,473) (747) 65(8) (80)(13) (762)
----- -------- ------ ----- --------- ---------
Net Income (Loss)................... 1,200 (4,137) (2,937) 97 58 (2,782)
Dividend Requirements and Accretion
of Mandatorily Redeemable
Preferred Shares............... -- -- -- 315 -- 315
-------- -------- -------- ------- --------- --------
Net Income (Loss) Attributable
to Common Shares............... $1,200 $(4,137) $(2,937) $ (218) $ 58 $ (3,097)
====== ========= ======== ---------- --------- -----------
Income (Loss) Per Common Share:..... $0.70 $(1.15)
Weighted Average Number
of Common Shares
Outstanding.................... 1,704,158 1,000,000(10) 2,704,158
See accompanying notes to unaudited pro forma condensed combined financial
information.
</TABLE>
-40-
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The pro forma adjustments on the Pro Forma Condensed Combined Balance
Sheet reflect the following:
1. The Transactions result in the payment of $3,704,000
(Cdn$5,000,000) in cash, through the utilization of $686,000
available cash and incurring bank indebtedness of
$3,018,000, and the issuance of the following shares:
No. Redemption Value Fair Value
- ------------------------------------- ---------------- ------------
2,752,000 Class A Preferred Stock $2,752,000 $2,554,000
2,815,000 Class B Preferred Stock $2,815,000 $2,308,000
1,000,000 Class E Preferred Stock N/A $5,120,000
The shares of Class E Preferred Stock having a fair value of
$5,120,000 are recorded at par of $10,000 in HPI Common
Stock and $5,110,000 in Additional Paid-in Capital.
The excess of the fair value of the consideration paid of
$13,686,000 over the book value of the net assets acquired
is considered a deemed dividend for accounting purposes,
which reduces the balance of Additional Paid-in Capital by
$4,989,000.
The shares of Class A Preferred Stock and Class B Preferred
Stock are mandatorily redeemable and as such, are presented
as a liability in the accompanying balance sheet. The excess
of their redemption value over their carrying value (fair
value) at the Closing Date ($705,000) is to be accreted over
the 10 year redemption period resulting in an annual charge
against earnings available for common shareholders in
addition to the annual dividend on the Class A Preferred
Stock and Class B Preferred Stock.
2 Elimination of the Wyant investment in HPI Common Stock,
which is excluded from the Transactions.
3 Elimination of an asset of $153,000 included in "Other
Assets", which is excluded from the Transactions.
4 Elimination of receivables and payables of $450,000 relating
to transactions between HPI and Wyant.
5 Elimination of Wyant capital stock and retained earnings.
The pro forma adjustments on the Pro Forma Condensed Combined
Statements of Operations result from:
6 Elimination of sales between HPI and Wyant.
7 Reduction of interest income and provision for interest
expense on indebtedness deemed incurred by HPI as a result
of the cash payment required under the Transactions.
8 Income tax benefit resulting from note 7 above.
-41-
<PAGE>
9 Elimination of other income and a corresponding selling,
general and administrative expense to remove the effect of
payments made by Wyant to HPI relating to a marketing
agreement between the companies. Also, inclusion of a saving
of approximately $300,000 per year in Wyant due to projected
savings of administrative expenses.
10 1,000,000 shares of HPI Common Stock issuable upon the
exchange of shares of Class E Preferred Stock are considered
outstanding for earnings per share purposes.
The U.S. GAAP adjustments on the Pro Forma Condensed Combined
Statements of Operations result from the following which are more fully
described on page F-18 hereof:
11 The difference in accounting for pension benefits compared to
Canadian GAAP.
12 The timing of recognition of certain employee severance
costs.
13 The income tax effect of items 11 and 12 above.
14 The difference in accounting for deferred income taxes.
Wyant's statements of operations have been translated into United
States dollars at the following average rates of exchange for the year ended
December 31 ($1.00 United States is equal to the following Canadian dollar
amounts):
1995 $1.3726
1994 $1.3659
1993 $1.2898
For the nine months ended September 30, 1996 the average exchange rate
was $1.3680 for every United States dollar. Wyant's balance sheet has been
translated at September 30, 1996 using the exchange rate of $1.3500 for every
United States dollar.
-42-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND HPI MANAGEMENT
The following table sets forth certain information concerning shares of HPI
Common Stock held by (a) each shareholder known to management to own
beneficially more than 5% of the outstanding HPI Common Stock as of November 14,
1996, (b) each director of HPI, (c) each executive officer of HPI named in the
"Summary Compensation Table" and (d) all directors and executive officers of HPI
as a group.
<TABLE>
<CAPTION>
Name and Address of Beneficial Number of Shares
Owner Beneficially Owned(1) Percent of Class
<S> <C> <C>
G.H. Wood + Wyant Inc. 937,690<F2> 52.6%
1475 32nd Avenue
Lachine, Quebec
First Union Corporation 96,500 5.4%
1 First Union Center
Charlotte, North Carolina
Donald C. MacMartin 42,100<F3> 2.4%
(Board Chairman & CEO)
Joseph H. Weinkam, Jr. 36,000<F4> 2.0%
(President/Chief Operating Officer)
Gerald W. Wyant 0<F2> 0%
(A Director)
James A. Wyant 0<F2> 0%
(A Director)
John B. Wight 6,000<F5> 0.3%
(A Director)
Jane M. Curtis 4,000<F6> 0.2%
(A Director)
Nicholas A. Gallopo 0<F7> 0%
(A Director)
Thomas R.M. Davis 0<F8> 0%
(A Director)
John C. Zisko 5,000<F9> 0.3%
(Secretary)
All Directors and Officers as a Group 1,030,790<F10> 57.8%<F10>
(9 persons)
-43-
<PAGE>
- ---------------------------
<FN>
1 In accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended, a person is deemed to be the beneficial owner,
for the purposes of this table, of any shares of HPI if he or she
has or shares voting or investment power with respect to such
security or has the right to acquire beneficial ownership of any
shares of HPI within 60 days of the Record Date. Unless otherwise
noted, the persons as to whom the information is provided have
sole voting and investment power over the shares of HPI as
beneficially owned.
<F2> Because Gerald W. Wyant and James A. Wyant are members of HPI's
Board of Directors and stockholders of Wyant, this figure
represents Wyant's record and beneficial ownership of 937,690
shares. In anticipation of the execution of the Purchase
Agreement, James A. Wyant, John Derek Wyant, Lynne Emond and
Gerald W. Wyant entered into a Memorandum of Agreement (the "Wyant
Agreement") with Wyant dated as of May 2, 1996, whereby James A.
Wyant, John Derek Wyant, Lynne Emond and Gerald W. Wyant agreed,
subject to the Acquisition being consummated, to exchange their
existing stock in Wyant for a combination of cash, promissory
notes or preferred shares of Wyant and shares of HPI Common Stock.
In furtherance of the Wyant Agreement, Wyant, 1186020 Ontario
Limited, a wholly owned Canadian corporation of John Derek Wyant
("Derekco"), 3287858 Canada Inc., a wholly owned Canadian
corporation of Lynne Emond ("Lynneco"), and 3271706 Canada Inc., a
wholly owned Canadian corporation of Gerald W. Wyant ("Geraldco"),
entered into separate Memoranda of Agreement, each dated as of
September 3, 1996, whereby Lynneco and Derekco will each acquire
238,000 shares of HPI Common Stock held by Wyant, and Geraldco
will acquire 146,000 shares of HPI Common Stock held by Wyant,
upon the consummation of the Acquisition. In connection with the
foregoing, Wyant, James A. Wyant, John Derek Wyant, Lynne Emond,
Gerald W. Wyant, Derekco, Lynneco and Geraldco filed Amendment No.
11 to Schedule 13d on October 9, 1996 as what may constitute a
group pursuant to Rule 13d-5 under the Securities Exchange Act of
1934, as amended. Until the consummation of the Acquisition, all
of the shares of HPI Common Stock held by Wyant shall continue to
be held by Wyant and Wyant is entitled to exercise all voting
rights on such shares of HPI Common Stock. On and after the
Closing Date, pursuant to the terms of a voting trust agreement,
James A. Wyant will be entitled to exercise all voting rights on
such shares of HPI Common Stock.
<F3> Includes 40,000 shares subject to stock options granted under the
HPI 1991 Stock Option Plan.
<F4> Includes 35,000 shares subject to stock options granted under the
HPI 1991 Stock Option Plan.
<F5> Includes 6,000 shares subject to stock options granted under the
HPI 1991 Stock Option Plan.
<F6> Includes 4,000 shares subject to stock options granted under the
HPI 1991 Stock Option Plan but does not include 6,000 shares
subject to the Non-Employee Director Option granted to Ms. Curtis
on November 6, 1996 under the Stock Incentive Plan, which grant is
contingent upon shareholder approval of the Stock Incentive Plan
and completion of the Transactions.
<F7> Does not reflect 10,000 shares subject to the Non-Employee
Director Option granted to Mr. Gallopo on November 6, 1996 under
the Stock Incentive Plan, which grant is contingent upon
shareholder approval of the Stock Incentive Plan and completion of
the Transactions.
-44-
<PAGE>
<F8> Does not reflect 10,000 shares subject to the Non-Employee
Director Option granted to Mr. Davis on November 6, 1996 under the
Stock Incentive Plan, which grant is contingent upon shareholder
approval of the Stock Incentive Plan and completion of the
Transactions.
<F9> Includes 5,000 shares subject to stock options granted under the
HPI 1991 Stock Option Plan.
<F10> Includes 937,690 shares beneficially owned by Wyant.
</FN>
</TABLE>
-45-
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes compensation earned in 1995, 1994
and 1993 by the Chief Operating Officer and the only other executive officers
whose 1995 compensation exceeded $100,000 (the "named officers").
<TABLE>
<CAPTION>
TABLE 1
1996 Proxy Compensation Table
Number of
All Other Shares Other
Name and Principal Annual Covered by Long-Term
Positions Year Salary Bonus Compensation Stock Options Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph H. Weinkam, Jr. 1995 $115,384 $22,500 -0- 15,000 -0-
President and 1994 -0- -0- -0- -0- -0-
Chief Operating Officer 1993 -0- -0- -0- -0- -0-
appointed 5/24/95
Leonard Schramm 1995 297,691 -0- 70,915<F1> 25,000 75,000<F2>
President resigned 1994 700,000 -0- 68,778<F1> 25,000 -0-
5/24/95 1993 600,000 -0- 67,675<F1> 25,000 -0-
Richard L. Cohan 1995 146,403 -0- 5,017<F1> -0- 8,000<F2>
Secretary/Treasurer 1994 152,151 10,000 19,726<F1> 6,000 -0-
and Vice President 1993 143,448 10,000 19,259<F1> 6,000 -0-
resigned 10/31/95
- -----------------
<FN>
<F1> Includes the personal-use value of company-leased automobiles, the
value of company-provided health insurance that is made available to all
employees, certain travel and entertainment expenses, and premiums paid by HPI
for life insurance for the benefit of personal beneficiaries.
<F2> Long-term compensation composition is based on the following: Leonard
Schramm, Consulting Agreement; Richard Cohan, Sales and Marketing Agreement.
</FN>
</TABLE>
-46-
<PAGE>
The following tables identify 1995 fiscal-year option grants, exercises by the
named officers and directors and reports a valuation of their options.
<TABLE>
<CAPTION>
TABLE 2
1995 Individual Grants
No. Securities Percent of Total Exercise Potential Realized Value
Underlying Options Granted of Base Expira- at Assumed Annual Rate
Options to Employees Price tion of Stock Prices Apprecia-
Name Granted in Fiscal Year ($/Sh) Date tion for Option Term
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5%($) 10%($)
Joseph H. Weinkam, Jr. 10,000 15.4 5.00 05/05/00 12,500 25,000
5,000 7.7 7.25 12/19/00 9,050 18,100
John C. Zisko 4,000 6.1 7.25 12/19/00 7,240 14,480
James A. Wyant 25,000<F1> 38.5 7.25 12/19/00 45,250 90,500
Donald C. MacMartin 8,000 12.4 7.25 12/19/00 14,480 28,960
Jane M. Curtis 4,000 6.1 7.25 12/19/00 7,240 14,480
John B. Wight 5,000 7.7 7.25 12/19/00 9,050 18,100
Eugene F. Reilly 4,000 6.1 7.25 12/19/00 7,240 14,480
- ------------------
<FN>
<F1> Mr. Wyant voluntarily surrendered this option to HPI without
consideration in 1996.
</FN>
</TABLE>
<TABLE>
<CAPTION>
TABLE 3
1995 Stock Option Table
Number Number of Shares
of Shares Value Covered by Value of Unexercised
Acquired on Realized Unexercised Options at In-The-Money Options
Name Exercise $ Dec. 31, 1995<F1> at Dec. 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph H. Weinkam, Jr. -0- -0- 15,000 $22,500
John C. Zisko -0- -0- 4,000 -0-
James A. Wyant -0- -0- 25,000<F2> -0-
Donald C. MacMartin -0- -0- 8,000 -0-
Jane M. Curtis -0- -0- 4,000 -0-
John B. Wight -0- -0- 5,000 -0-
Eugene F. Reilly -0- -0- 8,000 -0-
Richard L. Cohan -0- -0- 6,000 7,500
Leonard Schramm -0- -0- 25,000 31,250
- ------------------
<FN>
<F1> All options were exercisable as of December 31, 1995.
<F2> Mr. Wyant voluntarily surrendered this option to HPI without consideration
in 1996.
</FN>
</TABLE>
-47-
<PAGE>
Report of Compensation Committee
The executive compensation program of HPI is based upon creating
shareholder value. All executive activities, including company strategic
planning, management initiatives and overall financial performance are focused
on increasing shareholder value. The Compensation Committee of the Board (the
"Committee") has established a program to:
o Reward executives for long-term strategic management and the
enhancement of shareholder value.
o Integrate compensation programs with the annual and long-term
strategic planning of HPI.
o Support a performance-oriented environment that rewards
performance not only with respect to company goals but also
company performance as compared to industry performance levels.
A new president and other new executive management were hired during the last
fiscal year and the aforementioned principles will be utilized in determining
compensation for 1997 and future years.
Compensation Committee
Donald C. MacMartin
Jane M. Curtis
John B. Wight
Executive Contracts and Compensation Program
The total compensation program consists of both cash and equity based
compensation. The Committee determines the level of salary and bonuses, if any,
for key executive officers. The Committee determines the salary or salary range
based upon competitive norms. Actual salary changes are based upon performance.
Mr. Leonard Schramm resigned as President, CEO and Chairman of the
Board on May 24, 1995 and HPI entered into a three-year consulting agreement
with him for services and expertise rendered to HPI. The agreement provides for
an annual compensation of $150,000 and life insurance coverage and the use of a
company-leased car until July 1996.
Mr. Richard L. Cohan resigned as Secretary and Treasurer on August 10,
1995 and as Vice President on October 31, 1995. To retain Mr. Cohan's knowledge
of the international customer base, HPI entered into a Sales and Marketing
Representative Agreement with him that provides for a commission based upon
sales with a minimum annual payment of $24,000.
Long-term incentives are provided through the issuance of stock
options, pursuant to the plan established in 1991 (250,000 shares).
The option plan provides for the granting of two (2) types of options:
"Employee Incentive Stock Options" and "Nonqualified Stock Options."
During 1995 the option plan was administered by the Committee, which
has the power, subject to the provisions of the plan, to determine the persons
to whom and the dates on which options will be granted, the number of shares
subject to each option granted, the exercise term of each and the other terms of
the options.
-48-
<PAGE>
The exercise price of all Nonqualified Stock Options must be at least
equal to 85% of the fair market value of the underlying stock on the date of
grant. The exercise price of all Incentive Stock Options must be at least equal
to the fair market value of the underlying stock on the date of grant. The
exercise price of an Incentive Stock Option granted to any participant who owns
stock possessing more than 10% of the voting rights of outstanding capital stock
of HPI must be at least 110% of the fair market value on the date of grant.
Additional Employment Agreements
In connection with the proposed Transactions, Wyant has entered into
Employment Agreements with Gerald W. Wyant and James A. Wyant. Each of these
Employment Agreements initially takes effect on January 1, 1997. However, if the
Transactions are not completed on or prior to January 31, 1997 the Employment
Agreements will automatically terminate. Provided that the Transactions are
completed on or prior to January 31, 1997, HPI Sub will assume Wyant's
obligations under each of the Employment Agreements and the Employment
Agreements will remain in effect for an initial term of five years and will be
automatically renewed for successive one-year terms thereafter, unless HPI Sub
or the covered executive elects to terminate the Employment Agreement in
accordance with its terms.
Under the Employment Agreement covering Gerald W. Wyant, Gerald W.
Wyant will serve as Chairman Emeritus of HPI and will receive an annual base
salary of US$237,000 and certain other benefits.
Under the Employment Agreement covering James A. Wyant, James A. Wyant
will serve as Vice Chairman of HPI and will receive an annual base salary of
Cdn$215,000 (subject to annual increases based on the increase, if any, in the
Consumer Price Index of Canada). James A. Wyant will also receive bonus
compensation in accordance with the policy covering vice-presidents of HPI and
certain other benefits.
Performance Graph
Set forth below is a line graph comparing cumulative total shareholder
return, over five years, upon an investment in HPI Common Stock with
(artificially aggregated) an equivalent investment in (a) Nasdaq market
companies (U.S.), and (b) those in Nasdaq's Paper and Allied Products index.
-49-
<PAGE>
[The performance graph prepared by the Center for Research in
Securities Prices presents a graphic comparison of the performance over the
period 12/31/90-12/29/95 of an investment of $100 in (i) Common Stock of HPI,
(ii) Nasdaq Market U.S. Companies, and (iii) Nasdaq paper and allied products
companies, as follows:
<TABLE>
<CAPTION>
12/31/90 12/31/91 12/31/92 12/31/93 12/30/94 12/29/95
<S> <C> <C> <C> <C> <C> <C>
HPI 100.0 88.5 80.8 96.2 111.5 105.8
Nasdaq Stock Market (US 100.0 160.5 186.8 214.5 209.7 296.6
Companies)
Nasdaq Stocks 100.0 124.3 154.2 171.1 184.3 201.1
(Paper and Allied Products
Companies)]
</TABLE>
Compensation Committee Interlocks and Insider Participation
The Committee met once during 1995 to consider compensation principles
and practices and the amount to be paid to officers and senior employees.
There were no Committee interlocks or insider participation in
compensation decisions during 1995.
Compensation of Directors
Prior to June 1996 each director of HPI who was not an employee of HPI
or Wyant received an annual director fee of $5,000 paid in equal quarterly
installments. As of June 1996 this fee was increased to $8,000 annually.
-50-
<PAGE>
PROPOSED ADOPTION OF THE HPI 1997 STOCK INCENTIVE PLAN
This section of the Proxy Statement describes the significant aspects
of the Stock Incentive Plan and does not purport to be complete. This section is
qualified in its entirety by reference to the Stock Incentive Plan which is
included as Appendix B to this Proxy Statement.
On November 6, 1996, the Board of Directors adopted the Stock Incentive
Plan. According to its terms, the effectiveness of the Plan is subject to the
approval of the stockholders of HPI at the Special Meeting and the completion of
the Transactions. The Plan provides for the granting of Options, Stock
Appreciation Rights, Restricted Stock, Performance Shares and Performance Units
(collectively, "Awards") to directors, key employees and consultants of HPI or
its subsidiaries (collectively, "Participants"). The number of individuals who
may be eligible to receive Awards under the Plan currently consists of
approximately 30 to 40 persons, but this number is subject to change as a result
of changes in the size of the HPI workforce and changes in the determination of
the employees who are key contributors to the success of HPI. All defined terms
used herein shall have the same meanings set forth in the Plan, unless otherwise
indicated herein.
The Plan is intended to provide financial incentives to the
Participants and to encourage them to associate their interests with those of
HPI and its stockholders. The Plan should also assist HPI in attracting and
retaining competent and dedicated individuals whose efforts will be important in
helping HPI achieve its long-term growth objectives.
Plan Administration
The Plan will be administered by the Board or a committee appointed by
the Board consisting of at least two Board members who are not employees of HPI
or its subsidiaries (the "Committee"). Pursuant to the Plan, the Committee will
administer and interpret the Plan and will select Participants to whom Awards
will be granted and determine the type, size, terms and conditions of Awards,
including the per share purchase price and vesting provisions of Options and
Stock Appreciation Rights and the restrictions or performance criteria relating
to Restricted Stock, Performance Shares and Performance Units. However, the
Committee will not have discretion over the issuance of Non-Employee Director
Options, the terms of which are fixed under the Plan (as described in greater
detail below).
Securities to be Offered
An aggregate of 300,000 shares of HPI Common Stock ("Shares") may be
issued or transferred pursuant to the Plan. Of the aggregate number of Shares
available under the Plan, not more than one-third of the allotted number of
Shares in the aggregate may be made the subject of Restricted Stock Awards. In
the event of any change in capitalization, the Committee shall adjust the
maximum number and class of Shares with respect to which Awards may be granted
under the Plan, the number of Shares with respect to which Non-Employee Director
Options may be granted under the Plan, the number and class of Shares which are
subject to outstanding Awards granted under the Plan, and if applicable, the
exercise price relating to Awards. In addition, if any Award expires or
terminates without having been exercised, the Shares subject to that Award again
become available for grant under the Plan.
-51-
<PAGE>
Individuals Who May Participate in the Plan
At the discretion of the Committee, Awards may be granted under the
Plan to officers, key employees and consultants of HPI or its subsidiaries. In
addition, each Non-Employee Director of HPI will be eligible to receive
Non-Qualified Stock Options in accordance with the formula-award provisions of
the Plan described below. Non-Employee Directors are not eligible to receive any
other types of Awards under the Plan. The granting of an Award does not confer
upon the Participant any right to continue in the service of HPI or affect any
right or power of HPI to terminate the services of the Participant at any time.
Awards
Options for Non-Employee Directors
The Plan provides for the award of Non-Employee Director Options to
each director of HPI who is not an employee of HPI or a subsidiary (a
"Non-Employee Director"). The amount, timing and other material terms of the
awards of Non-Employee Director Options are fixed under the Plan. Each
Non-Employee Director serving on the Board as of November 6, 1996 (the Effective
Date of the Plan) received an initial Award of a Non-Employee Director Option
exercisable for 10,000 Shares, less the number of Shares covered by any Options
already held by the Non-Employee Director, subject to shareholder approval of
the Plan at the Special Meeting and the completion of the Transactions. Each new
Non-Employee Director joining the Board after the Plan Effective Date will
receive an initial Award of a Non-Employee Director Option exercisable for
10,000 Shares as of the date he or she is first elected to the Board. In
addition, for as long as each Non-Employee Director continues to serve on the
Board, he or she will receive an Annual Award of a Non-Employee Director Option
exercisable for 1,000 Shares as of the close of each annual meeting of
shareholders occurring after the year in which the Non-Employee Director has
received an initial award. Each Non-Employee Director Option will be a
Non-Qualified Stock Option with an exercise price equal to the Fair Market Value
of the covered Shares at the time of grant. Each initial Award of a Non-Employee
Director Option will be vested and exercisable as of the grant date, and each
Annual Award of a Non-Employee Director Option will be vested and exercisable as
of six months after the grant date, subject to full vesting in the event of a
Change in Control. Each Non-Employee Director Option will have a ten-year term,
except that in the event that a Non-Employee Director's service on the Board
terminates for any reason, the Non-Employee Director Options awarded to that
director will be exercisable until the end of the ten-year term or the third
anniversary of the director's termination of service, whichever is earlier.
Under the terms of the Plan, Non-Employee Directors are eligible to receive only
the Non-Employee Director Options described above and are not eligible to
receive any other Options or other Awards under the Plan.
Options for Other Participants
The Committee may grant to Participants (other than Non-Employee
Directors) Options to purchase Shares, which may be either Incentive Stock
Options (within the meaning of Section 422 of the Code) or Non-Qualified Stock
Options. The purchase price of each Share (the "Exercise Price") under each
Option will be established by the Committee at the time the Option is granted.
The exercise price of an Option will not be less than 100% of the Fair Market
Value of the underlying Shares at the time of grant (110% in the case of an
Incentive Stock Option granted to a ten-percent stockholder). Options will be
exercisable at such times and in such installments as determined by the
Committee. The Committee may accelerate the exercisability of any Option at any
time and, under the terms of the Plan, all Options will become fully exercisable
upon a Change in Control of HPI. Each Option granted pursuant to the Plan will
be for such term as determined by the Committee, provided, however, that no
-52-
<PAGE>
Option will be exercisable after the expiration of ten years from its grant date
(five years in the case of an Incentive Stock Option granted to a ten-percent
stockholder). The provisions of each Option grant will set forth the terms and
conditions applicable to such Option upon a termination or change in the
employment status of the optionee as determined by the Committee.
Options are not transferable by the Optionee other than to a charity, a
family member, family trust, family partnership or by will or the laws of
descent and distribution. The exercise price for Shares purchased pursuant to
the exercise of an Option may be paid in such form as approved by the Committee,
including cashless exercise procedures which provide for the exercise of an
Option and sale of the underlying Shares by a designated broker.
Stock Appreciation Rights
The Plan permits the granting of Stock Appreciation Rights to
Participants (other than Non-Employee Directors) in connection with an Option or
as a freestanding right. A Stock Appreciation Right allows the Participant to
receive, upon exercise, an amount equal in value to an amount determined by
multiplying (i) the excess, if any, of (x) for those Stock Appreciation Rights
granted in connection with an Option, the Fair Market Value per Share on the
exercise date over the purchase price per Share under the related Option, or (y)
for those Stock Appreciation Rights not granted in connection with an Option,
the Fair Market Value per Share on the exercise date over the Fair Market Value
per Share on the grant date of the Stock Appreciation Right by (ii) the number
of Shares as to which such Stock Appreciation Right is being exercised. Stock
Appreciation Rights granted in connection with an Option cover the same Shares
as those covered by such Option and are generally subject to the same terms.
Freestanding Stock Appreciation Rights will be granted on such terms and
conditions as shall be determined by the Committee, but will not have a term of
greater than ten years. In the event of a Change in Control, all Stock
Appreciation Rights will become immediately and fully exercisable.
Restricted Stock
A Restricted Stock Award consists of Shares that are subject to
transfer restrictions which lapse provided that the grantee remains in the
employment of HPI or a subsidiary for a stated period of time following the
granting of the Restricted Stock Award. The terms of a Restricted Stock Award
will be determined by the Committee at the time the Award is made and the
Committee has authority to establish the vesting period and the other terms and
conditions applicable to each Restricted Stock Award. Generally, a grantee will
have the rights of an ordinary shareholder (e.g., voting and dividend rights)
with respect to the Shares under a Restricted Stock Award, but any additional
Shares issued as a stock dividend or stock distribution will be subject to the
same restrictions applicable to the Shares covered by the Restricted Stock
Award. In the event of a Change in Control all restrictions on all Restricted
Stock Awards will lapse and the Shares underlying the Award will become fully
vested and transferable.
Performance Shares
Performance Share Awards may be denominated as Shares or as Share units
or phantom Shares, and will become vested upon the attainment of performance or
service objectives established by the Committee at the time of grant. The
Committee will have authority to determine whether the specified performance or
service objectives have been met and to revise the objectives upon the
occurrence of unforeseen events or changes in circumstances. In the event of a
Change in Control all performance and service objectives will be deemed to have
been met and all Performance Share Awards will be fully vested.
-53-
<PAGE>
Performance Units
Performance Units are dollar denominated Awards valued by reference to
criteria, other than Share price, established by the Committee. Performance
Units may take the form of a cash incentive, the amount and payment of which is
based on the attainment of performance or service objectives established by the
Committee at the time of grant. The Committee will have authority to determine
whether the specified performance or service objectives have been met and to
revise the objectives upon the occurrence of unforeseen events or changes in
circumstances. In the event of a Change in Control all performance and service
objectives will be deemed to have been met and all Performance Unit Awards will
be fully vested.
Share Withholding
The Plan provides that in satisfaction of the federal, state and local
income taxes and other amounts as may be required by law to be withheld with
respect to an option or award, the optionee or grantee may request to have
withheld a portion of the Shares issuable to him or her having an aggregate Fair
Market Value equal to the applicable withholding taxes.
Term of Plan
The Plan was adopted by the Board of Directors on November 6, 1996,
subject to shareholder approval of the Plan at the Special Meeting and
completion of the Transactions. The Plan terminates on November 5, 2006. The
Board may earlier terminate or amend the Plan, except that shareholder approval
will be obtained for any amendment to the extent required by applicable law.
Federal Income Tax Consequences Relating to Options
In general, an optionee will not recognize taxable income upon grant or
exercise of an Incentive Stock Option and HPI will not be entitled to any
business expense deduction with respect to the grant or exercise of an Incentive
Stock Option. (However, upon the exercise of an Incentive Stock Option, the
excess of the fair market value on the date of the exercise of the Shares
received over the exercise price of Shares will be treated as an adjustment to
alternative minimum taxable income). In order for the exercise of an Incentive
Stock Option to qualify for the foregoing tax treatment, the optionee generally
must be an employee of HPI or a subsidiary from the date the Incentive Stock
Option is granted through the date three months before the date of exercise,
except in the case of death or disability, where special rules apply.
If the optionee has held the Shares acquired upon exercise of an
Incentive Stock Option for at least two years after the date of grant and for at
least one year after the date of exercise, upon disposition of the Shares by the
optionee, the difference, if any, between the sale price of the Shares and the
exercise price of the Option will be treated as long-term capital gain or loss.
If the optionee does not satisfy these holding period requirements, the optionee
will recognize ordinary income at the time of the disposition of the Shares,
generally in an amount equal to the excess of the fair market value of the
Shares at the time the Option was exercised over the exercise price of the
Option. The balance of gain realized, if any, will be long-term or short-term
capital gain, depending on whether or not the Shares were sold more than one
year after the Option was exercised. If the optionee sells the Shares prior to
the satisfaction of the holding period requirements but at a price below the
fair market value of the Shares at the time the Option was exercised, the amount
of ordinary income will be limited to the excess of the amount realized on the
sale over the exercise price of the Option. Subject to the discussion below with
-54-
<PAGE>
respect to Section 162(m) of the Code, HPI will be allowed a business expense
deduction to the extent the optionee recognizes ordinary income.
In general, an optionee to whom a Non-Qualified Stock Option is granted
will recognize no income at the time of the grant of the Option. Upon exercise
of a Non-Qualified Stock Option, an optionee will recognize ordinary income in
an amount equal to the amount by which the fair market value of the Shares on
the date of exercise exceeds the exercise price of the Option. Subject to the
discussion below with respect to Section 162(m) of the Code, if it complies with
applicable withholding requirements, HPI will be entitled to a business expense
deduction in the same amount and at the same time as the optionee recognizes
ordinary income.
Under certain circumstances, the accelerated vesting or the cashout of
Options or other Awards in connection with a Change in Control of HPI might be
deemed an "excess parachute payment" for purposes of the golden parachute tax
provisions of Section 280G of the Code. To the extent it is so considered, the
Participant may be subject to a 20% excise tax and HPI may be denied a tax
deduction.
Section 162(m) of the Code and the regulations proposed thereunder
generally precludes HPI from receiving a federal income tax deduction for
compensation paid to its chief executive officer and its four other most highly
compensated executive officers to the extent that the compensation paid to any
of such individuals exceeds $1 million in any year. Section 162(m) includes an
exception which would exclude from the $1 million limitation compensation
relating to certain types of Awards made under the Plan. However, the Board has
decided not to utilize this exception because it imposes restrictions on the
administration of the Plan which the Board has determined to be undesirable, and
in light of the recent compensation history of HPI, the Board believes that it
is unlikely (although not impossible) that the compensation of any HPI executive
will exceed the $1 million limitation imposed under Section 162(m) at any time
in the near future.
New Plan Benefits
Under the terms of the Plan, as of November 6, 1996 each
Non-Employee Director received an initial Award of a Non-Employee Director
Option. In addition, on November 6, 1996 the Committee granted Non-Qualified
Stock Options to certain employees of HPI and Wyant. The exercise price of each
of the foregoing Options is $5.25 per share, the Fair Market Value of the
underlying Shares on November 5, 1996. Each of these Option grants is subject to
the approval of the Plan by shareholders at the Special Meeting and the
completion of the Transactions. The foregoing Option grants are listed on the
table set forth below:
NEW PLAN BENEFITS
Option Recipients Number of Shares
Subject to Option
Joseph H. Weinkam, Jr. 25,000
All Other Current Executive
Officers of HPI as a Group 40,000
Jane M. Curtis 6,000
Thomas R.M. Davis 10,000
Nicholas A. Gallopo 10,000
All Other Employees of HPI and Wyant
as a Group 81,000
-55-
<PAGE>
Each of Ms. Curtis and Messrs. Gallopo and Weinkam are members of the
Special Committee. The adoption of the Plan by the Board and the award of the
Options to Mr. Weinkam as set forth above were made subsequent to the report of
the Special Committee regarding the Transactions at the November 6, 1996 meeting
of the Board (see "DESCRIPTION OF THE TRANSACTIONS-Background of and Reasons for
the Transactions - Special Committee of the Board"). The Options awarded to Ms.
Curtis and Mr. Gallopo were made pursuant to the fixed terms of the Plan
applicable to Non-Employee Directors.
The affirmative vote of the holders of a majority of the outstanding
shares of HPI Common Stock entitled to vote is required to approve adoption of
the Stock Incentive Plan. Consequently, any shares not voted (whether by
abstention or broker non-votes) have the same effect as votes against the Stock
Incentive Plan.
The Board recommends a vote FOR the approval and adoption of the Stock
Incentive Plan.
-56-
<PAGE>
PROPOSED AMENDMENT OF THE HPI CERTIFICATE OF INCORPORATION
In connection with the Acquisition, the Board intends to change the
corporate name of HPI to Wyant Corporation.
Of the 3,000,000 currently authorized shares of HPI Common Stock, as of
November 14, 1996, 1,692,476 shares of HPI Common Stock were outstanding and
249,000 shares of HPI Common Stock were required to be reserved for issuance
relating to outstanding options. The Charter Proposal would increase the number
of authorized shares of Common Stock from 3,000,000 to 6,000,000. The Board
believes that additional shares of HPI Common Stock should be available for
issuance by the Board for future issuance as share dividends, as restricted
stock awards, upon exercise of stock options and exchange rights (including
Class E Preferred Stock to be issued in connection with the Transactions), for
cash, for acquisitions of property or stock of other corporations and for other
purposes as occasion may arise.
While HPI frequently has various acquisitions under consideration, HPI
has not entered into any agreements regarding the issuance of a significant
number of additional shares and does not have any present intention to issue any
of the additional shares of HPI Common Stock to be authorized other than
pursuant to the Purchase Agreement. The Board believes it is desirable that HPI
have such additional shares available for situations in which their issuance may
be suitable without the delay that would result from holding a meeting of
shareholders to authorize the issuance of additional shares.
If the Charter Proposal is adopted, the additional shares of HPI Common
Stock may be issued by the Board without further action by the HPI shareholders
except as may be required by law or pursuant to HPI's listing agreement with
Nasdaq. The issuance of additional shares of HPI Common Stock otherwise than on
a pro-rata basis to all holders of such stock would reduce the proportionate
interest of such shareholders.
The affirmative vote of the holders of a majority of the outstanding
shares of HPI Common Stock entitled to vote is sufficient for the adoption of
the Charter Proposal to (i) change the name of HPI to Wyant Corporation and (ii)
increase the number of authorized shares of HPI Common Stock to 6,000,000
shares. Consequently, any shares not voted (whether by abstention or broker
non-votes) have the same effect as votes against the Charter Proposal.
The Board recommends that the shareholders vote FOR the Charter
Proposal.
-57-
<PAGE>
INFORMATION CONCERNING HPI
HPI manufactures disposable medical products, wiping products, and
nonwoven roll goods. The disposable medical products are produced by various
converting equipment. Some products utilize substrate, which is manufactured
using in-house "airlaid" processing technology and equipment. The disposable
medical products include bedpads incorporating unique designs for incontinent
patients. Wiping products include disposable airlaid nonwoven patient washcloths
and general wiping products in addition to the use of other nonwoven materials
which are purchased and converted in-house.
The majority of the sales of HPI's branded products are to distributors
for eventual use by hospitals, nursing homes and other health care institutions,
and to government agencies. The bedpads are HPI's principal products. Their
end-use is for protection against mattress-soiling, caused primarily by
incontinence. A portion of HPI's revenue is derived through the sale of finished
products as private label brands for major customers. HPI's airlaid fabrics
(Airlay(R)) are used as components of end-products manufactured by HPI, and also
are sold in roll good form to converters who produce a wide range of health
care, consumer and industrial products.
HPI's products are manufactured on a number of continuous production
lines that automatically assemble the various layers of product materials, bond
them with various fixative means, cut the materials to specific lengths, and
fold, count, stack and bag/box the completed products.
For more information concerning HPI, reference is made to the
Incorporated Documents (as defined herein) listed under "INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE."
-58-
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF HPI
The selected financial data set forth below is derived from the
historical financial statements of HPI. The financial statements for each of the
fiscal years in the five-year period ended December 31, 1995 have been audited
by Arthur Andersen LLP, HPI's independent public accountants. The financial
statements for the nine months ended September 30, 1996 and 1995 is derived from
the unaudited financial statements which, in the opinion of HPI management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial condition and the results of
operations. Operating results for the nine-month periods ended September 30,
1996 and 1995 are not necessarily indicative of the results for a full year.
This information should be read in conjunction with the HPI's Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
consolidated financial statements and notes thereto included herein by
reference. All dollar amounts expressed below are in United States dollars. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31 September 30,
---------------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------------ ------------ ------------ ------------ --------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Sales .......................... $27,119,764 $29,748,173 $29,909,296 $34,515,494 $40,480,738 $30,065,150 $31,871,537
Cost of Sales................... 20,872,669 22,384,098 22,253,329 26,534,271 33,000,141 24,375,052 26,473,449
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross Profit.................... 6,247,095 7,364,075 7,655,967 7,981,223 7,480,597 5,690,098 5,398,088
Selling, General and Administrative 5,376,139 6,133,922 6,115,045 6,619,308 7,416,448 5,268,409 6,175,297
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from Operations... 870,956 1,230,153 1,540,922 1,361,915 64,149 421,639 (777,209)
Other (Income) Expense:
Interest (Income)...... (269,723) (185,817) (211,769) (216,638) (148,571) (100,502) (118,315)
Interest Expense....... 301,884 181,318 161,893 384,638 321,655 247,898 188,852
Other (Income)......... (348,482) (353,656) (334,857) (455,783) (286,647) (205,294) (166,558)
Writedown of Assets<F1>. 0 0 0 0 550,000 0 0
--------- --------- ------------ ----------- --------- ----------- -----------
Income (Loss) Before
Income Taxes........... 1,187,277 1,588,308 1,925,655 1,649,698 (372,288) 479,587 (681,188)
Income Tax (Benefit)
Provision.............. 477,199 637,034 726,177 613,348 (163,082) 180,500 (268,000)
--------- --------- ----------- ----------- --------- ------- ---------
Net Income (Loss)............... $ 710,078 $ 951,274 $ 1,199,478 $ 1,036,350 $ (209,206) $ 299,087 $ (413,188)
========= ========= ============ =========== =========== ========= ===========
Net Income (Loss) Per
Common Share........... 0.41 0.56 0.70 0.61 (0.12) 0.18 (0.24)
Dividends Declared Per
Common Share........... -- -- -- -- -- -- --
Weighted Average
Number of Shares
Outstanding. .......... 1,716,211 1,703,270 1,704,158 1,691,906 1,692,476 1,692,476 1,692,476
Balance Sheet Data
(at period end):
Working Capital................. 8,655,696 9,258,703 8,859,191 7,835,808 7,950,218 8,205,782 6,874,943
Total Assets.................... 15,860,029 16,799,170 23,023,408 21,571,753 23,531,434 22,776,251 24,250,229
Long-Term Obligations (excluding
current maturities).... 2,883,506 2,208,626 6,097,659 4,637,274 4,289,805 4,400,000 5,386,641
Deferred Income Taxes........... 607,202 670,170 618,961 580,596 424,419 527,796 387,419
Total Shareholders' Equity...... 10,149,030 11,121,054 12,356,782 13,401,632 13,192,426 13,700,721 12,779,238
- -----------------
<FN>
<F1>During the fourth quarter of 1995, HPI recorded a charge of $550,000
($340,000 or $.20 per share after tax) for selected asset writedowns including
machinery and equipment, leasehold improvements, and leased property. The charge
resulted from management's decision to dispose of certain machinery and accrue
for under-utilized space at its IFC facility.
</FN>
</TABLE>
-59-
<PAGE>
INFORMATION CONCERNING WYANT
Wyant's principal business is the manufacture and distribution of a
broad range of industrial and institutional janitorial products, principally for
the maintenance of washrooms, including paper hand towels, bathroom tissue,
related sanitary paper products, janitorial chemicals, caretaking supplies and
food service and health care products. Wyant is Canada's leading national
manufacturer and distributor of sanitary paper products, janitorial chemicals
and equipment, and sanitation supplies to institutional markets in Canada.
Wyant, headquartered in Montreal, had sales of approximately US$52.2 million in
1995 and employs 375 people. Wyant operates a paper converting plant and a
chemical blending facility in Ontario and services some 20,000 customers through
a direct sales organization supported by customer service centers located across
Canada.
General
Wyant was founded in Montreal in 1950 to act as the principal
distributor for paper hand towels manufactured by a leading Canadian
manufacturer. Throughout the 1950's, Wyant gradually increased its product line
to include a broad range of janitorial products and bathroom tissue. In 1969, to
secure a source of supply for paper hand towels, Wyant established a facility in
Scarborough, Ontario to purchase base paper and convert it into paper hand
towels. In 1975, Wyant sought to reduce its dependence on external sources for
janitorial chemicals. As a result, Wyant established a wholly owned subsidiary,
Wyant Chemicals Company Limited ("Wyant Chemicals") in Scarborough, Ontario.
This subsidiary develops and produces janitorial chemicals, such as floor
finishes, disinfectants, detergents and hand cleaners for sale by Wyant. It is
currently anticipated that Wyant Chemicals will be amalgamated with Wyant as of
the close of business on December 31, 1996. In 1977, Wyant entered into a joint
venture with Cascades Inc. to build a paper mill to produce paper toweling for
Wyant. Later in 1981, the joint venture expanded production capacity and added
bathroom tissue to its product line. The joint venture continued until February
1994 when Wyant sold its 50% interest in the joint venture to Cascades Inc.
Effective December 31, 1992, Wyant acquired the assets of G.H. Wood
from Ecolab Ltd. Founded in 1923, G.H. Wood had developed a line of branded
janitorial chemicals that were complementary to Wyant's strong position in the
paper segments of the industry. Furthermore, the acquisition allowed Wyant to
consolidate its position as the largest national full line distributor of
institutional sanitation supplies. The combined entity was renamed G.H. Wood +
Wyant Inc. during 1993. Following the acquisition of G.H. Wood, in 1993, Wyant
significantly restructured its operations. Among other things, Wyant appointed
several key members to its executive and operations teams; consolidated its
paper converting operations; relocated its electro-mechanical business to
Montreal; completed a study involving sales effectiveness; reduced its physical
distribution centers from nineteen to six; consolidated its marketing activities
in Montreal; and formed a customer service group.
Since May 1994, Wyant has appointed several new executives to its
management team, including Donald C. MacMartin, who joined Wyant as President
and Chief Operating Officer, succeeding James A. Wyant who was named
Vice-Chairman. Previously, Mr. MacMartin had been President of Canstar Sports
Inc. and Corby Distilleries Ltd. and brought to Wyant thirty years of experience
in consumer product industries. Also in June 1994, Marc D'Amour joined Wyant as
Vice-President, Finance. Prior to joining Wyant, Mr. D'Amour held senior
financial positions with Domtar Inc. after an eleven year career with Price
Waterhouse. In October 1994, Eric Dedekam joined Wyant as Vice-President,
Marketing. Mr. Dedekam brought to Wyant fifteen years in marketing and sales
experience in the Canadian Pulp and Paper Industry and, most recently, was
Vice-President, Sales for Temboard Inc. In December 1994, Chuck Bean was
appointed Vice-President, Sales of Wyant. Mr. Bean had been with Wyant for eight
years and was most recently Division Sales Manager, Western Canada. Also in
December 1994, Gilles Desrosiers, Vice-President, Administration took
responsibility for all customer service activities which previously were under
the direction of the sales group.
-60-
<PAGE>
Strategy and Marketing
Wyant's marketing strategy was established in the fall of 1994
following an extensive study of its sales organization by Wyant and Canada's
leading sales and marketing consulting group. This study, which was undertaken
over a period of several months, led to the corporate strategy of building a
business with superior return based upon a consultative approach of developing
comprehensive cost effective solutions to customers' sanitation needs. In
pursuing this strategy, Wyant's primary focus was on washroom and floor care
programs within the health care, education, industrial and office channels of
distribution. This shift in strategy has required increased investment in sales
training activities to increase product knowledge and improve sales and account
management capabilities. In addition, a broad cross-section of managers
participated under the direction of a task force in the development of a new
strategic sales plan designed to ensure growth consistent with Wyant's
objectives.
Wyant's new direction in marketing calls for profitable growth based
upon a consultative selling approach where skilled and highly trained account
managers provide customers with cost effective solutions to sanitation problems.
Wyant's marketing activities, which had been fragmented at several locations
under the general management of the local sales group, were consolidated in
Montreal and strengthened under the direction of a new Vice-President of
Marketing. The marketing group of Wyant is responsible for the strategic
direction and profitable growth and development of Wyant's various product
lines.
Services and Operations
Wyant operates six full service customer service centers located
strategically across Canada in Halifax, Montreal, Toronto, Winnipeg, Edmonton
and Vancouver. Customer service's responsibility is centralized for a greater
control over essential operations of the business in the areas of forecasting,
production planning, inventory control and management and purchasing. Service
level standards are now established and performance is monitored on a continuous
basis. Wyant maintains a policy of next day delivery for all major service
centers. Such deliveries are made via courier companies, transportation
companies, local cartage or company operated vehicles in selected locations.
Following a review of Wyant's paper converting activities, a decision
was taken in October 1994 to consolidate all of Wyant's paper converting
functions at Pickering, Ontario. As a result, Wyant's manufacturing operations
in Montreal were closed in November 1994. In addition, Wyant's
electro-mechanical business, once managed separately in leased premises in
Mississauga, was restructured and moved to Montreal to be integrated into
Wyant's overall marketing and customer service functions. Each of these moves,
while primarily designed to improve the overall management of these important
businesses, resulted in significant savings for Wyant.
Customers
Wyant's principal customer channels are in the health care and
education (including schools, universities and colleges) segments, but also
include industrial entities and distributors. Most of its customers are located
in Canada, with customers in the United States accounting for less than 3% of
sales. Wyant has no single customer that accounts for more than 2% of sales.
Technology
Wyant uses a variety of technologies and processes in the operation of
its business, including in-house developed software and a network of IBM A/S 400
computers. Wyant is the owner of 23 unexpired patents and 349 trademarks. Wyant
cannot assess any economic advantage particularly attributable to any patent or
trademark. Moreover, there is no assurance that trademark rights are enforceable
as a mere consequence of trademark registration. Currently, Wyant is seeking to
invest in technology as a source of competitive advantage.
-61-
<PAGE>
Competition
Wyant competes in the sanitary paper and janitorial product markets
across Canada. The Canadian market for sanitary paper and janitorial products is
fragmented and is served by over 200 distribution companies that compete
directly with Wyant on a regional basis and that tend to be small to medium
sized. Only two companies compete on a national basis with Wyant being the only
national full line distributor focused solely on the institutional sanitation
market.
Wyant's distribution abilities are enhanced by its vertical integration
as a converter of paper products and a manufacturer of a complete line of
janitorial chemicals. Wyant's size also permits it to take full advantage of the
benefits of bulk pricing and volume discounts offered by its suppliers. However,
Wyant's ability to compete successfully is dependent upon its ability to make
timely delivery of quality products at competitive prices. With respect to
sanitary paper products, Wyant is not fully integrated and competes with fully
integrated sanitary paper producers that have substantial financial resources
and significant market share relative to Wyant; therefore, Wyant's results of
operations could be adversely affected if such fully integrated producers
attempt to significantly increase market share.
Supply of Raw Materials
Wyant purchases raw materials (chemicals and paper) for the manufacture
of its products from several unaffiliated suppliers. These raw materials are
available from numerous sources. Wyant is not dependent upon any one major
source of supply, and is only limited by one supply contract as described below.
In February 1994, coincidental with the sale of its fifty percent joint
venture interest in a paper producing mill, Wyant signed a five year supply
agreement to purchase 16,000 tons annually of paper toweling and tissue at
market prices. This supplier provides one hundred percent of Wyant's
requirements for these products.
Employees
Wyant currently employs approximately 375 employees, including
approximately 290 salaried employees and 85 hourly employees. Wyant's hourly
workers are covered under three separate collective bargaining agreements, the
largest of which covers 70 workers at Wyant's Pickering plant and expires on
October 25, 1999. Wyant has never had a work stoppage in its history nor has it
had any other material labor problems.
On August 30, 1996, Wyant received a notice under Section 14 of the
Ontario Labour Relations Act advising it that all fourteen warehouse employees
at Wyant's Scarborough distribution facility intended to join the
Communications, Energy and Paper Workers Union of Canada. Negotiations of a
collective bargaining agreement have not yet begun and employee negotiating
demands are currently unknown. Negotiations are expected to begin by the end of
1996.
Governmental Regulation
Wyant is subject to various Canadian federal and provincial laws as
well as Canadian municipal regulation of its activities in the areas of
environmental protection, workplace safety and materials storage and handling.
Wyant believes that it is in material compliance with all applicable laws and
regulations and there are no significant capital expenditures required to meet
existing regulatory requirements.
Properties
Wyant's manufacturing operations include the conversion of base paper
and the blending of janitorial chemicals. Base paper is converted into paper
-62-
<PAGE>
hand towels and bathroom tissue at a plant owned by Wyant in Pickering, Ontario.
Specialized machinery in this plant cuts, folds or winds the paper into finished
products that are packaged and placed in shipping containers. The Pickering
plant occupies approximately 149,000 square feet. For the year ended December
31, 1995, production at Pickering totaled 1,553,000 cases, which represents
approximately 57% of capacity.
Wyant Chemicals develops and blends janitorial chemicals from raw
materials produced by major base chemical suppliers. The chemicals are blended
in large tanks and packed into shipping containers for sale by the Wyant
distribution network. The plant is located in a rented 42,000 square feet
facility. For the year ended December 31, 1995 total production at the plant
reached 2,967,000 liters (55% of capacity).
Wyant's distribution operations are conducted through leased facilities
throughout Canada, thereby providing flexibility in meeting market requirements
and eliminating the need to make capital expenditures for real estate. The
location of the leased facilities, including square footage and lease expiration
dates, are as follows:
Facility Area in Year of
Square Feet Expiration
Dartmouth (Halifax), Nova Scotia 15,700 1997
Lachine (Montreal), Quebec 91,700 2004
Scarborough (Toronto), Ontario 42,800 2001
Scarborough (Toronto), Ontario(1) 42,100 2001
Winnipeg, Manitoba 12,500 2001
Edmonton, Alberta 14,000 1998
Burnaby (Vancouver), B.C. 10,400 2000
- ---------------------------
1. Leased by Wyant Chemicals
Legal Proceedings
From time to time, Wyant may be a party to legal proceedings incidental
to its business. At present, there are no legal proceedings that are material to
Wyant.
-63-
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF WYANT
The selected consolidated financial data set forth below are derived
from audited special purpose consolidated financial statements of Wyant for each
of the fiscal years in the five-year period ended December 31, 1995 and the
unaudited nine-month periods ended September 30, 1995 and 1996. The financial
statements for each of the fiscal years in the four-year period ended December
31, 1994 have been audited by Deloitte & Touche, Wyant's prior independent
auditor, and the financial statements for the fiscal year ended December 31,
1995 have been audited by Ernst & Young, Wyant's current independent auditor.
The special purpose consolidated financial statements have been prepared in
accordance with Canadian GAAP, except that Wyant's investment in HPI has been
accounted for on the equity basis. Accordingly, each element of the statement of
operations represents only Wyant's operating activities, except that Wyant's
proportionate share of HPI's results is included in "share of net income (loss)
of affiliates." The selected financial information for the nine months ended
September 30, 1995 and 1996 is derived from the unaudited financial statements
which, in the opinion of Wyant management, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial condition and the results of operations. The operating results for the
nine month periods are not necessarily indicative of the results for a full
year. All dollar amounts expressed below are in Canadian dollars. This
information should be read in conjunction with the "INFORMATION CONCERNING WYANT
- -- Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Wyant historical special purpose consolidated financial
statements and notes thereto contained elsewhere herein.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
---------------------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------------ ------------- ------------ ------------ ------------- ------------- --------
Statements of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Sales............................. $55,763,947 $46,890,659 $74,736,007 $71,331,954 $71,602,554 $53,975,350 $54,174,050
Cost of Sales..................... 34,562,752 28,778,890 44,684,699 44,309,801 41,733,300 31,278,335 31,250,678
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross Profit...................... 21,201,195 18,111,769 30,051,308 27,022,153 29,869,254 22,697,015 22,923,372
17,005,935 15,633,676 26,534,314 23,032,274 21,137,552 16,019,921 16,153,098
Shipping . . . . . . . . . ....... 2,698,062 2,591,611 6,932,702 5,564,360 4,846,818 3,760,652 3,387,069
Amortization...................... 376,604 571,358 856,576 821,021 784,854 534,987 497,193
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (Loss) From Operations..... 1,120,594 (684,876) (4,272,284) (2,395,502) 3,100,030 2,381,455 2,886,012
Interest Expense.................. (753,807) (576,139) (1,149,454) (922,903) (1,019,147) (803,387) (509,668)
67,734 63,263 38,201 30,878 69,157 53,660 82,401
Unusual and non-recurring items
<F3><F4><F5><F6><F7>......... -- -- (1,852,368) (272,687) (1,594,000) -- --
----------- ----------- ----------- ---------- ---------- ----------- ----------
Income (Loss) Before Income Taxes
and Share of Net Income (Loss)
of Affiliates................. 434,521 (1,197,752) (7,235,905) (3,560,214) 556,040 1,631,728 2,458,745
Provision for (Recovery of) Income
Taxes................ (142,238) (70,630) (1,899,807) (749,368) 33,529 97,900 1,080,000
----------- ----------- ----------- ----------- ----------- ----------- ---------
Income (Loss) Before Share of Net
Income (Loss) of Affiliates 576,759 (1,127,122) (5,336,098) (2,810,846) 522,511 1,533,828 1,378,745
Share of Net Income (Loss) of
Affiliates........... 854,966 784,929 758,172 657,574 (190,393) 197,360 (331,096)
----------- ----------- ------------ ------------ ----------- ----------- ---------
Net Income (Loss)................. $1,431,725 $(342,193) $(4,577,926) $(2,153,272) $332,118 $1,731,188 $1,047,649
=========== =========== ============ ============ =========== =========== ==========
-64-
<PAGE>
December 31 September 30
---------------------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
Balance Sheet Data:
Working Capital................... 9,368,653 7,233,514 3,878,953 4,525,814 3,545,360 5,395,517 4,869,452
Total Assets<F2><F8>.............. 38,704,402 46,371,611 55,007,160 43,767,884 40,489,761 43,987,576 38,166,505
Long-Term Debt.................... 6,517,235 7,111,200 8,851,029 6,895,090 4,292,285 5,421,258 3,553,999
Retractable Preferred Shares<F9>.. 3,399,000 3,399,000 3,399,000 3,399,000 3,399,000 3,399,000 3,399,000
Deferred Income Taxes............. 535,359 638,056 683,159 ---- ---- ----- 775,408
Total Shareholders'
Equity<F9>........... 23,056,935 22,714,742 18,136,816 15,983,544 16,315,662 17,714,732 17,363,311
- ------------------------
<FN>
1. The summary financial data for the nine months ended September 30, 1996
have been derived from the unaudited interim special purpose
consolidated financial statements of Wyant which are expressed in
Canadian dollars and which also have been prepared in accordance with
Canadian GAAP. For all periods presented, Wyant's investment in HPI has
been accounted for on the equity basis.
<F2> Effective December 31, 1992, Wyant acquired substantially all of the
assets of the G.H. Wood division of Ecolab Ltd. for a total
consideration of $7,616,000.
<F3> During 1993, Wyant incurred $791,108 in employee severance expenses and
$1,061,260 in non-recurring transitional expenses related to the
integration of the G.H.Wood operations purchased December 31, 1992.
<F4> During the fourth quarter of 1994, Wyant initiated a program to reduce
the number of its distribution centers and consolidate its paper
converting operations. The resulting restructuring charge comprised:
Employee severance pay $1,582,070
Lease abandonment 628,610
Employee relocation 256,000
Other 566,431
----------
$3,033,111
==========
<F5> On February 21, 1994, Wyant sold its investment in Industries Cascades
Inc. for a cash consideration of $10,000,000, resulting in a gain on
the sale of $2,760,424.
<F6> On February 17, 1993, as part of an asset purchase agreement, Wyant
entered into a seven-year supply agreement to purchase a specified
minimum volume of chemical products. Included in this agreement was the
assumption of a lease and a requirement to apply a minimum monthly
handling charge over the term of the supply agreement. In addition,
Wyant issued a 5% promissory note payable to Ecolab Ltd., repayable in
monthly installments to January 17, 2000, to finance a portion of the
assets acquired.
On December 29, 1995, Wyant entered in to an agreement to commute the
obligation under the above supply agreement and the related charges and
repay the promissory note. The payment has been allocated as follows:
Supply agreement $749,707
Monthly handling charges 660,292
Lease costs 44,000
Balance to relieve all other obligations 1
----------
Expenses accrued in current liabilities 1,454,000
Promissory note repayment 846,000
---------
$2,300,000
==========
The entire balance plus applicable sales taxes was paid on January 15,
1996.
<F7> As a result of the wind-up of its wholly owned subsidiary, Papiers
Grande Ville Inc., and the consolidation of the paper converting
operations, Wyant identified surplus machinery. A write-down of
$272,444 was recorded in 1995 to reflect the estimated realizable
value. During 1995, surplus capital assets were sold resulting in a
gain on disposal of $132,444.
<F8> Wyant's investment in HPI amounting to $4,944,950 in 1991, $5,496,085
in 1992, $6,588,676 in 1993, $8,840,966 in 1994, $9,145,869 in 1995 and
$8,814,027 at September 30, 1996 is included in total assets. These
assets are excluded from the sale of assets to HPI.
<F9> Following a change in accounting standards in 1996, Canadian GAAP
requires the outstanding retractable Class A Preferred Shares to be
classified on the balance sheet as a liability and to be carried at
their full redemption value. The redemption premium of $3,394,001 has
been reflected as a charge against retained earnings. The new
accounting standard has been applied retroactively.
</FN>
</TABLE>
-65-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF WYANT
Overview
The following management discussion and analysis of financial condition
and results of operations ("MD&A") is based on, derived from and should be read
in conjunction with the special purpose consolidated financial statements and
accompanying notes of Wyant contained herein (see page F-1). As described in the
notes to such financial statements, Wyant's financial statements are expressed
in Canadian dollars and have been prepared in accordance with Canadian GAAP,
except that HPI, a 55.4% controlled subsidiary, is accounted for on an equity
basis. Accordingly, each element of the Wyant statement of earnings and retained
earnings represents only Wyant's operating activities, except that Wyant's
proportionate share of HPI's results is presented as "share of net income (loss)
of affiliates."
Nine Months Ended September 30, 1996 as Compared with the Nine Months Ended
September 30, 1995
Sales. Sales for the nine months ended September 1996 increased by
$199,000 or 0.4% as increased paper product sales were partially offset by
decreased sales of other product lines.
Gross Profit. Gross profit at 42.3% for 1996 increased marginally from
the year ago performance of 42.0%.
Selling, General and Administrative. Selling, general and
administrative expenses increased by $133,000 or 0.8% over the year ago period.
Marketing and promotion expenses increased by $200,000 due primarily to
publishing a new source guide (catalogue) of Wyant's products. Due to
anticipated changes to the product line, new source guides are required in three
year intervals. The increase in marketing and promotional expenses was partially
offset by lower general and administrative expenses resulting from lower staff
levels.
Shipping Expenses. Shipping expenses decreased by $374,000 or 9.9% due
to lower freight costs and improvements to Wyant's transportation practices such
as minimum order sizes and increased utilization of local transportation
companies to effect local deliveries.
Depreciation and Amortization. Depreciation and amortization of
$497,193 decreased by $38,000 due to lower capital expenditures in late 1995.
Income from Operations. As a result of the foregoing, income from
operations increased by $505,000 to $2,886,012. This increase is due to an
increase of $226,000 in gross margin and $279,000 in reduced expenses.
Other Income. Other income increased by $28,000.
Interest Expense. Interest expense decreased by $294,000 due to lower
borrowing levels and lower borrowing costs. Wyant's borrowing costs are directly
related to the prime lending rate in Canada which as of September 30, 1996 was
5.75% (1995-8.0%)
Income Taxes. Income taxes increased by $982,000 in 1996 as available
tax loss carryforwards were utilized in 1995.
-66-
<PAGE>
Liquidity and Capital Resources
Wyant generated cash of $2,746,330 from operating activities as
compared to $1,524,937 in 1995 as a result of higher pre-tax earnings in 1996
and lower investment in working capital. The cash generated was used to repay
$2,248,000 of long term debt and to fund investing activities, which used
$679,000 of cash. In addition, $1,000,000 of short-term borrowings under its
revolving credit facility were converted to term debt and will be repayable over
three years. The maximum amount available under the revolving credit facility
was reduced from $7.5 million to $6 million to reduce standby fees incurred as
the higher availability was unlikely to be required.
Management believes that the operating cash flows and the unutilized
availability under Wyant's existing revolving credit facility will be sufficient
to meet Wyant's cash requirement for the balance of 1996, including repayments
of long-term debt.
Fiscal Year 1995 as Compared with 1994
Sales. For the year ended December 31, 1995, sales increased slightly
by $270,600 or .4% to $71,602,554, with higher prices for paper products being
largely offset by lower sales of other product lines.
Gross Profit. Gross profit increased from $27,022,153 in 1994 to
$29,869,254 in 1995. As a percentage of sales, gross profit increased from 37.9%
in 1994 to 41.7% in 1995 due to improved pricing on Wyant's paper products,
selected pricing increases in other products and improved product mix.
Selling, General and Administrative. In 1995, selling, general and
administrative expenses decreased by $1,894,722 to $21,137,552 reflecting the
benefits derived from the restructuring undertaken during the fourth quarter of
1994.
Shipping Expenses. The reduction of $717,542 in shipping expenses from
$5,564,360 in 1994 to $4,846,818 in 1995 similarly resulted from the 1994
restructuring.
Depreciation and Amortization. Amortization of capital assets and
goodwill amounted to $784,854 in 1995 compared to $821,021 in 1994. The
reduction of $36,167 reflected lower capital spending in 1995.
Income (Loss) from Operations. Income from operations of $3,100,030 in
1995 represents a $5,495,532 increase from the loss of $2,395,502 in 1994 due to
the increase in gross profit and lower expenses.
Other Income (Expense). Interest expenses totalled $1,019,147 in 1995
compared to $922,903 in 1994, due to the impact of higher interest rates in
1995. Charges of $1,454,000 to terminate a supply agreement and of $272,444 to
write-down surplus machinery held for resale as a result of the consolidation of
paper converting operations following the wind-up of a subsidiary company were
incurred in 1995.
Income Taxes. Income taxes in 1995 were $33,529 compared to an income
tax recovery of $749,368 in 1994, reflecting the return to profitability in
1995, when income taxes were largely offset by the application of losses carried
forward.
-67-
<PAGE>
Fiscal Year 1994 as Compared with 1993
Sales. For the year ended December 31, 1994, sales decreased $3,404,053
or 4.5% from 1993. This decrease was due to competitive pressures in all
geographic regions as well as the deflationary effect of pricing on paper
products.
Gross Profit. Gross profit decreased by $3,029,155 due to lower sales.
As a percentage of sales, gross profit decreased from 40.2% to 37.9% due to
decreases in the prices of paper products and an unfavorable product mix.
Selling, General and Administrative. Selling, general and
administrative expenses decreased by $3,502,040 from $26,534,314 due to lower
salaries and benefits, which resulted from personnel reductions late in 1993 and
reduced travel and communications expenses.
Shipping Expenses. Shipping expenses decreased to $5,564,360 from
$6,932,702 due to lower sales volumes and personnel reductions.
Depreciation and Amortization. Amortization of goodwill and capital
assets totalled $821,021 in 1994 as compared to $856,576 in 1993, a reduction of
$35,555.
Income (Loss) From Operations. The loss from operations of $2,395,502
in 1994 represented a $1,876,782 gain from 1993 due to the lower level of
expenses.
Other Income (Expense). Interest expenses of $922,903 were incurred in
1994 as compared to $1,149,454 due to lower debt levels, as a result of the
proceeds on sale of the Industries Cascades Inc. investment and lower working
capital levels, partially offset by higher average interest rates. During the
fourth quarter of 1994 Wyant initiated a significant restructuring of its
operations and a charge of $3,033,111 was recorded to reflect employee severance
payments, a lease abandonment, and employee relocation and other costs of this
restructuring effort. On February 21, 1994, Wyant sold its 50% investment in
Industries Cascades Inc. for cash consideration of $10,000,000 resulting in a
gain on sale of $2,760,424. The proceeds were used to repay existing
obligations.
Income Taxes. Recovery of income taxes of $749,368 or 21% for 1994 were
lower than the recovery of income taxes for 1993 of $1,899,807 due to the lower
level of losses incurred in 1994.
Liquidity and Capital Resources
Wyant generated cash of $3,523,245 from operating and investing
activities in 1995 that was used to repay $2,178,531 of long-term debt and to
reduce the balance of the operating line of credit by $1,344,714. Maturity dates
on long-term debt outstanding at December 31, 1995 ranged from October 1, 1997
to June 30, 1998 and bear interest at prime rates plus 1%. In addition, a
promissory note maturing on January 17, 2000 and bearing interest at 5% was
repaid on January 15, 1996.
Wyant's shareholders' equity amounted to $19,714,662 at December 31,
1995 and $19,382,544 at December 31, 1994. This increase resulted form the net
earnings of $332,118 generated in 1995. Working capital decreased by $980,454 in
1995 to $3,545,360, net of bank indebtedness of $2,421,030.
Funds for Wyant's current operations are derived from sales revenues
and, when necessary, borrowing on its revolving credit facility of $7.5 million
with the Bank of Nova Scotia, of which $2,421,030 was outstanding at December
31, 1995.
-68-
<PAGE>
Management believes that the operating cash flows and the available
line of credit will be sufficient to meet Wyant's cash requirements in 1996,
including repayments of long-term debt.
Seasonality
Wyant maintains sufficient inventory levels to allow shipment of most
orders with minimum delays. For the most part, purchases are based on monthly
projections of sales requirements from the sales and marketing departments and
historical sales patterns. Wyant's products are generally not subject to
seasonal influences.
Impact of Inflation
Because its products are sold throughout Canada, Wyant is affected by
general economic conditions, including inflation. As a result, any adverse
change in economic conditions may have an adverse impact on Wyant's sales and
financial condition. However, Wyant believes that inflation has not had a
material effect on the results of operations to date.
-69-
<PAGE>
ACCOUNTANT MATTERS
Since 1990, HPI has engaged Arthur Andersen LLP as its principal
independent public accountants. There have been no consultations within the
context of Item 304 of Regulation S-K, as amended, with HPI in the two most
recent fiscal years and in the subsequent interim period.
A representative of Arthur Andersen LLP will be present at the Special
Meeting and will have an opportunity to make a statement, if such representative
so desires, and to respond to appropriate questions posed orally at the meeting.
SHAREHOLDER PROPOSALS
Shareholders wishing to present proposals at the 1997 Annual Meeting of
Shareholders of HPI, should have submitted such proposals, in writing, to HPI at
its principal executive offices not later than January 13, 1997.
-70-
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by HPI with the SEC (the "Incorporated
Documents") are provided to each shareholder with this Proxy Statement and are
incorporated into this Proxy Statement by reference:
1. HPI's Annual Report on Form 10-K (Commission file No. 0-8410)
for the fiscal year ended December 31, 1995 (filed with the
Commission on March 22, 1996), included as Appendix D hereto.
2. HPI's Quarterly Reports on Form 10-Q for the three-month
periods ended March 31, 1996 (filed with the Commission on May
10, 1996), June 30, 1996 (filed with the Commission on August
13, 1996), and September 30, 1996 (filed with the Commission
on November 8, 1996), included as Appendices E, F and G
hereto, respectively.
3. HPI's Current Report on Form 8-K dated November 14, 1996
(filed with the Commission on November 14, 1996), included as
Appendix H hereto.
The information and financial statements relating to HPI contained in
this Proxy Statement do not purport to be comprehensive and should be read
together with the financial statements and other information contained in the
Incorporated Documents.
-71-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Auditor's Reports.......................................................F-2
Special Purpose Consolidated Balance Sheet of G.H. Wood + Wyant Inc.
as at December 31, 1994 and 1995....................................F-4
Special Purpose Consolidated Statement of Earnings and Retained
Earnings of G.H. Wood + Wyant Inc. for the Years Ended
December 31, 1993, 1994 and 1995....................................F-5
Special Purpose Consolidated Statement of Changes in Financial
Position of G.H. Wood + Wyant Inc. for the Years Ended
December 31, 1993, 1994 and 1995....................................F-6
Notes to Special Purpose Consolidated Financial Statements
of G.H. Wood + Wyant Inc. ..........................................F-7
Unaudited Special Purpose Consolidated Balance Sheet of
G.H. Wood + Wyant Inc. as at December 31, 1995 and
September 30, 1996..................................................F-20
Unaudited Special Purpose Consolidated Statement of Earnings
and Retained Earnings of G.H. Wood + Wyant Inc. for the
Nine Months Ended September 30, 1995 and 1996.......................F-21
Unaudited Special Purpose Consolidated Statement of Changes in
Financial Position of G.H. Wood + Wyant Inc. for the
Nine Months Ended September 30, 1995 and 1996.......................F-22
Notes to Unaudited Special Purpose Consolidated Financial Statements
of G.H. Wood + Wyant Inc............................................F-23
F-1
<PAGE>
AUDITOR'S REPORT
To the Directors of
G.H. Wood + Wyant Inc.
We have audited the special purpose consolidated balance sheet of G.H. Wood +
Wyant Inc. as at December 31, 1995 and the special purpose consolidated
statements of earnings and retained earnings and changes in financial position
for the year 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these special purpose consolidated financial statements present
fairly, in all material respects, the financial position of the Company as at
December 31, 1995 and the results of its operations and the changes in its
financial position for the year then ended in accordance with accounting
principles generally accepted in Canada, except that one subsidiary is accounted
for on the equity basis, as described in note 2 to the financial statements.
On February 15, 1996, we reported without reservation to the shareholders on the
Company's general purpose consolidated financial statements.
Ernst & Young
Montreal, Canada Chartered Accountants
February 15, 1996
(except for note 22 for
which the date is November 8, 1996)
F-2
<PAGE>
AUDITOR'S REPORT
To the Directors of
G.H. Wood + Wyant Inc.
We have audited the special purpose consolidated balance sheet of G.H. Wood +
Wyant Inc. as at December 31, 1994 and the special purpose consolidated
statements of earnings and retained earnings and of changes in financial
position for each of the years ended December 31, 1994 and 1993. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these special purpose consolidated financial statements present
fairly, in all material respects, the financial position of the Corporation as
at December 31, 1994 and the results of its operations and the changes in its
financial position for each of the years ended December 31, 1994 and 1993 in
accordance with accounting principles generally accepted in Canada, except that
one subsidiary is accounted for on the equity basis as described in Note 2.
Deloitte & Touche
Chartered Accountants
Montreal, Canada
March 10, 1995
(except for note 22, which was not part
of the audited financial statements)
F-3
<PAGE>
<TABLE>
<CAPTION>
G.H. WOOD + WYANT INC.
SPECIAL PURPOSE CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31
(In Canadian Dollars)
1995 1994
----------- --------
<S> <C> <C>
ASSETS (note 10) Current:
Accounts receivable, net of allowance for
doubtful accounts of $761,500 (1994-$696,100) (notes 4, 13) .............. $ 9,876,105 $ 10,772,973
Income taxes recoverable.................................................. 596,714 1,301,315
Inventories (note 5)...................................................... 8,811,108 9,100,357
Prepaid expenses.......................................................... 407,613 841,419
Capital assets held for resale (note 6)................................... 336,634 -
---------- ------------
Total current assets............................................................... 20,028,174 22,016,064
Investments (note 7)............................................................... 9,148,948 8,842,145
Capital assets (note 8)............................................................ 10,183,076 11,698,741
Goodwill (net of amortization of $562,140; 1994 - $374,760)........................ 749,520 936,900
Other assets (note 9).............................................................. 325,452 208,628
Deferred income taxes.............................................................. 54,591 65,406
----------- -----------
$40,489,761 $43,767,884
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Bank indebtedness (note 10)............................................... $ 2,421,030 $ 3,765,744
Accounts payable and accrued liabilities (note 13)........................ 8,648,772 8,501,211
Termination of supply agreement (note 15)................................. 1,454,000 -
Restructuring accrual (note 14)........................................... 219,000 1,991,685
Employee related accruals................................................. 1,136,298 1,052,170
Current portion of long-term debt (note 11)............................... 2,603,714 2,179,440
---------- -----------
Total current liabilities.......................................................... 16,482,814 17,490,250
Long-term debt (note 11)........................................................... 4,292,285 6,895,090
---------- -----------
Total liabilities.................................................................. 20,775,099 24,385,340
---------- -----------
Commitments and Contingencies (note 19)
Shareholders' equity:
Capital stock (note 12)................................................... 7,000 7,000
Retained earnings......................................................... 19,707,662 19,375,544
---------- ----------
19,714,662 19,382,544
---------- ----------
$40,489,761 $43,767,884
========== ==========
See accompanying notes
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
G.H. WOOD + WYANT INC.
SPECIAL PURPOSE CONSOLIDATED STATEMENT OF
EARNINGS AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31
(In Canadian Dollars)
1995 1994 1993
------------ ------------ ---------
<S> <C> <C> <C>
Sales (note 13).......................................... $71,602,554 $71,331,954 $74,736,007
Cost of sales (including amortization of
$527,174; 1994 - $560,000; 1993 - $597,777)
(note 13).............................................. 41,733,300 44,309,801 44,684,699
----------- ----------- -----------
Gross profit............................................. 29,869,254 27,022,153 30,051,308
----------- ----------- -----------
Selling, general and administrative...................... 21,137,552 23,032,274 26,534,314
Shipping................................................. 4,846,818 5,564,360 6,932,702
Amortization of capital assets........................... 597,474 633,641 669,196
Amortization of goodwill................................. 187,380 187,380 187,380
----------- ----------- -----------
Income (loss) from operations............................ 3,100,030 (2,395,502) (4,272,284)
Interest on long-term debt............................... 700,204 699,687 501,327
Interest and bank charges................................ 318,943 223,216 648,127
Restructuring charge (note 14)........................... - 3,033,111 1,852,368
Termination of supply agreement (note 15)................ 1,454,000 - -
Write-down of capital assets (note 6).................... 272,444 - -
Gain on disposal of capital assets....................... (132,444) - -
Gain on sale of investment (note 16)..................... - (2,760,424) -
Other income............................................. (69,157) (30,878) (38,201)
----------- ----------- -----------
Earnings (loss) before income taxes and
share of net income (loss) of affiliates.............. 556,040 (3,560,214) (7,235,905)
----------- ----------- -----------
Provision for (recovery of) income taxes (note 17):
Current............................................ 261,714 (803) (1,944,910)
Benefit of losses carried forward.................. (239,000) - -
Deferred........................................... 10,815 (748,565) 45,103
----------- ----------- -----------
33,529 (749,368) (1,899,807)
----------- ----------- -----------
Earnings (loss) before share of net income
(loss) of affiliates................................... 522,511 (2,810,846) (5,336,098)
Share of net income (loss) of affiliates
(note 7)............................................... (190,393) 657,574 758,172
----------- ----------- -----------
Net earnings (loss)...................................... 332,118 (2,153,272) (4,577,926)
Retained earnings, beginning of year..................... 19,375,544 21,528,816 26,106,742
----------- ----------- -----------
Retained earnings, end of year........................... $19,707,662 $19,375,544 $21,528,816
============ =========== ===========
See accompanying notes
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
G.H. WOOD + WYANT INC.
SPECIAL PURPOSE CONSOLIDATED STATEMENT OF
CHANGES IN FINANCIAL POSITION
YEAR ENDED DECEMBER 31
(In Canadian Dollars)
1995 1994 1993
------------ ------------ --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss)........................................ $ 332,118 $(2,153,272) $(4,577,926)
Items not affecting cash:
Amortization......................................... 1,312,028 1,381,021 1,452,353
Deferred income taxes................................ 10,815 (748,565) 45,103
Share of net earnings of affiliates.................. 190,393 (657,574) (758,172)
Write-down of capital assets......................... 272,444 - -
Write-off of organization costs...................... 2,576 - -
Gain on disposal of capital assets................... (132,444) - (3,765)
Decrease in deferred charges......................... 38,529 77,016 -
Deferred pension costs............................... (119,400) - -
Gain on sale of investment........................... - (2,760,424) -
---------- ----------- -----------
1,907,059 (4,861,798) (3,842,407)
Changes in non-cash working capital balances
related to operations (note 20)...................... 2,237,528 6,713,824 (8,345,064)
---------- ----------- -----------
Cash provided by (used in) operating activities............ 4,144,587 1,852,026 (12,187,471)
---------- ----------- -----------
INVESTING ACTIVITIES:
Proceeds on sale of capital assets......................... 373,069 - 57,118
Acquisition of long-term investments....................... (497,196) (1,595,058) (441,678)
Purchases of capital assets................................ (497,215) (926,365) (844,762)
Purchase of goodwill....................................... - - (26,660)
Increase in cash surrender value of life insurance
policies............................................. - (13,979) 3,999
Proceeds on sale of investment............................. - 10,000,000 -
---------- ----------- -----------
Cash provided by (used in) investing activities............ (621,342) 7,464,598 (1,251,983)
---------- ----------- -----------
FINANCING ACTIVITIES:
Increase in other long-term liabilities.................... - 223,501 3,700,000
Repayment of long-term debt................................ (2,178,531) (1,960,170) (1,041,036)
---------- ----------- -----------
Cash provided by (used in) financing activities............ (2,178,531) (1,736,669) 2,658,964
---------- ----------- -----------
Increase (Decrease) in cash during the year................ 1,344,714 7,579,955 (10,780,490)
Bank indebtedness, beginning of year....................... (3,765,744) (11,345,699) (565,209)
---------- ----------- -----------
Bank indebtedness, end of year............................. $(2,421,030) $(3,765,744) $(11,345,699)
============ ============= =============
See accompanying notes
</TABLE>
F-6
<PAGE>
G.H. WOOD + WYANT INC.
NOTES TO SPECIAL PURPOSE CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Wyant is an integrated distributor and manufacturer of sanitation products.
Sales by Wyant are primarily in Canada except for those to related parties as
described in note 13.
2. BASIS OF FINANCIAL STATEMENT PRESENTATION
Principles of consolidation
These special purpose consolidated financial statements include the accounts of
Wyant and its wholly owned subsidiary, Wyant Chemicals Company Limited, and are
expressed in Canadian dollars. They have been prepared to present the financial
position and results of the Canadian Operations of Wyant and are in accordance
with accounting principles generally accepted in Canada except that HPI (55.4%
owned; 1994 - 52.6%), a controlled subsidiary since 1994, is accounted for on
the equity basis. All significant intercompany accounts and transactions have
been eliminated. These financial statements conform in all material respects to
accounting principles generally accepted in the United States except as
described above and except as set forth in note 22.
Wyant's general purpose financial statements were prepared in accordance with
accounting principles generally accepted in Canada and have been distributed to
shareholders.
Wind-up
On January 4, 1995, Wyant's wholly owned subsidiary, Papiers Grande Ville Inc.,
was wound-up into Wyant on a tax-free basis under subsection 88(l) of the Income
Tax Act (Canada) and section 556 of the Quebec Taxation Act. Papiers Grande
Ville Inc.'s operations were continued by Wyant, which received all of the
assets and assumed all of the liabilities.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The special purpose consolidated financial statements have been prepared by
management in accordance with generally accepted accounting principles, except
as explained in note 2. The preparation of financial statements in conformity
with such principles requires management to make estimates and assumptions that
affect the reported assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting periods. Actual results could
differ from those estimates.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is
determined on a first-in, first-out basis.
F-7
<PAGE>
G.H. WOOD + WYANT INC.
NOTES TO SPECIAL PURPOSE CONSOLIDATED FINANCIAL STATEMENTS
Capital assets
Capital assets are recorded at cost. The capital assets are amortized over their
estimated useful lives on the following basis and rates:
Buildings declining balance 5%
Machinery declining balance 6% to 22%
Furniture and equipment declining balance 20% to 30%
Computer equipment declining balance 30%
Leasehold improvements straight-line over the terms
of the leases
Deferred charges straight-line 5 years
Patents straight-line 17 years
Goodwill
Costs in excess of net assets of businesses acquired are being amortized on a
straight-line basis over seven years.
On an ongoing basis, management reviews the valuation and amortization of
goodwill, taking into consideration any events or circumstances which might have
impaired the fair value. These reviews include establishing that the unamortized
balance will be recovered over its estimated remaining useful life through the
projected undiscounted future net income of the business acquired.
Income taxes
Wyant follows the deferral method of tax allocation in accounting for income
taxes. Under this method, timing differences between accounting and taxable
income result in the recording of deferred income taxes.
Foreign currency translation
Operations in Canada:
Monetary assets and liabilities denominated in foreign currencies are translated
into Canadian dollars at rates of exchange prevailing at the balance sheet date.
Revenues and expenses are translated into Canadian dollars at rates of exchange
in effect at the related transaction dates. Exchange gains and losses arising
from the translation of foreign currency items are included in the determination
of net earnings.
Operations outside of Canada:
The share of net earnings (loss) of the foreign subsidiary, which is
self-sustaining, has been translated at the average rates prevailing during the
year.
F-8
<PAGE>
G.H. WOOD + WYANT INC.
NOTES TO SPECIAL PURPOSE CONSOLIDATED FINANCIAL STATEMENTS
4. ACCOUNTS RECEIVABLE
1995 1994
---------- -------
Trade $9,485,401 $10,328,771
Other 390,704 444,202
---------- -----------
$9,876,105 $10,772,973
Wyant operates primarily in the institutional sanitation industry in Canada.
Wyant sells to a large number of customers and no single customer accounts for
more than 2% of sales or 1% of accounts receivable.
5. INVENTORIES
1995 1994
---------- -------
Raw materials $1,659,196 $1,117,796
Finished goods 7,151,912 7,982,561
---------- ----------
$8,811,108 $9,100,357
6. CAPITAL ASSETS HELD FOR RESALE
As a result of the wind-up of Papiers Grande Ville Inc. and the consolidation of
the paper converting operations, Wyant identified surplus machinery which is
recorded at the lower of its depreciated cost and estimated realizable value. A
write-down of $272,444 was recorded in 1995.
7. INVESTMENTS
1995 1994
---------- -------
Hosposable Products, Inc.
Common shares (at cost) $7,184,342 $6,689,046
Share of accumulated earnings 1,961,527 2,151,920
Portfolio investments 3,079 1,179
---------- ----------
$9,148,948 $8,842,145
During the year, Wyant purchased 47,100 (1994 - 139,100) common shares of HPI, a
U.S. corporation, for a cash consideration of $495,296 (1994 - $1,594,716; 1993
- - $441,678). Following these purchases, Wyant's interest in the issued and
outstanding common shares of HPI is 55.4% (1994 - 52.6%).
F-9
<PAGE>
<TABLE>
<CAPTION>
G.H. WOOD + WYANT INC.
NOTES TO SPECIAL PURPOSE CONSOLIDATED FINANCIAL STATEMENTS
8. CAPITAL ASSETS
Accumulated Net book
Cost amortization value
1995
<S> <C> <C> <C>
Land $ 896,076 $ - $ 896,076
Building 4,368,312 1,453,711 2,914,601
Machinery 9,266,751 5,191,826 4,074,925
Furniture and equipment 2,497,721 2,063,124 434,597
Computer equipment 2,213,955 1,737,338 476,617
Leasehold improvements 866,327 458,101 408,226
---------- ---------- ---------
20,109,142 10,904,100 9,205,042
Patents 1,254,091 276,057 978,034
---------- ---------- ----------
$21,363,233 $11,180,157 $10,183,076
=========== =========== ===========
1994
Land $ 896,076 $ - $ 896,076
Building 4,363,912 1,300,311 3,063,601
Machinery 11,703,433 6,547,299 5,156,134
Furniture and equipment 2,076,296 1,716,711 359,585
Computer equipment 2,080,510 1,540,641 539,869
Leasehold improvements 877,461 412,210 465,251
Deposit on equipment 228,394 - 228,394
---------- ---------- ----------
22,226,082 11,517,172 10,708,910
Deferred charges 411,182 372,653 38,529
Patents 1,121,321 170,019 951,302
---------- ---------- ----------
$23,758,585 $12,059,844 $11,698,741
=========== =========== ===========
</TABLE>
F-10
<PAGE>
G.H. WOOD + WYANT INC.
NOTES TO SPECIAL PURPOSE CONSOLIDATED FINANCIAL STATEMENTS
9. OTHER ASSETS
1995 1994
---------- -------
Cash surrender value of life insurance
policies $206,052 $206,052
Deferred pension costs 119,400 -
Organization costs - 2,576
-------- --------
$325,452 $208,628
======== ========
10. REVOLVING CREDIT FACILITY
Wyant has arranged a revolving credit facility in the amount of $7.5 million,
bearing interest at prime plus 1/4% and is repayable on demand. At December 31,
1995 $2,421,030 (1994 - $3,765,744) was utilized and the prime rate of interest
was 7.5% (1994 8.0%). The revolving credit facility and certain term loans
described in note 11 are collateralized by a general assignment of book debts, a
pledge of inventory under Section 427 of the Bank Act, a hypothec in the amount
of $24,000,000 on all movable property, a hypothec in the amount of $15,000,000
on 709,490 shares of a subsidiary and a general security agreement. The weighted
average prime rate of interest was 8.64% for 1995 (1994-6.76%).
F-11
<PAGE>
G.H. WOOD + WYANT INC.
NOTES TO SPECIAL PURPOSE CONSOLIDATED FINANCIAL STATEMENTS
11. LONG-TERM DEBT
1995 1994
---------- -------
Term loan bearing interest at the prime
rate plus 1%, repayable in monthly
installments of $126,000 plus interest,
maturing on June 30, 1998. The loan is
collateralized by the security described
in note 10.
$3,620,000 $ --
Term loan bearing interest at the prime
rate plus 1%, repayable in monthly
installments of $20,476 plus interest,
maturing on October 1, 1997. The loan is
collateralized by a first fixed charge
in the amount of $4,000,000 on land and
a building and by the security described
in note 10.
2,429,999 --
Various term loans replaced by the above
term loans. -- 7,798,029
Promissory note bearing interest at 5%,
maturing on January 17, 2000, which, as
described in note 15, was repaid on
January 15, 1996. 846,000 1,053,000
Other long-term liabilities -- 223,501
---------- -----------
6,895,999 9,074,530
Current portion 2,603,714 2,179,440
---------- ----------
$4,292,285 $6,895,090
========== ==========
The loans are recorded at book value which approximates market value.
Principal payments required are as follows:
1996 $2,603,714
1997 3,696,287
1998 595,998
----------
$6,895,999
===========
Cash payments for interest in 1995 amounted to $1,017,000 (1994 - $986,000; 1993
- - $1,086,000).
F-12
<PAGE>
G.H. WOOD + WYANT INC.
NOTES TO SPECIAL PURPOSE CONSOLIDATED FINANCIAL STATEMENTS
12. CAPITAL STOCK
Authorized
100 Class A 9% non-cumulative preferred shares, retractable at
$33,990 per share, without nominal or par value
200 Class B participating preferred shares, without nominal or
par value
An unlimited number of common shares, without nominal or
par value
Issued
1995 1994
------- -----
100 Class A preferred shares $4,999 $4,999
200 Class B preferred shares 2,000 2,000
100 Common shares 1 1
------ ------
$7,000 $7,000
====== ======
13. RELATED PARTY TRANSACTIONS
During the year, Wyant purchased raw materials and finished goods in the amount
of $334,000 (1994 - $498,000; 1993 - $508,000) from HPI. Wyant also sold
finished goods in the amount of $1,460,000 (1994 - $340,000; 1993 - $167,000) to
HPI. At December 31, 1995 accounts receivable includes $317,000 (1994 -
$130,000) due from HPI and accounts payable includes $29,000 (1994 - $33,000)
due to HPI.
F-13
<PAGE>
G.H. WOOD + WYANT INC.
NOTES TO SPECIAL PURPOSE CONSOLIDATED FINANCIAL STATEMENTS
14. RESTRUCTURING CHARGE
During the fourth quarter of 1994, Wyant initiated a program to reduce the
number of its distribution centers and consolidate its paper converting
operations. The resulting restructuring charge comprised:
Employee severance pay $1,582,070
Lease abandonment 628,610
Employee relocation 256,000
Other 566,431
----------
$3,033,111
==========
As at December 31, 1995, the restructuring charge from 1994 had been paid except
for employee severance pay of $66,000 and lease abandonment costs of $153,000.
During 1993, Wyant incurred $791,108 in employee severance expenses and
$1,061,260 in non-recurring transitional expenses related to the integration of
the G.H. Wood operations purchased as of December 31, 1992.
15. TERMINATION OF SUPPLY AGREEMENT
On February 17, 1993, as part of an asset purchase agreement, Wyant entered into
a seven-year supply agreement to purchase a specified minimum volume of chemical
products. Included in this agreement was the assumption of a lease and a
requirement to pay a minimum monthly handling charge over the term of the supply
agreement. In addition, Wyant issued a 5% promissory note to the vendor,
repayable in monthly installments to January 17, 2000, to finance a portion of
the assets acquired.
On December 29, 1995, Wyant entered into an agreement to commute the obligation
under the above supply agreement and the related charges and repay the
promissory note.
The payment has been allocated as follows:
Supply agreement $749,707
Monthly handling charges 660,292
Lease costs 44,000
Balance to relieve all other obligations 1
------------
Expenses accrued in current liabilities 1,454,000
Promissory note repayment 846,000
----------
$2,300,000
The entire balance plus applicable sales taxes was paid on January 15, 1996.
F-14
<PAGE>
G.H. WOOD + WYANT INC.
NOTES TO SPECIAL PURPOSE CONSOLIDATED FINANCIAL STATEMENTS
16. GAIN ON SALE OF INVESTMENT
On February 21, 1994, Wyant sold its investment in Industries Cascades Inc. for
a cash consideration of $10,000,000, resulting in a gain on sale of $2,760,424.
17. INCOME TAXES
A reconciliation of the statutory income tax rate to the effective income tax
rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
% % %
<S> <C> <C> <C>
Statutory income tax rate 43.9 43.8 43.3
Increase (decrease) resulting from the following:
Small business deduction (5.9) -- (1.0)
Manufacturing and processing credit (1.7) -- (1.7)
Large corporations tax 4.1 (0.8) (1.3)
Unrecorded tax benefit of losses from prior years (39.8) (15.1) (11.9)
Non-deductible items 4.6 (1.0) (7.8)
Revision of estimated tax provisions for prior years -- (3.7) 4.0
Other 0.8 (2.2) 2.7
------- -------- ------
Effective income tax rate 6.0 21.0 26.3
======= ======== ======
</TABLE>
Wyant has non-capital losses of approximately $2,259,000 available to offset
future taxable income. Of this amount, $1,815,000 expires in 2001 and $444,000
in 2002. The tax benefit related to these losses has been recognized in the
financial statements as a reduction of deferred income taxes.
Cash payments for income taxes in 1995 amounted to $8,000 (1994 - $790,000; 1993
- - $38,000).
F-15
<PAGE>
G.H. WOOD + WYANT INC.
NOTES TO SPECIAL PURPOSE CONSOLIDATED FINANCIAL STATEMENTS
18. PENSION PLAN
Wyant maintains a contributory defined benefit pension plan. The pension plan
includes the employees of Wyant Chemicals Company Limited, as well as certain
employees of G.H. Wood + Wyant Inc. The remaining employees of G.H. Wood + Wyant
Inc. are members of a non-contributory defined contribution plan.
The accrued pension obligation was estimated to be $4,174,000 (1994 -
$6,757,500), based on an actuarial valuation as of January 31, 1995, and the net
assets available for benefits at market value are $7,605,900 (1994 -
$7,395,200). Wyant is in the process of reviewing the provisions of this plan
and the accrued pension obligations are expected to change significantly as a
result. To date, Wyant has recognized an asset, deferred pension costs, of
$119,400 in other assets.
The pension income (expense) for the year was $119,400 (1994 - ($97,800); 1993
($286,700)).
19. COMMITMENTS & CONTINGENCIES
(a) Wyant leases its premises under operating leases which expire at
various dates to 2004. Future minimum lease payments will
aggregate $8,034,000 as follows:
1996 $1,417,000
1997 $1,264,000
1998 $1,195,000
1999 $1,142,000
2000 $1,078,000
Thereafter $1,938,000
Annual rental expenses incurred during 1995 under operating leases were
$1,619,000 (1994 - $2,115,000; 1993 - $2,603,000).
(b) Supply agreement
In February 1994, Wyant signed a five-year supply agreement to
purchase 16,000 short tons of paper toweling and tissue annually
at market prices. This supplier provides 100% of the company's
requirements for these products.
F-16
<PAGE>
G.H. WOOD + WYANT INC.
NOTES TO SPECIAL PURPOSE CONSOLIDATED FINANCIAL STATEMENTS
20. CHANGES IN NON-CASH OPERATING WORKING CAPITAL ITEMS
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Accounts receivable $896,868 $1,988,843 $(6,149,156)
Income taxes recoverable 704,601 707,238 (1,150,014)
Inventories 289,249 2,992,029 (1,267,368)
Prepaid expenses 433,806 111,935 492,556
Accounts payable and accrued liabilities (86,996) 913,779 4,891,918
Balance of purchase price --- --- (5,163,000)
---------- ---------- ------------
$2,237,528 $6,713,824 $(8,345,064)
========== ========== ============
</TABLE>
21. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform to the
presentation adopted in the current year.
22. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES
These financial statements have been prepared in accordance with accounting
principles generally accepted ("GAAP") in Canada except that HPI (55.4% owned;
1994 - 52.6%) a controlled subsidiary, is accounted for using the equity method.
The non-consolidation of HPI is not in accordance with U.S. GAAP. Accordingly,
these special purpose financial statements should be read in conjunction with
the audited consolidated financial statements of HPI.
These special purpose financial statements conform in all material respects to
accounting principles generally accepted in the United States except as
described in the preceding paragraph and except as set forth below:
<TABLE>
<CAPTION>
Earnings Adjustments
1995 1994 1993
------------ ------------ --------
<S> <C> <C> <C>
Net earnings (loss)
in accordance with Canadian GAAP $332,118 $(2,153,272) $(4,577,926)
Restructuring charge, net of income taxes(1) (112,600) 114,000 ---
Pension income (expense), net of income taxes(2) (42,800) 168,000 (17,000)
Deferred income taxes(3) 49,000 152,000 91,600
--------- ------------- ------------
Net earnings (loss)
in accordance with U.S. GAAP $225,718 $(1,719,272) $(4,503,326)
======== ============ =============
</TABLE>
F-17
<PAGE>
G.H. WOOD + WYANT INC.
NOTES TO SPECIAL PURPOSE CONSOLIDATED FINANCIAL STATEMENTS
Notes to Earnings Adjustments
1. Under U.S. GAAP, recognition of the cost of certain restructuring charges
must be deferred for income statement purposes until specified conditions
have been satisfied. Accordingly, a charge of $189,055 would have been
recognized in 1995 and not in 1994 as reported in the Canadian GAAP
financial statements.
2. Accounting for pension benefits under U.S. GAAP utilized the corridor
method to amortize experience gains and losses. In addition, there are
differences under U.S. GAAP in the manner of dealing with plan
curtailments. The pension income (expense) recorded in 1995 would have been
$48,700 (1994 - $182,200; 1993 - $(315,300)).
A weighted average discount rate of 7.5% (1994 - 6%; 1993 - 6%) and a rate
of compensation increase of 5% (1994 - 5%; 1993 - 5%) were utilized to
measure the projected benefit obligations and the long term rate of return
on plan assets.
The projected benefit obligation at December 31, 1995 was $4,174,000 (1994
- $6,757,500) and assets available for benefits at market value was
$7,605,900 (1994 - $7,395,200).
3. Under U.S. GAAP, the liability method is used in accounting for income
taxes. For purposes of this reconciliation, the liability method was
applied prospectively from January 1, 1993. This requires recognition of
deferred tax assets and liabilities for temporary differences resulting
from differences between the financial reporting and tax bases of assets
and liabilities using enacted tax rates. Under U.S. GAAP, a valuation
allowance of $104,000 (1994 - $361,000; 1993 - $721,000) would have been
recognized to offset deferred tax assets.
4. In accordance with Staff Accounting Bulletin 67 issued by the Securities
and Exchange Commission, the charges presented in the income statement as
restructuring charge, termination of supply agreement and write-down of
capital assets would be required to be presented as components of operating
income. Under this presentation, earnings (loss) from operations for the
year ended December 31, 1995 would be $1,373,586 (1994 - $(5,428,613), 1993
- $(6,124,652)). This difference in presentation has no effect on net
income (loss).
F-18
<PAGE>
G.H. WOOD + WYANT INC.
NOTES TO SPECIAL PURPOSE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Balance Sheet Adjustments
1995 1994
----------------------------------------- --------------------------------------------------
Canadian U.S. Canadian U.S.
GAAP GAAP GAAP GAAP
<S> <C> <C> <C> <C>
Other assets <F1> 325,452 506,219 208,628 460,095
Deferred income tax asset <F2> 54,591 (31,637) 65,406 (142,116)
Restructuring charge <F3> 219,000 219,000 1,991,685 1,802,630
Class A Preferred shares <F4> - 3,399,000 - 3,399,000
Capital stock <F4> 7,000 2,001 7,000 2,001
Retained earnings <F1> to <F4> 19,707,662 16,500,261 19,375,544 16,274,543
Notes to Balance Sheet Adjustments
<FN>
<F1> Accounting for pension benefits under U.S. GAAP results in a timing
difference in the amortization of experience gains and losses, which causes
a change in the deferred pension cost assets.
<F2> Income taxes are provided on the deferral method under Canadian GAAP,
whereas under U.S. GAAP the liability method is used. In addition, the tax
impact of adjustments for pension benefits and restructuring charges are
also reflected.
<F3> The deferral of recognition of certain restructuring charges under U.S.
GAAP, until certain specified conditions have been satisfied, causes a
change in the liability at December 31, 1994.
<F4> Under U.S. GAAP, capital stock which is retractable at the option of the
shareholder is classified as a liability on the balance sheet and is
recorded at the redemption price.
</FN>
</TABLE>
Statement of Changes in Financial Position
Under U.S. GAAP, changes to amounts outstanding under a revolving credit
facility are classified as financing activities in the Statement of Changes in
Financial Position. Under Canadian GAAP, the amount outstanding is classified as
a component of cash and cash equivalents. Accordingly, cash provided by (used
in) financing activities determined in accordance with these requirements would
have been $(3,523,245) (1994 - $(9,316,624); 1993 - $13,439,454).
F-19
<PAGE>
<TABLE>
<CAPTION>
G.H. WOOD + WYANT INC.
UNAUDITED SPECIAL PURPOSE CONSOLIDATED BALANCE SHEET
(In Canadian Dollars)
September 30 December 31
1996 1995
------------ -------
[restated note 4]
ASSETS
<S> <C> <C>
Current:
Accounts receivable net of Allowance
for doubtful accounts of $577,086 (1995 - $761,500)............ $10,155,670 $ 9,876,105
Income taxes recoverable......................................... - 596,714
Inventories (note 2)............................................. 7,215,245 8,811,108
Prepaid expenses................................................. 573,324 407,613
Capital assets held for resale .................................. - 336,634
----------- -----------
Total current assets....................................................... 17,944,239 20,028,174
Investments ............................................................... 8,817,105 9,148,948
Capital assets ........................................................... 10,449,425 10,183,076
Goodwill (net of amortization of $702,675; 1995 - $562,140)................ 608,986 749,520
Other assets .............................................................. 346,750 325,452
Deferred income taxes...................................................... - 54,591
----------- -----------
$38,166,505 $40,489,761
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Bank indebtedness................................................ $1,601,857 $2,421,030
Accounts payable and accrued liabilities......................... 7,743,134 8,648,772
Income taxes payable............................................. 330,577 -
Termination of supply agreement.................................. - 1,454,000
Restructuring accrual............................................ - 219,000
Employee related accruals........................................ 1,305,505 1,136,298
Current portion of long-term debt................................ 2,093,714 2,603,714
---------- ----------
Total current liabilities.................................................. 13,074,787 16,482,814
Long-term debt............................................................. 3,553,999 4,292,285
Class A Preferred Shares (note 4).......................................... 3,399,000 3,399,000
---------- ----------
Total liabilities.......................................................... 20,027,786 24,174,099
Deferred income taxes...................................................... 775,408 -
Shareholders' Equity:
Capital stock.................................................... 2,001 2,001
Retained earnings................................................ 17,361,310 16,313,661
----------- ----------
Total shareholders' equity................................................. 17,363,311 16,315,662
----------- ----------
$38,166,505 $40,489,761
=========== ===========
- --------------------------
See accompanying notes
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
G.H. WOOD + WYANT INC.
UNAUDITED SPECIAL PURPOSE CONSOLIDATED
STATEMENT OF EARNINGS AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(In Canadian Dollars)
1996 1995
------------ --------
<S> <C> <C>
Sales...................................................................... $54,174,050 $53,975,350
Cost of Sales.............................................................. 31,250,678 31,278,335
----------- ------------
Gross Profit............................................................... 22,923,372 22,697,015
Selling, General and Administrative........................................ 16,153,098 16,019,921
Shipping................................................................... 3,387,069 3,760,652
Depreciation and Amortization.............................................. 497,193 534,987
----------- -------------
Income From Operations..................................................... 2,886,012 2,381,455
Other Income............................................................... (82,401) (53,660)
Interest Expense........................................................... 509,668 803,387
---------- -----------
Earnings Before Income Tax and
Share of Net Income (Loss) of Affiliates................................. 2,458,745 1,631,728
Provision For Income Taxes................................................. 1,080,000 97,900
----------- -----------
Earnings Before Share of
Net Income (Loss) of Affiliates.......................................... 1,378,745 1,533,828
Share of Net Income
(Loss) of Affiliates..................................................... (331,096) 197,360
----------- -----------
Net Earnings............................................................... 1,047,649 1,731,188
Retained Earnings, Beginning of Year [Restated Note 4]..................... 16,313,661 15,981,543
----------- -----------
Retained Earnings, September 30............................................ $17,361,310 $17,712,731
=========== ===========
- --------------------------
See accompanying notes
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
G.H. WOOD + WYANT INC.
UNAUDITED SPECIAL PURPOSE CONSOLIDATED STATEMENT OF
CHANGES IN FINANCIAL POSITION
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(In Canadian Dollars)
1996 1995
-------------- ---------
OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings............................................... $1,047,649 $1,731,188
Items not affecting cash:
Amortization......................................... 872,820 955,062
Deferred income taxes................................ 830,000 --
Share of net earnings of affiliates.................. 331,096 (197,360)
Gain on disposal of capital assets................... (3,682) --
Decrease in deferred charges......................... -- 38,529
----------- ----------
3,077,883 2,527,419
Changes in non-cash working capital balances
related to operations ................................... (331,553) (1,002,482)
----------- ----------
Cash provided by operating activities...................... 2,746,330 1,524,937
----------- ----------
INVESTING ACTIVITIES:
Proceeds on sale of capital assets......................... 318,039 --
Acquisition of long-term investments....................... -- (27,987)
Purchases of capital assets................................ (975,610) (196,754)
Increase in cash surrender value of life
insurance policies....................................... (21,299) --
----------- ----------
Cash provided by (used in) investing activities............ (678,870) (224,741)
----------- ----------
FINANCING ACTIVITIES:
Decrease in other long-term liabilities.................... -- (223,501)
Increase in long-term debt................................. 1,000,000 --
Repayment of long-term debt................................ (2,248,287) (1,464,601)
----------- ----------
Cash used in financing activities.......................... (1,248,287) (1,688,102)
----------- ----------
Increase (Decrease) in cash during the period.............. 819,173 (387,906)
Bank indebtedness, beginning of period..................... (2,421,030) (3,765,744)
----------- ----------
Bank indebtedness, end of period........................... $(1,601,857) $(4,153,650)
============ ============
- --------------------------
See accompanying notes
</TABLE>
F-22
<PAGE>
G.H.WOOD + WYANT INC.
NOTES TO UNAUDITED SPECIAL PURPOSE
CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
These unaudited interim special purpose consolidated financial statements are
expressed in Canadian dollars and have been prepared in accordance with
accounting principles generally accepted in Canada, except that HPI (55.4%
owned; 1995 - 55.4%), a controlled subsidiary, is accounted for on the equity
basis. Accordingly, each element of the statement of earnings and retained
earnings represents only Wyant's operating activities except that Wyant's
proportionate share of HPI's results is presented as "Share of Net Income (Loss)
of Affiliates."
As interim financial statements, they do not include all of the information and
footnote disclosures required by generally accepted accounting principles. In
the opinion of management, the accompanying consolidated financial statements
contain all adjustments, consisting only of normal recurring adjustments
necessary to present fairly the financial position as at September 30, 1996 the
results of operations for the nine months ended September 30, 1996 and 1995 and
the changes in financial position for the nine months ended September 30, 1996
and 1995. These financial statements should be read in conjunction with
"Information Concerning Wyant" and "Special Purpose Consolidated Financial
Statements of G.H.Wood + Wyant Inc." contained in this Proxy Statement.
Note 2. Inventories
September 30 December 31
1996 1995
--------------- ----------
Raw Materials $1,330,818 $1,659,196
Finished Goods 5,884,427 7,151,912
---------- ----------
$7,215,245 $8,811,108
========== ==========
Note 3. Accounting principles generally accepted in the United States.
The special purpose financial statements have been prepared in accordance with
accounting principles generally accepted (GAAP) in Canada except that HPI (55.4%
owned; 1995 - 55.4%) a controlled subsidiary, is accounted for using the equity
method. The non-consolidation of HPI is not in accordance with U.S. GAAP.
Accordingly, these special purpose financial statements should be read in
conjunction with the unaudited financial statements of HPI.
These special purpose financial statements conform in all material respects to
accounting principles generally accepted in the United States except as
described in the preceding paragraph and except as set forth below.
F-23
<PAGE>
G.H. WOOD + WYANT INC.
NOTES TO UNAUDITED SPECIAL PURPOSE
CONSOLIDATED FINANCIAL STATEMENTS
Earnings Adjustments
1996 1995
---------- ---------
Net earnings (loss)
in accordance with Canadian GAAP $1,047,649 $1,731,188
Restructuring charge, net of income
taxes (1) -- (112,600)
Pension (expense) net of income taxes (2) (18,000) (32,000)
Deferred income taxes (3) -- 37,000
---------- ----------
Net earnings (loss) in accordance with
United States GAAP $1,029,649 $1,623,588
========== ==========
Notes to Earnings Adjustments:
1. Under United States GAAP, recognition of the cost of certain restructuring
charges must be deferred for income statement purposes until specified
conditions have been satisfied. Accordingly a charge of $189,055 would have
been recognized in 1995 and not in 1994 as reported in the Canadian GAAP
financial statements.
2. Accounting for pension benefits under U.S. GAAP requires the corridor
method to be used to amortize experience gains and losses, while in Canada
experience gains and losses are amortized straight-line over the expected
average remaining service life.
3. Under U.S. GAAP, the liability method is used in accounting for income
taxes. This requires recognition of deferred tax assets and liabilities for
temporary differences in the recognition of income and expense for
financial reporting and tax accounting purposes.
Note 4. Class A Preferred Shares
Effective January 1, 1996, Canadian GAAP requires the retractable Class A
Preferred Shares to be classified on the balance sheet as a liability and to be
carried at their full redemption value. The redemption premium of $3,394,001 is
reflected as a charge against retained earnings. The new accounting standard has
been applied retroactively.
F-24
<PAGE>
<PAGE>
APPENDIX A
To The Proxy Statement
================================================================================
ASSET PURCHASE AGREEMENT
By and Among
Hosposable Products, Inc.,
a New York corporation,
3290441 Canada Inc.,
a Canadian corporation
and
G.H. Wood + Wyant Inc.,
a Canadian corporation
Dated as of November 12, 1996
================================================================================
<PAGE>
Cross-reference sheet for Definitions
Defined in
Term Section
- ---- ----------
1. Acquired Business......................................................1.1
2. Acquired Subsidiary....................................................3.4
3. Affiliate............................................................3.12a
4. Agreement......................................................1.0 (Intro)
5. Agreements............................................................1.5i
6. Auditor ..............................................................1.4c
7. Benefit Plans .......................................................3.12a
8. Bill of Sale ..........................................................1.1
9. Buyer .........................................................1.0 (Intro)
10. Buyer Benefit Plans ...................................................5.2b
11. Buyer Common Stock ....................................................4.4b
12. Buyer Disclosure Letter ................................................4.3
13. Buyer Indemnified Claims ..............................................8.1f
14. Buyer Indemnitees ......................................................8.1
15. Buyer Losses ...........................................................8.1
16. Buyer Parent ...................................................1.0 (Intro)
17. Buyer Parent Common Stock .............................................4.4a
18. Buyer Parties ..........................................................4.1
19. Class A Excluded Shares................................................5.19
20. Class A Mandatorily Redeemable Preferred Stock .........................1.2
21. Class B Mandatorily Redeemable Preferred Stock ........................ 1.2
22. Class E Exchangeable Preferred Stock ...................................1.2
23. Cleanup ..............................................................3.15m
24. Closing ................................................................2.1
25. Closing Date ...........................................................2.1
26. Contracts ............................................................3.16b
27. Covenant Agreement......................................................7.7
28. Deed ..................................................................1.5a
29. Disclosed Liabilities..............................................8.2b(ii)
30. Encumbrances ..........................................................1.5a
31. Environmental Laws ...................................................3.15m
32. Environmental Liabilities and Costs ..................................3.15m
33. Event of Insolvency of the Buyer.......................................5.15
34. Excess ................................................................1.4e
35. Exchange Act ...........................................................4.7
36. Excise Act ............................................................5.11
37. Excluded Assets ........................................................1.1
38. Excluded Shares........................................................8.3g
39. Fairness Opinion .......................................................6.5
40. Family Member...................................................Undertaking
41. Fee Property ..........................................................3.8a
42. Final Statement of Net Assets .........................................1.4d
43. Former Property ......................................................3.15d
44. GAAP ..................................................................1.4a
45. Government Obligations.................................................5.13
46. Governmental Authority ................................................3.5d
<PAGE>
47. Guaranty Agreement......................................................6.8
48. Hazardous Substances, Oils, Pollutants or Contaminants................3.15m
49. Houlihan Lokey .........................................................5.3
50. Intellectual Property ................................................3.13a
51. Intellectual Property Assignment ......................................1.5a
52. Investments............................................................5.13
53. JDW Shares.............................................................8.3g
54. Laws ..................................................................3.5a
55. LE Shares..............................................................8.3g
56. Lease Assignments .....................................................1.5a
57. Material Adverse Effect ................................................3.1
58. Material Supplier .....................................................3.19
59. Net Asset Value .......................................................1.4a
60. Note ...................................................................1.2
61. Permits ..............................................................3.15b
62. Permitted Encumbrances ................................................1.5a
63. Permitted Investments..................................................5.13
64. Permitted Liens .......................................................3.7b
65. Person .................................................................3.5
66. Policy ................................................................1.5d
67. Preferred Stock ........................................................1.2
68. Preliminary Statement of Net Assets ...................................1.4a
69. Proceedings ............................................................3.6
70. Property .............................................................3.15c
71. Proxy Statement ........................................................5.9
72. Purchase Price .........................................................1.2
73. Purchase Price Indemnification Amount..............................8.3e(ii)
74. Real Property .........................................................3.8a
75. Real Property Leases ..................................................3.8a
76. Related Persons.................................................Undertaking
77. Reference Balance Sheet ................................................3.9
78. Reference Balance Sheet Date ...........................................3.9
79. Registration Rights Agreement...........................................7.8
80. Release ..............................................................3.15m
81. SEC ....................................................................4.7
82. SEC Documents ..........................................................4.7
83. Securities Act ........................................................3.25
84. Securities Laws .......................................................3.25
85. Seller .........................................................1.0 (Intro)
86. Seller Disclosure Letter ..............................................1.5a
87. Seller Indemnified Claims .............................................8.2c
88. Seller Indemnitees .....................................................8.2
89. Seller Losses ..........................................................8.2
90. Seller's Best Knowledge ...............................................3.24
91. Shortfall .............................................................1.4e
92. Special Committee ......................................................5.3
93. Transferred Employees .................................................5.2a
94. Underlying Shares .....................................................4.5b
95. Undertaking ............................................................1.2
96. Undisclosed Liabilities................................................5.15
97. X Shares...............................................................8.3g
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
TRANSFER OF BUSINESS, PROPERTIES AND ASSETS
1.1 Sale and Transfer of Business, Properties and
Assets....................................................... 1
1.2 Purchase Price............................................... 1
1.3 Payment of Purchase Price.................................... 2
1.4 Post-Closing Adjustment...................................... 2
(a) Preparation of Preliminary Statement of Net
Assets............................................... 2
(b) Review of Preliminary Statement of Net
Assets............................................... 3
(c) Disputes............................................. 3
(d) Final Statement of Net Assets........................ 3
(e) Adjustment to the Note............................... 4
1.5 Instruments of Conveyance, Transfer, Assumption,
Etc.......................................................... 4
1.6 Further Assurances........................................... 6
1.7 Purchase Price Allocation.................................... 7
1.8 Tax Elections................................................ 7
ARTICLE 2
CLOSING AND TERMINATION
2.1 Closing...................................................... 8
2.2 Termination.................................................. 8
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Organization................................................. 8
3.2 Corporate Authority.......................................... 9
3.3 Other Agreements............................................. 9
3.4 Subsidiaries and Equity Investments.......................... 9
3.5 No Violation................................................ 10
3.6 Litigation.................................................. 11
3.7 Personal Property........................................... 11
3.8 Real Property............................................... 11
3.9 Financial Statements........................................ 13
3.10 Books and Records........................................... 14
<PAGE>
3.11 Tax Matters................................................. 14
3.12 Employee Matters............................................ 14
3.13 Intellectual Property....................................... 16
3.14 Absence of Change or Event.................................. 18
3.15 Compliance With Law......................................... 19
3.16 Contracts and Commitments................................... 22
3.17 Insurance................................................... 23
3.18 Affiliate Interests......................................... 24
3.19 Customers and Suppliers..................................... 24
3.20 Products.................................................... 25
3.21 Accounts Receivable......................................... 25
3.22 Inventory................................................... 25
3.23 Disclosure.................................................. 25
3.24 Seller's Best Knowledge..................................... 25
3.25 Private Placement........................................... 25
3.26 Sufficiency of Assets to Conduct Acquired
Business.................................................... 26
3.27 Corporate Names............................................. 26
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Organization................................................ 27
4.2 Corporate Authority......................................... 27
4.3 No Violation................................................ 27
4.4 Authorized and Outstanding Shares of Capital
Stock....................................................... 28
4.5 Preferred Stock............................................. 28
4.6 Note........................................................ 29
4.7 SEC Documents............................................... 29
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS
OF SELLER, BUYER AND BUYER PARENT
5.1 Conduct of Business Prior to the Closing Date............... 30
5.2 Employee Matters............................................ 30
5.3 Expenses and Finder's Fees.................................. 31
5.4 Access to Information and Confidentiality................... 31
5.5 Press Releases.............................................. 32
5.6 Transitional Assistance..................................... 32
5.7 Transfer Taxes.............................................. 32
5.8 Shareholder Meeting......................................... 32
5.9 Proxy Statement............................................. 33
5.10 Reservation of Underlying Shares; Exchange of
Class E Exchangeable Preferred Stock........................ 33
5.11 GST Election................................................ 33
5.12 Bulk Sales Legislation...................................... 34
<PAGE>
5.13 Conduct of Business by Seller After the Closing
Date........................................................ 34
5.14 No Assignment of Note....................................... 34
5.15 Seller Reimbursement........................................ 34
5.16 Corporate Changes........................................... 35
5.17 Guarantee of Real Property Lease Obligations................ 35
5.18 Issuance of Preferred Stock................................. 36
5.19 Seller Covenant Relating to X Shares........................ 36
5.20 Seller Covenant Relating to Capital Stock................... 36
ARTICLE 6
CONDITIONS PRECEDENT OF BUYER AND BUYER PARENT
6.1 Representations and Warranties.............................. 36
6.2 Opinion of Seller's Counsel................................. 37
6.3 No Injunction............................................... 37
6.4 Consents.................................................... 37
6.5 Fairness Opinion............................................ 37
6.6 Material Adverse Change..................................... 37
6.7 Investment Letters.......................................... 38
6.8 Guaranty Agreement.......................................... 38
6.9 Financing................................................... 38
ARTICLE 7
CONDITIONS PRECEDENT OF SELLER
7.1 Representations and Warranties.............................. 38
7.2 Opinion of Special Counsel for the Special
Committee................................................... 38
7.3 No Injunction............................................... 39
7.4 Consents.................................................... 39
7.5 Fairness Opinion............................................ 39
7.6 Material Adverse Change..................................... 39
7.7 Covenant Agreement.......................................... 39
7.8 Registration Rights Agreement............................... 39
7.9 Financing................................................... 39
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification by Seller................................... 40
8.2 Indemnification by Buyer and Buyer Parent................... 41
8.3 Certain Limitations......................................... 42
8.4 Satisfaction of Seller Indemnity............................ 44
ARTICLE 9
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 Representations, Warranties and Covenants................... 45
ARTICLE 10
<PAGE>
MISCELLANEOUS
10.1 Cooperation................................................. 46
10.2 Waiver...................................................... 46
10.3 Notices..................................................... 46
10.4 Mail Received After Closing................................. 47
10.5 Governing Law and Consent to Jurisdiction;
Dispute Resolution.......................................... 47
10.6 Counterparts................................................ 48
10.7 Headings.................................................... 48
10.8 Entire Agreement............................................ 48
10.9 Amendment and Modification.................................. 48
10.10 Binding Effect; Benefits.................................... 48
10.11 Assignability............................................... 48
10.12 Acquired Subsidiary......................................... 49
Appendix A Terms for the Preferred Stock
Exhibit A Bill of Sale
Exhibit B List of Excluded Assets
Exhibit C Form of Note
Exhibit D Undertaking
Exhibit E Statement of Net Assets Exceptions
Exhibit F Form of Deed for Fee Property
Exhibit G Form of Assignment for Intellectual
Property
Exhibit H-1 and H-2 Forms of Assignments for Real Property
Leases
Exhibit I Seller's "best knowledge"
Exhibit J-1 and J-2 Opinions of Seller's Counsel
Exhibit K Form of Guaranty Agreement
Exhibit L-1 and L-2 Opinions of Special Counsel to the
Special Committee
Exhibit M Form of Covenant Agreement
Exhibit N Form of Registration Rights Agreement
Exhibit O Pro Forma Balance Sheet
<PAGE>
ASSET PURCHASE AGREEMENT dated as of November 12, 1996
(herein, together with the Exhibits attached hereto, referred to as the
"Agreement") by and among G.H. Wood + Wyant Inc., a corporation incorporated
under the Canada Business Corporations Act ("Seller"), Hosposable Products,
Inc., a New York corporation ("Buyer Parent"), and 3290441 Canada Inc., a
corporation incorporated under the Canada Business Corporations Act, and a
wholly owned subsidiary of Buyer Parent ("Buyer").
In reliance upon the representations and warranties made
herein and in consideration of the mutual agreements herein contained, the
parties agree as follows:
ARTICLE 1
TRANSFER OF BUSINESS, PROPERTIES AND ASSETS
1.1 Sale and Transfer of Business, Properties and Assets.
Subject to the terms and conditions of this Agreement, and in reliance on the
representations, warranties, undertakings (including the Undertaking (as defined
in Section 1.2)), indemnities and agreements of Buyer and Buyer Parent made
hereunder, and in consideration of the purchase by Buyer described below, and
execution and delivery by Buyer to Seller of the Undertaking, Seller hereby
agrees to sell, transfer, convey, assign and deliver to Buyer at the Closing
provided for in Section 2.1 all the business and assets of Seller including,
without limitation, the properties, assets and other rights referred to in the
bill of sale (the "Bill of Sale") substantially in the form of Exhibit A
attached hereto, excluding only the Excluded Assets, as defined in the next
succeeding sentence (such business, properties, assets and other rights to be
purchased and sold hereunder being hereinafter referred to as the "Acquired
Business"). It is understood and agreed that those assets listed on Exhibit B
attached hereto shall not be included in the Acquired Business and shall be
excluded therefrom (the "Excluded Assets").
1.2 Purchase Price. Subject to the terms and conditions of
this Agreement, and in reliance on the representations, warranties, undertakings
and agreements of Seller made hereunder, and in consideration of such sale,
transfer, conveyance, assignment and delivery, Buyer agrees, and Buyer Parent
agrees to cause Buyer, (i) to pay and deliver to Seller (w) Cdn$5 million, (x) a
promissory note in the aggregate principal amount of Cdn$4,262,741 subject to
adjustment, if any, as set forth in Section 1.4, and in the form of Exhibit C
attached hereto (the "Note"), (y) 3,800,000 shares of its Class B preferred
stock having an aggregate liquidation preference of Cdn$3,800,000, and having
the particular terms set forth in Schedule 1 to the Articles of Incorporation,
as amended, of Buyer attached hereto as Appendix A (the "Class B
<PAGE>
Mandatorily Redeemable Preferred Stock") and (z) 1 million shares of its Class E
preferred stock having an aggregate liquidation preference and the particular
terms set forth in Schedule 1 to the Articles of Incorporation, as amended, of
Buyer attached hereto as Appendix A (the "Class E Exchangeable Preferred Stock")
(as adjusted, clauses (w), (x), (y) and (z) are hereinafter referred to
collectively as the "Purchase Price"), and (ii) to undertake, assume and agree
to perform and otherwise pay, satisfy and discharge in accordance with their
respective terms, and to indemnify and hold Seller harmless with respect to, and
only with respect to, the debts, liabilities and obligations of Seller specified
in the undertaking to be executed by Buyer and delivered to Seller at the
Closing substantially in the form of Exhibit D attached hereto (the
"Undertaking"). Immediately subsequent to the adjustment as set forth in Section
1.4, Seller hereby agrees to exchange the Note for shares of Buyer's Class A
preferred stock having a liquidation preference of Cdn$1 per share and having
the particular terms set forth in Schedule 1 to the Articles of Incorporation,
as amended, of Buyer attached hereto as Appendix A (the "Class A Mandatorily
Redeemable Preferred Stock" and, together with the Class B Mandatorily
Redeemable Preferred Stock and the Class E Exchangeable Preferred Stock, the
"Preferred Stock") on the basis of one share of Class A Mandatorily Redeemable
Preferred Stock for each Cdn$1 in unpaid principal amount of the Note and Buyer
hereby agrees, and Buyer Parent agrees to cause Buyer, to issue such shares in
such exchange.
1.3 Payment of Purchase Price. The Purchase Price shall be
paid by Buyer as follows: at the Closing (as defined in Section 2.1), Buyer
shall deliver to Seller (x) Cdn$5 million in immediately available funds by wire
transfer to an account designated by Seller at least two business days prior to
the Closing Date, (y) the Note in the form of one typewritten note in the
principal amount of the Note, and (z) stock certificate(s), in form suitable for
transfer, registered in the name of Seller, evidencing the Class B Mandatorily
Redeemable Preferred Stock and the Class E Exchangeable Preferred Stock.
1.4 Post-Closing Adjustment.
(a) Preparation of Preliminary Statement of Net Assets. As
soon as reasonably possible after the Closing Date (but not later than 90 days
thereafter), Seller will prepare and will cause Seller's auditors to audit a
statement of assets, liabilities and net assets (the "Preliminary Statement of
Net Assets") of the Acquired Business dated as of the Closing Date and shall
deliver the Preliminary Statement of Net Assets to Buyer. The Preliminary
Statement of Net Assets shall, except as set forth on Exhibit E attached hereto,
be prepared in accordance with generally accepted accounting principles
applicable in Canada ("GAAP") on a basis consistent with the Reference Balance
Sheet (as defined in Section 3.9) and shall set forth a net asset value (the
"Net Asset Value"); provided that, in any event the Preliminary Statement of Net
Assets shall record as a liability all unpaid fees and expenses payable by
-2-
<PAGE>
Seller to third parties in connection with the consummation of the transactions
contemplated by this Agreement. Buyer's auditors will have a right to consult
with Seller's auditors and have access to Seller's auditors' working papers in
connection with the Preliminary Statement of Net Assets.
(b) Review of Preliminary Statement of Net Assets. The
Preliminary Statement of Net Assets shall be binding and conclusive upon, and
deemed accepted by, Buyer unless Buyer shall have notified Seller in writing of
any objections thereto consistent with the provisions of this Section 1.4 within
30 days after receipt thereof. The written notice under this Section 1.4(b)
shall specify in reasonable detail each item on the Preliminary Statement of Net
Assets that Buyer disputes and a summary of Buyer's reasons for such dispute.
(c) Disputes. Disputes between Buyer and Seller relating to
the Preliminary Statement of Net Assets that cannot be resolved by them within
30 days after receipt by Seller of the notice referred to in Section 1.4(b) may
be referred no later than 30 days after such receipt for decision at the
insistence of either party to Price Waterhouse (such firm being referred to
herein as the "Auditor"). Prior to referring the matter to the Auditor, the
parties shall agree on the procedures to be followed by the Auditor (including
procedures with regard to presentation of evidence). Such procedures shall not
alter the accounting practices, principles and policies to be applied to the
Preliminary Statement of Net Assets that will be those required by this
Agreement. If the parties are unable to agree upon procedures before the end of
15 days after referral of the dispute to the Auditor, the Auditor shall
establish such procedures giving due regard to the intention of the parties to
resolve disputes as quickly, efficiently and inexpensively as possible, which
procedures may be, but need not be, those proposed by the parties. The parties
shall then submit evidence in accordance with the procedures established and the
Auditor shall decide the dispute in accordance therewith. The Auditor's decision
on any matter referred to it shall be final and binding on Seller and Buyer. The
fee and expenses of the Auditor shall be borne by Seller and Buyer in equal
portions, unless the Auditor decides, based on its determination with respect to
the reasonableness of the respective positions of the parties, that the fee and
expenses shall be borne in unequal proportions.
(d) Final Statement of Net Assets. The Preliminary Statement
of Net Assets shall become final and binding upon the parties upon the earlier
of (i) the failure by Buyer to object thereto within the period permitted under
Section 1.4(b), (ii) the agreement between Buyer and Seller with respect thereto
or (iii) the decision by the Auditor with respect to any disputes referred to
the Auditor under Section 1.4(c). The Preliminary Statement of Net Assets, as
adjusted pursuant to the agreement of the parties or decision of the Auditor,
when final and binding is referred to herein as the "Final Statement of Net
Assets".
-3-
<PAGE>
(e) Adjustment to the Note. As soon as practicable (but not
more than five business days) after the determination and delivery of the Final
Statement of Net Assets in accordance with this Section 1.4: (i) the amount, if
any, by which the Net Asset Value as at the Closing Date as reflected in the
Final Statement of Net Assets is less than Cdn$10,362,741 plus Cdn$2.7 million
(the "Shortfall") shall result in an immediate downward adjustment of the
principal amount of the Note in an amount equal to the Shortfall, which
adjustment shall be effected pursuant to the terms of the Note and which
adjustment shall be deemed to have occurred as of the Closing Date; and (ii) the
amount, if any, by which the Net Asset Value as at the Closing Date as reflected
in the Final Statement of Net Assets is greater than Cdn$10,362,741 plus Cdn$2.7
million (the "Excess") shall result in an immediate upward adjustment of the
principal amount of the Note in an amount equal to the Excess, which adjustment
shall be effected pursuant to the terms of the Note and which adjustment shall
be deemed to have occurred as of the Closing Date.
(f) Subject to Section 8.3(f), any payment required by this
Section 1.4 shall not limit or affect Buyer's rights or remedies (or be Buyer's
sole or exclusive right or remedy) with respect to this Agreement, the breach of
any representation, warranty or obligation herein, the failure of any condition
to Buyer's obligations hereunder to be satisfied or the indemnification
obligations of Seller hereunder.
1.5 Instruments of Conveyance, Transfer, Assumption, Etc. (a)
Seller shall properly execute and deliver to Buyer at the Closing: (i) the Bill
of Sale; (ii) assignments with respect to each of the contracts and other
agreements and rights to be assigned to Buyer hereunder and, where required for
such assignment, the consent or waiver of any third party, in each case in form
reasonably satisfactory to Buyer; (iii) a deed in the form of Exhibit F attached
hereto (the "Deed") sufficient to vest in Buyer good and valid title to the Fee
Property (as defined in Section 3.8) free and clear of all pledges, liens,
charges, encumbrances, easements, title defects, security interests, adverse
claims, options and restrictions of every kind (collectively, the
"Encumbrances"), except for (1) Encumbrances reflected in the Reference Balance
Sheet or created in the ordinary course of business subsequent to December 31,
1995, that, in either case, do not and will not materially interfere with the
present use by Seller of the property subject thereto or affected thereby, (2)
Encumbrances for taxes, assessments or governmental charges, or landlords',
mechanics', workmen's, materialmen's or similar liens, in each case that are not
delinquent or that are being contested in good faith, (3) Encumbrances that are
reflected in the title reports or surveys, if any, delivered to Buyer or Buyer
Parent in connection with the transactions contemplated hereby prior to the date
hereof, or (4) the Encumbrances of record and other Encumbrances, in each case,
listed on Schedule 1.5 to the disclosure letter provided by Seller to Buyer and
Buyer Parent dated the date hereof (the "Seller Disclosure Letter")
-4-
<PAGE>
(collectively, the "Permitted Encumbrances"); (iv) an assignment in the form of
Exhibit G attached hereto (the "Intellectual Property Assignment") sufficient to
convey the Intellectual Property (as defined in Section 3.13) free and clear of
all Encumbrances other than Permitted Liens (as defined in Section 3.7(b)); (v)
assignments in the forms of Exhibit H-1 and H-2 attached hereto (the "Lease
Assignments") sufficient to assign the Real Property Leases (as defined in
Section 3.8), with the consent to assignment of the other party to the Real
Property Leases, free and clear of all Encumbrances other than Permitted
Encumbrances; and (vi) if the Acquired Subsidiary (as defined in Section 3.4) is
not merged, amalgamated or otherwise combined with Seller prior to the Closing
Date, certificates evidencing all of the issued and outstanding capital stock of
the Acquired Subsidiary, accompanied by stock powers duly executed in blank.
Buyer shall pay all fees, costs and expenses relating to the Deed, the
Intellectual Property Assignment and the Lease Assignments, including but not
limited to the execution, delivery and recording thereof (it being understood
that only the Lease Assignments relating to the Scarborough, Ontario properties
and the Lachine, Quebec property leased by Seller will be recorded), all
documentary stamps on the Deed, and all transfer and conveyance taxes and fees
but excluding all liability for any income taxes or capital gains taxes
assessable in connection with the transfer. Seller and Buyer shall cooperate to
prepare and file all required documents and filings with the applicable
authorities. Unless otherwise indicated, all references to schedules in this
Agreement shall mean schedules to the Seller Disclosure Letter.
(b) At or prior to the Closing, Seller shall deliver to Buyer,
Buyer Parent and its title insurer such evidence as may be reasonably required
by Buyer, Buyer Parent or its title insurer of the due authorization, execution
and delivery of this Agreement and the consummation of the transfer of the Fee
Property contemplated hereunder.
(c) At or prior to the Closing, Seller shall deliver to Buyer
and Buyer Parent the real estate tax bills for the Fee Property for the most
recent tax year.
(d) There shall be available to Buyer and Buyer Parent at the
Closing, at Buyer's expense, a commitment or commitments to issue on a customary
form acceptable to Buyer and Buyer Parent, an owner's title insurance policy or
policies (the "Policy"), for the Fee Property, at standard rates, issued by
companies acceptable to Buyer and Buyer Parent, in amounts not less than the
value of the Fee Property, insuring title thereto to be good and marketable,
free and clear of all Encumbrances, except for Permitted Encumbrances.
(e) There shall be available to Buyer and Buyer Parent at the
Closing, at Buyer's expense, a survey of the Fee Property, certified to Buyer,
Buyer Parent and the title insurance company issuing the Policy in a manner
reasonably acceptable to Buyer, Buyer Parent and such title company, by a
registered land surveyor,
-5-
<PAGE>
dated not more than forty-five (45) days prior to the Closing, and complying
with the minimum detail requirements for land title surveys as applicable under
the laws of Ontario.
(f) Seller shall use its best efforts to obtain and deliver to
Buyer and Buyer Parent a certificate from any landlord or tenant of a Real
Property Lease, dated not more than thirty (30) days prior to the Closing Date,
certifying (i) that such Real Property Lease is in good standing and full force
and effect in accordance with its terms and has not been modified (except for
the modifications set forth therein); (ii) the date(s) to which rent and other
charges thereunder have been paid; (iii) that there is no default thereunder on
the part of any party thereto; (iv) that in such instances where Seller is the
landlord, all work required to be done by landlord under the lease has been
completed to the satisfaction of tenant; and (v) such further matters as may
reasonably be requested by Buyer or Buyer Parent.
(g) Simultaneously with the Closing, Seller shall take all
steps requisite to put Buyer in actual possession and operating control of the
Acquired Business.
(h) Buyer shall properly execute and deliver the Undertaking
to Seller at the Closing.
(i) This Agreement, the Bill of Sale, the Undertaking, the
Deed, the Intellectual Property Assignment, the Lease Assignments, the Guaranty
Agreement (as defined herein), the Covenant Agreement (as defined herein) and
the Registration Rights Agreement (as defined herein) are hereinafter sometimes
referred to as the "Agreements".
1.6 Further Assurances. At the Closing and from time to time
after the Closing, (i) at the request of Buyer or Buyer Parent and without
further consideration, Seller shall promptly execute and deliver to Buyer such
certificates and other instruments of sale, conveyance, assignment and transfer,
and take such other action, as may reasonably be requested by Buyer or Buyer
Parent more effectively to confirm any obligation assumed by Buyer pursuant to
the Undertaking, to sell, convey, assign and transfer to and vest in Buyer or to
put Buyer in possession of the Acquired Business and to confirm and carry out
the indemnification by Seller pursuant to Section 8.1, and (ii) at the request
of Seller and without further consideration, (x) Buyer shall promptly execute
and deliver to Seller such certificates and other instruments of assumption and
take such other action as may reasonably be requested by Seller more effectively
to confirm and carry out the assumption by Buyer of the obligations of Seller
assumed by Buyer pursuant to the Undertaking and the indemnification by Buyer
pursuant to Section 8.2 and (y) Buyer Parent shall promptly execute and deliver
to Seller such certificates and other documents and take such other action as
may be reasonably requested by Seller more effectively to confirm and carry out
the indemnification by Buyer Parent pursuant to Section 8.2. To the extent that
any
-6-
<PAGE>
consents, waivers or approvals necessary to convey assets that are part of the
Acquired Business to Buyer are not obtained prior to the Closing, Seller shall
use its best efforts to: (i) provide to Buyer, at the request of Buyer or Buyer
Parent, the benefits of any such asset, and hold the same in trust for Buyer;
(ii) cooperate in any reasonable and lawful arrangement, approved by Buyer and
Buyer Parent, designed to provide such benefits to Buyer; and (iii) enforce and
perform, at the request of Buyer or Buyer Parent, for the account of Buyer, any
rights or obligations of Seller arising from any such asset against or in
respect of any third person (including a government or governmental unit),
including the right to elect to terminate any contract, arrangement or agreement
in accordance with the terms thereof upon the advice of Buyer or Buyer Parent.
1.7 Purchase Price Allocation. The allocation of the Purchase
Price shall be set by Seller by notice in writing to the Buyer within ten days
subsequent to the issuance of the Final Statement of Net Assets. For
informational purposes, the allocation of the Purchase Price if it were based on
the net asset value of the assets of the Acquired Business as at December 31,
1995 (excluding the Excluded Assets) would be the allocation set forth on
Schedule 1.7.
1.8 Tax Elections. The Seller and Buyer both hereby agree that
they will both jointly make an election pursuant to the provisions of section 85
of the Income Tax Act (Canada) and section 518 of the Quebec Taxation Act, so
that the proceeds of disposition to the Seller and the cost amount to the Buyer
with respect to the following of the assets that are part of the Acquired
Business will not be less than the respective cost amounts thereof. For purposes
of the tax elections herein referred to, the parties will use the undepreciated
capital cost or cumulative eligible capital account as at January 1, 1997 for
the following assets:
(1) Machinery
(2) Furniture and Fixtures
(3) Computer Equipment
(4) Leasehold Improvements
(5) Intangibles
(6) Buildings forming part of the Fee Property
Seller and Buyer agree to jointly make an election pursuant to
Section 22 of the Income Tax Act (Canada) and Section 184 of the Quebec Taxation
Act in respect of the accounts receivable forming part of the Acquired Business.
For purposes of this Section 1.8, the term "cost amount" shall have the meaning
ascribed to such term in subsection 248(1) of the Income Tax Act (Canada).
-7-
<PAGE>
ARTICLE 2
CLOSING AND TERMINATION
-----------------------
2.1 Closing. The closing of the transactions provided for
herein (the "Closing") will take place at the offices of Winthrop, Stimson,
Putnam & Roberts, One Battery Park Plaza, New York, New York, at 10:00 A.M.
(local time) on January 3, 1997 (the "Closing Date") or at such other place,
time and date as may be
agreed upon by Buyer and Seller.
2.2 Termination. Anything contained in this Agreement other
than in this Section 2.2 to the contrary notwithstanding, this Agreement may be
terminated in writing at any time:
(a) without liability on the part of any party hereto (unless
occasioned by reason of a material breach by any party hereto of any of
its representations, warranties or obligations hereunder) by mutual
consent of Buyer and Seller;
(b) without liability on the part of any party hereto (unless
occasioned by reason of a material breach by any party hereto of any of
its representations, warranties or obligations hereunder) by either
Buyer or Seller, if the Closing shall not have occurred on or before
January 31, 1997 (or such later date as may be agreed upon in writing
by the parties hereto);
(c) by Buyer or Buyer Parent, if Seller shall materially
breach any of its representations, warranties or obligations hereunder
and such breach shall not have been cured or waived and Seller shall
not have provided reasonable assurance that such breach will be cured
on or before the Closing Date; or
(d) by Seller, if Buyer or Buyer Parent shall materially
breach any of its representations, warranties or obligations hereunder
and such breach shall not have been cured or waived and Buyer or Buyer
Parent shall not have provided reasonable assurance that such breach
will be cured on or before the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller represents and warrants to Buyer and Buyer Parent that:
3.1 Organization. Seller is a corporation duly organized,
validly existing and has made all necessary corporate filings required to be
made under the laws of the jurisdiction of its organization to keep Seller in
good standing under such laws
-8-
<PAGE>
and has all corporate power and authority to carry on its business as now being
conducted and to own its properties and is duly licensed or qualified and in
good standing as a foreign corporation in each jurisdiction in which it is
required to be so licensed or so qualified, except where the failure to be so
licensed or so qualified would not have a material adverse effect on the
business, financial condition, assets, liabilities (contingent or otherwise) or
results of operations (a "Material Adverse Effect") of Seller or the Acquired
Business. Seller has heretofore delivered to Buyer and Buyer Parent complete and
correct copies of the certificate and articles of amalgamation and all
amendments thereto and by-laws of Seller as currently in effect.
3.2 Corporate Authority. Seller has full corporate power and
authority to enter into this Agreement and the other Agreements to which it is
or will be a party at Closing and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance by Seller of the
Agreements to which it is a party or will be a party at Closing have been duly
authorized by all requisite corporate action. This Agreement has been, and each
of the other Agreements to which it will be a party as of the Closing Date will
be, duly executed and delivered by Seller, and (assuming due execution and
delivery by Buyer and Buyer Parent) this Agreement constitutes, and each of the
other Agreements to which it is or will be a party when executed and delivered
will constitute, a valid and binding obligation of Seller, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally or by general equitable principles.
3.3 Other Agreements. The instruments of conveyance and
transfer to be executed by Seller and delivered to Buyer and Buyer Parent at the
Closing will be valid in accordance with their terms and effective to assign,
transfer and convey to Buyer at the Closing all of the then existing business of
the Acquired Business and properties, assets and other rights of Seller used in
the business of the Acquired Business, including such title as is specified in
Sections 3.7 and 3.8 but excluding the Excluded Assets.
3.4 Subsidiaries and Equity Investments. Schedule 3.4 sets
forth the name, jurisdiction of incorporation, authorized capitalization and
share ownership of the only direct or indirect subsidiary of Seller (the
"Acquired Subsidiary") and the jurisdictions in which the Acquired Subsidiary is
qualified to do business. As used in the first sentence of this Section 3.4, the
term "subsidiary" means any corporation of which Seller, directly or indirectly,
owns or controls capital stock representing more than fifty percent of the
general voting power under ordinary circumstances of such corporation, except
for Buyer, Buyer Parent, American Converting Paper Corporation and any
subsidiary of Buyer Parent. Except as disclosed in Schedule 3.4 and except for
securities of Buyer Parent, American Converting Paper Corporation
-9-
<PAGE>
and any subsidiary of Buyer Parent, Seller does not own, directly or indirectly,
any capital stock or other equity securities of any corporation or have any
direct or indirect equity or ownership interest, including interests in
partnerships and joint ventures, in any business not listed in Schedule 3.4.
Except as disclosed in Schedule 3.4, all of the outstanding capital stock of the
Acquired Subsidiary is owned by Seller free and clear of all Encumbrances. All
such shares of capital stock have been duly authorized, validly issued and are
fully paid and nonassessable. There are no outstanding options, warrants or
other rights of any kind to acquire any additional shares of capital stock of
the Acquired Subsidiary or securities convertible into or exchangeable for, or
that otherwise confer on the holder thereof any right to acquire, any such
additional shares, nor is the Acquired Subsidiary committed to issue any such
option, warrant, right or security. The Acquired Subsidiary is a corporation
duly organized and validly existing and has made all necessary corporate filings
required to be made by the Acquired Subsidiary under the laws of its
jurisdiction of organization to keep the Acquired Subsidiary in good standing
under such laws and has all corporate power and authority to carry on its
business as now being conducted and to own its properties and is duly licensed
or qualified and in good standing as a foreign corporation in each jurisdiction
in which it is required to be so licensed or so qualified, except where the
failure to be so licensed or so qualified would not have a Material Adverse
Effect on the Acquired Business. Seller has heretofore delivered to Buyer and
Buyer Parent complete and correct copies of the certificate and articles of
incorporation and all amendments thereto and by-laws or similar corporate
organizational documents of the Acquired Subsidiary as currently in effect.
3.5 No Violation. Except as disclosed in Schedule 3.5, none
of Seller or the Acquired Subsidiary is subject to or bound by any provision of:
(a) any law, statute, legally binding rule (including the
civil law and the common law), regulation, policy, guideline, directive
or judicial or administrative decision (collectively, "Laws"),
(b) any articles or certificate of incorporation (or similar
corporate organizational documents) or by-laws,
(c) any mortgage, deed of trust, lease, note, shareholders'
agreement, bond, indenture, other instrument or agreement, license,
permit, trust, custodianship, other restriction, or
(d) any judgment, order, writ, injunction or decree of any
court, governmental body, regulatory or administrative authority or
agency or arbitration tribunal (collectively, "Governmental
Authority"),
-10-
<PAGE>
that would prevent or be violated by or that would result in the creation of any
Encumbrance as a result of, or under which there would be a default or right of
termination as a result of, the execution, delivery and performance by Seller of
this Agreement and each of the other Agreements to which it is or will be a
party at Closing and the consummation of the transactions contemplated hereby
and thereby. Except as disclosed in Schedule 3.5, no consent, approval, or
authorization of or declaration or filing with any individual, corporation,
partnership, trust or unincorporated organization or any Governmental Authority
(a "Person") is required for the valid execution, delivery and performance by
Seller of this Agreement and each of the other Agreements to which it is or will
be a party at Closing and the consummation of the transactions contemplated
hereby and thereby.
3.6 Litigation. Except as disclosed in Schedule 3.6, there is
(i) no outstanding consent, order, judgment, injunction, award or decree of any
Governmental Authority against or involving Seller, the Acquired Subsidiary or
any of the business, assets or properties of the Acquired Business, (ii) no
action, suit, dispute or proceeding pending by or before any Governmental
Authority or, to Seller's best knowledge, threatened against or involving
Seller, the Acquired Subsidiary or any of the business, assets or properties of
the Acquired Business and (iii) to Seller's best knowledge, no investigation
pending by or before any Governmental Authority or threatened against or
relating to Seller, the Acquired Subsidiary or any of the business, assets or
properties of the Acquired Business (collectively, "Proceedings"). The
Proceedings disclosed in Schedule 3.6, singly or in the aggregate, have not had
and are not likely to have a Material Adverse Effect on the Acquired Business or
a material adverse effect on the ability of Seller to consummate the
transactions contemplated hereby.
3.7 Personal Property. (a) Schedule 3.7(a) sets forth all
loans or advances made by the Acquired Business to any Person in excess of
Cdn$1,000.
(b) Except for (i) Encumbrances for taxes, assessments or
governmental charges, or landlords', mechanics', workmen's, materialmen's or
similar liens, in each case that are not delinquent or that are being contested
in good faith or (ii) the Encumbrances of record and other Encumbrances, in each
case, listed on Schedule 3.7(b) (collectively, the "Permitted Liens"), Seller
and the Acquired Subsidiary have good and valid title to all of the assets that
are part of the Acquired Business that do not constitute the Fee Property, free
and clear of all Encumbrances.
3.8 Real Property. (a) Schedule 3.8(a) refers to each and
every parcel of real property or interest in real estate owned by Seller or the
Acquired Subsidiary (the "Fee Property"), held under lease (the "Real Property
Leases") or used by, or necessary for the conduct of the business of, the
Acquired Business (collectively, the "Real Property"), and separately identifies
(i) the Fee Property, (ii) the real property or interests held under
-11-
<PAGE>
the Real Property Leases and (iii) any other Real Property. Seller has
heretofore delivered to Buyer and Buyer Parent complete and correct copies of
each and every of the following, if any, in the possession of Seller or the
Acquired Subsidiary: (i) title reports, title binders, survey documents or legal
opinions with respect to, certifying to, or evidencing the extent, current
title, title history, use, possession, restriction or regulation, if any
(governmental or otherwise), and compliance with applicable laws, of the Fee
Property; (ii) deed or title-holding or trust agreements, if any, under which
any of the Real Property may have been conveyed to Seller or the Acquired
Subsidiary or under which the same may be held for the benefit of Seller or the
Acquired Subsidiary; and (iii) Real Property Leases and all documents relating
thereto, including any amendments thereto and any assignment thereof.
(b) Seller or the Acquired Subsidiary:
(i) owns and has good and valid title in fee simple to
the Fee Property designated as such in Schedule 3.8(a) free and clear
of all Encumbrances, except for Permitted Encumbrances;
(ii) with respect to the real property held under the Real
Property Leases designated as such in Schedule 3.8(a), is in peaceful
and undisturbed possession of the space and/or estate under each lease
under which it is a tenant, subject to the rights of subtenants or
assignees under any subleases or assignments disclosed in Schedule
3.8(b)(ii), and, except as disclosed in Schedule 3.8(b)(ii), there are
no material defaults by it as tenant thereunder and, to Seller's best
knowledge, there are no material defaults of the landlord thereunder;
and
(iii) has good and valid rights of ingress and egress to
and from the Fee Property from and to the public street systems for all
usual street, road and utility purposes.
(c) Neither Seller nor the Acquired Subsidiary has received
any written notice of any appropriation, condemnation or like proceeding, or of
any violation of any applicable Law relating to or affecting the Real Property,
and to Seller's best knowledge, no such proceeding has been threatened or
commenced.
(d) Except as disclosed in Schedule 3.8(d), all of the
buildings, structures, improvements and fixtures which form part of the Fee
Property or the properties leased by Seller in Scarborough, Ontario and Lachine,
Quebec, are in a good state of repair, maintenance and operating condition and,
except as so disclosed and, except for normal wear and tear, there are no
defects with respect thereto that are materially impairing the day-to-day use of
any such buildings, structures, improvements or fixtures.
-12-
<PAGE>
3.9 Financial Statements. (a) Seller has heretofore furnished
Buyer and Buyer Parent with copies of the following financial statements of
Seller and the Acquired Subsidiary: (i) audited consolidated financial
statements prepared in accordance with GAAP consistently applied as at December
31 for the fiscal year ended 1995; (ii) audited consolidated special purpose
financial statements prepared in accordance with GAAP consistently applied as at
December 31 for each of the fiscal years ended 1994 and 1995, respectively,
including an audited consolidated balance sheet (the "Reference Balance Sheet")
as at December 31, 1995 (the "Reference Balance Sheet Date"), except that the
investment of Seller in Buyer Parent has been reflected on an equity accounting
basis; and (iii) an unaudited interim consolidated special purpose balance sheet
as of September 30, 1996 and an unaudited consolidated special purpose statement
of income for the nine-month period ended September 30, 1996, in each case
prepared in accordance with GAAP consistently applied, except that the
investment of Seller in Buyer Parent has been reflected on an equity accounting
basis. Except as noted therein and except for normal year-end adjustments with
respect to the unaudited financial statements, all such financial statements are
complete and correct, were prepared in accordance with GAAP consistently applied
throughout the periods indicated and present fairly the consolidated financial
position of Seller and the Acquired Subsidiary at such dates and the
consolidated results of their operations and, where applicable, their
consolidated cash flows for the periods then ended. The pro forma balance sheet
of Seller attached hereto as Exhibit O accurately reflects the assets of Seller
immediately after the Closing and after giving effect to the transactions
specified in Schedule 3.14 and that Seller will have no liabilities immediately
after the Closing other than (x) liabilities of Seller specifically assumed by
Buyer pursuant to the Undertaking and (y) the liability to pay two promissory
notes held by 1186020 Ontario Limited and 3287858 Canada Inc. each in the amount
of Cdn$6,266,790 and expressly excluded from the Undertaking, which liability
shall be discharged from assets not reflected on such pro forma balance sheet as
specified in Schedule 3.14 no later than the time provided for the post-closing
adjustment set forth in Section 1.4.
(b) There are no liabilities, debts, obligations or claims
against the Acquired Business of any nature, absolute or contingent, except (i)
as and to the extent reflected or reserved against on the Reference Balance
Sheet; (ii) as specifically described in any of the schedules delivered to Buyer
and Buyer Parent pursuant to the Seller Disclosure Letter (or by reason of
thresholds applicable thereto are not required to be disclosed); (iii) as
incurred since the Reference Balance Sheet Date in the ordinary course of
business or consistent with Section 3.14; (iv) open purchase or sales orders or
agreements for delivery of goods and services in the ordinary course of business
consistent with prior practice; or (v) those that are not required to be
disclosed by GAAP; provided that nothing in this Section 3.9(b) constitutes or
shall be deemed to constitute a representation or warranty by
-13-
<PAGE>
the Seller with respect to the liabilities, debts, obligations or claims of
Buyer Parent or any subsidiary of Buyer Parent insofar as such matters are
required to be set forth under GAAP applied on a consistent basis.
(c) None of the operating assets of Seller relating to the
Acquired Business are being retained by Seller pursuant to the terms of this
Agreement.
3.10 Books and Records. Seller has made and will make
available for inspection by Buyer and Buyer Parent all the books of account
relating to the Acquired Business. Such books of account reflect all the
transactions and other matters required to be set forth under GAAP applied on a
consistent basis.
3.11 Tax Matters. Seller or the Acquired Subsidiary has filed,
or will prepare and timely file, all Tax returns or reports relating or
attributable to the Acquired Business that are required to be filed for all
periods prior to or including the Closing Date, and such returns or reports are
(or to the extent filed between the date hereof and the Closing Date will be)
correct and complete. All Taxes (whether or not requiring the filing of returns
or reports) of Seller and the Acquired Subsidiary for the aforementioned periods
have been timely and fully paid or adequately reserved against. All Taxes that
Seller or the Acquired Subsidiary is required by Law to withhold or collect have
been duly withheld or collected and have been paid over to the appropriate
Governmental Authority or are properly recorded as a liability on the books of
Seller. No Tax liens shall attach to any of the assets in the Acquired Business
because of a deficiency or delinquency in payment of Taxes by Seller or because
of a failure to qualify in any jurisdiction in which the Acquired Business owns
or leases property or conducts business. There will be no Tax deficiencies, or
any interest or penalties thereon assessed, related to the Acquired Business for
any period ending on or before the Closing Date. As used in this Agreement, the
term "Tax" or "Taxes" means any federal, state, provincial, local, foreign or
other taxes (including, without limitation, income (net or gross)), gross
receipts, profits, alternative or add-on minimum, franchise, license, capital,
capital stock, intangible, services, premium, mining, transfer, goods and
services, sales, use, ad valorem, payroll, wage, severance, employment,
occupation, property (real or personal), windfall profits, import, excise,
custom, stamp, withholding or governmental charges of any kind whatsoever
(including interest, penalties, additions to tax or additional amounts with
respect to such items).
3.12 Employee Matters. (a) Except for two employees of the
Acquired Business who will not continue as employees after the Closing, as set
forth in Schedule 3.12(a), Schedule 3.12(a) attached hereto sets forth the name,
title, current base salary rate and actual bonus payments for the 1995 fiscal
year of each present employee of the Acquired Business having a base salary
greater than Cdn$30,000; organizational charts of the Acquired
-14-
<PAGE>
Business; collective bargaining, union or other employee association agreements;
employment, managerial, advisory and consulting agreements; employee
confidentiality or other agreements protecting proprietary processes, formulae
or information; each employee benefit plan (including, without limitation,
pension, profit-sharing, supplemental retirement income, hospitalization,
insurance and medical insurance plans), stock purchase plan, stock option plan,
fringe benefit plan, bonus policy and plan and any other deferred compensation
agreement or plan or funding arrangement sponsored, maintained or to which
contributions are made by Seller or any of its Affiliates and that cover current
or former employees of the Acquired Business (such plans are referred to
collectively as the "Benefit Plans"); and the amount of any unfunded retirement
liabilities, including medical coverage, arising under any plan, fund, or
arrangement described in this Section 3.12 and the identity of the plan, fund,
or arrangement giving rise thereto. Except as disclosed in Schedule 3.12(a),
neither Seller nor the Acquired Subsidiary has any other written or oral
employment agreements other than contractual terms that are implied by Law. As
used in this Agreement, the term "Affiliate" of Seller is a Person (other than
Buyer Parent or any subsidiary of Buyer Parent) that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, Seller.
(b) Except as set forth on Schedule 3.12(a), neither Seller
nor the Acquired Subsidiary (i) is a party to any collective bargaining
agreement or employment or consulting agreement of the Acquired Business; and
(ii) has made any promise to create any additional employee benefit plan,
arrangement or to modify or improve any existing Benefit Plan, except such
modification or improvement as may be required to be made to secure the
continued registration, where applicable, of any existing Benefit Plan with each
applicable regulatory authority.
(c) Except as set forth in Schedule 3.12(c), the Benefit Plans
are duly registered where required by, are in substantial compliance with, and
are in good standing under, all applicable Laws, including without limitation,
the Income Tax Act (Canada), the Taxation Act (Quebec) and the Supplemental
Pension Plans Act (Quebec) and all reports, returns, and filings required to be
made thereunder have been made. All contributions to such Benefit Plans required
to be made by Seller and by members of such plans have been made and will
continue to be made up to the Closing Date. To Seller's best knowledge, nothing
has occurred which would adversely affect the registered and qualified status of
any Benefit Plan.
(d) Except as set forth in Schedule 3.12(d), the execution of
this Agreement and the performance of the transactions contemplated herein will
not constitute an event under any Benefit Plan that will result in any
acceleration of vesting or increase in benefits with respect to any employee of
the Acquired Business.
-15-
<PAGE>
(e) Except as set forth in Schedule 3.12(e), and except as
otherwise provided by Law, no contract, agreement, plan, trust, escrow account,
guarantee, letter, understanding or other written or oral agreement requires or
provides for any payment in cash or other consideration or otherwise provides a
benefit or advantage to any employee of the Acquired Business upon termination
of such employee's employment or engagement upon or following a change in
control of the Acquired Business, or upon the consummation of this Agreement or
any of the transactions contemplated hereby.
(f) Except as set forth in Schedule 3.12(f), no trade union,
council of trade unions, employee bargaining agency or affiliated bargaining
agent: (A) holds bargaining rights with respect to any employees of the Acquired
Business by way of certification, interim certification, voluntary recognition,
designation or successor rights; or (B) has applied to be certified as the
bargaining agent of any of the employees of the Acquired Business.
3.13 Intellectual Property. (a) Schedule 3.13(a) sets forth
the intellectual property of Seller and the Acquired Subsidiary (collectively,
the "Intellectual Property"), as follows:
(i) all patents held by or licensed by the Seller or the
Acquired Subsidiary and all reissues, divisions, continuations,
continuations in part and extensions thereof and all pending patent
applications by the Acquired Business, including for each such patent
the serial or patent number and country;
(ii) all registered trademarks and service marks held by
or licensed by the Seller or the Acquired Subsidiary and pending
registrations by the Acquired Business of trademarks and service marks,
including for each such trademark or service mark, the registration
number and country;
(iii) all registered copyrights held by or licensed by the
Seller or the Acquired Subsidiary and applications by the Acquired
Business for registration of copyrights, including the registration
number and country;
(iv) all trade names and common law marks held by or
licensed by the Seller or the Acquired Subsidiary and used by, or
necessary for the conduct of the business of, the Acquired Business,
including a statement of and evidence supporting the date of first use
and length of use of such names and marks and the jurisdictions of such
use; and
(v) all trademark licenses, service mark licenses,
copyright licenses, royalty agreements, patent licenses, assignments,
grants and contracts of the Seller or the Acquired Subsidiary with
employees or others relating in whole or in part to disclosure,
assignment, registering or patenting
-16-
<PAGE>
of any trademarks, service marks, copyrights, inventions, discoveries,
improvements, processes, formulae, trade secrets or other know-how of,
used by, or necessary for the conduct of the business of, the Acquired
Business.
(b) Except as disclosed in Schedule 3.13(b):
(i) Seller and the Acquired Subsidiary own the
Intellectual Property set forth in Schedule 3.13(a) free and clear of
any Encumbrances, except for Permitted Liens;
(ii) neither Seller nor the Acquired Subsidiary has
granted any other party rights with respect to the Intellectual
Property;
(iii) to Seller's best knowledge, the patents,
trademarks, service marks and copyrights set forth in Schedule 3.13(a)
are valid;
(iv) to Seller's best knowledge, the trademark
registrations, service mark registrations, copyright registrations and
patents set forth in Schedule 3.13(a) have been duly issued and have
not been canceled, abandoned or otherwise terminated;
(v) the trademark applications, service mark
applications, copyright applications and patent applications set forth
in Schedule 3.13(a) have been duly filed;
(vi) all licenses, assignments, grants, agreements and
contracts set forth in Schedule 3.13(a) were entered into in the
ordinary course of business, are valid and binding in accordance with
their terms and are in full force and effect; and
(vii) neither Seller nor any Acquired Subsidiary is in
default under any of the foregoing licenses, assignments, grants,
agreements and contracts, and, to Seller's best knowledge, no other
party is in default thereunder.
(c) Except as disclosed in Schedule 3.13(c):
(i) none of the processes currently used by the Acquired
Business or any of the properties or products currently sold by the
Acquired Business or trademarks, trade names, labels or other marks or
copyrights used by the Acquired Business, infringes the patent,
industrial property, trademark, trade name, label, other mark, right or
copyright of any other Person;
(ii) neither Seller nor the Acquired Subsidiary has
received any notice of adverse claim or threat of adverse claim by any
third party with respect thereto, and, to
-17-
<PAGE>
Seller's best knowledge, no basis exists for any such claim; and
(iii) Seller and the Acquired Subsidiary have license
agreements in force to the extent necessary to permit their full use of
all of the processes used by them in the operation in accordance with
present and planned practices.
3.14 Absence of Change or Event. Except as disclosed in
Schedule 3.14, since the Reference Balance Sheet Date, Seller and the Acquired
Subsidiary have conducted the Acquired Business only in the ordinary course and
have not with respect to the Acquired
Business:
(a) mortgaged, pledged or subjected to lien,
restriction or any other Encumbrance any of the property, businesses or
assets, tangible or intangible, of the Acquired Business;
(b) sold, transferred, leased to others or otherwise
disposed of any of its assets (or committed to do any of the
foregoing), including the payment of any loans owed to any Affiliate,
except for sales of surplus equipment not exceeding Cdn$350,000 in the
aggregate, for inventory sold to customers or returned to vendors and
payments to any non- Affiliates on account of accounts payable or
scheduled payments in respect of indebtedness for money borrowed
disclosed on the Reference Balance Sheet or in the Schedules to the
Seller Disclosure Letter, in each case in the ordinary course of
business and consistent with prior practice, or canceled, waived,
released or otherwise compromised any debt or claim, or any right of
significant value, except in the ordinary course of business and
consistent with prior practice;
(c) suffered any damage, destruction or loss (whether
or not covered by insurance) that has had or could have a Material
Adverse Effect on the Acquired Business;
(d) when considered as a whole, made or committed to
make any capital expenditures or capital additions or betterments in
excess of an aggregate of Cdn$1,200,000;
(e) encountered any labor union organizing activity or
had any actual or threatened employee strikes, work stoppages,
slow-downs or lock-outs;
(f) instituted any litigation, action or proceeding
before any Governmental Authority relating to it or its property,
except for litigation, actions or proceedings instituted in the
ordinary course of business and consistent with prior practice; or
-18-
<PAGE>
(g) except for the dividends disclosed on Schedule
3.14(g), declared or paid any dividend or made any other payment or
distribution in respect of its capital stock, or directly or indirectly
redeemed, purchased or otherwise acquired for consideration any of its
capital stock.
3.15 Compliance With Law. (a) Except as disclosed in Schedule
3.15(a), the operations and activities of the Acquired Business since January 1,
1991 have complied and are in compliance with all applicable federal, provincial
and local Laws, including, without limitation, health and safety statutes and
regulations and all applicable Environmental Laws, including, without
limitation, all restrictions, conditions, standards, limitations, prohibitions,
requirements, obligations, schedules and timetables prescribed by the applicable
Environmental Laws or prescribed by any regulation, code, plan, order, decree,
judgment, injunction, written notice or demand letter issued, entered,
promulgated or approved thereunder and legally binding on Seller.
(b) Schedule 3.15(b) sets forth: (i) all federal, provincial,
local and foreign governmental licenses, permits and other authorizations (the
"Permits") of the Acquired Business; and (ii) all reports of inspection of the
Acquired Business and the Real Property in Seller's possession made during the
period from January 1, 1994 to the date hereof under all applicable federal,
provincial and local health and safety Laws. Seller has heretofore delivered to
Buyer and Buyer Parent complete and correct copies of all of such Permits and
reports and all pending applications by Seller for Permits.
(c) Except as disclosed in Schedule 3.15(c), Seller and the
Acquired Subsidiary have obtained all Permits that are (i) required under all
federal, provincial and local Laws, including the applicable Environmental Laws,
for the ownership, use and operation of each location owned, operated or leased
by Seller and the Acquired Subsidiary in the Acquired Business (the "Property")
or (ii) otherwise necessary in the conduct of the business of the Acquired
Business. Except as disclosed in Schedule 3.15(c), all such Permits are in
effect, each of Seller and the Acquired Subsidiary is in material compliance
with all terms and conditions of all such Permits, and, to Seller's best
knowledge, no appeal nor any other action is pending to revoke any such Permit.
(d) Seller has heretofore delivered to Buyer and Buyer Parent
true and complete copies of all environmental site assessments conducted by
environmental consultants made in the last three years by or on behalf of Seller
(or any other Person unless disclosure would breach a confidentiality
obligation) and in Seller's possession relating to (i) the Property or (ii) any
other property or facility once owned or leased by Seller or the Acquired
Subsidiary and which is not owned or leased by Seller or the Acquired Subsidiary
on the Closing Date (the "Former Property"), all of which site assessments are
set forth on Schedule 3.15(d).
-19-
<PAGE>
(e) (i) Except as disclosed in Schedule 3.15(e)(i), there is
no pending civil, criminal or administrative action, suit, demand, claim,
hearing or proceeding as to which Seller or the Acquired Subsidiary is a party
relating to Seller, the Acquired Subsidiary or the Fee Property, nor, to
Seller's best knowledge, (x) is any other investigation or proceeding pending
relating to the foregoing or (y) is any of the foregoing threatened relating to
Seller, the Acquired Subsidiary or the Fee Property and in either case relating
in any way to the applicable Environmental Laws or any regulation, code, plan,
order, decree, judgment, injunction, written notice or demand letter issued,
entered, promulgated or approved thereunder and legally binding on Seller.
(ii) Except as disclosed in Schedule 3.15(e)(ii), there is
no pending civil, criminal or administrative action, suit, demand, claim,
hearing or proceeding as to which Seller or the Acquired Subsidiary is a party,
or, to Seller's best knowledge, any other investigation or proceeding pending
relating to any location leased by Seller or the Acquired Subsidiary or the
Former Property, nor, to Seller's best knowledge, is any of the foregoing
threatened relating to any location leased by Seller or the Acquired Subsidiary
or the Former Property and in either case relating in any way to the applicable
Environmental Laws or any regulation, code, plan, order, decree, judgment,
injunction, written notice or demand letter issued, entered, promulgated or
approved thereunder and legally binding on Seller.
(f) Except as disclosed in Schedule 3.15(f), neither Seller
nor the Acquired Subsidiary has Released, placed, stored, buried or dumped any
Hazardous Substances, Oils, Pollutants or Contaminants produced by, or resulting
from, any business, commercial, or industrial activities, operations, or
processes of Seller or the Acquired Subsidiary, on or beneath, the Property or
the Former Property in violation of applicable Environmental Laws.
(g) Except as disclosed in Schedule 3.15(g), no Release or
Cleanup occurred at the Property resulting from any business, commercial or
industrial activities, operations or processes of Seller or the Acquired
Subsidiary or, to Seller's best knowledge, otherwise, that could result in the
assertion or creation of a lien on the Property by any Governmental Authority
with respect thereto, nor has any such assertion of a lien been made by any
Governmental Authority with respect thereto.
(h) Except as disclosed in Schedule 3.15(h), no employee of
Seller or the Acquired Subsidiary in the course of his or her employment with
Seller or the Acquired Subsidiary has been exposed as a result of the operation
of the Acquired Business by Seller or the Acquired Subsidiary to any Hazardous
Substances, Oils, Pollutants or Contaminants generated, produced or used by
Seller or the Acquired Subsidiary in violation of applicable Environmental Laws
that could give rise to any claim against the Acquired Business.
-20-
<PAGE>
(i) Except as disclosed in Schedule 3.15(i), none of Seller
and the Acquired Subsidiary has received any written notice or order from any
Governmental Authority or private or public entity advising it that pursuant to
applicable Environmental Laws Seller or the Acquired Subsidiary is responsible
for or potentially responsible for Cleanup or paying for the cost of Cleanup of
any Hazardous Substances, Oils, Pollutants or Contaminants in each case at the
Property or the Former Property, and none of Seller and the Acquired Subsidiary
has entered into any agreements concerning such Cleanup.
(j) Except as disclosed in Schedule 3.15(j), to Seller's best
knowledge, the Fee Property does not contain any: (a) underground storage tanks;
(b) asbestos; (c) equipment using PCBs; (d) underground injection wells; or (e)
septic tanks in which process wastewater or any Hazardous Substances, Oils,
Pollutants or Contaminants have been disposed in violation of applicable
Environmental Laws.
(k) Except as disclosed in Schedule 3.15(k), neither Seller
nor the Acquired Subsidiary has entered into any written agreement that by its
express terms may require it to pay, reimburse, guarantee, pledge, defer,
indemnify, or hold harmless any person for or against Environmental Liabilities
and Costs (it being understood that any warranty obligations for the purchase,
sale or transport of supplies, materials and goods in the ordinary course of
business shall be excluded from this Section 3.15(k)).
(l) The following terms shall be defined as follows:
Cleanup - means all actions ordered by any Governmental Authority in
accordance with applicable Environmental Laws to: (1) cleanup, remove,
treat or remediate Hazardous Substances, Oils, Pollutants or
Contaminants in the indoor or outdoor environment; (2) prevent the
Release of Hazardous Substances, Oils, Pollutants or Contaminants so
that they do not migrate, endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment; (3) perform
pre-remedial studies and investigations and post-remedial monitoring
and care; or (4) respond to any requests from any Governmental
Authority for information or documents in any way relating to cleanup,
removal, treatment or remediation or potential cleanup, removal,
treatment or remediation of Hazardous Substances, Oils, Pollutants or
Contaminants in the indoor or outdoor environment.
Environmental Laws - means all federal, provincial and local Laws
relating to pollution or protection of the environment, including,
without limitation, Laws relating to Releases or threatened Releases of
Hazardous Substances, Oils, Pollutants or Contaminants into the indoor
or outdoor environment (including, without limitation, ambient air,
surface water, groundwater, land, surface and subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use,
-21-
<PAGE>
treatment, storage, Release, transport or handling of Hazardous
Substances, Oils, Pollutants or Contaminants, and all Laws with regard
to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Substances, Oils, Pollutants or Contaminants.
Environmental Liabilities and Costs - means all liabilities,
obligations, responsibilities, obligations to conduct Cleanup, losses,
damages, deficiencies, punitive damages, consequential damages, costs
and expenses (including, without limitation, all reasonable fees,
disbursements and expenses of counsel, expert and consulting fees and
costs of investigations and feasibility studies and responding to
government requests for information or documents), fines, penalties,
restitution and monetary sanctions, interest, direct or indirect, known
or unknown, absolute or contingent, past, present or future, resulting
from any claim or demand, by any Person, whether based in contract,
tort, implied or express warranty, strict liability, joint and several
liability, criminal or civil statute, including any Environmental Law,
or arising from environmental, health or safety conditions, the Release
or threatened Release of Hazardous Substances, Oils, Pollutants or
Contaminants into the environment in violation of applicable
Environmental Laws, as a result of past or present ownership, leasing
or operation of any properties, owned, leased or operated by Seller or
the Acquired Subsidiary, including, without limitation, any of the
foregoing incurred in connection with the conduct of any Cleanup.
Hazardous Substances, Oils, Pollutants or Contaminants - means all
substances defined as such by, or regulated as such under, any
applicable Environmental Law.
Release - means, when used as a noun, any release, spill, emission,
discharge, leaking, pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the indoor or outdoor environment
(including, without limitation, ambient air, surface water,
groundwater, and surface or subsurface strata) or into or out of any
property, including the movement of Hazardous Substances, Oils,
Pollutants or Contaminants through or in the air, soil, surface water,
groundwater or property contrary to applicable Environmental Laws and
when used as a verb, the occurrence of any Release.
(m) Anything to the contrary herein notwithstanding, any
representations contained in this Section 3.15 relating to Former Property that
constituted Former Property as of January 1, 1994 are made to Seller's best
knowledge (it being understood that for purposes of this sentence the definition
of Former Property set forth in Section 3.15(d) shall refer to January 1, 1994
instead of the Closing Date).
3.16 Contracts and Commitments. (a) Schedule 3.16(a) sets
forth each written contract or agreement outstanding as of the
-22-
<PAGE>
date hereof to which Seller or the Acquired Subsidiary is a party relating to
the Acquired Business (other than any contract or agreement required to be
disclosed on any other schedule to the Seller Disclosure Letter) and which:
(i) involves future payment or receipt of in excess of
Cdn$250,000 or future performance or receipt of services or delivery or
receipt of goods and materials, in each case with an aggregate value in
excess of Cdn$250,000, including but not limited to sale and purchase
agreements, distributorship and sales representative agreements and
loan agreements, notes and other financing documents or commitments to
enter into any of the foregoing agreements;
(ii) is a guarantee or indemnity in respect of
indebtedness of any Person (including Seller or any Affiliate of Seller
or the Acquired Subsidiary) which may involve future payment in excess
of Cdn$5,000 or is a mortgage, security agreement or other arrangement
intended to secure indebtedness of any Person (including Seller or any
Affiliate of Seller or the Acquired Subsidiary) in excess of Cdn$5,000
and creating an Encumbrance on any asset relating to the Acquired
Business;
(iii) imposes a right of first refusal, option or other
restriction with respect to any assets relating to the Acquired
Business;
(iv) is a loan or advance to, or investment in, any
Person or an agreement, contract or commitment relating to the making
of any such loan, advance or investment in excess of Cdn$5,000 that
will be outstanding after the Closing; or
(v) is an agreement, contract or commitment limiting
the freedom of the Acquired Business to engage in any line of business
or to compete with any Person (except for exclusive distributorship
agreements of Seller entered into in the ordinary course of business).
(b) Except as disclosed on Schedule 3.16(b), Seller has
heretofore delivered to Buyer and Buyer Parent complete and correct copies of
each of the agreements set forth in Schedule 3.16(a) and the written agreements
or contracts of the Acquired Business disclosed in any other schedule to the
Seller Disclosure Letter (the "Contracts"). There is not under any material
Contract: (A) any existing material default by Seller or the Acquired Subsidiary
or, to Seller's best knowledge, by any other party thereto, or (B) any event
that, after notice or lapse of time or both, would constitute a material default
by Seller or the Acquired Subsidiary or, to Seller's best knowledge, by any
other party, or result in a right to accelerate or terminate or result in a loss
of rights of Seller or the Acquired Subsidiary.
3.17 Insurance. Schedule 3.17 sets forth the policies of
insurance presently in force covering the Acquired Business and,
-23-
<PAGE>
without restricting the generality of the foregoing, those covering public and
product liability, personnel, properties, buildings, machinery, equipment,
furniture, fixtures and operations, specifying with respect to each such policy
and the name of the insurer. Seller has heretofore delivered to Buyer and Buyer
Parent complete and correct copies of the policies and agreements set forth in
Schedule 3.17. No notice of cancellation or termination has been received with
respect to any insurance policy set forth in Schedule 3.17.
3.18 Affiliate Interests. (a) Schedule 3.18(a) sets forth all
amounts in excess of Cdn$5,000 in the aggregate paid (or deemed for accounting
purposes to have been paid) and services provided by the Acquired Business to,
or received by the Acquired Business from, any Affiliate of Seller (except for
Buyer Parent, any subsidiary of Buyer Parent and the Acquired Subsidiary) during
the last fiscal year for products or services (including any charge for
administrative, purchasing, financial or other services) and all such amounts
currently owed by the Acquired Business, or to the Acquired Business by, any
Affiliate of Seller (except for Buyer Parent, any subsidiary of Buyer Parent and
the Acquired Subsidiary).
(b) Each contract, agreement or arrangement between the
Acquired Business, on the one hand, and Seller or any Affiliate of Seller (other
than Buyer Parent, any subsidiary of Buyer Parent and the Acquired Subsidiary)
or any shareholder, officer or director of Seller, the Acquired Subsidiary or
any Affiliate of Seller (other than Buyer Parent, any subsidiary of Buyer Parent
and the Acquired Subsidiary), on the other hand is described in Schedule
3.18(b).
(c) Except as set forth in Schedule 3.18(c), no officer or
director of Seller or the Acquired Subsidiary has any material interest in any
property, real or personal, tangible or intangible, including without
limitation, inventions, patents, trademarks or trade names, used in or
pertaining to the business of the Acquired Business.
(d) American Converting Paper Corporation has no assets,
liabilities, profits or losses reflected in the financial statements of Seller
referred to in Section 3.9.
3.19 Customers and Suppliers. (a) Except as set forth in Schedule
3.19(a), since January 1, 1996, no Material Supplier of the Acquired Business
has canceled or otherwise terminated, or made any written threat to Seller or
the Acquired Subsidiary or to any of their respective Affiliates to cancel or
otherwise terminate, for any reason, including the consummation of the
transactions contemplated hereby, its relationship with the Acquired Business,
or decreased materially its services or supplies to the Acquired Business.
Except as set forth in Schedule 3.19(a), Seller has no knowledge that any such
Material Supplier intends to cancel or otherwise terminate its relationship with
the Acquired Business or to decrease materially its services or supplies to the
Acquired
-24-
<PAGE>
Business. For purposes of this Section 3.19(a), "Material Supplier" means any of
Seller's ten largest suppliers for the 1995 fiscal year based on sales to Seller
as set forth in Schedule 3.19(a).
(b) None of the Seller or the Acquired Subsidiary has any
customers who account for greater than five percent (5%) of all services or
products sold by the Acquired Business.
3.20 Products. Schedule 3.20 sets forth all claims asserted
or, to Seller's best knowledge, threatened at any time during the past five
years against the Acquired Business in respect of personal injury, wrongful
death or property damage alleged to have resulted from products or services
provided by the Acquired Business exceeding Cdn$25,000, together with a
description of each such claim or action initiated with respect thereto and the
disposition thereof.
3.21 Accounts Receivable. The amounts reflected for accounts
receivable and reserves for such accounts receivable of the Acquired Business
that are set forth on the Reference Balance Sheet or on the Preliminary
Statement of Net Assets are properly reflected in accordance with GAAP. Seller
makes no warranty, express or implied, as to the collectibility of such accounts
receivable.
3.22 Inventory. The amount reflected for inventory of the
Acquired Business that is set forth on the Reference Balance Sheet or on the
Preliminary Statement of Net Assets is properly reflected in accordance with
GAAP.
3.23 Disclosure. Seller has furnished or caused to be
furnished to Buyer and Buyer Parent complete and correct copies of all
agreements, instruments and documents set forth on a schedule to the Seller
Disclosure Letter. Each of the schedules to the Seller Disclosure Letter is
complete and correct.
3.24 Seller's Best Knowledge. The term "Seller's best
knowledge" shall mean the actual knowledge of the persons listed on Exhibit I
attached hereto.
3.25 Private Placement. Seller understands (i) that the
Preferred Stock has not been, and the Underlying Shares (as defined in Section
4.5) will not be, registered under the United States Securities Act of 1933, as
amended (the "Securities Act"), or any other securities laws of the United
States or Canada (the "Securities Laws") because Buyer is issuing the Preferred
Stock, and Buyer Parent will be issuing the Underlying Shares, in reliance upon
the exemptions from the registration requirements of the Securities Laws
providing for issuance of securities not involving a public offering, (ii) that
Buyer has relied upon the fact that the Preferred Stock and the Underlying
Shares are to be held by Seller for investment, and (iii) that exemption from
registration under the Securities Laws would not be available if the Preferred
-25-
<PAGE>
Stock and the Underlying Shares were acquired by Seller with a view to
distribution. Accordingly, Seller hereby confirms to Buyer and Buyer Parent that
Seller is acquiring the Preferred Stock, and will acquire the Underlying Shares,
for the account of Seller, for investment and not with a view to the resale or
distribution thereof under the Securities Laws. Seller agrees not to transfer,
sell or offer for sale all or any portion of the Preferred Stock and the
Underlying Shares, unless there is an effective registration or other
qualification or exemption relating thereto under the Securities Laws. Except as
otherwise contemplated by this Agreement and the Registration Rights Agreement,
Seller understands that neither Buyer nor Buyer Parent is under any obligation
to register the Preferred Stock and the Underlying Shares or to assist Seller in
complying with any exemption from registration under the Securities Laws. Prior
to acquiring the Preferred Stock and, upon exchange, the Underlying Shares,
Seller has made an investigation of Buyer and Buyer Parent and their respective
businesses and has had made available to Seller all information with respect
thereto that Seller needs to make an informed decision to acquire the Preferred
Stock and the Underlying Shares. Seller considers itself to be a person
possessing experience and sophistication as an investor that is adequate for the
evaluation of the merits and risk of Seller's investment in the Preferred Stock
and, upon exchange, the Underlying Shares. Seller acknowledges that each
certificate for the Preferred Stock and the Underlying Shares will be imprinted
with a legend in substantially the following form: "The securities represented
by this certificate were originally issued on January __, 1997, and have not
been registered under the Securities Act of 1933, as amended, or any other
securities laws of the United States or Canada. The transfer of the securities
represented by this certificate is subject to the conditions specified in the
Asset Purchase Agreement dated as of November 12, 1996 among the parties
thereto, and 3290441 Canada Inc. reserves the right to refuse the transfer of
such securities until such conditions have been fulfilled with respect to such
transfer. A copy of such conditions will be furnished by 3290441 Canada Inc. to
the holder hereof upon written request and without charge."
3.26 Sufficiency of Assets to Conduct Acquired Business.
Except as disclosed in Schedule 3.26, Seller and the Acquired Subsidiary own,
have valid leases or valid contractual rights to use all of the material assets,
tangible and intangible, used by, or necessary for the conduct of, the Acquired
Business.
3.27 Corporate Names. Schedule 3.27 sets forth all of the
previous corporate names of Seller whether in French or English.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER PARENT
--------------------------------------------------------
-26-
<PAGE>
Each of Buyer and Buyer Parent represents and warrants to
Seller, jointly and severally, that:
4.1 Organization. Each of Buyer and Buyer Parent
(collectively, the "Buyer Parties") is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation.
4.2 Corporate Authority. Each of the Buyer Parties has full
corporate power and authority to enter into this Agreement and the Agreements to
which it is or will be a party at Closing and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by the
Buyer Parties of the Agreements to which they respectively are parties have been
duly authorized by all requisite corporate action. This Agreement has been, and
each of the other Agreements to which a Buyer Party is to be a party as of the
Closing Date will be, duly executed and delivered by such Buyer Party, and
(assuming due execution and delivery by Seller) this Agreement constitutes, and
each of the other Agreements to which a Buyer Party will be a party when
executed and delivered will constitute, a valid and binding obligation of such
Buyer Party, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar Laws affecting creditors' rights generally or by general equitable
principles.
4.3 No Violation. Except as disclosed in Schedule 4.3 to the
disclosure letter provided by Buyer and Buyer Parent to Seller dated the date
hereof (the "Buyer Disclosure Letter") and except for rules promulgated by the
National Association of Securities Dealers, Inc. for Nasdaq National Market
issuers, neither Buyer Parent nor Buyer is subject to or bound by any provision
of:
(a) any Law or judicial or administrative decision,
(b) any articles or certificate of incorporation (or similar
corporate organizational documents) or by-laws,
(c) any mortgage, deed of trust, lease, note, shareholders'
agreement, bond, indenture, other instrument or agreement, license,
permit, trust, custodianship, other restriction, or
(d) any judgment, order, writ, injunction or decree of any
Governmental Authority,
that would prevent or be violated by, or under which there would be a default as
a result of, the execution, delivery and performance by Buyer and Buyer Parent
of this Agreement and the consummation of the transactions contemplated hereby.
Except as disclosed in Schedule 4.3 to the Buyer Disclosure Letter and except as
contemplated by this Agreement, and except for approval of the transactions
contemplated hereby by the shareholders of Buyer
-27-
<PAGE>
Parent, no consent, approval or authorization of or declaration or filing with
any Person is required for the valid execution, delivery and performance by
Buyer or Buyer Parent of this Agreement and the consummation of the transactions
contemplated hereby.
4.4 Authorized and Outstanding Shares of Capital Stock. (a)
As of the date hereof, the authorized capital stock of Buyer Parent consists of
3,000,000 shares of Common Stock, par value $.01 per share (the "Buyer Parent
Common Stock"), of which 1,692,476 shares of Buyer Parent Common Stock are
issued and outstanding. At the Closing Date, the authorized capital stock of
Buyer Parent will consist of 6,000,000 shares of Buyer Parent Common Stock.
Except as disclosed on Schedule 4.4(a) to the Buyer Disclosure Letter and except
as contemplated by this Agreement, no subscription, warrant, option or other
right to purchase or acquire any shares of any class of capital stock of Buyer
Parent or securities convertible into such capital stock is authorized or
outstanding and there is no commitment of Buyer Parent to issue any such shares,
warrants, options or other such rights or securities.
(b) The authorized capital stock of Buyer consists of an
unlimited number of shares of Common Stock (the "Buyer Common Stock"), an
unlimited number of Class A Mandatorily Redeemable Preferred Stock, an unlimited
number of Class B Mandatorily Redeemable Preferred Stock and an unlimited number
of Class E Exchangeable Preferred Stock, of which one share of Buyer Common
Stock is issued and outstanding and held of record by Buyer Parent. Except as
disclosed on Schedule 4.4(b) to the Buyer Disclosure Letter and except as
contemplated by this Agreement, no subscription, warrant, option or other right
to purchase or acquire any shares of any class of capital stock of Buyer or
securities convertible into such capital stock is authorized or outstanding and
there is no commitment of Buyer to issue any such shares, warrants, options or
other such rights or securities.
4.5 Preferred Stock. (a) The Articles of Incorporation, as
amended, of Buyer authorize and establish the terms of the Preferred Stock. The
Preferred Stock has been duly authorized and, when the Preferred Stock has been
delivered in accordance with this Agreement on the Closing Date and on the date
referred to in Section 1.4(e) (with respect to the Class A Mandatorily
Redeemable Preferred Stock), the Preferred Stock will have been duly authorized,
validly issued, fully paid and nonassessable, free and clear of all Encumbrances
of Persons claiming by or through Buyer or Buyer Parent and free and clear of
preemptive rights.
(b) When the Class E Exchangeable Preferred Stock is
delivered pursuant to this Agreement on the Closing Date, the Class E
Exchangeable Preferred Stock will be exchangeable for a like amount of shares of
Buyer Parent Common Stock, as such shares may be adjusted from time to time (the
"Underlying Shares") in accordance with their terms as set forth in Appendix A
attached hereto. The Underlying Shares issuable upon the exchange of the Class E
Exchangeable Preferred Stock as of the Closing Date will be
-28-
<PAGE>
duly authorized and reserved for issuance upon such exchange by Buyer Parent
and, when issued upon such exchange, will be validly issued, fully paid and
nonassessable, free and clear of all Encumbrances of Persons claiming by or
through Buyer or Buyer Parent and free and clear of preemptive rights.
4.6 Note. The execution, delivery and performance by Buyer of
the Note have been duly authorized by all requisite corporate action. The Note,
as of the Closing Date, will be duly executed and delivered by Buyer and will
constitute a valid and binding obligation of Buyer, enforceable in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
or by general equitable principles.
4.7 SEC Documents. Buyer Parent has furnished or will furnish
Seller with a true and complete copy of each report, schedule, registration
statement and definitive proxy statement (including all exhibits and schedules
thereto and documents incorporated by reference therein) filed by Buyer Parent
with the Securities and Exchange Commission (the "SEC") since January 1, 1994
(the "SEC Documents"), which are all the SEC Documents (other than preliminary
material) that Buyer Parent was required to file with the SEC since such date.
As of their respective filing dates, the SEC Documents complied as to form in
all material respects with the requirements of the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the SEC thereunder applicable to such SEC Documents and none
of the SEC Documents, as of their respective filing dates, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The financial statements of Buyer Parent
included or incorporated by reference in the SEC Documents comply as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted by
Form 10-Q promulgated by the SEC) and fairly present (subject, in the case of
the unaudited statements, to normal, recurring audit adjustments) the
consolidated financial position of Buyer Parent as at the dates thereof and the
consolidated results of operations and cash flows for the periods then ended.
-29-
<PAGE>
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS
OF SELLER, BUYER AND BUYER PARENT
---------------------------------
5.1 Conduct of Business Prior to the Closing Date. Seller
agrees that, between the date hereof and the Closing Date:
(a) Except as contemplated by this Agreement or permitted by
written consent of Buyer or Buyer Parent, Seller shall cause the Acquired
Business to operate its businesses only in the ordinary course consistent with
prior practice and not to:
(i) take any action of the nature referred to in
Section 3.14, except as permitted therein; or
(ii) change Seller's or the Acquired Subsidiary's
certificate or articles of incorporation (or similar corporate
organizational documents) or by-laws.
(b) Seller shall preserve the business organization of the
Acquired Business intact and shall use its best efforts to keep available to
Buyer the services of the present officers and employees of the Acquired
Business listed on Schedule 3.12(a) as continuing employees and to preserve for
Buyer the goodwill of the Acquired Business suppliers, customers, distributors,
sales representatives and others having business relations with the Acquired
Business except for any loss of the foregoing which would not, singly or in the
aggregate, have a Material Adverse Effect on the Acquired Business.
(c) Seller shall maintain in force the insurance policies
referred to in Schedule 3.17 or insurance policies providing the same or
substantially similar coverage; provided, however, that Seller will notify Buyer
prior to the expiration of any of such insurance policies.
(d) Seller shall diligently pursue its rights with respect to
the matters listed in Schedule 3.6 and Schedule 3.13(c).
(e) Except as contemplated by this Agreement or permitted by
written consent of Buyer or Buyer Parent, no plan, fund, or arrangement
disclosed or required to be disclosed in Schedule 3.12(a) has been or will be:
(i) terminated by Seller;
(ii) amended (except as expressly required by law) in
any manner which would directly or indirectly increase the benefits
accrued, or which may be accrued, by any participant thereunder; or
-30-
<PAGE>
(iii) amended in any manner which would materially
increase the cost to Buyer of maintaining such plan, fund, or
arrangement.
5.2 Employee Matters. (a) Buyer shall offer employment to the
employees of the Acquired Business listed on Schedule 3.12(a) as continuing
employees on the same terms and conditions with respect to employment conditions
and remuneration as enjoyed by such employees immediately prior to or effective
as of the Closing Date. Employees of the Acquired Business who accept such offer
of employment shall be referred to herein as "Transferred Employees". From and
after the Closing Date, the employment or cost of termination or future
compensation to the Transferred Employees shall be the sole responsibility of
Buyer. In the event that an employee of the Acquired Business does not accept
the Buyer's offer of employment, the costs of termination or future compensation
of such employee shall be the sole responsibility of Buyer.
(b) Employee Benefit Plans. Effective as of the Closing Date,
Buyer shall assume all of the Benefit Plans set forth on Schedule 3.12(a) and
all assets, liabilities and obligations to provide benefits thereunder.
Effective as of the Closing Date, Seller shall not have any liabilities or
obligations with respect to the Benefit Plans set forth on Schedule 3.12(a).
5.3 Expenses and Finder's Fees. Buyer, Buyer Parent and Seller
will bear their own expenses in connection with this Agreement and its
performance, except that, if this Agreement is terminated, otherwise than by
reason of a material breach of the terms hereof by Buyer or Buyer Parent, Seller
shall reimburse Buyer and Buyer Parent for all out-of-pocket expenses incurred
by them in the preparation, negotiation, execution and delivery and performance
of the Agreements, including but not limited to the fees and expenses of (i)
Buyer Parent's independent certified public accountants, (ii) Houlihan, Lokey,
Howard & Zukin, Inc. ("Houlihan Lokey") and (iii) special United States and
Canadian counsel to the Special Committee of the Board of Directors of Buyer
Parent (the "Special Committee"). Seller, on the one hand, and Buyer and Buyer
Parent, on the other hand, each represent and warrant to the other that the
negotiations relative to this Agreement and the transactions contemplated hereby
have been carried on in such a manner as not to give rise to any valid claims
against the other party or the Acquired Business for a brokerage commission,
finder's fee or other like payment.
5.4 Access to Information and Confidentiality. Seller agrees
that Buyer and Buyer Parent may conduct such reasonable investigation with
respect to the business, business prospects, assets, liabilities (contingent or
otherwise), results of operations, employees and financial condition of Seller
and the Acquired Subsidiary as will permit Buyer and Buyer Parent to evaluate
their interest in the transactions contemplated by this Agreement. Each of
Seller, Buyer and Buyer Parent will hold and
-31-
<PAGE>
will cause their respective representatives to hold in strict confidence, unless
compelled to disclose by judicial or administrative process, or, in the opinion
of its counsel, by other requirements of Law, all documents and information
concerning Seller or the Acquired Business furnished to Buyer and Buyer Parent
and all documents and information concerning Buyer and Buyer Parent furnished to
Seller in connection with the transactions contemplated by this Agreement
(except to the extent that such information can be shown to have been (a)
previously known by Buyer or Buyer Parent prior to its disclosure to Buyer or
Buyer Parent by Seller, (b) previously known by Seller prior to its disclosure
to Seller by Buyer or Buyer Parent, (c) in the public domain through no fault of
either Seller or Buyer or Buyer Parent or (d) later lawfully acquired by either
Seller or Buyer or Buyer Parent from other sources that are not under an
obligation of confidentiality) and will not release or disclose such information
to any other Person, except in connection with this Agreement to its lenders,
auditors, attorneys, financial advisors and other consultants and advisors.
5.5 Press Releases. Except as required by law or stock
exchange regulation, any public announcements regarding the transactions
contemplated hereby shall be made only with the mutual consent of Seller, Buyer
and Buyer Parent.
5.6 Transitional Assistance. Seller shall cooperate with and
assist Buyer in the orderly transfer of the business of the Acquired Business
after the Closing Date. Such cooperation and assistance shall include but not be
limited to (a) the physical transfer of any books, records and computer software
of the Acquired Business; (b) reasonable access to and assistance from any
employees of Seller; and (c) reasonable access to and use of the facilities and
equipment of Seller during such transitional period.
5.7 Transfer Taxes. All transfer Taxes, realty documentary
stamp Taxes, sales and use Taxes and goods and services Taxes, if any, payable
by reason of this transaction or the sale, transfer or delivery of the Acquired
Business shall be borne by Buyer. Seller and Buyer shall cooperate in minimizing
any such sales, transfer or similar Taxes, including the execution and delivery
of any necessary certificates, questionnaires, affidavits or other similar
documents in connection with such Taxes.
5.8 Shareholder Meeting; Voting of Buyer Parent Common Stock.
(a) Buyer Parent shall take all action (coordinating the timing thereof with
Seller) to the extent necessary, in accordance with applicable Law, Buyer
Parent's certificate of incorporation and by-laws, to convene a meeting of its
shareholders as promptly as practicable after the execution of this Agreement to
consider and vote on the transactions contemplated by this Agreement.
(b) At any such shareholder meeting referred to in clause (a)
of this Section 5.8, Seller shall cause all of the shares of Buyer Parent Common
Stock owned by Seller, beneficially or
-32-
<PAGE>
otherwise, to be voted in favor of the transactions contemplated by this
Agreement. After the date hereof, Seller shall cause all of the shares of Buyer
Parent Common Stock owned by Seller, beneficially or otherwise, to be voted in
favor of maintaining the Special Committee, or a similarly constituted group,
for the purpose of monitoring the compliance by Seller of its obligations under
the Agreements.
5.9 Proxy Statement. Buyer Parent shall promptly prepare and
file with the SEC, subject to the prior approval of Seller (which approval shall
not be unreasonably withheld), a proxy or information statement relating to the
transactions contemplated by this Agreement (the "Proxy Statement") as required
by the Exchange Act and the rules and regulations thereunder. Seller shall
furnish all information concerning the Acquired Business and the shareholders of
Seller as may be reasonably requested by Buyer Parent in connection with the
Proxy Statement. Buyer Parent shall use its best efforts to respond to any
comments of the SEC and to cause the Proxy Statement to be mailed to Buyer
Parent's shareholders at the earliest practicable time. Buyer Parent will notify
Seller promptly of the receipt of any comments from the SEC or its staff and of
any request by the SEC or its staff for amendments or supplements to the Proxy
Statement or for additional information and will supply Seller with copies of
all correspondence between Buyer Parent or any of its representatives, on the
one hand, and the SEC or its staff, on the other hand, with respect to the Proxy
Statement or the transactions contemplated by this Agreement. If at any time
prior to the Closing Date, any event shall occur that should be set forth in an
amendment or supplement to the Proxy Statement, Buyer Parent will promptly
prepare and mail such amendment or supplement. Buyer Parent will not mail the
Proxy Statement, or any amendment thereof or supplement thereto, to its
shareholders unless it has first obtained consent of Seller to such mailing,
which consent shall not be unreasonably withheld or delayed.
5.10 Reservation of Underlying Shares; Exchange of Class E
Exchangeable Preferred Stock. Buyer Parent shall continue to reserve the
Underlying Shares for issuance until exchange of the Class E Exchangeable
Preferred Stock pursuant to its terms. Upon exchange of the Class E Exchangeable
Preferred Stock pursuant to the terms thereof, Buyer Parent shall cause such
exchange to be effected and issue the Underlying Shares in connection with such
exchange to the holder or holders of the Class E Exchangeable Preferred Stock.
5.11 GST Election. The Buyer and the Seller shall elect
jointly pursuant to the provisions of subsection 167(1) of the Canadian Excise
Tax Act and section 75 of the Quebec Sales Tax Act (collectively, the "Excise
Act"), by completing and filing all prescribed forms and related documents in
such manner and at such time as is prescribed, that for the purposes of the
Excise Act, no tax is payable under the Excise Act in respect of the assets
relating to the Acquired Business and the Buyer shall be deemed to
-33-
<PAGE>
have acquired such assets for use exclusively in commercial activities of the
Buyer. Each of the Seller and the Buyer hereby represents that it is a
registrant as described under the Excise Act. In the event Revenue Canada (or
its Quebec counterpart) does not accept the foregoing and the Seller is
challenged by Revenue Canada (or its Quebec counterpart), the Buyer will provide
all assistance, cooperation and documentation as reasonably requested by the
Seller.
5.12 Bulk Sales Legislation. The parties agree to waive
compliance with the provisions of any bulk sales legislation or similar
legislation which may be applicable to the transactions contemplated by this
Agreement.
5.13 Conduct of Business by Seller After the Closing Date.
Seller agrees that for a period of three years after the Closing Date, except as
contemplated by this Agreement or permitted by written consent of Buyer or Buyer
Parent, Seller shall not engage in any business other than the making of
Permitted Investments. For purposes of this Section 5.13, (a) "Permitted
Investments" mean (i) Investments in Government Obligations maturing within 365
days of the date of acquisition thereof, (ii) Investments in certificates of
deposit or Eurodollar deposits maturing within 365 days of the date of
acquisition thereof issued by a bank or trust company that is organized under
the laws of the United States, or any state thereof, or the laws of Canada, or
any province thereof, and that has a combined capital and surplus of at least
Cdn$1 billion and rated at least A3 by Moody's Investors Service, Inc. or
otherwise of investment grade, (iii) Investments in repurchase agreements
involving investments in Government Obligations entered into with any bank,
trust company or investment bank rated at least A- by Standard & Poor's and at
least A3 and P-1 by Moody's Investors Service, Inc. or otherwise of investment
grade, (iv) Investments in commercial paper maturing not more than 150 days from
the date of acquisition thereof and rated at least A- 1 by Standard & Poor's and
at least P-1 by Moody's Investors Service, Inc. or otherwise of investment grade
issued by a corporation (except Seller) that is organized under the laws of any
state of the United States or the District of Columbia or under the laws of
Canada or of any province of Canada and (v) Investments in money market accounts
or funds whose assets solely consists of cash or the items listed in clauses
(a)(i), (ii), (iii) and (iv) hereof and this clause (a)(v), (b) "Investments"
mean, with respect to any Person, any loan or advance to, any acquisition of
equity interests, obligations or other securities of, or capital contribution or
other investment in, such Person and (c) "Government Obligations" mean direct
obligations (or certificates representing an ownership interest in such
obligations) of the United States or any state thereof or Canada or any province
thereof (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States or any state thereof or
Canada or any province thereof, as the case may be, is pledged.
-34-
<PAGE>
5.14 No Assignment of Note. Seller agrees not to sell, assign,
hypothecate, transfer, pledge or otherwise convey the Note until the Note is
exchanged for the Class A Mandatorily Redeemable Preferred Stock pursuant to
Section 1.2.
5.15 Seller Reimbursement. Within the three-year period
following the Closing Date, to the extent any Undisclosed Liabilities are
discharged by Buyer or Buyer Parent, and within six months of such discharge, if
an Event of Insolvency of the Buyer occurs, Seller shall reimburse Buyer or
Buyer Parent, as the case may be, for the amount so discharged (it being
understood that Buyer Parent shall reimburse Seller to the extent Seller makes
any payment to Buyer Parent under this Section 5.15 and applicable bankruptcy
law requires Seller to make such payment to Buyer and such payment is made by
Seller). For purposes of this Section 5.15, (a) "Undisclosed Liabilities" shall
mean all liabilities of Seller specifically assumed by Buyer pursuant to the
Undertaking other than Disclosed Liabilities (as defined in Section 8.2(b)(ii))
and (b) "Event of Insolvency of the Buyer" shall mean (i) the Buyer admits in
writing its inability to pay its debts generally as they become due, (ii) the
Buyer makes a general assignment for the benefit of creditors, (iii) the Buyer
becomes subject to bankruptcy proceedings that it is not contesting in good
faith, diligently and by appropriate means or which proceedings continue
undischarged, unstayed or undismissed for a period of thirty (30) days, (iv) the
Buyer submits to or makes any application to any Governmental Authority for the
purpose of suspension of payment of its liabilities generally, (v) the Buyer
petitions to or applies to any Governmental Authority for the appointment of an
administrator, receiver, trustee or intervenor for itself or for any substantial
part of its property, (vi) the Buyer commences or has commenced against it or in
respect of its debts, any proceeding under any Law, relating to reorganization,
compromise, settlement, arrangement, adjustment, dissolution or liquidation,
which proceedings it is not contesting in good faith, diligently and by
appropriate means or which proceedings continue undischarged, unstayed or
undismissed for a period of thirty (30) days or (vii) the Buyer by any act
indicates its consent to, approval of or acquiescence in any bankruptcy,
reorganization or insolvency proceeding under any Law or any proceeding for the
appointment of an administrator, trustee, receiver or intervenor for itself or
for any substantial part of its property or suffers any such receivership or
trustee to remain undischarged for a period of thirty (30) days.
5.16 Corporate Changes. On or about the Closing Date, (a) the
Certificate of Incorporation, as amended, of Buyer Parent will be amended to (i)
increase the authorized capital stock of Buyer Parent Common Stock from
3,000,000 shares to 6,000,000 shares and (ii) change the corporate name of Buyer
Parent from "Hosposable Products, Inc." to "Wyant Corporation," (b) the Articles
of Incorporation, as amended, of Seller will be amended to change the corporate
name of Seller from "G.H. Wood + Wyant Inc." to another corporate name that may
include "Wyant" but otherwise will be
-35-
<PAGE>
distinct from "Wyant Corporation" and "G.H. Wood + Wyant Inc." and (c) the
Articles of Incorporation, as amended, of Buyer will be amended to change the
corporate name of Buyer from "3290441 Canada Inc." to "Wood-Wyant Inc."
5.17 Guarantee of Real Property Lease Obligations. Buyer
Parent agrees to guarantee Buyer's obligations under the Real Property Leases
being assigned to Buyer pursuant to the Lease Assignments if the landlord
requires such guarantee as a condition of consenting to the Lease Assignment or
releasing Seller from its obligations under any such Real Property Leases.
5.18 Issuance of Preferred Stock. Buyer agrees not to issue
additional shares of its Class A preferred stock or its Class B preferred stock
until the Class A Mandatorily Redeemable Preferred Stock and the Class B
Mandatorily Redeemable Preferred Stock are no longer outstanding.
5.19 Seller Covenant Relating to X Shares. Seller agrees that
until six years after the Closing Date (a) dividends or other distributions
declared or paid with respect to the X Shares (as defined in Section 8.3(g))
will be limited in amount to (i) the proceeds of dividends or other
distributions received by Seller with respect to the Excluded Shares (as defined
in Section 8.3(g)), (ii) the dividends disclosed on Schedule 3.14 in connection
with the corporate reorganization of the Seller and (iii) (x) the shares of
Class A Mandatorily Redeemable Preferred Stock to be distributed by Seller to
each of 1186020 Ontario Limited and 3287858 Canada Inc. after the exchange of
the Note as set forth in Section 1.2 all as specified in Schedule 3.14 (the
"Class A Excluded Shares") and (y) Cdn$4.4 million representing the portion of
the cash consideration to be paid by Buyer to Seller for the Acquired Business
pursuant to Section 1.2 to be distributed by Seller to 1186020 Ontario Limited
and 3287858 Canada Inc. after the Closing all as specified in Schedule 3.14 and
(b) any redemption, retraction or purchase price payable by Seller with respect
to the X Shares will be payable solely by delivery of the Excluded Shares or the
Underlying Shares relating to the Excluded Shares.
5.20 Seller Covenant Relating to Capital Stock. Seller agrees
until six years after the Closing Date not to issue or sell any shares of
Seller's capital stock to any Person other than James A. Wyant, by operation of
law or otherwise, unless Seller has first obtained and provided to Buyer and
Buyer Parent a guaranty of the transferee thereof substantially to the same
effect as the Guaranty Agreement (as defined in Section 6.8) satisfactory in
form and substance to Buyer and Buyer Parent; provided, however, that this
Section 5.20 shall not apply to sales or issuances by Seller of the X Shares.
-36-
<PAGE>
ARTICLE 6
CONDITIONS PRECEDENT OF BUYER AND BUYER PARENT
----------------------------------------------
Buyer and Buyer Parent need not consummate the transactions
contemplated by this Agreement unless the following conditions shall be
fulfilled:
6.1 Representations and Warranties. Except as otherwise
contemplated or permitted by this Agreement, (a) the representations and
warranties of Seller contained in this Agreement or in any certificate or
document delivered to Buyer and Buyer Parent pursuant hereto shall be deemed to
have been made again at and as of the Closing Date and shall then be true in all
material respects (except for any such representation or warranty that by its
terms is qualified as to materiality, which representation and warranty shall
then be true in all respects) and (b) Seller shall have performed and complied
with all agreements and conditions required by this Agreement to be performed or
complied with by Seller prior to or on the Closing Date, and Buyer and Buyer
Parent shall have been furnished with a certificate of an appropriate officer of
Seller, dated the Closing Date, certifying to the effect of clauses (a) and (b)
of this Section 6.1.
6.2 Opinion of Seller's Counsel. Buyer and Buyer Parent shall
have been furnished with opinions dated the Closing Date of each of Winthrop,
Stimson, Putnam & Roberts and McCarthy Tetrault, each counsel for Seller,
substantially in the forms attached hereto as Exhibits J-1 and J-2.
6.3 No Injunction. No injunction, restraining order or decree
of any Governmental Authority shall exist against Buyer, Buyer Parent, Seller or
the Acquired Subsidiary, or any of the principals, officers or directors of any
of them, that restrains, prevents or materially changes the transactions
contemplated hereby.
6.4 Consents. All consents and approvals of third parties,
including, without limitation, Governmental Authorities and non-governmental
self-regulatory agencies and the requisite approval of the transactions
contemplated by this Agreement by the shareholders of Buyer Parent, and all
filings with and notifications of Governmental Authorities, regulatory agencies
(including non-governmental self-regulatory agencies) or other entities which
regulate the business of Buyer, Buyer Parent, Seller or the Acquired Subsidiary
necessary on the part of Buyer, Buyer Parent, Seller or the Acquired Subsidiary,
to the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and to permit the continued operation of the
respective businesses of Buyer or the Acquired Business in substantially the
same manner after the Closing Date as theretofore conducted, other than routine
post-closing notifications or filings, shall have been obtained or effected.
-37-
<PAGE>
6.5 Fairness Opinion. The Board of Directors of Buyer Parent
shall have been furnished with an opinion dated the date hereof, and updated to
a date not more than five business days prior to the Closing Date, of Houlihan
Lokey advising Buyer Parent's Board of Directors that the consideration to be
paid by Buyer for the purchase of the Acquired Business pursuant to this
Agreement is fair to the shareholders of Buyer Parent, in their capacity as
such, from a financial point of view (the "Fairness Opinion").
6.6 Material Adverse Change. Since September 30, 1996, there
has been no material adverse change in the business, financial condition,
assets, liabilities (contingent or otherwise) or results of operations of the
Acquired Business.
6.7 Investment Letters. Buyer and Buyer Parent shall have
been furnished with investment letters from each of James A. Wyant, 1186020
Ontario Limited, John Derek Wyant, 3287858 Canada Inc. and Lynne Emond setting
forth substantially the representations contained in Section 3.25.
6.8 Guaranty Agreement. Buyer and Buyer Parent shall have been
furnished with a guaranty agreement among James A. Wyant, Buyer and Buyer Parent
substantially in the form of Exhibit K attached hereto (the "Guaranty
Agreement").
6.9 Financing. (a) Credit facilities will be available to
Buyer and Buyer Parent on substantially the same terms as existing credit
facilities of Seller and Buyer Parent, respectively, with such modifications as
may be necessary to permit Buyer and Buyer Parent to fulfill their obligations
under the terms of this Agreement and the other Agreements, and (b) Buyer Parent
shall have entered into a credit agreement with an institutional lender enabling
Buyer Parent to borrow at the Closing up to U.S.$2 million at market interest
rates and with a maturity date at least three years after the Closing Date.
ARTICLE 7
CONDITIONS PRECEDENT OF SELLER
------------------------------
Seller need not consummate the transactions contemplated
hereby unless the following conditions shall be fulfilled:
7.1 Representations and Warranties. Except as otherwise
contemplated or permitted by this Agreement, (a) the representations and
warranties of Buyer and Buyer Parent contained in this Agreement or in any
certificate or document delivered to Seller pursuant hereto shall be deemed to
have been made again at and as of the Closing Date and shall then be true in all
material respects (except for any such representation and warranty that by its
terms is qualified as to materiality, which representation and warranty shall
then be true in all respects) and (b) Buyer and
-38-
<PAGE>
Buyer Parent shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by them
prior to or on the Closing Date, and Seller shall have been furnished a
certificate of an appropriate officer of Buyer and of Buyer Parent, dated the
Closing Date, certifying to the effect of clauses (a) and (b) of this Section
7.1.
7.2 Opinion of Special Counsel for the Special Committee.
Seller shall have been furnished with opinions dated the Closing Date of each of
Sutherland, Asbill & Brennan, L.L.P. and Stikeman, Elliott, each special counsel
for the Special Committee, substantially in the forms attached hereto as
Exhibits L-1 and L-2.
7.3 No Injunction. No injunction, restraining order or decree
of any court or Governmental Authority shall exist against Buyer, Buyer Parent,
Seller or any Acquired Subsidiary, or any of the principals, officers or
directors of any of them, that restrains, prevents or materially changes the
transactions contemplated hereby.
7.4 Consents. All consents and approvals of third parties
including, without limitation, Governmental Authorities, and non-governmental
self-regulatory agencies and the requisite approval of the transactions
contemplated by this Agreement by the shareholders of Buyer Parent, and all
filings with and notifications of Governmental Authorities, regulatory agencies
(including non-governmental self-regulatory agencies) or other entities which
regulate the Acquired Business, necessary on the part of Seller, to the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, other than routine post-closing notifications
or filings, shall have been obtained or effected.
7.5 Fairness Opinion. The Board of Directors of Buyer Parent
shall have been furnished with the Fairness Opinion.
7.6 Material Adverse Change. Since the filing date of its most
recent SEC Document, there has been no material adverse change in the business,
financial condition, assets, liabilities (contingent or otherwise) or results of
operations of Buyer Parent.
7.7 Covenant Agreement. Seller shall have been furnished with
a covenant agreement among Buyer, Buyer Parent and Seller substantially in the
form of Exhibit M attached hereto (the "Covenant Agreement").
7.8 Registration Rights Agreement. Seller shall have been
furnished with a registration rights agreement among Buyer Parent, Seller and
James A. Wyant substantially in the form of Exhibit N attached hereto (the
"Registration Rights Agreement").
7.9 Financing. (a) Credit facilities will be available to
Buyer and Buyer Parent on substantially the same terms as
-39-
<PAGE>
existing credit facilities of Seller and Buyer Parent, respectively, with such
modifications as may be necessary to permit Buyer and Buyer Parent to fulfill
their obligations under the terms of this Agreement and the other Agreements,
and (b) Buyer Parent shall have entered into a credit agreement with an
institutional lender enabling Buyer Parent to borrow at the Closing up to U.S.$2
million at market interest rates and with a maturity date at least three years
after the Closing Date.
ARTICLE 8
INDEMNIFICATION
---------------
8.1 Indemnification by Seller. Seller hereby agrees to defend,
indemnify and hold harmless Buyer, Buyer Parent, their respective successors,
assigns, directors, officers and Affiliates (except for G.W. Wyant and James A.
Wyant) (collectively, the "Buyer Indemnitees") from and against any and all
losses, deficiencies, liabilities, damages, assessments, judgments, costs and
expenses, including attorneys' fees (both those incurred in connection with the
defense or prosecution of the indemnifiable claim and those incurred in
connection with the enforcement of this provision), including Environmental
Liabilities and Costs, whether or not involving a third-party claim
(collectively, "Buyer Losses"), caused by, resulting from or arising out of:
(a) (i) breaches of representation or warranty on the part of
Seller contained in this Agreement or in any certificate or document delivered
to Buyer or Buyer Parent pursuant hereto; and (ii) failures by Seller to perform
or otherwise fulfill any undertaking or other agreement or obligation hereunder;
(b) any liability of Seller not specifically assumed by Buyer
pursuant to the Undertaking;
(c) any liability for the failure of the parties to comply
with the provisions of any bulk sales legislation or similar legislation which
may be applicable to the transactions contemplated by this Agreement, provided
that nothing herein shall derogate or be deemed to derogate from the obligations
of Buyer under the Undertaking and the obligations of Buyer and Buyer Parent
under Section 8.2;
(d) the invalidity of the Fairness Opinion as a result of (i)
the data, material and other information (excluding financial forecasts and
projections) provided by or on behalf of Seller only with respect to Seller, its
stockholders and the Acquired Subsidiary and identified by Houlihan Lokey in the
Fairness Opinion as being relied upon by it being incomplete or incorrect in any
material respect or (ii) the financial forecasts and projections provided by or
on behalf of Seller only with respect to Seller and the Acquired Subsidiary and
identified by
-40-
<PAGE>
Houlihan Lokey in the Fairness Opinion as being relied upon by it not having
been prepared in good faith and on a reasonable basis;
(e) (i) the data, material and other information (excluding
financial forecasts and projections) provided by or on behalf of Seller only
with respect to Seller, its stockholders and the Acquired Subsidiary and
identified by Houlihan Lokey in the Fairness Opinion as being relied upon by it
being incomplete or incorrect in any material respect or (ii) the financial
forecasts and projections provided by or on behalf of Seller only with respect
to Seller and the Acquired Subsidiary and identified by Houlihan Lokey in the
Fairness Opinion as being relied upon by it not having been prepared in good
faith and on a reasonable basis but, in each case, only to the extent Buyer
Losses are incurred by the Buyer Indemnitees in connection with any claim of
Houlihan Lokey relating thereto;
(f) claims of any shareholder of Buyer Parent that the
information provided by or on behalf of Seller only with respect to Seller, its
stockholders and the Acquired Subsidiary for inclusion in the Proxy Statement,
at the date of mailing to shareholders of Buyer Parent and at the time of the
meeting of shareholders of Buyer Parent contemplated by Section 5.8(a),
contained an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
(g) any and all actions, suits, proceedings, claims or
demands, incident to any of the foregoing or such indemnification; provided,
however, that if any claim, liability, demand, assessment, action, suit or
proceeding shall be asserted against a Buyer Indemnitee in respect of which a
Buyer Indemnitee proposes to demand indemnification ("Buyer Indemnified
Claims"), Buyer or such other Buyer Indemnitee shall notify Seller thereof,
provided further, however, that the failure to so notify Seller shall not reduce
or affect Seller's obligations with respect thereto except to the extent that
Seller is materially prejudiced thereby. Subject to rights of or duties to any
insurer or other third Person having liability therefor, Seller shall have the
right promptly upon receipt of such notice to assume the control of the defense,
compromise or settlement of any such Buyer Indemnified Claims (provided that any
compromise or settlement must be reasonably approved by Buyer), including, at
its own expense, employment of counsel reasonably satisfactory to Buyer;
provided, however, that if Seller shall have exercised its right to assume such
control, Buyer may, in its sole discretion and at its expense, employ counsel to
represent it (in addition to counsel employed by Seller) in any such matter, and
in such event counsel selected by Seller shall be required to cooperate with
such counsel of Buyer in such defense, compromise or settlement.
8.2 Indemnification by Buyer and Buyer Parent. Each of Buyer
and Buyer Parent hereby agrees to jointly and severally
-41-
<PAGE>
defend, indemnify and hold harmless Seller and its successors, assigns,
directors, officers and Affiliates (collectively, "Seller Indemnitees") from and
against any and all losses, deficiencies, liabilities, damages, assessments,
judgments, costs and expenses, including attorneys' fees (both those incurred in
connection with the defense or prosecution of the indemnifiable claim and those
incurred in connection with the enforcement of this provision), whether or not
involving a third-party claim (collectively, "Seller Losses"), resulting from or
arising out of:
(a) (i) breaches of representation and warranty on the part of
Buyer or Buyer Parent contained in this Agreement or in any certificate or
document delivered to Seller pursuant hereto; and (ii) failures by Buyer or
Buyer Parent to perform or otherwise fulfill any undertaking or agreement or
obligation hereunder;
(b) (i) with respect to Buyer, all liabilities of Seller
specifically assumed by Buyer pursuant to the Undertaking; and (ii) with respect
to Buyer Parent, any liability of Seller specifically assumed by Buyer pursuant
to the Undertaking (w) as and to the extent reflected or reserved against on the
Reference Balance Sheet or the Final Statement of Net Assets; (x) as
specifically described in any of the schedules delivered to Buyer and Buyer
Parent pursuant to the Seller Disclosure Letter (or by reason of thresholds
applicable thereto are not required to be disclosed); (y) as incurred since the
Reference Balance Sheet Date in the ordinary course of business or consistent
with Section 3.14; or (z) open purchase or sales orders or agreements for
delivery of goods and services in the ordinary course of business consistent
with prior practice (the liabilities in clauses (w), (x), (y) and (z) are
hereinafter referred to as "Disclosed Liabilities"); and
(c) any and all actions, suits, proceedings, claims and
demands incident to any of the foregoing or such indemnification;
provided, however, that if any claim, liability, demand, assessment, action,
suit or proceeding shall be asserted in respect of which a Seller Indemnitee
proposes to demand indemnification ("Seller Indemnified Claims"), Seller or such
other Seller Indemnitee shall notify Buyer and Buyer Parent thereof, provided
further, however, that the failure to so notify Buyer and Buyer Parent shall not
reduce or affect Buyer's or Buyer Parent's obligations with respect thereto
except to the extent that Buyer or Buyer Parent is materially prejudiced
thereby. Subject to rights of or duties to any insurer or other third Person
having liability therefor, Buyer and Buyer Parent shall have the right promptly
upon receipt of such notice to assume the control of the defense, compromise or
settlement of any such Seller Indemnified Claims (provided that any compromise
or settlement must be reasonably approved by Seller) including, at their own
expense, employment of counsel reasonably satisfactory to Seller; provided,
however, that if Buyer and Buyer Parent shall have exercised their right to
assume such control, Seller may, in its sole discretion and at its expense,
employ counsel to represent it (in addition to counsel
-42-
<PAGE>
employed by Buyer and Buyer Parent) in any such matter, and in such event
counsel selected by Buyer and Buyer Parent shall be required to cooperate with
such counsel of Seller in such defense, compromise or settlement.
8.3 Certain Limitations. The liability of Seller, Buyer or
Buyer Parent, as applicable, for claims under this Agreement shall be limited by
the following:
(a) If the Closing shall not have occurred, recovery of the
Buyer Indemnitees or the Seller Indemnitees, as the case may be, pursuant to
Section 8.1 or Section 8.2, as the case may be, shall be limited to actual
out-of-pocket expenses and shall in no event include any special, indirect,
incidental or consequential damages whatsoever.
(b) Two years after the Closing Date (or, in the case of a
claim for breach of Section 3.15, three years after the Closing Date, and, in
the case of a claim for breach of Section 3.11, six years after the Closing
Date), Seller shall have no further obligations under this Article 8, this
Agreement or otherwise, except for Buyer Losses with respect to which the Buyer
Indemnitees have given Seller written notice prior to such date.
(c) Two years after the Closing Date, Buyer and Buyer Parent
shall have no further obligations under this Article 8, this Agreement or
otherwise, except for Seller Losses with respect to which the Seller Indemnitees
have given Buyer or Buyer Parent written notice prior to such date.
(d) No Buyer Losses or Seller Losses, as the case may be,
shall be asserted by a Buyer Indemnitee or a Seller Indemnitee, as
applicable, with respect to any matter that is covered by insurance, to
the extent proceeds of such insurance are paid.
(e) (i) Anything to the contrary herein notwithstanding, the
representations and warranties contained in clauses (a) through (e) of
Section 3.15 and clauses (f) through (h) of Section 3.15 (but only to
the extent there was a violation of applicable Environmental Laws at
the time the event referred to in such clauses (f) through (h)
occurred) shall be deemed to be breached only to the extent that any
such breaches result in Buyer Losses in excess of Cdn$50,000 in the
aggregate and then only to the extent such Buyer Losses exceed
Cdn$50,000 in the aggregate.
(ii) Anything to the contrary herein notwithstanding, the
representations and warranties contained in clauses (f) through (h) of
Section 3.15 (but only to the extent not subject to clause (i) of this
Section 8.3(e)) shall be deemed to be breached only to the extent that
any such breaches result in Buyer Losses in excess of Cdn$30,000 in the
-43-
<PAGE>
aggregate and then only to the extent such Buyer Losses exceed
Cdn$30,000 in the aggregate.
(iii) No claim or claims shall be asserted by a Buyer
Indemnitee or a Seller Indemnitee, as applicable, pursuant to the
provisions of this Article 8, unless the amount of Buyer Losses or
Seller Losses, as the case may be, equals at least Cdn$350,000 in the
aggregate and then only to the extent such Buyer Losses or Seller
Losses, as the case may be, exceed Cdn$350,000 in the aggregate.
(iv) The aggregate amount of Buyer Losses recoverable
pursuant to the provisions of this Article 8 (other than with respect
to Section 8.1(d), (e) and (f)) by all Buyer Indemnitees shall be
limited in the aggregate to the Purchase Price Indemnification Amount.
For purposes of this Section 8.3(e)(ii), "Purchase Price
Indemnification Amount" shall mean the sum of (x) Cdn$13,062,741 (plus
or minus any adjustment to the Note as contemplated by Section 1.4(e))
and (y) the product of 1,000,000 multiplied by the average of the
closing prices reported on the Nasdaq National Market for Buyer Parent
Common Stock for the twenty trading days (whether or not any trades of
Buyer Parent Common Stock occur on any such day) prior to the date
hereof.
(f) Notwithstanding anything to the contrary contained in this
Agreement, Buyer or Buyer Parent shall not be entitled to
indemnification under Section 8.1 for any Buyer Losses to the extent
that Buyer or Buyer Parent receives at or after the Closing an
adjustment to the Purchase Price for such Buyer Losses by reason of
Section 1.4.
(g) Anything to the contrary herein notwithstanding, Buyer or
Buyer Parent shall not have any recourse against the Excluded Shares
for purposes of satisfying any claims under this Agreement. For
purposes of this Section 8.3(g), "Excluded Shares" means (i) the 83,333
shares of Class E Exchangeable Preferred Stock that will be held by
Seller and, upon issuance thereof, will be identified by the Buyer on
its stock records as being attributable to 1186020 Ontario Limited
after the Closing through the X1 shares of Seller held by 1186020
Ontario Limited (the "JDW Shares") and (ii) the 83,333 shares of Class
E Exchangeable Preferred Stock that will be held by Seller and, upon
issuance thereof, will be identified by the Buyer on its stock records
as being attributable to 3287858 Canada Inc. after the Closing through
the X shares of Seller held by 3287858 Canada Inc. (the "LE Shares"
and, together with the JDW Shares, the "X Shares") and, in each case,
any distributions, exchanges or other substitutions therefor relating
thereto.
(h) Anything to the contrary herein notwithstanding, Buyer or
Buyer Parent shall not have any recourse against the Class A Excluded
Shares (or the unpaid principal amount of the
-44-
<PAGE>
Note corresponding to the Class A Excluded Shares to the extent the
Note has not been exchanged for the Class A Excluded Shares pursuant to
Section 1.2) for purposes of satisfying any claims under this
Agreement.
8.4 Satisfaction of Seller Indemnity. Buyer, Buyer Parent and
Seller agree (a) that Seller shall satisfy its obligations under this Article 8
by surrender of the certificates representing, in this order and this order
only, the shares of Class A Mandatorily Redeemable Preferred Stock (or the Note
to the extent the Note has not been exchanged for the Class A Mandatorily
Redeemable Preferred Stock pursuant to Section 1.2), Class B Mandatorily
Redeemable Preferred Stock, Class E Exchangeable Preferred Stock, the Underlying
Shares, if any, and Buyer Parent Common Stock, in each case held by Seller,
which surrender shall be automatic and without any further action of Seller,
until such time as all such shares (or the Note, if applicable) have been
surrendered, and (b) that Buyer and Buyer Parent will have no recourse against
any other assets of Seller until the assets set forth in clause (a) hereof have
been exhausted in the order so set forth. For purposes of this Section 8.4, (w)
the value of the Note shall be the unpaid principal amount of the Note, (x) the
value of each share of Class A Mandatorily Redeemable Preferred Stock and each
share of Class B Mandatorily Redeemable Preferred Stock shall be its Redemption
Price (as defined in Appendix A hereto), (y) the value of each share of Class E
Exchangeable Preferred Stock at any time shall be the value of the Underlying
Shares at such time and (z) the value of the Underlying Shares and the Buyer
Parent Common Stock at the time any such shares or any shares of Class E
Exchangeable Preferred Stock are surrendered pursuant to this Section 8.4 shall
be the average of the closing prices reported on the Nasdaq National Market for
Buyer Parent Common Stock for the twenty trading days (whether or not any trades
of Buyer Parent Common Stock occur on any such day) prior to the date of such
surrender.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------------------
9.1 Representations, Warranties and Covenants. The covenants
contained in this Agreement shall survive the Closing Date without limitation.
The representations and warranties contained herein shall survive the Closing
Date for a period of two years, except that any representation or warranty of
Seller contained in Section 3.15 (Compliance with Law) shall survive for a
period of three years and any representation or warranty contained in Section
3.11 (Tax Matters) shall survive for a period of six years. The right of a Buyer
Indemnitee to make a claim for indemnification under Section 8.1(a)(i), and the
right of a Seller Indemnitee to make a claim for indemnification under Section
8.2(a)(i), for a breach of any representation or warranty shall be made on or
prior to the date, if any, on which the survival period
-45-
<PAGE>
for such representation or warranty expires, it being understood that claims
made on or prior to such expiration date shall survive such expiration date.
ARTICLE 10
MISCELLANEOUS
-------------
10.1 Cooperation. Each of the parties hereto shall use its
reasonable efforts to take or cause to be taken all actions, to cooperate with
the other party hereto, with respect to all actions, and to do, or cause to be
done all things necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement.
10.2 Waiver. Any failure of Seller to comply with any of its
obligations or agreements herein contained may be waived prior to Closing only
in writing by Buyer or Buyer Parent, after the consent of a majority of the
Special Committee. Any failure of Buyer or Buyer Parent to comply with any of
its obligations or agreements herein contained may be waived only in writing by
Seller.
10.3 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given upon receipt of:
hand delivery; certified or registered mail, return receipt requested; or
telecopy transmission with confirmation of receipt:
(i) If to Seller, to:
G.H. Wood + Wyant Inc.
1475, 32 Avenue
Lachine, Quebec H8T 3J1
Telecopier: (514) 636-1148
Telephone: (514) 636-9926
Attention: James A. Wyant
(with a copy to)
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
Telecopier: (212) 858-1500
Telephone: (212) 858-1000
Attention: Kenneth E. Adelsberg, Esq.
and
-46-
<PAGE>
McCarthy Tetrault
"Le Windsor"
1170 Peel Street, 5th Floor
Montreal, Quebec H3B 4S8
Telecopier: (514) 397-4170
Telephone: (514) 397-4100
Attention: Thomas R.M. Davis, Esq.
(ii) If to Buyer or Buyer Parent, to
Hosposable Products, Inc.
100 Readington Road
Somerville, New Jersey 08876
Telecopier: (908) 707-1549
Telephone: (908) 707-1800
Attention: Joseph H. Weinkam, Jr.
(with a copy to)
Sutherland, Asbill & Brennan, L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Telecopier: (202) 637-3593
Telephone: (202) 383-0100
Attention: James Darrow, Esq.
Such names and addresses may be changed by written notice to each person listed
above.
10.4 Mail Received After Closing. Following the Closing, Buyer
may receive and open all mail addressed to Seller or any Subsidiary or any agent
or former agent thereof and deal with the contents thereof in its discretion to
the extent that such mail and the contents thereof relate to the Acquired
Business.
10.5 Governing Law and Consent to Jurisdiction; Dispute
Resolution. (a) The rights and duties of the parties hereto under this Agreement
shall, pursuant to New York General Obligations Law Section 5-1401, be governed
by the law of the State of New York.
(b) Any dispute, claim or controversy arising out of or
relating to this Agreement, or the interpretation or breach thereof, shall be
referred to arbitration under the rules of the American Arbitration Association,
to the extent such rules are not inconsistent with this Section 10.5. Judgment
upon the award of the arbitrators may be entered in any court having
jurisdiction thereof or such court may be asked to judicially confirm the award
-47-
<PAGE>
and order its enforcement, as the case may be. The demand for arbitration shall
be made within a reasonable time after the claim, dispute or other matter in
question has arisen, and in any event shall not be made after the date when
institution of legal or equitable proceedings, based on such claim, dispute or
other matter in question, would be barred by the applicable statute of
limitations.
(c) The arbitration panel shall consist of three arbitrators,
one of whom shall be appointed by each party hereto. The two arbitrators thus
appointed shall choose the third arbitrator; provided, however, that if the two
arbitrators are unable to agree on the appointment of the third arbitrator,
either arbitrator may petition the American Arbitration Association to make the
appointment.
(d) The place of arbitration shall be New York, New York.
10.6 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
10.7 Headings. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.8 Entire Agreement. This Agreement, including the Exhibits
hereto and the documents referred to herein, embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
10.9 Amendment and Modification. This Agreement may be amended
or modified only by written agreement of the parties hereto.
10.10 Binding Effect; Benefits. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns; nothing in this Agreement, express or implied, is
intended to confer on any Person other than the parties hereto and their
respective successors and assigns (and, to the extent provided in Sections 8.1
and 8.2, the other Buyer Indemnitees and Seller Indemnitees) any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
10.11 Assignability. This Agreement shall not be assignable by
any party hereto without the prior written consent of the other parties provided
that Buyer may assign its rights under the Agreement to any Affiliate of Buyer
provided that (a) the assignee Buyer and Buyer Parent enter into an agreement
with the Seller under which the assignee acknowledges that it has assumed
-48-
<PAGE>
all of the obligations of Buyer and Buyer Parent hereunder and Buyer and Buyer
Parent acknowledge that they will remain jointly and severally liable for all
obligations of the assignee under this Agreement.
10.12 Acquired Subsidiary. Anything to the contrary herein
notwithstanding, Buyer and Buyer Parent agree to permit the Acquired Subsidiary
to be merged, amalgamated or otherwise combined with the Seller prior to the
Closing Date.
-49-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
HOSPOSABLE PRODUCTS, INC.
By /s/ Joseph H. Weinkam, Jr.
____________________________
Name: Joseph H. Weinkam, Jr.
Title: President and Chief
Operating Officer
<PAGE>
3290441 CANADA INC.
By /s/ Donald C. MacMartin
_________________________
Name: Donald C. MacMartin
Title: President
<PAGE>
G.H. WOOD + WYANT INC.
By /s/ G.W. Wyant
________________________________
Name: G.W. Wyant
Title: Chairman of the Board
By /s/ James A. Wyant
_________________________________
Name: James A. Wyant
Title: Vice Chairman of the Board
<PAGE>
APPENDIX A
To The Asset Purchase Agreement
SHARE CONDITIONS FOR 3290441 CANADA INC.
SCHEDULE I
I. An unlimited number of Class A shares, an unlimited number of Class B
shares, an unlimited number of Class E exchangeable shares
("Exchangeable Shares") and an unlimited number of common shares are
hereby created.
II. The Class A shares, the Class B shares, the Exchangeable shares and the
common shares shall carry and be subject to the following rights,
privileges, restrictions and conditions, that is to say:
III. CLASS A SHARES AND CLASS B SHARES
1. Dividends
(a) The holders of record of the Class A shares shall be entitled
to a fixed cumulative preferential dividend, subject to the
provisions of the Canada Business Corporations Act, ranking
pari passu with holders of record of the Class B shares, in
preference and priority to any payment of dividends on any
other class of shares of the Corporation, at an annual rate
per share of 4% of the Redemption Price (as herein defined),
payable monthly, on the last day of each month. Such dividends
shall accrue and be cumulative from the respective dates of
issue of the Class A shares. If on any dividend payment date
the Corporation shall not have paid the said dividends in full
on all Class A shares, then the outstanding dividends or the
unpaid part thereof shall be paid on a subsequent date or
dates in priority to dividends on any shares of any other
class of shares of the Corporation ranking junior as to the
payment of dividends to the Class A shares.
(b) The holders of record of the Class B shares shall be entitled
to a fixed cumulative preferential dividend, subject to the
provisions of the Canada Business Corporations Act, ranking
pari passu with the holders of record of the Class A shares,
in preference and priority to any payment of dividends on any
other class of shares of the Corporation, at an annual rate
per share of 3.999999% of the Redemption Price, payable
monthly, on the last day of each month. Such dividends shall
accrue and be cumulative from the respective dates of issue of
the Class B shares. If on any dividend payment date the
Corporation shall not have paid the said dividends in full on
all Class B shares, then the outstanding dividends or the
unpaid part thereof shall be paid on a subsequent date or
dates in priority to dividends on any shares of any other
class of shares of the Corporation ranking junior as to the
payment of dividends to the Class B shares.
<PAGE>
2.
(c) No dividends shall at any time be declared, paid or set apart
for payment upon any shares of the Corporation, unless the
prescribed monthly dividend on all then outstanding Class A
shares and Class B shares shall have been declared, paid or
set apart for payment.
(d) No dividends shall be declared or paid or set aside for
payment in any year on any class of shares of the Corporation,
other than the Class A shares and the Class B shares, that
would result in the Corporation having insufficient assets to
redeem the Class A shares and the Class B shares scheduled for
redemption in such year at their Redemption Price.
(e) Cheques of the Corporation payable at par at any branch of the
Corporation's bankers in Canada shall be issued in respect of
such dividends (less any taxes required to be deducted) and
the mailing of such a cheque to any holder shall satisfy the
dividend represented thereby.
2. Redemption and Retractation
(a) The Class A shares and the Class B shares shall be redeemable
and retractable in the manner hereinafter provided, on payment
to the holders thereof of an amount equal to $1.00 per share,
plus all dividends accrued thereon and unpaid to the
applicable redemption date ("Redemption Price"). The Class A
shares and the Class B shares redeemed pursuant to this
paragraph shall be cancelled.
(b) Subject to the provisions of the Canada Business Corporations
Act, the Corporation shall be obliged to redeem all the
outstanding Class A shares and Class B shares as follows:
(i) redemptions shall be made in consecutive, annual
tranches, each tranche equal to the lesser of (y) ten
percent (10%) of the aggregate number of Class A
shares and Class B shares outstanding immediately
prior to the first such redemption and (z) the
aggregate number of Class A shares and Class B shares
then outstanding,
(ii) no Class B shares shall be included for redemption in
any such tranche until either (y) all of the Class A
shares have been previously redeemed, or (z) all of
the then outstanding Class A shares are included for
redemption in such tranche, and
(iii) the first tranche shall be redeemed on the third day
of January 1998 and the subsequent tranches shall be
redeemed on the third day of January of each
-2-
<PAGE>
3.
successive year until all of the Class A shares
and Class B shares shall have been redeemed.
(c) Before redeeming any Class A or Class B shares the Corporation
shall mail to each person who, at the date of such mailing, is
a registered holder of shares to be redeemed notice of the
intention of the Corporation to redeem such shares held by
such registered holder. Such notice shall be mailed by
ordinary prepaid post addressed to the last address of such
holder as it appears on the books of the Corporation or, in
the event of the address of any such holder not appearing on
the books of the Corporation, then to the last known address
of such holder, at least 30 days before the date specified for
redemption. Such notice shall set out the Redemption Price,
the date on which redemption is to take place and the number
thereof so to be redeemed. In case a part only of the then
outstanding Class A or Class B shares, as the case may be, is
at any time to be redeemed, the shares so to be redeemed shall
be redeemed from the respective holders thereof pro rata,
disregarding fractions, and the directors may make such
adjustments as may be necessary to avoid the redemption of
fractional parts of shares. On and after the date so specified
for redemption the Corporation shall pay or cause to be paid
to the registered holders the Redemption Price of the shares
to be redeemed on presentation and surrender of the
certificates for the shares so called for redemption at the
registered office of the Corporation or at such other place or
places as may be specified in such notice, and the
certificates for such shares shall thereupon be cancelled and
the shares represented thereby shall thereupon be and be
deemed to be redeemed. From and after the date specified in
such notice for redemption, the holders of such shares called
for redemption shall cease to be entitled to dividends and
shall not be entitled to any rights in respect thereof, except
to receive the Redemption Price, unless payment of the
Redemption Price shall not be made by the Corporation in
accordance with the foregoing provisions, in which case the
rights of the holders of such shares shall remain unimpaired.
On or before the date specified for redemption the Corporation
shall have the right to deposit the Redemption Price of the
shares called for redemption in a special account with any
chartered bank or trust company named in the notice of
redemption to be paid, without interest, to or to the order of
the respective holders of such shares called for redemption
upon presentation and surrender of the certificates
representing the same and, upon such deposit being made, the
shares in respect whereof such deposit shall have been made
shall be deemed to be redeemed and the rights of the several
holders thereof, after such deposit, shall be limited to
receiving, out of the moneys so deposited, without interest,
the Redemption Price payable with respect to their respective
shares plus the full amount of all dividends declared and
unpaid thereon against presentation and surrender of the
certificates representing such shares.
-3-
<PAGE>
4.
(d) In the event that the Corporation shall fail to redeem any
tranche of Class A shares or Class B shares in accordance with
the provisions hereof, the holders of the Class A shares and
Class B shares shall be entitled to call upon the Corporation,
by written request, to redeem such tranche and, subject to
Section 36 of The Canada Business Corporations Act, the
Corporation shall redeem such shares within thirty (30) days
of receipt of such request in accordance with the provisions
of this Section .
3. Purchase for cancellation
The Corporation shall have the right at its option at any time and from
time to time to purchase for cancellation the whole or any part of the
Class A shares and the Class B shares, pursuant to tenders received by
the Corporation upon request for tenders addressed to all holders of
Class A or Class B shares, as the case may be, or with the unanimous
consent of the holders of all Class A or Class B shares by private
contract at a price per share equal to the Redemption Price per share.
If in response to an invitation for tenders, two or more shareholders
submit tenders at the same price and if such tenders are accepted by
the Corporation in whole or in part, then, unless the Corporation
accepts all such tenders in whole, the Corporation shall accept such
tenders in proportion as nearly as may be to the number of shares
offered in each such tenders; provided that no Class B shares shall be
purchased for cancellation until all of the Class A shares shall have
been previously redeemed or purchased for cancellation as the case may
be.
4. Liquidation
In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, the holders of the Class
A shares and the Class B shares shall be entitled to receive, equally
per share, before any distribution of any part of the assets of the
Corporation among the holders of any other shares, an amount equal to
the Redemption Price per share and no more.
5. Voting
(a) Subject to the provisions of the Canada Business Corporations
Act, the holders of the Class A shares and the Class B shares
shall not, as such, have any voting rights nor shall they be
entitled to attend shareholders' meetings unless and until (i)
the Corporation shall fail to pay dividends on the Class A
shares or the Class B shares on six dates on which the same
should be paid whether or not consecutive and whether or not
such dividends have been declared and whether or not there are
any moneys of the Corporation property applicable to
-4-
<PAGE>
5.
the payments of dividends or (ii) the Corporation shall have
failed to redeem Class A shares or Class B shares in
accordance with Section 2 of these share conditions;
thereafter, but only so long as (i) any dividends on the Class
A shares or the Class B shares remain in arrears or (ii) any
redemptions which should have been made in accordance with
Section 2 of these share conditions remain outstanding, the
holders of the Class A shares and the Class B shares shall
collectively be entitled, voting separately and exclusively as
a class, to elect two members of the board of directors of the
Corporation; nothing herein contained shall be deemed to limit
the right of the Corporation from time to time to increase or
decrease the number of its directors.
(b) Unless the total number of directors on the board of directors
of the Corporation is modified to accommodate the two
directors appointed in accordance with subsection 5(a),
notwithstanding anything contained in the by- laws of the
Corporation, the term of office of all persons who may be
directors of the Corporation at any time when the right to
elect directors shall accrue to the holders of the Class A
shares and the Class B shares as provided in this section 5 or
who may be appointed as directors thereafter and before a
meeting of shareholders shall have been held shall terminate
upon the election of directors at the next annual meeting of
shareholders or at a special meeting of shareholders which may
be held for the purpose of electing directors at any time
after the accrual of such right to elect directors upon not
less than 21 days written notice and which shall be called by
the one-tenth (1/10) of the outstanding Class A shares and
Class B shares; in default of the calling of such special
meeting by the secretary within five days after the making of
such request such meeting may be called by any holder of
record of Class A shares or Class B shares.
(c) Notwithstanding anything contained in the by-laws of the
Corporation (i) upon any termination of the said right to
elect directors, the term of office of the directors elected
or appointed to represent the holders of Class A shares and
the Class B shares exclusively shall forthwith terminate and
(ii) it shall not be necessary for a person to be a holder of
Class A shares or Class B shares in order to qualify him for
election or appointment as a director of the Corporation to
represent the holders of Class A shares and the Class B shares
exclusively.
-5-
<PAGE>
6.
IV. CLASS E EXCHANGEABLE SHARES
1. Dividends
(a) The Board of Directors shall declare and the Corporation shall
pay dividends out of the assets of the Corporation properly
applicable to the payment of dividends and after payment of
the dividends properly payable on the Class A shares and the
Class B shares as follows: (i) in the case of a cash dividend
declared in United States currency on a Common Share of the
Parent ("Parent Common Share") in an amount in cash in United
States currency for each Exchangeable Share equal to the cash
dividend declared on each Parent Common Share; (ii) in the
case of a stock dividend declared on Parent Common Shares to
be paid in Parent Common Shares, in such number of
Exchangeable Shares for each Exchangeable Share as is equal to
the number of Parent Common Shares to be paid on each Parent
Common Share; and (iii) in the case of a dividend declared on
Parent Common Shares in property other than United States
currency or Parent Common Shares, in such type and amount of
property for each Exchangeable Share as is the same as or the
Economic Equivalent (as defined below) of the type and amount
of property declared as a dividend on each Parent Common
Share.
(b) The Board of Directors shall determine, in good faith and in
its sole discretion (with the assistance of such reputable and
qualified independent financial advisors and/or other experts
as the board may require), what is the Economic Equivalent for
the purposes of this section and each such determination shall
be conclusive and binding. In making such determination, the
following factors shall, without excluding other factors
determined by the Board of Directors to be relevant, be
considered by the Board of Directors, (i) the relationship
between the fair market value (as determined by the Board of
Directors) of such property to be issued or distributed with
respect to each outstanding Parent Common Share and the
Current Market Value (as determined by the Board of Directors
in the manner contemplated below) of a Parent Common Share;
and (ii) the general taxation consequences of the relevant
event to holders of Exchangeable Shares to the extent that
such consequences may differ from the taxation consequences to
holders of Parent Common Shares as a result of differences
between the taxation laws of Canada and the United States
(except for any differing consequences arising as a result of
differing marginal taxation rates and without regard to the
individual circumstances of holders of Exchangeable Shares).
For purposes of these share provisions, the "Current Market
Value" of any security listed and traded or quoted on a
securities exchange shall be the weighted average of the daily
closing prices of such security during a period of twenty (20)
consecutive trading days ending five (5) trading days before
the date of determination on the principal
-6-
<PAGE>
7.
securities exchange on which such securities are listed and
traded or quoted; provided, however, that if in the opinion of
the Board of Directors the public distribution or trading
activity of such securities during such period does not create
a market which reflects the fair market value of such
securities, then the Current Market Value thereof shall be
determined by the Board of Directors, in good faith and in its
sole discretion (with the assistance of such reputable and
qualified independent financial advisors and/or other experts
as the Board of Directors may require), and provided further
that any such determination by the Board shall be conclusive
and binding.
(c) Such dividends shall have record and payment dates identical
to the record and payment dates for dividends on the Parent
Common Shares. In the event a record or payment date for a
Parent Common Share is not a business day in Montreal, Quebec
or Toronto, Ontario, the record or payment date, as the case
may be, for the Exchangeable Shares shall be the next business
day.
2. Participation upon Liquidation, Dissolution or Winding-Up
(a) In the event of the liquidation, dissolution or winding-up of
the Corporation or other distribution of assets of the
Corporation among its shareholders for the purpose of
winding-up its affairs, the holders of the Exchangeable Shares
shall be entitled, subject to applicable law and subject to
the Liquidation Call Right as set forth below, to receive from
the assets of the Corporation for each Exchangeable Share on
the effective date ("Liquidation Date"), after the
distribution to the holders of Class A shares and Class B
shares of their respective liquidation entitlement, but before
any distribution of any part of the assets of the Corporation
among the holders of common shares or any other shares ranking
junior to the Exchangeable Shares an amount per share equal to
(y) the Current Market Value of a Parent Common Share,
determined on the trading day prior to the Liquidation Date,
which shall be paid and satisfied in full only by the
Corporation causing to be delivered to such holder one Parent
Common Share, plus (z) an additional amount in cash equivalent
to the full amount of all declared and unpaid dividends on
each such Exchangeable Share (collectively, the "Liquidation
Amount"). The Corporation shall immediately give notice to
Parent of any proposed liquidation, dissolution or winding-up.
(b) On or promptly after the Liquidation Date, and subject to the
exercise by Parent of the Liquidation Call Right (as set forth
below), the Corporation shall cause to be delivered to the
holders of the Exchangeable Shares the Liquidation Amount for
each such Exchangeable Share, upon the surrender by the holder
thereof of the certificate evidencing such Exchangeable
Shares, together with such other documents and instruments as
may be required to effect a transfer of Exchangeable Shares
under the Canada Business Corporations Act and the
-7-
<PAGE>
8.
by-laws of the Corporation and such additional documents and
instruments as the secretary of the Corporation may reasonably
require, at the registered office of the Corporation. Payment
of the total Liquidation Amount for such Exchangeable Shares
shall be made by delivery to each holder, at the address of
the holder recorded in the securities register of the
Corporation for the Exchangeable Shares or by holding for pick
up by the holder at the registered office of the Corporation
of certificates representing Parent Common Shares (which
shares shall be duly issued as fully paid and non-assessable
and shall be free and clear of any hypothec, mortgage,
security interest, charge or claim) and a cheque in United
States dollars of the Corporation payable at par at any branch
of the bankers of the Corporation in respect of the amount
equivalent to the full amount of all declared and unpaid
dividends comprising part of the total Liquidation Amount
(less any tax required to be deducted and withheld therefrom
by the Corporation). On and after the Liquidation Date, the
holders of the Exchangeable Shares shall cease to be holders
of such Exchangeable Shares and shall not be entitled to
exercise any of the rights of holders in respect thereof,
other than the right to receive their proportionate part of
the total Liquidation Amount, unless payment of the total
Liquidation Amount for such Exchangeable Shares shall not be
made upon presentation and surrender of share certificates in
accordance with the foregoing provisions, in which case the
rights of the holders shall remain unaffected until the total
Liquidation Amount has been paid in the manner hereinbefore
provided. The Corporation shall have the right at any time
after the Liquidation Date to deposit or cause to be deposited
the total Liquidation Amount in respect of the Exchangeable
Shares represented by certificates that have not at the
Liquidation Date been surrendered by the holders thereof in a
custodial account with any chartered bank or trust company.
Upon such deposit being made, the rights of the holders of
Exchangeable Shares after such deposit shall be limited to
receiving their proportionate part of the total Liquidation
Amount (less any tax required to be deducted and withheld
therefrom) for such Exchangeable Shares so deposited, against
presentation and surrender of the said certificates held by
them, respectively, in accordance with the foregoing
provisions. Upon such payment or deposit of the total
Liquidation Amount, the holders of the Exchangeable Shares
shall thereafter be considered and deemed for all purposes to
be the holders of the Parent Common Shares delivered to them.
(c) If Parent or an affiliate of Parent (within the meaning of the
Canada Business Corporations Act is the sole holder of common
shares of the Corporation, Parent shall have the overriding
right (the "Liquidation Call Right"), in the event of and
notwithstanding the proposed liquidation, dissolution or
winding-up of the Corporation pursuant to subsection 2(a) of
these share provisions, to purchase from all but not less than
all of the holders of Exchangeable Shares on the Liquidation
Date all but not less than all of the Exchangeable Shares held
by each such holder on payment by Parent to the holder of an
amount per share equal to (y) the Current Market Value of a
Parent Common Share determined on the trading day prior to the
-8-
<PAGE>
9.
Liquidation Date, which shall be satisfied in full only by
causing to be delivered to such holder one Parent Common
Share, plus (z) an additional amount equivalent to the full
amount of all dividends declared and unpaid on such
Exchangeable Shares (collectively, the "Liquidation Call
Purchase Price"). In the event of the exercise of the
Liquidation Call Right by Parent, each holder shall be
obligated to sell all the Exchangeable Shares held by the
holder to Parent on the Liquidation Date on payment by Parent
to the holder of the Liquidation Call Purchase Price for each
such share.
(d) To exercise the Liquidation Call Right, Parent must notify
holders of Exchangeable Shares and the Corporation of Parent's
intention to exercise such right within two business days of
receiving notification of the liquidation, dissolution or
winding-up from the Corporation as provided in subsection 2(a)
of these share provisions. If Parent exercises the Liquidation
Call Right, on the Liquidation Date Parent will purchase and
the holders will sell all of the Exchangeable Shares then
outstanding for a price per share equal to the Liquidation
Call Purchase Price.
(e) For the purposes of completing the purchase of the
Exchangeable Shares pursuant to the Liquidation Call Right,
Parent shall deposit with the secretary of the Corporation, on
or before the Liquidation Date, certificates representing the
aggregate number of Parent Common Shares deliverable by Parent
in payment of the total Liquidation Call Purchase Price and a
cheque or cheques in the amount of the remaining portion, if
any, of the total Liquidation Call Purchase Price. Provided
that the total Liquidation Call Purchase Price has been so
deposited with the secretary of the Corporation, on and after
the Liquidation Date the rights of each holder of Exchangeable
Shares will be limited to receiving such holder's
proportionate part of the total Liquidation Call Purchase
Price payable by Parent upon presentation and surrender by the
holder of certificates representing the Exchangeable Shares
held by such holder and the holder shall on and after the
Liquidation Date be considered and deemed for all purposes to
be the holder of the Parent Common Shares delivered to it.
Upon surrender to the secretary of the Corporation of a
certificate or certificates representing Exchangeable Shares,
together with such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares under the
Canada Business Corporations Act and the by-laws of the
Corporation and such additional documents and instruments as
the secretary of the Corporation may reasonably require, the
holder of such surrendered certificate or certificates shall
be entitled to receive in exchange therefor, and the secretary
of the Corporation on behalf of Parent shall deliver to such
holder, certificates representing the Parent Common Shares to
which the holder is entitled and a cheque or cheques of Parent
payable at par and in United States dollars at any branch of
the bankers of Parent or of the Corporation in Canada in
payment of the remaining portion, if any, of the total
Liquidation Call Purchase Price. If Parent does not exercise
-9-
<PAGE>
10.
the Liquidation Call Right in the manner described above, on
the Liquidation Date the holders of the Exchangeable Shares
will be entitled to receive in exchange therefor the
liquidation price otherwise payable by the Corporation in
connection with the liquidation, dissolution or winding-up of
the Corporation pursuant to subsection 2(a) of these share
provisions.
3. Corporation Voting Rights
(a) The holders of the Exchangeable Shares shall not be entitled
to receive notice of, or to attend, any meetings of
shareholders of the Corporation, subject to applicable law.
4. Special Events
(a) The Exchangeable Shares shall be subject to adjustment or
modification from time to time in each of the following
circumstances:
(i) Parent shall sub-divide the then outstanding Parent
Common Shares into a greater number of Parent Common
Shares;
(ii) Parent shall reduce, combine or consolidate the then
outstanding Parent Common Shares into a smaller
number of Parent Common Shares;
(iii) Parent shall issue additional Parent Common Shares or
shares of another class of Parent or shares of a
subsidiary corporation to all or substantially all of
the holders of Parent Common Shares by way of
options, rights or warrants; or
(iv) Parent shall reclassify or otherwise change the
Parent Common Shares or effect an amalgamation,
merger or reorganization.
(b) The Board of Directors shall take all reasonable steps to
effect any such adjustment or modification including, if
necessary, submitting same to holders of Exchangeable Shares
for their approval. Such adjustment or modification shall
result in the same, or the Economic Equivalent (as determined
below) of the adjustment or modification as that made to the
Parent Common Shares and shall simultaneously be made to, or
in the rights of the holders of, the Exchangeable Shares.
(c) The Board of Directors shall determine, in good faith and in
its sole discretion (with the assistance of such reputable and
qualified independent financial advisors and/or other experts
as the board may require), what is the Economic Equivalent
-10-
<PAGE>
11.
for the purposes of any event referred to in this section 4
and each such determination shall be conclusive and binding.
In making each such determination, the following factors
shall, without excluding other factors determined by the board
to be relevant, be considered by the Board of Directors:
(i) in the case of subsection 4(a)(iii), the relationship
between the exercise price of each of such options,
rights or warrants and the Current Market Value (as
determined by the Board of Directors in the manner
contemplated in subsection 1(b)) of a Parent Common
Share; and
(ii) the general taxation consequences of the relevant
event to holders of Exchangeable Shares to the extent
that such consequences may differ from the taxation
consequences to holders of Parent Common Shares as a
result of differences between taxation laws of Canada
and the United States (except for any differing
consequences arising as a result of differing
marginal taxation rates and without regard to the
individual circumstances of holders of Exchangeable
Shares).
5. Retraction of Exchangeable Shares by Holder
(a) A holder of Exchangeable Shares shall be entitled at any time,
subject to the exercise by Parent of the Call Right (as
defined below) and otherwise upon compliance with the
provisions of this section 5(a), to require the Corporation to
redeem any or all of the Exchangeable Shares registered in the
name of such holder for an amount per share equal to (y) the
Current Market Value of a Parent Common Share determined on
the trading day prior to the Retraction Date (as defined
below), which shall be paid and satisfied in full only by the
Corporation causing to be delivered to such holder one Parent
Common Share for each Exchangeable Share presented and
surrendered by the holder plus (z) an additional amount
equivalent to the full amount of all dividends declared and
unpaid thereon (collectively the "Retraction Price"), provided
that if the record date for any such declared and unpaid
dividends occurs on or after the Retraction Date the
Retraction Price shall not include such additional amount
equivalent to the declared and unpaid dividends. To effect
such redemption, the holder shall present and surrender at the
registered office of the Corporation the certificate or
certificates representing the Exchangeable Shares which the
holder desires to have the Corporation redeem, together with
such other documents and instruments as may be required to
effect a transfer of Exchangeable Shares under the Companies
Act, (Quebec) and the by-laws of the Corporation and such
additional documents and instruments as the secretary of the
Corporation may reasonably require, and together with a duly
executed statement in such form as may be acceptable to the
Corporation ("Retraction Request"):
-11-
<PAGE>
12.
(i) specifying that the holder desires to have all or any
number specified therein of the Exchangeable Shares
represented by such certificate or certificates (the
"Retracted Shares") redeemed by the Corporation;
(ii) stating the business day on which the holder desires
to have the Corporation redeem the Retracted Shares
(the "Retraction Date"), provided that the Retraction
Date shall be not less than five business days after
the date on which the Retraction Request is received
by the Corporation and further provided that, in the
event that no such business day is specified by the
holder in the Retraction Request, the Retraction Date
shall be deemed to be the fifth business day after
the date on which the Retraction Request is received
by the Corporation; and
(iii) acknowledging the overriding right (the "Call Right")
of Parent to purchase all but not less than all the
Retracted Shares directly from the holder and that
the Retraction Request shall be deemed to be a
revocable offer by the holder to sell the Retracted
Shares to Parent in accordance with the Call Rights.
(b) Subject to the exercise by Parent of the Call Right, upon
receipt by the Corporation in the manner specified in section
5(a) hereof of a certificate or certificates representing the
number of Exchangeable Shares which the holder desires to have
the Corporation redeem, together with a Retraction Request,
the Corporation shall redeem the Retracted Shares effective at
the close of business on the Retraction Date and shall cause
to be delivered to such holder the total Retraction Price with
respect to such shares. If only a part of the Exchangeable
Shares represented by any certificate is redeemed (or
purchased by Parent pursuant to the Call Right), a new
certificate for the balance of such Exchangeable Shares shall
be issued to the holder at the expense of the Corporation.
(c) Upon receipt by the Corporation of a Retraction Request, the
Corporation shall immediately notify Parent thereof. In order
to exercise the Call Right, Parent must notify the Corporation
in writing of its determination to do so (the "Retraction Call
Notice") within two business days of notification to Parent by
the Corporation of the receipt by the Corporation of the
Retraction Request. If Parent does not so notify the
Corporation within such two business day period, the
Corporation will notify the holder as soon as possible
thereafter that Parent will not exercise the Call Right. If
Parent delivers the Call Notice within such two business day
time period, the Retraction Request shall thereupon be
considered only to be an offer by the holder to sell the
Retracted Shares to Parent in accordance with the Call Right.
In such event, the Corporation shall not redeem the Retracted
Shares and Parent shall purchase from such holder and such
holder shall sell to Parent on the Retraction Date the
-12-
<PAGE>
13.
Retracted Shares for a purchase price (the "Purchase Price")
per share equal to the Retraction Price per share. For the
purposes of completing a purchase pursuant to the Call Right,
Parent shall deposit with the secretary of the Corporation, on
or before the Retraction Date, certificates representing
Parent Common Shares and a cheque in the amount of the
remaining portion, if any, of the total Purchase Price.
Provided that the total Purchase Price has been so deposited
with the secretary of the Corporation, the closing of the
purchase and sale of the Retracted Shares pursuant to the Call
Right shall be deemed to have occurred as at the close of
business on the Retraction Date and, for greater certainty, no
redemption by the Corporation of such Retracted Shares shall
take place on the Retraction Date. In the event that Parent
does not deliver a Retraction Call Notice within two business
day period, the Corporation shall redeem the Retracted Shares
on the Retraction Date and in the manner otherwise
contemplated in this section 5(c).
(d) the Corporation or Parent, as the case may be, shall deliver
or cause to be delivered to the relevant holder, at the
address of the holder recorded in the securities register of
the Corporation for the Exchangeable Shares or at the address
specified in the holder's Retraction Request or by holding for
pick up by the holder at the registered office of the
Corporation, certificates representing the Parent Common
Shares (which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any hypothec,
mortgage, security interest, charge or claim) registered in
the name of the holder or in such other name as the holder may
request in payment of the total Retraction Price or the total
Purchase Price, as the case may be, and a cheque of the
Corporation payable at par at any branch of the bankers of the
Corporation in payment of the remaining portion, if any, of
the total Retraction Price (less any tax required to be
deducted and withheld therefrom by the Corporation) or a
cheque of Parent payable at par and in United States dollars
at any branch of the bankers of Parent or of the Corporation
in Canada in payment of the remaining portion, if any, of the
total Purchase Price, as the case may be, and such delivery of
such certificates and cheque on behalf of the Corporation or
by Parent, as the case may be, shall be deemed to be payment
of and shall satisfy and discharge all liability for the total
Retraction Price or total Purchase Price, as the case may be,
to the extent that the same is represented by such share
certificates and cheque (plus any tax required and in fact
deducted and withheld therefrom and remitted to the proper tax
authority), unless such cheque is not paid on due
presentation.
(e) On and after the close of business on the Retraction Date, the
holder of the Retracted Shares shall cease to be a holder of
such Retracted Shares and shall not be entitled to exercise
any of the rights of a holder in respect thereof, other than
the right to receive this proportionate part of the total
Retraction Price or total Purchase Price, as the case may be,
unless upon presentation and surrender of certificates in
accordance with the foregoing provisions, payment of the total
Retraction Price or the total Purchase Price, as the case may
-13-
<PAGE>
14.
be, shall not be made, in which case the rights of such holder
shall remain unaffected until the total Retraction Price or
the total Purchase Price, as the case may be, has been paid in
the manner hereinbefore provided. On and after the close of
business on the Retraction Date provided that presentation and
surrender of certificates and payment of the total Retraction
Price or the total Purchase Price, as the case may be, has
been made in accordance with the foregoing provisions, the
holder of the Retracted Shares so redeemed by the Corporation
or purchased by Parent shall thereafter be considered and
deemed for all purposes to be a holder of the Parent Common
Shares delivered to it.
(f) Notwithstanding any other provision of this section 5, the
Corporation shall not be required to redeem Retracted Shares
specified by a holder in a Retraction Request to the extent
that such redemption of Retracted Shares would be contrary to
solvency requirements or other provisions of applicable law.
If the Corporation believes that on any Retraction Date it
would not be permitted by any of such provisions to redeem the
Retracted Shares tendered for redemption on such date, and
provided that Parent shall not have exercised the Call Right
with respect to the Retracted Shares, the Corporation shall
only be required to redeem Retracted Shares specified by a
holder in a Retraction Request to the extent of the maximum
number that may be so redeemed (rounded to the next lower
multiple of 100 shares) as would not be contrary to such
provisions and shall notify the holder at least two business
days prior to the Retraction Date as to the number of
Retracted Shares which will not be redeemed by the
Corporation. In any case in which the redemption by the
Corporation of Retracted Shares would be contrary to solvency
requirements or other provisions of applicable law, the
Corporation shall as soon as practicable and from time to time
redeem Retracted Shares in accordance with section 5(b) of
these share provisions on a pro rata basis and shall issue to
each holder of Retracted Shares a new certificate, at the
expense of the Corporation, representing the Retracted Shares
not redeemed by the Corporation pursuant to section 5(b)
hereof.
6. Amendment and Approval
(a) The rights, privileges, restrictions and conditions attaching
to the Exchangeable Shares may be added to, changed or removed
but only with the approval of the holders of the Exchangeable
Shares given as hereinafter specified.
(b) Any approval given by the holders of the Exchangeable Shares
to add to, change or remove any right, privilege, restriction
or condition attaching to the Exchangeable Shares or any other
matter requiring the approval or consent of the holders of the
Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with
applicable law.
-14-
<PAGE>
15.
V. COMMON SHARES
1. Dividends
(a) After dividends have been declared and paid on the Class A
shares, the Class B shares and the Exchangeable Shares, as the
case may be, as provided for in the articles of the
Corporation, the holders of record of the common shares shall
be entitled to receive as and when declared by the directors
of the Corporation in their discretion, out of the moneys
properly applicable to the payment of dividends, dividends on
such shares, in such amounts and at such times as the
directors of the Corporation shall determine.
(b) Cheques of the Corporation payable at par at any branch of the
Corporation's bankers in Canada shall be issued in respect of
such dividends (less any taxes required to be deducted) and
the mailing of such a cheque to any holder shall satisfy the
dividend represented thereby.
2. Liquidation
In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary after distribution to the
holders of the Class A shares, the Class B shares, and the Exchangeable
Shares, the holders of the common shares shall be entitled to receive
the remaining property of the Corporation.
3. Vote
The holders of the common shares are entitled to one vote for each
share held at all meetings of shareholders.
-15-
<PAGE>
16.
SCHEDULE II
No shares of the capital stock of the Corporation shall be transferred
without the consent of the directors of the Corporation, evidenced by a
resolution passed by them and recorded in the books of the Corporation.
-16-
<PAGE>
17.
SCHEDULE III
1. The number of shareholders of the Corporation shall be limited to fifty
(50), not including persons who are in the employment of the
Corporation or of a subsidiary and persons who, having been formerly in
the employment of the Corporation or of a subsidiary, were, while in
that employment, and have continued after the termination of that
employment to be shareholders of the Corporation, two (2) or more
persons holding one (1) or more shares jointly being counted as a
single shareholder.
2. Any invitation to the public to subscribe for securities of the
Corporation is prohibited.
-17-
<PAGE>
EXHIBIT A
---------
BILL OF SALE
G.H. WOOD + WYANT INC., a Canadian corporation ("Assignor"),
pursuant to the Asset Purchase Agreement, dated as of November 12, 1996 (the
"Agreement"), by and between Assignor, HOSPOSABLE PRODUCTS, INC., a New York
corporation, and 3290441 CANADA INC., a corporation incorporated under the
Canada Business Corporations Act ("Assignee"), and for good and valuable
consideration to it in hand paid, the receipt and sufficiency of which is hereby
acknowledged, does hereby sell, convey, transfer, assign and deliver unto
Assignee, its successors and assigns, free and clear of all Encumbrances, except
as expressly set forth in the Agreement, as at 12:01 a.m. on the date hereof,
all of Assignor's right, title and interest in, to and under all of the assets
and business (except for the Excluded Assets) of the Assignor (collectively, the
"Purchased Assets"), including without limitation, the respective properties,
assets and other rights described in Schedule 1 hereto which by this reference
is incorporated herein. The parties acknowledge and agree that the conveyance
and transfer herein is made with the representations and warranties set forth in
the Agreement and with no other representations and warranties and subject to
all of the rights, restrictions and conditions set forth in the Agreement.
TO HAVE AND TO HOLD the Purchased Assets unto the said Assignee and
its successors and assigns, to and for its or their use forever.
Assignor hereby authorizes Assignee to take any and all appropriate
actions in connection with any of the Purchased Assets, in the name of the
Assignor or in its own or any other name.
The Excluded Assets are described in Schedule 2 hereto which by
this reference is incorporated herein.
Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Agreement.
<PAGE>
IN WITNESS WHEREOF, Assignor has caused this Bill of Sale to be
executed by ____________, its ____________, and attested to by _____________,
its _____________, as of this ____ day of __________ 1997.
G.H. WOOD + WYANT INC.
By________________________
Name:
Title:
By________________________
Name:
Title:
Attest:
________________________
Name:
Title:
-2-
<PAGE>
Schedule 1
----------
Purchased Assets
----------------
All of the assets of Seller not listed on Schedule 2
-3-
<PAGE>
Schedule 2
----------
Excluded Assets
---------------
- - All of the Seller's shares in the capital stock of Buyer Parent
- - All of the Seller's shares in the capital stock of American Converting Paper
Corporation
- - Prepaid transaction costs paid or accrued by Seller with respect to the
transactions contemplated by the Asset Purchase Agreement to December 31,
1996
- - Two Promissory Notes issued to Seller each in the amount of Cdn$557,404 by
3271706 Canada Inc. on September 3, 1996
- - Promissory Note issued to Seller in the amount of Cdn$1,817,290 by 3287858
Canada Inc. on September 3, 1996
- - Promissory Note issued to Seller in the amount of Cdn$1,817,290 by 1186020
Ontario Limited on September 3, 1996
- - Life insurance policy no. T00610007 for Gerald W. Wyant
- - Life insurance policy no. 4157675 for James A. Wyant
- - Life insurance policy no. 4036570 for James A. Wyant
- - Life insurance policy no. 152563 for James A. Wyant
- - Life insurance policy no. 6103763 for James A. Wyant
- - Life insurance policy no. 6027256 for James A. Wyant
- - Life insurance policy no. 4036597 for L.E. Emond
-4-
<PAGE>
EXHIBIT B
---------
EXCLUDED ASSETS
- - All of the Seller's shares in the capital stock of Buyer Parent
- - All of the Seller's shares in the capital stock of American Converting Paper
Corporation
- - Prepaid transaction costs paid or accrued by Seller with respect to the
transactions contemplated by the Asset Purchase Agreement to December 31,
1996
- - Two Promissory Notes issued to Seller each in the amount of Cdn$557,404 by
3271706 Canada Inc. on September 3, 1996
- - Promissory Note issued to Seller in the amount of Cdn$1,817,290 by 3287858
Canada Inc. on September 3, 1996
- - Promissory Note issued to Seller in the amount of Cdn$1,817,290 by 1186020
Ontario Limited on September 3, 1996
- - Life insurance policy no. T00610007 for Gerald W. Wyant
- - Life insurance policy no. 4157675 for James A. Wyant
- - Life insurance policy no. 4036570 for James A. Wyant
- - Life insurance policy no. 152563 for James A. Wyant
- - Life insurance policy no. 6103763 for James A. Wyant
- - Life insurance policy no. 6027256 for James A. Wyant
- - Life insurance policy no. 4036597 for L.E. Emond
<PAGE>
EXHIBIT C
---------
PROMISSORY NOTE
Cdn$4,262,741 __________ __, 1997
FOR VALUE RECEIVED, 3290441 CANADA INC., a corporation incorporated
under the Canada Business Corporations Act ("Maker"), hereby promises to pay to
G.H. WOOD + WYANT, INC., a corporation incorporated under the Canada Business
Corporations Act ("Payee"), Four Million, Two Hundred Sixty-two Thousand, Seven
Hundred Forty- one Dollars (Cdn$4,262,741), in legal tender of Canada, sixty
(60) days after the adjustment set forth in Section 1.4(e) of the Asset Purchase
Agreement dated as of November 12, 1996, by and among Maker, Hosposable
Products, Inc. and Payee (the "Asset Purchase Agreement"), together with
interest thereon as herein provided, at the office of Payee at 1475 32nd Avenue,
Lachine, Quebec H8T 3J1, or any other place which may be specified in writing by
the holder of this Note.
1. The unpaid principal of this Note shall bear interest at the rate of
six (6%) per annum, and shall be calculated based upon a year of 365 days and
the actual number of days elapsed. Interest on the unpaid principal amount of
this Note shall begin to accrue on the date of this Note and shall be payable
together with the unpaid principal of this Note sixty (60) days after the date
of the adjustment set forth in Section 1.4(e) of the Asset Purchase Agreement.
2. If Maker fails to make any payment of principal or interest by Payee,
unless otherwise required by law, interest shall accrue on all unpaid principal
and such overdue amount at the rate of eight percent (8%) per annum from five
days after the demand date until such payments are current.
<PAGE>
3. Maker shall have the right to prepay the unpaid principal of this Note
in whole or in part, together with interest accrued on the amount prepaid, at
any time without premium or penalty.
4. Upon the occurrence of any Event of Default (as hereinafter defined)
hereunder, in addition to any other remedies available to Payee, Payee may, at
its option, satisfy the unpaid principal of this Note in whole or in part,
together with any interest accrued thereon, by set-off against any amounts due
and owing to Maker by Payee. The following are Events of Default:
(A) default shall occur in the payment of the principal of, or interest
on, this Note when due; or
(B) Maker shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator for any substantial part of his property,
(ii) admit in writing his inability to pay his debts as they mature, (iii)
make a general assignment for the benefit of creditors, (iv) be the subject
of any involuntary petition seeking relief under the Bankruptcy Code,
Bankruptcy and Insolvency Act (Canada) or similar applicable legislation,
which petition is not dismissed within thirty (30) days, or Maker does not
within the first five (5) days of such period interpose valid and good faith
defenses to the grant of relief under such petition, or with respect to
which petition an order for relief is entered, or (v) file a voluntary
petition in bankruptcy, or a petition or an answer seeking reorganization or
seeking to take advantage of any bankruptcy, reorganization or insolvency
statute, or an answer admitting the material allegations of a petition filed
against it in any proceeding under any such law.
5. No delay or omission on the part of Payee in exercising any right,
power or remedy hereunder shall operate as a waiver of such right or any other
right under this Note, nor shall any single or partial exercise of any such
right, power or remedy by Payee preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. A waiver on any one
occasion shall not be construed as a bar to or waiver of any such right, power
or remedy on any future occasion. All remedies hereunder are cumulative and are
not exclusive of any other remedies provided by law.
6. Maker and Payee agree that the original principal amount of this Note
as set forth above shall be adjusted after the date hereof in accordance with
the terms of Section 1.4(e) of the Asset Purchase Agreement. Immediately after
the determination of such adjustment, if any, Maker and Payee agree to inscribe
the adjusted principal amount of this Note onto Annex A, together with the
initials of their respective representatives. Maker and Payee agree that the
adjusted principal amount of this Note inscribed onto Annex A shall be deemed
the original principal amount of this Note as if the same had been set forth
above on the date of this Note.
-2-
<PAGE>
7. Any notice under or in connection with this Note shall be in writing
and addressed to Maker c/o Hosposable Products, Inc., 100 Readington Road,
Somerville, New Jersey 08876, and to Payee at G. H. Wood + Wyant Inc., 1475 32nd
Avenue, Lachine, Quebec H8T 3J1, or any or at such other address specified by
notice given in accordance herewith.
8. Maker agrees to pay all costs and expenses of enforcement of this Note,
including, but not limited to, attorneys' fees and court costs.
9. This Note, and the terms, covenants and conditions hereof, shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors, assigns, estates and heirs.
10. Neither this Note nor any provisions hereof may be amended, modified,
waived, discharged or terminated orally, except by an instrument in writing duly
signed by or on behalf of Payee.
11. This Note is issued under the provisions of the Asset Purchase
Agreement. It may be paid by way of issue to the Payee of Class A preferred
stock of the Maker, in accordance with the Asset Purchase Agreement, that have
priority over the provisions of this Note. Pursuant to Section 5.14 of the Asset
Purchase Agreement, this Note may not be assigned by Payee.
12. This Note shall be construed and enforced in accordance with the laws
of the State of New York without regard to principles of choice or conflict of
laws.
IN WITNESS WHEREOF, this Note has been executed and delivered by
Maker on the date first set forth above.
3290441 CANADA INC.
By:___________________________
Name:
Title:
-3-
<PAGE>
ANNEX A TO PROMISSORY NOTE
--------------------------
Pursuant to Section 6 of the Note, the adjusted principal amount of
the Note is _____________________________ (Cdn$________).
Accepted and Agreed: Initials:
- -------------------- ---------
3290441 Canada Inc. By:______
G.H. Wood + Wyant Inc. By:______
-4-
<PAGE>
EXHIBIT D
---------
UNDERTAKING
Undertaking by 3290441 Canada Inc., a corporation incorporated
under the Canada Business Corporations Act ("Buyer"), in favor of G.H. Wood +
Wyant Inc., a corporation incorporated under the Canada Business Corporations
Act ("Seller").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to an Asset Purchase Agreement dated as of
November 12, 1996 (the "Purchase Agreement") by and among Seller, Buyer and
Hosposable Products, Inc., a New York corporation, Seller has concurrently
herewith sold, assigned, transferred and conveyed to Buyer the assets and
business of Seller, except as specifically excluded under the list of Excluded
Assets set forth on Schedule 2 to the Bill of Sale (the "Acquired Business");
and
WHEREAS, in partial consideration therefor, the Purchase Agreement
requires that Buyer undertake to assume and to agree to perform, pay or
discharge all liabilities, debts, obligations and claims of Seller of any nature
whatsoever, and whether conditional or unconditional, absolute or contingent,
accrued or unaccrued, arising prior to or becoming due following Closing except
for (i) any liabilities, debts, obligations or claims relating to criminal
activities or fraud of Seller, (ii) claims of Gerald W. Wyant or any of his
Related Persons against Seller (other than obligations to Gerald W. Wyant or
James A. Wyant who constitute Transferred Employees to the extent their claims
arise in their capacity as employees of Seller) and (iii) the liability to pay
two promissory notes held by 1186020 Ontario Limited and 3287858 Canada Inc.
each in the amount of Cdn$6,266,790; and
WHEREAS, all terms used but not otherwise defined herein shall have
the meaning set forth in the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual promises set forth
in the Purchase Agreement and other good and valuable consideration, the receipt
of which is hereby acknowledged, Buyer hereby undertakes, assumes and agrees to
perform, pay or discharge, when due, each and every liability, debt, obligation
and claim of Seller of any nature whatsoever, and whether conditional or
unconditional, absolute or contingent, accrued or unaccrued, arising prior to or
becoming due following Closing except for (i) any liabilities, debts,
obligations or claims relating to criminal activities or fraud of Seller, (ii)
claims of Gerald W. Wyant or any of his Related Persons against Seller (other
than obligations to Gerald W. Wyant or James A. Wyant who constitute Transferred
Employees to the extent their claims arise in their capacity as employees of
Seller) and (iii) the liability to pay two promissory
<PAGE>
notes held by 1186020 Ontario Limited and 3287858 Canada Inc. each in the amount
of Cdn$6,266,790.
For purposes of this Undertaking, the term "Related Persons," with
respect to any individual, shall mean and include (i) any parent, spouse,
brother, sister, or natural or adopted lineal descendent of such individual and
any spouse of any of the foregoing (each, a "Family Member") and (ii) each
Affiliate of such individual or of a Family Member.
Subject to the terms of the Purchase Agreement and other than as
specifically stated in the preceding paragraph, Buyer assumes no liability or
obligation of Seller by this Undertaking.
This Undertaking shall be governed by and construed in accordance
with the internal substantive laws and not the choice of law rules of the State
of New York.
This Undertaking shall inure to the benefit of and be binding upon
Buyer and Seller and their respective successors and permitted assigns in
accordance with the Purchase Agreement.
3290441 CANADA INC.
By: ________________________
Name:
Title:
Agreed and Accepted:
G.H. WOOD + WYANT INC.
By: _____________________
Name:
Title:
By: _____________________
Name:
Title:
-2-
<PAGE>
EXHIBIT E
---------
EXCEPTIONS TO GAAP IN CONNECTION WITH PREPARATION OF
PRELIMINARY AND FINAL STATEMENT OF NET ASSETS
----------------------------------------------------
- Deferred Income Taxes of Seller in an amount not to exceed
Cdn$1,000,000 are excluded from the Preliminary and Final
Statement of Net Assets
<PAGE>
EXHIBIT F
---------
Form of Deed for Fee Property
Insert of Transfer/Deed of Land on Form 1 - Land Registration Reform Act,
from G.H. Wood + Wyant Inc. to 3290441 Canada Inc. for property described as
Part of Lot 18, Range 3, Broken Front Concession, Town of Pickering,
Regional Municipality of Durham, designated as Part 4 on Plan 40R-3303,
for consideration of Four Million Dollars ($4,000,000).
-1-
<PAGE>
EXHIBIT G
---------
INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT
------------------------------------------
THIS AGREEMENT is made this _____ day of ______________ 1996.
BETWEEN: 3290441 Canada Inc., a corporation incorporated under the
Canada Business Corporations Act,
[hereinafter referred to as "ASSIGNEE"]
AND: G.H. Wood & Wyant Inc., a corporation incorporated
under the Canada Business Corporations Act,
[hereinafter referred to as the "ASSIGNOR"]
Whereas the ASSIGNEE, whose full post office address and principal
place of business is 1465-32nd Avenue, Lachine (Quebec), H8T 3J1, and the
ASSIGNOR, whose full post office address and principal place of business is [ ],
together with Hosposable Products, Inc., a New York corporation, have entered
into an Asset Purchase Agreement dated as of November 6, 1996 ("Asset Purchase
Agreement"), pursuant to which the ASSIGNOR sold all of its business and certain
of its assets to the ASSIGNEE;
Whereas capitalized terms used but not defined herein shall have the
meaning attributed to them in the Asset Purchase Agreement, unless the context
requires otherwise;
Whereas at article 1.5 of the Asset Purchase Agreement, the ASSIGNOR
undertook to properly execute and deliver to Buyer at the Closing and the Buyer
agreed to accept an assignment sufficient to convey the Intellectual Property
free and clear of all Encumbrances other than Permitted Liens;
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Assignment
----------
1.1 The ASSIGNOR hereby assigns to the ASSIGNEE, for good and
valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, all of the Assignor's right, title and
interest in and to all of its patents, copyrights, industrial
designs, trademarks, trade secrets and other intellectual
property rights in and to all works including, without
limitation, the Intellectual Property, including all goodwill
appertaining to such intellectual property.
<PAGE>
2.
1.2 This assignment is made with the representations and
warranties provided in the Asset Purchase Agreement and with
no other representations and warranties.
2. Cooperation
-----------
2.1 The ASSIGNOR agrees to cooperate fully with the ASSIGNEE, with
respect to signing further documents and doing such acts and
other things reasonably requested by the ASSIGNEE to confirm
the assignments made herein and register such assignments in
the name of the ASSIGNEE.
3. General
-------
[3.1 This Agreement shall be construed and controlled by the laws
in force in the Province of Quebec, Canada.]
3.2 Subject to the limitations set forth in this Agreement, this
Agreement will enure to the benefit of and be binding upon the
parties, their successors and assigns.
3.3 If any provision of this Agreement shall be held by a court of
competent jurisdiction to be illegal, invalid or
unenforceable, the remaining provisions shall remain in full
force and effect. The parties agree to negotiate in good faith
a substitute provision after receiving notice from a party of
the invalidity of the original provision.
4. Language
--------
[4.1 This Agreement has been drafted in English at the express wish
of the parties. Ce contrat a ete redige en anglais a la
demande expresse des parties.]
IN WITNESS WHEREOF the parties hereto have executed this Agreement by their
representatives duly authorized for such purposes as they so declare.
ASSIGNEE ASSIGNOR
[3290441 Canada Inc.] [G.H. Wood & Wyant Inc.]
_____________________ ________________________
Mr. Donald MacMartin Mr. James A. Wyant
<PAGE>
EXHIBIT H-1
-----------
ASSIGNMENT OF LEASE
-------------------
This assignment made as of the o day of o, 19o
between:
o
(hereinafter referred to as the "Assignor")
of the first part,
- and -
o
(hereinafter referred to as the "Assignee")
of the second part,
- and -
o
(hereinafter referred to as the "Landlord")
of the third part.
witnesses that whereas:
1. by a lease (the "Lease") dated the o day of o, 19o , a copy of
which is attached hereto as Schedule A, the Landlord leased to the Assignor
certain premises (the "Premises") in the building municipally known as o, and
which premises are more particularly described in the Lease and are outlined in
red on the sketch attached hereto as Schedule B for a term expiring the o day of
o, 19o;
2. the Assignor has agreed to assign the Lease to the Assignee;
3. the Landlord has agreed to consent to this assignment.
Now therefore in consideration of the covenants in this
agreement and $1.00 now paid by each of the parties to the others (the receipt
and sufficiency of which are hereby acknowledged by each of them):
<PAGE>
- 2 -
I. The Assignor hereby grants and assigns to the Assignee the
Lease and all the rights, benefits and interest granted to the Assignor in the
Lease including the Assignor's leasehold estate in the Premises.
II. The Assignor hereby represents and warrants to the Assignee
that:
1. the Lease is in full force and effect and has not been
amended;
2. all rents and other amounts payable under the Lease
have been paid up to the o day of o, 19o;
3. the Assignor is not in default under the Lease nor is
there any circumstance which could give rise to a
default; and
4. the Assignor has the right, power and authority to
assign the Lease and all other rights of the tenant
thereunder free and clear of all liens, charges or
other encumbrances.
III. The Assignor hereby indemnifies and agrees to save harmless
the Assignee from all actions, suits, costs, losses, charges, demands and
expenses for and in respect of any non-fulfilment of the obligations of the
tenant under the Lease that have accrued or occurred up to the date hereof
including any costs or expenses in respect thereof.
IV. Subject to the payment of rent and to the fulfilment of the
tenant's obligations under the Lease, the Assignee shall be entitled to
possession of the Premises for the balance of the term of the Lease without any
interruption by the Assignor or any other person claiming through or under the
Assignor;
V. The Assignor shall from time to time at the request and cost
of the Assignee execute such further assurances as the Assignee shall reasonably
require.
VI. The Assignee covenants with the Assignor and with the Landlord
that the Assignee shall from and including the o day of o, 19o pay the rent
reserved in the Lease and fulfil the other obligations of the Tenant under the
Lease.
VII. The Assignee will save the Assignor harmless from all actions,
suits, costs, losses, charges, demands and expenses with respect to the
non-fulfilment of any of the tenant's obligations under the Lease accruing or
occurring after the date hereof including any costs or expenses in respect
thereof.
VIII. The Landlord hereby consents to this assignment reserving,
however, its right to consent or otherwise in respect of any other assignment,
sublease or other disposition. This consent shall operate to release the
Assignor from the obligations of the tenant under the Lease for the balance of
the term of the Lease.
<PAGE>
- 3 -
IX. The Landlord represents and warrants to the Assignee that:
1. the Lease is in full force and effect and has not been
amended;
2. all rents and other amounts payable under the Lease
have been paid up to the o day of o, 19o;
3. the Assignor is not in default under the Lease nor is
there any circumstance which could give rise to a
default; and
4. the Landlord has the right, power and authority to
consent to this assignment.
X. The Landlord hereby agrees to waive compliance with all
applicable bulk sales legislation in respect of this assignment.
In witness whereof the parties hereto have executed this
assignment under seal.
o
By:
c/s
o
By:
c/s
o
By:
c/s
<PAGE>
EXHIBIT H-2
-----------
ASSIGNMENT OF LEASE
-------------------
This assignment made as of the o day of o, 19o
between:
G.H. Wood + Wyant Inc.
(hereinafter referred to as the
"Assignor")
of the first part,
- and -
3290441 Canada Inc.
(hereinafter referred to as the
"Assignee")
of the second part,
- and -
Triad Lachine Development Ltd.
(hereinafter referred to as the
"Landlord")
of the third part.
witnesses that whereas:
(i) by a lease (the "Lease") dated the 9th day of January, 1989 and
registered by memorial in the Registry Office for the Registration Division of
Montreal under the number 4116941, a copy of which is attached hereto as
Schedule A, the Landlord leased to Papiers Grande Ville Inc. a certain
emplacement fronting on 32nd Avenue, in the City of Lachine, Province of Quebec,
being original lot number two thousand nine hundred and thirty-nine (2,939) of
the
-1-
<PAGE>
2.
Official Cadastre of the Parish of St-Laurent, having a superficial area of
approximately nineteen thousand one hundred and sixty-two decimal five
square-meters (19,162.5 m2) together with the industrial building then in course
of construction thereon, comprising approximately ninety-one thousand six
hundred ninety decimal forty-one square feet (91,690.41 ft2) and now bearing
civic number 1475 of said 32nd Avenue;
(ii) Papiers Grande Ville Inc. sublet a portion of the said building to
Wyant & Company Limited by Agreement of Sublease dated as of April 1, 1989, a
copy of which is attached hereto as Schedule B;
(iii) Wyant & Company Limited and G.H. Wood + Wyant Inc. amalgamated on
July 31, 1994 to form the Assignor;
(iv) Papiers Grande Ville Inc. was wound-up as of January 4, 1995 into
its sole shareholder, the Assignor;
(iv) the Assignor has agreed to assign the Lease to the Assignee;
(v) the Landlord has agreed to consent to this assignment.
Now therefore in consideration of the covenants in this
agreement and $1.00 now paid by each of the parties to the others (the receipt
and sufficiency of which are hereby acknowledged by each of them):
1. The Assignor hereby grants and assigns to the Assignee the Lease
and all the rights, benefits and interest granted to the Assignor in the Lease
including the Assignor's leasehold estate in the Premises.
2. The Assignor hereby represents and warrants to the Assignee that:
(i) the Lease is in full force and effect and has not been
amended;
-2-
<PAGE>
3.
(ii) all rents and other amounts payable under the Lease have been
paid up to the o day of o, 19o;
(iii) the Assignor is not in default under the Lease nor is there
any circumstance which could give rise to a default; and
(iv) the Assignor has the right, power and authority to assign the
Lease and all other rights of the tenant thereunder free and
clear of all liens, charges or other encumbrances.
3. The Assignor hereby indemnifies and agrees to save harmless the
Assignee from all actions, suits, costs, losses, charges, demands and expenses
for and in respect of any non-fulfilment of the obligations of the tenant under
the Lease that have accrued or occurred up to the date hereof including any
costs or expenses in respect thereof.
4. Subject to the payment of rent and to the fulfilment of the
tenant's obligations under the Lease, the Assignee shall be entitled to
possession of the Premises for the balance of the term of the Lease without any
interruption by the Assignor or any other person claiming through or under the
Assignor;
5. The Assignor shall from time to time at the request and cost of the
Assignee execute such further assurances as the Assignee shall reasonably
require.
6. The Assignee covenants with the Assignor and with the Landlord that
the Assignee shall from and including the o day of o, 19o pay the rent reserved
in the Lease and fulfil the other obligations of the Tenant under the Lease.
7. The Assignee will save the Assignor harmless from all actions,
suits, costs, losses, charges, demands and expenses with respect to the
non-fulfilment of any of the tenant's obligations under the Lease accruing or
occurring after the date hereof including any costs or expenses in respect
thereof.
-3-
<PAGE>
4.
8. The Landlord hereby consents to this assignment reserving, however,
its right to consent or otherwise in respect of any other assignment, sublease
or other disposition. This consent shall operate to release the Assignor from
the obligations of the tenant under the Lease for the balance of the term of the
Lease.
9. The Landlord represents and warrants to the Assignee that:
(i) the Lease is in full force and effect and has not been
amended;
(ii) all rents and other amounts payable under the Lease have been
paid up to the o day of o, 19o;
(iii) the Assignor is not in default under the Lease nor is there
any circumstance which could give rise to a default; and
(iv) the Landlord has the right, power and authority to consent to
this assignment.
10. The Landlord hereby agrees to waive compliance with the provisions
of the Civil Code of Quebec relating to the sale of an enterprise in respect of
this assignment.
11. This assignment will be governed by, interpreted and construed in
accordance with the laws of Quebec and the laws of Canada applicable therein.
12. The Landlord, Assignor and Assignee acknowledge having requested
and being satisfied that this assignment as well as all documents and notices
relating thereto be drawn up in English. Le locateur, le cedant et le
cessionnaire reconnaissent avoir demande que cette cession ainsi que les
documents et avis y afferents soient rediges en anglais et s'en declarent
satisfaits.
-4-
<PAGE>
5.
In witness whereof the parties hereto have executed this
assignment.
G.H. WOOD + WYANT INC.
By:___________________________
___________________________
______________________________
Witness
______________________________
Witness
3290441 Canada Inc.
By:___________________________
___________________________
______________________________
Witness
______________________________
Witness
-5-
<PAGE>
6.
TRIAD LACHINE DEVELOPMENT INC.
By:___________________________
___________________________
______________________________
Witness
______________________________
Witness
-6-
<PAGE>
AFFIDAVIT
---------
I, the undersigned, o, residing and domiciled at o of o, o, solemnly declare:
1. that I am of full age;
2. that I am one of the witnesses to the signature of the Assignment of
Lease;
3. that this Assignment of Lease has been signed by o, for and on behalf of
the Assignor and by o on behalf of the Assignee, in my presence and in
the presence of o, the other subscribing witness;
4. that I know said o and o, both of whom are more than eighteen (18) years
old;
AND I HAVE SIGNED at o, this o day of o,
199o
o
SOLEMNLY DECLARED BEFORE ME
in Montreal, this o day
of o, 199o.
- -----------------------------
Commissioner of Oaths
<PAGE>
AFFIDAVIT
---------
I, the undersigned, o, residing and domiciled at o of o, o, solemnly declare:
1. that I am of full age;
2. that I am one of the witnesses to the signature of the Assignment of
Lease;
3. that this Assignment of Lease has been signed by o, for and on behalf of
the Landlord, in my presence and in the presence of o, the other
subscribing witness;
4. that I know said o and o, both of whom are more than eighteen (18) years
old;
AND I HAVE SIGNED at o, this o day of o,
199o
o
SOLEMNLY DECLARED BEFORE ME
in Montreal, this o day
of o, 199o.
- -----------------------------
Commissioner of Oaths
<PAGE>
EXHIBIT I
---------
SELLER'S BEST KNOWLEDGE
-----------------------
Gerald Wyant
James A. Wyant
Donald C. MacMartin
Marc D'Amour
John B. Wight
Edward DeFreitas
<PAGE>
EXHIBIT J-1
FORM OF WINTHROP, STIMSON, PUTNAM & ROBERTS OPINION
January ___, 1997
Hosposable Products, Inc.
100 Readington Road
Somerville, New Jersey 08876
3290441 Canada Inc.
c/o Hosposable Products, Inc.
100 Readington Road
Somerville, New Jersey 08876
Ladies and Gentlemen:
We have acted as special United States counsel to G.H. Wood +
Wyant Inc., a corporation incorporated under the Canada Business Corporations
Act ("Seller"), in connection with that certain Asset Purchase Agreement dated
as of November 12, 1996 (the "Agreement"), by and among Seller, Hosposable
Products, Inc., a New York corporation, and 3290441 Canada Inc., a corporation
incorporated under the Canada Business Corporations Act. This opinion is given
to you pursuant to Section 6.2 of the Agreement. Capitalized terms used herein
and not otherwise defined shall have the meanings ascribed to them in the
Agreement.
In giving this opinion, we have examined and relied upon,
among other things, executed copies of the Agreement, the Bill of Sale, the
Guaranty Agreement, the Covenant Agreement and the Registration Rights Agreement
(collectively, the "Agreements"). In connection with the foregoing, we have also
examined and relied upon originals or copies satisfactory to us of such other
instruments and documents and we have made such other inquiries and
investigations of law as we have deemed necessary or appropriate as a basis for
the opinion hereinafter expressed. In such examination we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as original documents and the conformity with the original document of all
documents submitted to us as certified or photostatic copies. As to questions of
fact material to this opinion, we have, to the extent that the relevant facts
were not independently established by us, relied upon certificates of public
officials and certificates, oaths and declarations of officers or other
representatives of Seller as well as the accuracy of the representations and
warranties of Seller made in the Agreements.
<PAGE>
Whenever used in any statement set forth in this opinion
letter, "to our knowledge" qualifies and limits such statement to the current
awareness of the attorneys of this firm primarily responsible for representing
Seller of factual matters that such attorneys recognize as being relevant to the
statement so qualified and limited. Except as otherwise stated herein, we have
undertaken no independent investigation or verification of such matters.
We are admitted to practice in the State of New York, and do
not express any opinion herein as to matters governed by any laws other than the
laws of the United States of America and the State of New York.
Based upon the foregoing, we are of the opinion that:
1. Assuming that Seller has sufficient legal capacity under
the laws of its jurisdiction of incorporation to enter into and carry out its
obligations under the Agreements, and assuming the due execution and delivery by
each of the parties named therein, each of the Agreements constitutes a valid
and legally binding agreement of Seller, enforceable against Seller in
accordance with the respective terms thereof, except as (i) limited or otherwise
affected by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application relating to or affecting creditors' rights,
including, without limitation, the effect of statutory or other law regarding
fraudulent conveyances and preferential transfers and (ii) limited by general
principles of equity (regardless of whether considered in a proceeding at law or
in equity) including, without limitation, the availability or unavailability of
equitable remedies.
2. The execution and delivery by Seller of the Agreements, and
the performance by Seller of its obligations thereunder, are not prevented by
and do not violate or result in a default under (i) the Business Corporation Law
of the State of New York, (ii) any other applicable statute or regulation of the
State of New York that a lawyer in such state exercising customary professional
diligence would reasonably recognize as being directly applicable or (iii) to
our knowledge, any order or ruling of any court or other governmental authority
of the United States or the State of New York.
This opinion is delivered to you solely for your use in
connection with the Agreement and the transactions contemplated thereby. This
opinion may not be used or relied upon by you for any other purpose, or by any
other person, without our prior written consent.
Very truly yours,
-2-
<PAGE>
EXHIBIT J-2
FORM OF McCARTHY TETRAULT OPINION
[January __, 1997]
HOSPOSABLE PRODUCTS, INC.
100 Readington Road
Somerville, NJ
U.S.A. 08876
and
3290441 CANADA INC.
1475 32nd Avenue
Lachine, Quebec
H8T 3J1
Dear Sir/Madam:
This opinion is furnished pursuant to Section 6.2 of the Asset Purchase
Agreement executed by and among G.H. Wood + Wyant Inc., a corporation
incorporated under the Canada Business Corporations Act ("Seller"), 3290441
Canada Inc., a corporation incorporated under the Canada Business Corporations
Act ("Buyer"), and Hosposable Products, Inc., a New York corporation ("Buyer
Parent"), dated as of November 12, 1996 (the "Asset Purchase Agreement") whereby
Seller sold all of its business and certain of its assets as more fully set out
in the Asset Purchase Agreement. Capitalized terms used but not defined herein
shall have the meaning attributed to them in the Asset Purchase Agreement. We
have acted as counsel to Seller in connection with the foregoing.
We have examined originals or copies, certified or otherwise identified
to our satisfaction of:
(a) the Asset Purchase Agreement;
(b) the Bill of Sale;
(c) the Guaranty Agreement;
(d) the Covenant Agreement; and
(e) the Registration Rights Agreement
(collectively, the "Purchase Documents").
In rendering the opinions set forth below, we have assumed that (i)
each of the parties to the Purchase Documents (other than Seller) has duly and
validly executed and delivered each instrument, document and agreement to which
<PAGE>
such party is a signatory, (ii) each person executing any instrument, document
or agreement on behalf of any such party (other than Seller) is duly authorized
to do so, (iii) each natural person executing any instrument, document or
agreement referred to herein is legally competent to do so, (iv) the genuineness
of all signatures and the authenticity and completeness of all documents
submitted to us as originals, and (v) the conformity to authentic original
documents of all documents submitted to us as copies, whether facsimile,
photostatic, certified or otherwise.
In connection with the opinions hereinafter expressed, we have
considered such questions of law and examined such public and corporate records,
certificates, opinions and other documents and concluded such other examinations
as we have considered necessary for the purposes of the opinions hereinafter
expressed.
This opinion is limited to the laws of the Province of Quebec and the
federal laws of Canada applicable therein, as presently in effect, and we
express no opinion with respect to the laws of any other jurisdiction. In
particular, we express no opinion as to (i) any antitrust or unfair competition
laws or regulations or (ii) any securities laws or regulations relating to the
Purchase Documents or the transactions contemplated thereby or otherwise
governed by the laws of any other jurisdiction.
On the basis of the foregoing and subject to the qualifications
hereinafter expressed, we are of the opinion that:
1. The Seller is duly constituted, validly in existence and in
good standing under the Canada Business Corporations Act, and
has all the corporate power and authority to carry on its
business and to own its properties under the laws of Canada and
is duly licensed or qualified and in good standing as a foreign
corporation in each jurisdiction in which it was required to be
so licensed or so qualified, except where the failure to be so
licensed or so qualified would not have a material adverse
effect on the business, financial condition, assets,
liabilities (contingent or otherwise) or results of operations
of the Seller.
2. The Seller has full corporate power and authority to enter into and
execute the Purchase Documents, and the performance by Seller of its
obligations thereunder will not contravene or result in a breach of or
constitute a default under the Articles or By-laws or any resolutions
of the directors or shareholders of Seller.
3. No consent, approval, order, authorization of or registration,
declaration or filing with any government authority is required for the
execution and delivery by Seller of the Purchase Documents.
<PAGE>
4. The execution and delivery by Seller of the Purchase Documents to which
it is a party, and the performance by Seller of its obligations
thereunder, have been duly authorized by all requisite corporate action
on the part of Seller.
5. Each of the Purchase Documents to which Seller is a party has
been duly executed and delivered on behalf of Seller.
6. The choice of laws of the State of New York to govern the
Purchase Documents is permitted under the laws of the Province
of Quebec, subject to such laws being specifically pleaded and
proved in the manner required by the court. In an action
brought before a court of competent jurisdiction in the
Province of Quebec to enforce the Purchase Documents, a Quebec
court would give effect to such choice of law, excluding the
rules governing conflict of laws and penal, fiscal, procedural
and expropriatory laws and rules, of the State of New York and
laws of the United States of America applicable therein,
subject to the following:
(i) the application of the laws of the State of New York, if
manifestly inconsistent with the public order as understood in
international relations, would not be given effect by the
courts in Quebec; however, we have no reason to believe that
this would be the case as regards the Purchase Documents;
(ii) under the Currency Act (Canada), Canadian courts may
render judgement only in Canadian currency;
(iii) all applicable bankruptcy, insolvency, rearrangement,
reorganization and other debtor relief legislation
affecting the rights of creditors; and
(iv) the discretion of the courts to limit the availability of
the remedies of specific performance and injunctive
relief.
7. We have no reason to believe that a Quebec court would not give effect
to the provisions of the Purchase Agreement under which the parties
agreed to submit disputes thereunder to arbitration under the rules of
the American Arbitration Association.
8. In an action brought before a court of competent jurisdiction
in the Province of Quebec to enforce a decision by an
arbitration panel against the Buyer made in accordance with the
terms and conditions of the Purchase Agreement, the Quebec
court would enforce such decision provided such decision is
enforceable in the jurisdiction in which it was rendered and
subject to the exceptions and exclusions provided and referred
to in Articles 3155 to 3168 of the Civil Code, a copy of which
is attached as Schedule A.
<PAGE>
The opinions expressed in this letter are limited to the matters set
forth in this letter, and no other opinions should be inferred.
This opinion letter is solely for your benefit. This opinion letter may
not be relied on by, nor copies delivered to, any other person without our prior
written consent.
Yours Truly
McCarthy Tetrault
<PAGE>
EXHIBIT K
---------
GUARANTY AGREEMENT
------------------
THIS GUARANTY AGREEMENT (this "Guaranty"), dated as of _______ __,
1997, among JAMES A. WYANT, having an address c/o G.H. Wood + Wyant Inc., 1475
32nd Avenue, Lachine, Quebec H8T 3J1 ("Guarantor"), HOSPOSABLE PRODUCTS, INC., a
New York corporation ("HPI"), and 3290441 CANADA INC., a corporation
incorporated under the Canada Business Corporations Act, and a wholly owned
subsidiary of HPI ("HPI Sub", and collectively with HPI and the other Buyer
Indemnitees, the "Guaranteed Parties").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, G.H. Wood + Wyant Inc., a corporation incorporated under
the Canada Business Corporations Act ("Seller"), HPI and HPI Sub have entered
into an Asset Purchase Agreement dated as of November 12, 1996 (the "Asset
Purchase Agreement"), providing for the sale by Seller to HPI Sub of the
Acquired Business;
WHEREAS, immediately following the consummation of the transactions
contemplated by the Asset Purchase Agreement, Guarantor will be the legal and
beneficial owner of all of the issued and outstanding shares of Seller's voting
stock;
WHEREAS, in order to provide the Guaranteed Parties further
assurance as to the payment by Seller of its indemnity obligations under Section
8.1 of the Asset Purchase Agreement and as a condition precedent to the
obligations of HPI and HPI Sub to consummate the Closing under the Asset
Purchase Agreement, Guarantor, simultaneously with the Closing, will execute and
deliver to HPI and HPI Sub this Guaranty; and
WHEREAS, capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Asset Purchase Agreement.
NOW, THEREFORE, as an inducement to HPI and HPI Sub to consummate
the transactions contemplated by the Asset Purchase Agreement and in
consideration of them so doing, each party hereto hereby covenants and agrees as
follows:
ARTICLE 1
GUARANTY
--------
Section 1.01. Guaranty. Subject to Section 2.01 hereof, Guarantor
hereby guarantees the full and faithful performance by Seller of Seller's
obligations to indemnify the Guaranteed Parties pursuant to Article 8 of the
Asset Purchase Agreement, but only to
<PAGE>
the extent one or more Guaranteed Parties have made a written demand of Seller
to satisfy its obligations pursuant to such Article 8 and Seller has failed to
satisfy its obligations pursuant to such Article 8 for fifteen days after such
demand (the "Guaranteed Obligations").
Section 1.02. Payment and Performance of the Guaranteed
Obligations. If the Guaranteed Obligations are not paid by Seller through
set-off or otherwise in accordance with the terms and conditions of the Asset
Purchase Agreement (an "Event of Default") and the Guaranteed Parties shall have
complied with Section 1.01 hereof, Guarantor shall, upon written demand made by
a Guaranteed Party upon Guarantor, subject to Section 2.01 hereof, immediately
pay or cause the performance of the same in accordance with the terms and
conditions of the Asset Purchase Agreement. Payment to such Guaranteed Party
shall be made at such place and in such manner as directed by such Guaranteed
Party, without any deduction whatsoever whether for counterclaim, set-off or
otherwise.
Section 1.03. Continuing Liability of Guarantor. In the event the
Guaranteed Obligations are paid in whole or in part by Seller, the liability of
Guarantor pursuant to this Guaranty shall continue and remain in full force and
effect in the event that all or any part of any such payment is recovered by
Seller or its successors from a Guaranteed Party as a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law.
Each of the Guaranteed Parties agrees to take all actions that are reasonably
appropriate to defend against any such attempt to recover all or part of any
such payment.
ARTICLE 2
LIMITATION OF GUARANTY
----------------------
Section 2.01. Limitation of Guaranty. Guarantor's liability
hereunder shall not exceed in the aggregate the excess of (i) the aggregate
amount of any cash or non-cash dividends, payments or other distributions,
including compensation or other bonus arrangement received by him from Seller,
from the Closing through the date on which a claim is made hereunder by a
Guaranteed Party over (ii) an amount equal to Cdn$35,000 for each successive
twelve month period that has elapsed from the Closing Date to the date as of
which the maximum liability of Guarantor is being determined under this Section
2.01, provided that this Section 2.01 shall not require any reimbursement by any
Guaranteed Party to Guarantor of any amount paid to such Guaranteed Party
hereunder that was consistent with the limitations in this Section 2.01 at the
time such payment was made.
-2-
<PAGE>
ARTICLE 3
SATISFACTION OF GUARANTY
------------------------
Section 3.01. Satisfaction of Guaranty. The Guarantor and the
Guaranteed Parties agree (a) that Guarantor shall satisfy his obligations under
this Guaranty by surrender of the certificates representing, in this order and
this order only, the shares of Class A Mandatorily Redeemable Preferred Stock
(other than the Class A Excluded Shares), the Class B Mandatorily Redeemable
Preferred Stock, the Class E Exchangeable Preferred Stock (other than the
Excluded Shares), the Underlying Shares, if any, and Buyer Parent Common Stock,
in each case held by Guarantor, which surrender shall be automatic and without
any further action of Guarantor, until such time as all such shares have been
surrendered, and (b) that the Guaranteed Parties will have no recourse against
any other assets of Guarantor until the assets set forth in clause (a) hereof
have been exhausted in the order so set forth. For purposes of this Section
3.01, (w) the value of each share of Class A Mandatorily Redeemable Preferred
Stock and each share of Class B Mandatorily Redeemable Preferred Stock shall be
its Redemption Price (as defined in the Articles of Incorporation of HPI Sub),
(x) the value of each share of Class E Exchangeable Preferred Stock at any time
shall be the value of the Underlying Shares at such time, (y) the value of the
Underlying Shares or the Buyer Parent Common Stock at the time any such shares
or any shares of Class E Exchangeable Preferred Stock are surrendered pursuant
to this Section 3.01 shall be the average of the closing prices reported on the
Nasdaq National Market for Buyer Parent Common Stock for the twenty trading days
(whether or not any trades of Buyer Parent Common Stock occur on any such day)
prior to the date of such surrender and (z) the value of any Preferred Stock,
Underlying Shares or Buyer Parent Common Stock sold by Guarantor shall be the
sale price of such Preferred Stock, Underlying Shares or Buyer Parent Common
Stock, as the case may be, in such sale by Guarantor.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF GUARANTOR
------------------------------------------------------
Section 4.01. Representations, Warranties and Covenants. Guarantor
hereby represents, warrants and covenants to and for the benefit of the
Guaranteed Parties as follows:
(a) As of the date hereof, Guarantor is the holder of all of the
issued and outstanding capital stock of Seller other than the X Shares; and
(b) Guarantor agrees not to sell or otherwise transfer any shares
of Seller's capital stock, or permit Seller to issue or sell any shares of
Seller's capital stock for as long as Guarantor owns that number of shares
of voting capital stock of
-3-
<PAGE>
Seller sufficient to enable him to elect a majority of Seller's Board of
Directors, to any Person other than Guarantor, by operation of law or
otherwise, unless Guarantor or Seller has first obtained and provided to HPI
and HPI Sub a guaranty of the purchaser or other transferee thereof
substantially to the same effect as this Guaranty satisfactory in form and
substance to HPI and HPI Sub.
ARTICLE 5
MISCELLANEOUS
-------------
Section 5.01. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given upon
receipt of hand delivery, certified or registered mail, return receipt
requested, or telecopy transmission with confirmation of receipt, to the
Guarantor at the address set forth in the preamble, and to the Guaranteed
Parties at 100 Readington Road, Somerville, New Jersey 08876; Attention: Joseph
H. Weinkam, Jr. Such names and addresses may be changed by written notice to
each person listed above.
Section 5.02. Binding Effect; No Assignment. This Guaranty shall be
binding upon and inure to the benefit of the parties and their respective
successors and legal representatives. This Guaranty may only be assigned by the
Guaranteed Parties to an assignee of their rights in accordance with Section
10.11 of the Asset Purchase Agreement.
Section 5.03. Governing Law. The rights and duties of the parties
hereto under this Guaranty shall, pursuant to New York General Obligations Law
Section 5-1401, be governed by the law of the State of New York.
Section 5.04. Severability of Provisions. If any provision or
portion of such provision of this Guaranty shall be held invalid or
unenforceable, the remaining portion of such provision and the remaining
provisions of this Guaranty shall not be affected thereby.
Section 5.05. Counterparts. This Guaranty may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
Section 5.06. Headings. The headings in this Guaranty are for
reference only, and shall not affect the interpretation of this Guaranty.
Section 5.07. Third-Party Beneficiaries. The Buyer Indemnitees
shall be third-party beneficiaries of this Guaranty.
-4-
<PAGE>
Section 5.08. Termination. Except as otherwise provided in Section
1.03, this Guaranty shall terminate on the later of (a) six years after the date
hereof and (b) the date which all indemnification claims of any Buyer Indemnitee
as to which claims were made in accordance with the Asset Purchase Agreement
prior to such expiration shall have been paid in full pursuant to the Asset
Purchase Agreement or this Guaranty or determined not to be payable by any
settlement agreement with the claimant or any final and non-appealable
arbitration award or judgment of a competent court.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Guaranty
as of the day and year first above written.
_______________________________
JAMES A. WYANT
HOSPOSABLE PRODUCTS, INC.
By:____________________________
Name:
Title:
3290441 CANADA INC.
By:____________________________
Name:
Title:
-6-
<PAGE>
EXHIBIT L-1
FORM OF OPINION OF SPECIAL COMMITTEE'S U.S. COUNSEL
January __, 1997
G.H. Wood + Wyant Inc.
1475, 32 Avenue
Lachine, Quebec H8T 3J1
3287858 Canada Inc.
c/o G.H. Wood + Wyant Inc.
1475, 32 Avenue
Lachine, Quebec H8T 3J1
1186020 Ontario Limited
c/o G.H. Wood + Wyant Inc.
1475, 32 Avenue
Lachine, Quebec H8T 3J1
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 7.2 of
that certain Asset Purchase Agreement dated as of November 12, 1996 ("Purchase
Agreement"), among G.H. Wood + Wyant Inc., a corporation incorporated under the
Canada Business Corporations Act, Hosposable Products, Inc., a New York
corporation ("Buyer Parent"), and 3290441 Canada Inc., a corporation
incorporated under the Canada Business Corporations Act and a wholly owned
subsidiary of Buyer Parent ("Buyer"). Capitalized terms defined in the Purchase
Agreement and used but not otherwise defined herein have the meanings ascribed
to them in the Purchase Agreement. We have acted as independent U.S. counsel to
the Special Committee in connection with the execution and delivery of the
Purchase Agreement, the Note, the Undertaking, the Guaranty Agreement, the
Registration Rights Agreement and the Covenant Agreement (collectively, the
"Purchase Documents").
In rendering the opinions set forth below, we have assumed
that (i) each of the parties to the Purchase Documents (other than Buyer Parent
and Buyer (collectively, the "Companies")) has duly and validly executed and
delivered each instrument, document and agreement to which such party is a
signatory and that such party's obligations set forth therein are its legal,
valid and binding obligations, enforceable in accordance with their respective
terms, (ii) each person executing any instrument, document or agreement on
behalf of any such party (other than the Companies) is duly authorized to do so
<PAGE>
G.H. Wood + Wyant Inc.
3287858 Canada Inc.
1186020 Ontario Limited
January __, 1997
Page 2
and (iii) each natural person executing any instrument, document or agreement
referred to herein is legally competent to do so.
Except as expressly stated in the next sentence, this opinion
is limited to the effect of the laws of the State of New York and the laws of
the United States of America, as presently in effect, and we express no opinion
with respect to the laws of any other jurisdiction. Insofar as the opinions
expressed in numbered paragraph 4 below relate to matters governed by the laws
of Canada, we have not made an independent investigation of such laws and have
relied, with your consent, as to such laws, upon the opinion of Stikeman,
Elliott, independent Canadian counsel to the Special Committee, of even date
herewith addressed to you. We express no opinion as to (i) any antitrust or
unfair competition laws and regulations, or (ii) any securities laws or
regulations, relating to the Purchase Documents or the transactions contemplated
thereby or otherwise.
We have made such inquiry of Buyer Parent and have examined
such records of Buyer Parent, public records and other documents as we have
deemed necessary to form the basis of the opinions hereinafter expressed,
including, without limitation, (i) the Purchase Documents, (ii) a certificate of
good standing from the New York Department of State dated ____________ __, 199_
for Buyer Parent, (iii) the current certificate of incorporation and bylaws of
Buyer Parent and (iv) certain certificates and other documents executed by
officers of each of the Companies. In addition, we have made such investigations
of law as we deem necessary and relevant for the purposes of this opinion.
In our examination of documents for purposes of this opinion,
we have assumed the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as copies
and the authenticity of the originals of such copies. We have also assumed the
genuineness of all signatures on all documents submitted to us for examination.
We have also assumed that all certificates issued by public officials have been
properly issued and that such certificates are accurate.
Whenever used in any statement set forth in this opinion
letter, "to our knowledge" or other words of similar meaning qualify and limit
such statement to the current awareness of the attorneys of this firm primarily
responsible for representing the Special Committee of factual matters that such
attorneys recognize as being relevant to the statement so qualified and limited.
Except as otherwise stated herein, we
<PAGE>
G.H. Wood + Wyant Inc.
3287858 Canada Inc.
1186020 Ontario Limited
January __, 1997
Page 3
have undertaken no independent investigation or verification of such matters.
Based upon and subject to the foregoing and subject to the
further exceptions and qualifications set forth below, we are of the opinion
that:
1. Buyer Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York.
2. Buyer Parent has full corporate power and authority to
execute and deliver the Purchase Documents to which it is a party and to perform
its obligations thereunder. The execution and delivery by Buyer Parent of the
Purchase Documents to which it is a party, and the performance by Buyer Parent
of its obligations thereunder, have been duly authorized by all requisite
corporate action on the part of Buyer Parent.
3. Each of the Purchase Documents to which Buyer Parent is a
party has been duly executed and delivered by Buyer Parent, and constitutes a
valid and binding obligation of Buyer Parent, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws affecting
creditors' rights generally or by general equitable principles (regardless of
whether enforcement is sought in a proceeding in equity or at law).
4. Each of the Purchase Documents to which Buyer is a party
has been duly executed and delivered by Buyer, and constitutes a valid and
binding obligation of Buyer, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws affecting creditors' rights
generally or by general equitable principles (regardless of whether enforcement
is sought in a proceeding in equity or at law).
5. The execution and delivery by Buyer Parent of the Purchase
Documents to which it is a party, and the performance by Buyer Parent of its
obligations thereunder, are not prevented by and do not violate or result in a
default under (i) the Business Corporation Law of the State of New York, (ii)
any other applicable statute or regulation of the State of New York that a
lawyer in such state exercising customary professional diligence would
reasonably recognize as being directly applicable, (iii) any provision of its
<PAGE>
G.H. Wood + Wyant Inc.
3287858 Canada Inc.
1186020 Ontario Limited
January __, 1997
Page 4
certificate of incorporation or bylaws, or (iv) to our knowledge, any order or
ruling of any court or other governmental authority of the United States or the
State of New York.
The opinions expressed in this letter are limited to the
matters set forth in this letter, and no other opinions should be inferred.
This opinion letter is solely for your benefit. This opinion
letter may not be relied on by, nor copies delivered to, any other person
without our prior written consent.
We do not undertake to advise you of any changes in the
opinions expressed herein subsequent to the issuance of this letter resulting
from changes in law or matters which may hereafter be brought to our attention.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By:____________________________________
James D. Darrow
<PAGE>
EXHIBIT L-2
FORM OF OPINION OF SPECIAL COMMITTEE'S CANADIAN COUNSEL
January __, 1997
G.H. Wood + Wyant Inc.
1475, 32 Avenue
Lachine, Quebec H8T 3J1
3287858 Canada Inc.
c/o G.H. Wood + Wyant Inc.
1475, 32 Avenue
Lachine, Quebec H8T 3J1
1186020 Ontario Limited
c/o G.H. Wood + Wyant Inc.
1475, 32 Avenue
Lachine, Quebec H8T 3J1
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 7.2 of that
certain Asset Purchase Agreement dated as of November 12, 1996 ("Purchase
Agreement"), among G.H. Wood + Wyant Inc., a corporation incorporated under the
Canada Business Corporations Act, Hosposable Products, Inc., a New York
corporation ("Buyer Parent"), and 3290441 Canada Inc., a corporation
incorporated under the Canada Business Corporations Act and a wholly owned
subsidiary of Buyer Parent ("Buyer"). Capitalized terms defined in the Purchase
Agreement and used but not otherwise defined herein have the meanings ascribed
to them in the Purchase Agreement. We have acted as independent Canadian counsel
to the Special Committee in connection with the execution and delivery of the
Purchase Agreement, the Note, the Undertaking, the Guaranty Agreement and the
Covenant Agreement (collectively, the "Purchase Documents").
In rendering the opinions set forth below, we have assumed that (i)
each of the parties to the Purchase Documents (other than Buyer) has duly and
validly executed and delivered each instrument, document and agreement to which
such party is a signatory, (ii) each person executing any instrument, document
or agreement on behalf of any such party (other than Buyer) is duly authorized
to do so and (iii) each natural person executing any instrument, document or
agreement referred to herein is legally competent to do so.
<PAGE>
G.H. Wood + Wyant Inc.
3287858 Canada Inc.
1186020 Ontario Limited
January __, 1997
Page 2
This opinion is limited to the laws of the Province of Quebec and the
federal laws of Canada applicable therein, as presently in effect, and we
express no opinion with respect to the laws of any other jurisdiction. We
express no opinion as to (i) any antitrust or unfair competition laws or
regulations or (ii) any securities laws or regulations relating to the Purchase
Documents or the transactions contemplated thereby or otherwise.
We have made such inquiry of Buyer and have examined such records of
Buyer, public records and other documents as we have deemed necessary to form
the basis of the opinions hereinafter expressed, including, without limitation,
(i) the Purchase Documents, (ii) a certificate of compliance issued under
Subsection 263(2) of the Canada Business Corporations Act dated _________ __,
199_ concerning Buyer, (iii) the current articles of incorporation and bylaws of
Buyer and (iv) certain certificates and other documents executed by officers of
each of Buyer and Buyer Parent. In addition, we have made such investigations of
law as we deem necessary and relevant for the purposes of this opinion.
In our examination of documents for purposes of this opinion, we have
assumed the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as copies and
the authenticity of the originals of such copies. We have also assumed the
genuineness of all signatures on all documents submitted to us for examination.
We have also assumed that all certificates issued by public officials have been
properly issued and that such certificates are accurate.
Whenever used in any statement set forth in this opinion letter, "to
our knowledge" or other words of similar meaning qualify and limit such
statement to the current awareness of the attorneys of this firm practicing in
the Province of Quebec and primarily responsible for representing the Special
Committee of factual matters that such attorneys recognize as being relevant to
the statement so qualified and limited. Except as otherwise stated herein, we
have undertaken no independent investigation or verification of such matters.
Based upon and subject to the foregoing and subject to the further
exceptions and qualifications set forth below, we are of the opinion that:
1. Buyer is a corporation duly organized and validly
existing and has made all the necessary corporate filings required to be made
<PAGE>
G.H. Wood + Wyant Inc.
3287858 Canada Inc.
1186020 Ontario Limited
January __, 1997
Page 3
under the laws of its jurisdiction of incorporation to keep the Buyer in good
standing under such laws.
2. Buyer has full corporate power and authority to execute and deliver
the Purchase Documents to which it is a party and to perform its obligations
thereunder. The execution and delivery by Buyer of the Purchase Documents to
which it is a party, and the performance by Buyer of its obligations thereunder,
have been duly authorized by all requisite corporate action on the part of
Buyer.
3. Each of the Purchase Documents to which Buyer is a party has been
duly executed and delivered on behalf of Buyer.
4. The choice of laws of the State of New York to govern the Purchase
Documents is permitted under the laws of the Province of Quebec, subject to
proof of such laws as a question of fact. A Court in Quebec would give effect to
such choice of law, excluding the rules governing conflict of laws and penal,
fiscal, procedural and expropriatory laws and rules, of the State of New York,
and would enforce the Purchase Documents, in any action brought to enforce the
Purchase Documents in the Province of Quebec, as provided in Article 3111 of the
Civil Code, subject to the following:
(i) the laws of the State of New York would have to be
proved as a question of fact;
(ii) the application of the laws of the State of New York, if
manifestly inconsistent with the public order as understood in
international relations, would not be given effect by the
courts in Quebec; however, we have no reason to believe that
this would be the case as regards the Purchase Documents;
(iii) under the Currency Act (Canada), Canadian courts may
render judgment only in Canadian currency;
(iv) even though a Quebec authority has jurisdiction to hear a
dispute, it may exceptionally, and on an application by a
party, decline jurisdiction if it considers that the
authorities of another jurisdiction are in a better position
to decide upon the matter;
(v) all applicable bankruptcy, insolvency, rearrangement,
reorganization and other debtor relief legislation
affecting the rights of creditors; and
<PAGE>
G.H. Wood + Wyant Inc.
3287858 Canada Inc.
1186020 Ontario Limited
January __, 1997
Page 4
(vi) the discretion of the courts to limit the availability
of the remedies of specific performance and injunctive
relief.
5. Under Article 3111 of the Civil Code, a juridical act, whether or
not it contains a foreign element, is governed by the law expressly designated
by such act. The application of the conflict of laws rules of the Province of
Quebec would therefore result in the laws of the State of New York determining
whether or not the Purchase Documents are legal, valid and enforceable in
accordance with their respective terms.
6. Quebec law implicitly recognizes that the parties to the Purchase
Agreement may contractually submit to arbitration under the rules of the
American Arbitration Association.
7. If a decision from the arbitration panel is obtained against the
Buyer pursuant to the Purchase Agreement, the Quebec courts, in the face of the
express submission to the arbitration contained in the Purchase Agreement, will
recognize and declare enforceable a decision from the arbitration panel, subject
to the exceptions and exclusions provided in Articles 3155 to 3163 of the Civil
Code, a copy of which is joined hereto as Schedule A.
8. The execution and delivery by Buyer of the Purchase Documents to
which it is a party, and the performance by Buyer of its obligations thereunder,
are not prevented by and do not violate or result in a default under (i) the
Canada Business Corporations Act, (ii) any other applicable statute or
regulation of Canada or of the Province of Quebec that a lawyer in such
jurisdiction exercising customary professional diligence would reasonably
recognize as being directly applicable, (iii) any provision of its articles of
incorporation or bylaws, or (iv) to our knowledge, any order or ruling of any
court or other governmental authority of Canada of the Province of Quebec.
9. The 3,800,000 shares of Class B Mandatorily Redeemable Preferred
Stock and the 1,000,000 shares of Class E Exchangeable Preferred Stock issued to
Seller pursuant to the Purchase Agreement have been validly issued in accordance
with the requirements of the Canada Business Corporations Act and are fully paid
and non-assessable.
10. The authorized capital of Buyer comprises, inter alia, an unlimited
number of shares of Class A Redeemable Preferred Stock, none of which have been
issued yet. The issuance of the shares of Class A Redeemable Preferred Stock in
<PAGE>
G.H. Wood + Wyant Inc.
3287858 Canada Inc.
1186020 Ontario Limited
January __, 1997
Page 5
accordance with the Purchase Agreement as it now reads has been duly authorized
by resolution of the Board of Directors of Buyer and, once the consideration for
their issuance has been fully paid to Buyer, the shares of Class A Redeemable
Preferred Stock then so issued in accordance with the Purchase Agreement as it
now reads and such resolution of the Board of Directors shall be shares that are
validly issued in accordance with the requirements of the Canada Business
Corporations Act and that are fully paid and non-assessable, on the condition
that no event or change in circumstances occurs between the date of this opinion
and the date of issuance of such shares of Class A Redeemable Preferred Stock
that would prevent such issuance in accordance with the Purchase Agreement as it
now reads.
The opinions expressed in this letter are limited to the matters set
forth in this letter, and no other opinions should be inferred.
This opinion letter is solely for your benefit. This opinion letter may
not be relied on by, nor copies delivered to, any other person without our prior
written consent.
We do not undertake to advise you of any changes in the opinions
expressed herein subsequent to the issuance of this letter resulting from
changes in law or matters which may hereafter be brought to our attention.
Very truly yours,
Stikeman, Elliott
<PAGE>
EXHIBIT M
COVENANT AGREEMENT
MEMORANDUM OF AGREEMENT made as of the o day of o , 1996
BETWEEN: HOSPOSABLE PRODUCTS, INC., a
corporation incorporated under the laws of the
State of New York,
(hereinafter referred to as the "Parent"),
OF THE FIRST PART,
AND: 3290441 CANADA INC., a corporation
incorporated under the Canada Business
Corporations Act,
(hereinafter referred to as the "Corporation"),
OF THE SECOND PART,
AND: G.H. WOOD + WYANT INC., a corporation
incorporated under the Canada Business
Corporations Act,
(hereinafter referred to as the "Seller"),
OF THE THIRD PART,
WHEREAS pursuant to an asset purchase agreement dated as of o , 1996
among the Parent, the Corporation and the Seller (the "Asset Purchase
Agreement"), the Seller sold all of its business and certain assets to the
Corporation;
WHEREAS the Corporation is a subsidiary of the Parent;
WHEREAS the Asset Purchase Agreement provided that as part of the
consideration for the sale of such business and assets, the Seller was issued:
<PAGE>
2.
(i) a promissory note in the aggregate principal amount of Cdn
$4,262,741, subject to adjustment, if any, as set forth in the
Asset Purchase Agreement, which note will be exchanged for
fully paid and non-assessable non-voting Class A shares of the
capital stock of the Corporation, such shares being entitled
to an annual fixed, cumulative, preferential dividend equal to
4% of their redemption price and a redemption privilege (the
"Class A Shares"),
(ii) 3,800,000 fully paid and non-assessable non-voting Class B
shares of the capital stock of the Corporation such shares
being entitled to an annual fixed, cumulative, preferential
dividend equal to 3.999999% of their redemption price and a
redemption privilege (the "Class B Shares"), and
(iii) 1,000,000 fully paid and non-assessable non-voting Class E
shares of the Corporation (the "Exchangeable Shares") such
Exchangeable Shares being subject to a call right and a
liquidation call right in favour of the Parent (the
"Parent Call Rights");
WHEREAS the articles of incorporation of the Corporation, as amended,
set forth the rights, privileges, restrictions and conditions attaching to the
Class A Shares (collectively the "Class A Share Provisions"), the Class B Shares
(collectively the "Class B Share Provisions") and the Exchangeable Shares
(collectively, the "Exchangeable Share Provisions");
WHEREAS Parent is the registered and beneficial owner of all of the
issued and outstanding voting common shares of the Corporation and wishes to
make certain covenants in respect of the Corporation relating to:
(i) payments in respect of the Class A Shares pursuant to the
Class A Share Provisions;
(ii) payments in respect of the Class B Shares pursuant to the
Class B Shares pursuant to the Class B Share Provisions;
(iii) payments in respect of the Exchangeable Shares pursuant to the
Exchangeable Share Provisions; and
(iv) the availability of common shares of the capital stock of
Parent, $0.01 par value per share (the "Parent Common Shares")
to holders of Exchangeable Shares ("Exchangeable Holders")
pursuant to the Exchangeable Share
Provisions;
WHEREAS all defined terms not defined herein shall have the meanings
ascribed to them in the Exchangeable Share Provisions;
-2-
<PAGE>
3.
NOW, THEREFORE, in consideration of the respective covenants and
agreements provided in this agreement and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties agree as follows:
COVENANTS OF THE CORPORATION
1. Respect Terms of Shares. To the extent permitted by applicable law,
including without limitation the provisions of the Canada Business
Corporations Act, the Corporation covenants and agrees in favour of
each of the Seller, Parent and all subsequent holders of the Class A
Shares, Class B Shares and Exchangeable Shares (collectively the
"Subsequent Holders") to observe and perform the Class A Share
Provisions, the Class B Share Provisions and the Exchangeable Share
Provisions.
COVENANTS OF PARENT
2. Payments under Class A Shares, Class B Shares and Exchangeable Shares.
Parent agrees and covenants in favour of each of the Corporation, the
Seller and the Subsequent Holders to ensure that the Corporation is
able and has the financial resources (taking into account any
requirements under applicable law):
2.1 To declare and pay dividends on its Class A Shares, to redeem
and retract and pay the redemption price for such Class A
Shares and to pay the liquidation entitlement in respect of
the Class A Shares at the times and in accordance with the
terms set forth in the Class A Share Provisions;
2.2 To declare and pay dividends on its Class B Shares, to redeem
and retract and pay the redemption price for such Class B
Shares and to pay the liquidation entitlement in respect of
the Class B Shares at the times and in accordance with the
terms set forth in the Class B Share Provisions; and
2.3 To declare and pay dividends on its Exchangeable Shares, to
pay the Liquidation Amount and to redeem and pay the
Retraction Price for such Exchangeable Shares upon receipt of
a retraction request, at the times and in accordance with the
terms set forth in the Exchangeable Share Provisions.
2.4 Notwithstanding the foregoing provisions of this Section :
2.4.1 in the event that (i) the Corporation notifies the
Seller and the Parent that the Corporation does not
have the financial resources (taking into account any
requirements under applicable law) to pay any of the
amounts payable in accordance with the foregoing or
(ii) the Corporation has failed to pay any of the
amounts payable in accordance with the foregoing and
such failure to pay persists for thirty (30) days
-3-
<PAGE>
4.
following a written demand for such payment by
Seller, the Seller may, at its sole option and
discretion, elect by giving written notice to the
Parent and the Corporation within twenty (20) days of
receipt of such notice from the Corporation or within
twenty (20) days following the expiry of the
aforementioned thirty (30) day delay, as the case may
be, to receive directly from the Parent any such
amount payable to the Seller. The Parent undertakes
to pay directly to the Seller within five days of
receipt of the Seller's notice the amount which
Seller has elected to receive directly from Parent.
The Seller's election to receive any such amount
directly from Parent and the payment of such amount
by Parent to Seller will not (i) affect the right of
Seller to receive from the Corporation any other
amounts payable to Seller in accordance with the
Class A Share Provisions, the Class B Share
Provisions and the Exchangeable Share Provisions, or
(ii) deprive the Parent of any recourse it may have
against the Corporation by reason of having paid such
amount to Seller;
2.4.2 in the event that (i) the Corporation has given
notice to the Seller and the Parent in accordance
with subsection and the Seller has not elected to
receive payment directly from the Parent as provided
for in subsection or (ii) the Corporation has failed
to pay any of the amounts payable in accordance with
the foregoing and such failure to pay persists for
thirty (30) days following a written demand for such
payment by Seller, then the Parent may, at its sole
option and discretion, elect to pay any of such
amounts directly to Seller, by giving written notice
to the Seller and the Corporation within five (5)
days of the expiry of the applicable twenty (20) day
notice period set out in subsection . The Parent
undertakes to pay directly to Seller within five (5)
days of giving such notice the amount which it has
elected to pay directly to Seller. The Parent's
election to pay such amount directly to Seller and
the payment of such amount by Parent to Seller will
not (i) affect the right of Seller to receive from
the Corporation any other amounts payable to Seller
in accordance with the Class A Share Provisions, the
Class B Share Provisions and the Exchangeable Share
Provisions, and (ii) deprive the Parent of any
recourse it may have against the Corporation by
reason of having paid such amount to Seller.
3. Availability of Parent Common Shares. Parent agrees and covenants in
favour of the Corporation, the Seller and each Exchangeable Holder:
3.1 to ensure at all times that sufficient numbers of authorized
but unissued shares or treasury shares and Parent Shares are
available to the Corporation to permit
-4-
<PAGE>
5.
the Corporation to satisfy its obligation to deliver Parent
Common Shares to Exchangeable Holders pursuant to the
Exchangeable Share Provisions; and
3.2 to ensure that such Parent Common Shares are validly
authorized and reserved for issuance and, when issued upon
exchange, shall be validly issued, fully paid and
non-assessable, free and clear of any encumbrances and
preemptive rights.
4. Parent's Call Right. Parent agrees and covenants in favour of the
Corporation and each Exchangeable Holder, that if the Parent exercises
any of the Parent Call Rights it will deliver the appropriate number of
Parent Common Shares to the relevant Exchangeable Holder, the whole in
conformity with the Exchangeable Share Provisions.
5. Event of Insolvency of the Corporation. If an Event of Insolvency of
the Corporation should occur, then the Seller may, at its option, give
notice to the Parent that the Seller has elected to require the Parent
to purchase from the Seller all of the Class A Shares and the Class B
Shares then outstanding and held by the Seller for a price of $1.00
(Canadian) per Class A Share and per Class B Share and the Parent shall
purchase and pay the aggregate purchase price for such shares on a date
(the "Closing Date") specified in the notice from the Seller which
shall not be less than 15 days after the sending of the notice. At the
closing on the Closing Date, the Seller shall deliver to the Parent the
share certificates representing such Class A Shares and Class B Shares
duly endorsed for transfer against delivery of the entire amount of the
purchase price which shall be payable by way of a promissory note to be
issued by Parent to Seller providing for payments in such amounts
payable on such dates and bearing such rate of interest to reflect the
dividend entitlement and redemption entitlement as provided in the
Class A Share Provisions and the Class B Share Provisions.
For purposes hereof:
5.1 "Event of Insolvency of the Corporation" shall mean the
occurrence of any of the following events:
5.1.1 the Corporation admits in writing its inability to
pay its debts generally as they become due;
5.1.2 the Corporation makes a general assignment for the
benefit of creditors;
5.1.3 the corporation becomes subject to bankruptcy
proceedings which it is not contesting in good faith,
diligently and by appropriate means or which
proceedings continue undischarged, unstayed or
undismissed for a period of thirty (30) days;
-5-
<PAGE>
6.
5.1.4 the Corporation submits to or makes any application
for the purpose of suspension of payment of its
liabilities;
5.1.5 the Corporation petitions to or applies to any
authority for the appointment of an administrator,
receiver, trustee or intervenor for itself or for any
substantial part of its property;
5.1.6 the Corporation commences or has commenced against it
or in respect of its debts, any proceeding under any
Law, relating to reorganization, compromise,
settlement, arrangement, adjustment, dissolution or
liquidation, which proceedings it is not contesting
in good faith, diligently and by appropriate means or
which proceedings continue undischarged, unstayed or
undismissed for a period of thirty (30) days;
5.1.7 the Corporation becomes bankrupt within the meaning
of the laws of its country; or
5.1.8 the Corporation by any act indicates its consent to,
approval of or acquiescence in any bankruptcy,
reorganization or insolvency proceeding under any Law
or any proceeding for the appointment of an
administrator, receiver, trustee or intervenor for
itself or for any substantial part of its property or
suffers any such receivership or trustee to remain
undischarged for a period of thirty (30) days.
5.2 "Governmental Authority" means any federal, provincial, state,
regional, municipal, local or other governmental authority,
domestic or foreign, and includes any court, tribunal, agency,
department, commission, board, bureau or instrumentality
thereof and other Person exercising executive, legislative,
judicial, regulatory or administrative functions thereof or
pertaining thereto.
5.3 "Law" means:
5.3.1 all constitutions, treaties, laws, statutes, codes,
ordinances, orders, decrees, rules, regulations, and
municipal by-laws, whether domestic, foreign or
international;
5.3.2 all judgments, orders, writs, injunctions, decisions,
rulings, decrees, and awards of any Governmental
Authority;
5.3.3 all policies, voluntary restraints, practices or
guidelines of any Governmental Authority; and
5.3.4 all provisions of the foregoing,
-6-
<PAGE>
7.
in each case binding on or affecting the Person referred to in
the context in which such word is used.
5.4 "Person" includes any individual, corporation, body corporate,
partnership, limited partnership, limited liability company,
joint venture, trust, estate, unincorporated association or
other entity or any government or governmental authority
(including any Governmental Authority) however designated or
constituted.
6. Event of Default of Parent.
6.1 If Parent is in default of its obligation to make a payment in
accordance with section hereof, and Parent fails to remedy
such default within 10 days of receiving written notice
thereof from Seller, then the Seller may, at its option, give
notice to the Parent that the Seller has elected to require
the Parent to purchase from the Seller all of the Class A
Shares and the Class B Shares then outstanding and held by the
Seller for a price of $1.00 (Canadian) per Class A Share and
per Class B Share and the Parent shall purchase and pay the
aggregate purchase price for such shares plus any accrued and
unpaid dividends thereon on a date (the "Closing Date")
specified in the notice from the Seller which shall not be
less than 15 days after the sending of the notice. At the
closing on the Closing Date, the Seller shall deliver to the
Parent the share certificates representing such Class A Shares
and Class B Shares duly endorsed for transfer against delivery
of the entire amount of the purchase price which shall be
payable by certified cheque or bank draft payable to Seller
and drawn on a branch of a Canadian chartered bank located in
the City of Montreal, Quebec, Canada or, at the option of the
Seller, by wire transfer to Seller's bank in Canada in
accordance with wire transfer instructions set forth in a
notice by Seller to the Parent.
6.2 If Parent is in default of its obligation to make a payment
pursuant to a promissory note issued pursuant to Section and
Parent fails to remedy such default within 10 days of
receiving written notice thereof from Seller or if an Event of
Insolvency of the Parent should occur, then the entire
principal amount and all accrued and unpaid interest thereon
payable under such promissory note shall become immediately
due and payable by Parent to Seller by certified cheque or
bank draft payable to Seller and drawn on a branch of a
Canadian chartered bank located in the City of Montreal,
Quebec, Canada or, at the option of the Seller, by wire
transfer to Seller's bank in Canada in accordance with wire
transfer instructions set forth in a notice by Seller to the
Parent. For purposes of this section "Event of Insolvency of
the Parent" shall have the same meaning as "Event of
Insolvency of the Corporation" except that all references to
the "Corporation" in such definition shall be read as if they
referred to the "Parent".
-7-
<PAGE>
8.
COVENANTS OF SELLER
7. Parent Call Rights. The Seller agrees to be bound by, and to cooperate
with the Parent in the Parent's exercise of, the Parent Call Rights.
Seller shall not assign, transfer or otherwise dispose of any of the
Exchangeable Shares or any interest therein to any Person without
obtaining and providing to the Parent the written agreement of such
Person to be bound by, and to cooperate with the Parent in the Parent's
exercise of, the Parent Call Rights.
8. Voting Rights. The Seller agrees not to exercise its right to elect
directors of the Corporation pursuant to Section 5 of the Class A Share
Provisions and the Class B Share Provisions for so long as Parent shall
have made payments to the Seller in accordance with section hereof.
AMENDMENTS AND SUPPLEMENTAL AGREEMENTS
9. Amendments, Modifications, etc. This agreement may not be amended or
modified except by an agreement in writing executed by the Corporation,
the Parent and the Seller.
TERMINATION
10. Survival of Agreement. This agreement shall continue until the later of
the following events:
10.1 the Class A Shares and the Class B Shares have been completely
redeemed and the redemption price in respect of such
redemptions shall have been fully paid in accordance with the
Class A Share Provisions and the Class B Share Provisions
respectively; and
10.2 there are no issued and outstanding Exchangeable Shares except
any Exchangeable Shares which may be held by Parent following
the redemption or exchange of all the Exchangeable Shares and
the payment of the Retraction Price therefor.
WARRANTY OF PARENT AND THE CORPORATION
11. Corporate Authority. Each of Parent and the Corporation has full
corporate power and authority to enter into this Agreement and to
provide the covenants set out herein. The execution, delivery and
performance by Parent and the Corporation of this
-8-
<PAGE>
9.
Agreement have been duly authorized by all requisite corporate action.
Upon the due execution and delivery of this Agreement, this Agreement
shall constitute a valid and binding obligation of each of Parent and
the Corporation, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally or
by general equitable principles.
GENERAL
12. Continuing Liability of Parent. In the event Parent makes payments to
Seller in accordance with this Agreement, the liability of Parent
pursuant to this Agreement shall continue and remain in full force and
effect in the event that all or any part of any such payment is
recovered by Parent or its successors from Seller or a Subsequent
Holder as a preference, fraudulent transfer or similar payment under
any bankruptcy, insolvency or similar law. Parent agrees to take all
actions that are reasonably appropriate to defend against any such
attempt to recover all or part of any such payment.
13. Severability. If any provision of this agreement is held to be invalid,
illegal or unenforceable, the validity, legality or enforceability of
the remainder of this agreement shall not in any way be affected or
impaired thereby and the agreement shall be carried out as nearly as
possible in accordance with its original terms and conditions.
14. Enurement. This agreement shall be binding upon and enure to the
benefit of the parties hereto and their respective successors and
assigns and to the benefit of any Subsequent Holders and for such
purposes the provisions of this Agreement in favour of the "Seller" and
the "Exchangeable Holders" (including, without limitation the
provisions of sections , , and hereof) shall be interpreted as if each
reference therein to the "Seller" or the "Exchangeable Holders"
referred to the Subsequent Holders.
15. Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given upon receipt of:
hand delivery; certified or registered mail, return receipt requested;
or telecopy transmission with confirmation of receipt:
-9-
<PAGE>
10.
15.1 If to the Parent or the Corporation, to:
Hosposable Products, Inc.
100 Readington Road
Somerville, New Jersey 08876
Attention: Joseph H. Weinkam, Jr.
Telecopier: (908) 707-1549
Telephone: (908) 707-1800
with a copy to:
Sutherland, Asbill & Brennan, L.L.P.
1275 Pennsylvania Avenue, NW
Washington, DC 20004
Attention: James Darrow, Esq.
Telecopier: (202) 637-3593
Telephone: (202) 383-0132
15.2 If to the Seller, to:
G.H. Wood + Wyant Inc.
1475 32nd Avenue
Lachine, Quebec H8T 3J1
Attention: James A. Wyant
Telecopier: (514) 636-1148
Telephone: (514) 636-9926
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York New York 10004
Attention: Ken Adelsberg, Esq.
Telecopier: (212) 858-1500
Telephone: (212) 858-1213
16. Governing Law. The rights and duties of the parties hereto under this
Agreement shall, pursuant to New York General Obligations Law Section
5-1401, be governed by the law of the State of New York.
-10-
<PAGE>
11.
17. The parties hereto recognize the non-exclusive jurisdiction of the
courts of the State of New York over disputes relating to this
Agreement.
-11-
<PAGE>
12.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed as of the date first above written.
HOSPOSABLE PRODUCTS, INC.
By:____________________________
By:____________________________
3290441 CANADA INC.
By:____________________________
G.H. WOOD + WYANT INC.
By:____________________________
By:____________________________
-12-
<PAGE>
13.
INTERVENTION
Each of 3287858 Canada Inc. ("3287858") and 1186020 Ontario Limited
("1186020") intervene to the covenant agreement dated January o by and among
Hosposable Products, Inc., 3290441 Canada Inc. and G.H. Wood + Wyant Inc. (the
"Covenant Agreement"), declares that it has read the Covenant Agreement,
understands its meaning and scope and is satisfied therewith.
Each of 3287858 and 1186020 accepts the benefit of any provisions of
the Covenant Agreement which may accrue to it as a Subsequent Holder (as defined
in the Covenant Agreement) and, as a Subsequent Holder, agrees to be bound by
the covenants of Seller set out therein as if it were the party making such
covenant.
3287858 CANADA INC.
Per:__________________________
Lynne Emond
1186020 ONTARIO LIMITED
Per:__________________________
John Derek Wyant, M.D.
-13-
<PAGE>
EXHIBIT N
---------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT, dated as of _____________, 1997
(the "Agreement") by and among Hosposable Products, Inc., a New York corporation
(the "Company"), G.H. Wood + Wyant Inc., a corporation incorporated under the
Canada Business Corporations Act ("Wyant"), and James A. Wyant (a "Stockholder"
and, collectively with Wyant, the "Stockholders").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, 3290441 Canada Inc., a corporation
incorporated under the Canada Business Corporations Act, and a wholly owned
subsidiary of the Company ("Buyer"), and Wyant have entered into an Asset
Purchase Agreement dated as of November 12, 1996 (the "Purchase Agreement")
pursuant to which, subject to the terms and conditions set forth therein, Buyer
has agreed to acquire, and Wyant has agreed to sell, all of the operating assets
of Wyant (the "Acquired Business");
WHEREAS, as partial consideration for the Acquired Business, Wyant
shall receive certain shares of Class E Preferred Stock of Buyer, which shares
are exchangeable, at the option of the holder, for an equal number of shares of
Common Stock;
WHEREAS, it is a condition to Wyant's obligations to sell the
Acquired Business that the Company enter into this Agreement to provide certain
registration rights.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions. The following capitalized terms have the following
meanings:
Commission: The United States Securities and Exchange Commission or any
other United States Federal agency administering the Securities Act.
Common Stock: The Company's Common Stock, par value $.01 per share, and any
securities issued with respect to such Common Stock by way of a stock
dividend, stock split, or in connection with a combination of shares,
recapitalization, merger, consolidation or similar transaction.
Demand Stockholder: Each of the Stockholders, either acting individually or
jointly pursuant to Section 2(a) of this
<PAGE>
Agreement; provided, however, that such Persons shall not be deemed to be
Demand Stockholders unless the aggregate net proceeds to be received by such
Persons from the sale of their Registrable Securities pursuant to the
requested Demand Registration, as determined by the lead managing
underwriter of the offering for such Demand Registration (or if such
offering is not an underwritten offering, as reasonably determined by the
Persons that requested such Demand Registration), exceed $1,000,000.
Exchange Act: The United States Securities Exchange Act of 1934 and the
rules and regulations of the Commission thereunder, as in effect from time
to time.
Exempt Transfer: The transfer of Common Stock (i) by any Stockholder to an
Affiliate of such Stockholder, (ii) to a member of such Stockholder's Family
Group, (iii) pursuant to a registered public offering and (iv) pursuant to
Rule 144 under the Securities Act.
Family Group: With respect to James A. Wyant, his spouse, siblings, parents,
grandparents and descendants, whether natural or adopted.
Public Offering: The closing of an underwritten public offering of equity
securities of the Company or securities convertible into or exchangeable or
exercisable for any of such securities registered with the Commission under
the Securities Act.
NASD: The National Association of Securities Dealers, Inc. and any successor
organization.
Person: An individual, corporation, partnership, limited liability company,
association, joint-stock company, trust where the interests of the
beneficiaries are evidenced by a security, unincorporated organization,
estate, governmental or political subdivision thereof or governmental
agency.
Registrable Securities: Shares of Common Stock that (i) at any time, are
owned by any Stockholder, including, among other things, shares of Common
Stock received by any Stockholder pursuant to an exchange of shares of Class
E Preferred Stock of Buyer or received by way of a stock dividend or stock
split, or in connection with a combination of shares, recapitalization,
merger, consolidation or similar transaction, and (ii) have not at any time
been transferred except pursuant to an Exempt Transfer.
Registration Statement: A registration statement provided for in Section 6
of the Securities Act under which securities are registered under the
Securities Act, together with any preliminary, final or summary prospectus
contained therein, any amendment or supplement thereto, and any document
incorporated by reference therein.
-2-
<PAGE>
Securities Act: The United States Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder, all as the same
shall be in effect from time to time.
Capitalized terms used herein and not defined herein have the meanings as
defined in the Purchase Agreement. Terms defined in the Exchange Act or the
Securities Act and not otherwise defined herein have the meanings herein as
therein defined.
2. Demand Registration.
(a) Right to Demand. From and after the second anniversary date of
the Closing, each Demand Stockholder shall, have the one-time right, exercisable
by written notice to the Company, to request that the Company effect the
registration under the Securities Act of all or part of such Demand
Stockholder's Registrable Securities (a "Demand Registration").
Upon receipt of such notice, the Company shall promptly give
written notice of such Demand Registration to all registered holders of
Registrable Securities, and shall use its best efforts to effect the
registration under the Securities Act of:
(i) the Registrable Securities that the Company has been
requested to register by such Demand Stockholder (including, without
limitation, an offering on a delayed or continuous basis pursuant to Rule
415 (or any successor rule to similar effect) under the Securities Act), and
(ii) all other Registrable Securities that the Company has been
requested to register by the holders thereof, by written request given to the
Company within 30 days after the giving of such written notice by the Company,
all to the extent required to permit the disposition of the Registrable
Securities so to be registered.
(b) Selection of Underwriters. The underwriters of any offering
pursuant to a Demand Registration shall be (a) a lead managing underwriter
(which shall be a nationally-recognized investment banking firm) selected by the
Demand Stockholder which requested such Demand Registration, subject, however,
to the approval of the other Stockholder that did not request such Demand
Registration, which approval shall not be unreasonably withheld, and (b) such
co-managing underwriters (which shall be one or more nationally-recognized
investment banking firms) selected by the Demand Stockholder that requested such
Demand Registration.
(c) Priority in Demand Registrations. If the managing underwriter
advises the Company that, in its opinion, the number of Registrable Securities
requested to be included in a Demand Registration exceeds what can be sold in
such offering at a price acceptable to the Demand Stockholder(s), then the
Company will include in such Demand Registration the number of Registrable
-3-
<PAGE>
Securities requested to be included in such Demand Registration which the
Company is so advised can be sold in such offering in accordance with the
following priority: first, all Registrable Securities requested by the Demand
Stockholders to be included in such Demand Registration, allocated between such
Persons as they shall determine; and second all Registrable Securities requested
by other holders of Registrable Securities to be included in such Demand
Registration, pro rata among such Persons.
(d) Additional Demand Registrations. If the Company effects the
registration of less than all of the Registrable Securities held by the Demand
Stockholders pursuant to the Demand Registration pursuant to Subsection 2(a)
solely as a result of the operation of Subsection 2(c), the Demand Stockholder
may at any time request an additional two Demand Registrations, provided that at
least six months have elapsed since the effective date of the most recent Demand
Registration. Any such Demand Registration shall be requested, effected and in
all other respects be in accordance with the terms of the first Demand
Registration.
(e) Restrictions on Demand Registrations. The Company may postpone
for up to three months the filing or the effectiveness of a Registration
Statement for a Demand Registration, whether pursuant to Subsection 2(a) or
2(d), if the Company's Board of Directors determines that such Demand
Registration would reasonably be expected to have an adverse effect on any
proposal or plan by the Company or any of its subsidiaries to engage in any
acquisition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or similar transaction. In such event, the
Demand Stockholders will be entitled to withdraw their request for the Demand
Registration. If the request for the Demand Registration is so withdrawn, such
Demand Registration request shall not count as a Demand Registration request
hereunder.
(f) Registration of Other Securities. Whenever the Company shall
effect a Demand Registration pursuant to this Section 2, no securities other
than Registrable Securities shall be included among the securities covered by
such Demand Registration unless the Demand Stockholder which requested such
Demand Registration shall have previously consented in writing to the inclusion
of such other securities.
(g) Other Registration Rights. Except as otherwise provided in this
Agreement, the Company will not grant to any Persons the right to request the
Company to register any equity securities of the Company, or any securities
convertible or exchangeable into or exercisable for such securities, without the
written consent of each of the Stockholders.
(h) Effective Registration Statement. A Demand Registration
pursuant to this Section 2 shall not be deemed to have been effected (i) unless
a Registration Statement with respect thereto has become effective, (ii) if
after it has become effective, such Demand Registration is interfered with by
any stop
-4-
<PAGE>
order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason, or (iii) if the Registrable
Securities are not sold to the public thereunder as a result of the conditions
to closing specified in the purchase agreement or underwriting agreement entered
into in connection with such Demand Registration not being satisfied, other than
by reason of some act or omission by the selling Stockholders.
3. Piggyback Registration.
(a) Right to Piggyback. If the Company at any time proposes to
register any securities under the Securities Act (other than registrations on
Form S-4 or S-8 or the equivalent thereof) with respect to an underwritten
public offering and the form of Registration Statement to be used may be used
for the registration of Registrable Securities, the Company will give prompt
written notice to all holders of Registrable Securities of its intent to do so.
Within 30 days after receipt of such notice, any Stockholder which is a holder
of Registrable Securities may by written notice to the Company request the
registration by the Company under the Securities Act of Registrable Securities
in connection with such proposed registration by the Company under the
Securities Act of securities (a "Piggyback Registration"). Such written notice
to the Company shall specify the Registrable Securities intended to be disposed
of by such Stockholders and the intended method of distribution thereof. Upon
receipt of such request, the Company will use its best efforts to register under
the Securities Act all Registrable Securities which the Company has been so
requested to register, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered; provided, however, that if at any
time after giving notice of its intent to register securities and before the
effective date of the Registration Statement filed in connection with such
Piggyback Registration, the Company determines for any reason not to register or
to delay registration of such securities, the Company may, at its election, give
notice of such determination to the Stockholders requesting such Piggyback
Registration, and, thereupon, (i) in the case of a determination not to
register, the Company shall be relieved of its obligation to register any
Registrable Securities in connection with such Piggyback Registration (but not
from its obligation to pay registration expenses pursuant to Section 5 hereof)
without prejudice, however, to the rights of any holder or holders of
Registrable Securities entitled to do so to request that such registration be
effected as a Demand Registration under Section 2 hereof, and (ii) in the case
of a determination to delay registering, the Company may delay registering any
Registrable Securities for the same period as the delay in registering such
other securities. No registration effected under this Section 3 shall relieve
the Company of its obligation to effect any Demand Registration upon request
under Section 2 hereof.
(b) Selection of Underwriters. The underwriters of any offering
pursuant to a Piggyback Registration shall be one or more
-5-
<PAGE>
nationally-recognized investment banking firms selected by the Company.
(c) Priority in Piggyback Registrations. If the managing
underwriter informs the Company in writing of its judgment that including the
Registrable Securities in the Piggyback Registration creates a substantial risk
that the proceeds or price per unit to be received from such offering might be
reduced or that the number of Registrable Securities to be registered is too
large to be reasonably sold, then the Company will include in such Piggyback
Registration, to the extent of the number which the Company is so advised can be
sold in such offering: first, all securities proposed by the Company to be sold
for its own account; and second, such Registrable Securities requested by the
Stockholders to be included in such Piggyback Registration pro rata on the basis
of the number of shares of such Registrable Securities so proposed to be sold
and so requested to be included.
4. Registration Procedures.
(a) Company Covenants. Whenever the Company is hereunder required
to use its best efforts to effect the registration under the Securities Act of
any Registrable Securities as provided in Section 2 or 3, the Company will:
(i) prepare and file with the Commission the requisite
Registration Statement to effect such registration and thereafter use its
best efforts to cause such Registration Statement to become effective,
provided that the Company may discontinue any registration of its securities
which are not Registrable Securities (and, under the circumstances specified
in Subsection 3(a), its securities which are Registrable Securities) at any
time prior to the effective date of the Registration Statement relating
thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions of
the Securities Act with respect to the disposition of all securities covered
by such Registration Statement until the earlier of (a) such time as all
such securities have been disposed of in accordance with the intended
methods of disposition by the sellers thereof set forth in such Registration
Statement and (b) the expiration of 180 days from the date such Registration
Statement first becomes effective (exclusive of any period during which the
Stockholders are prohibited or impaired from disposition of Registrable
Securities by reason of the occurrence of any event described in Section
4(a)(v)(a), (vii) or 4(c)), at which time the Company shall have the right
to deregister any of such securities which remain unsold;
(iii) furnish to each seller of Registrable Securities covered
by such Registration Statement such number of conformed
-6-
<PAGE>
copies of the Registration Statement, and of each amendment and supplement
thereto, such number of copies of the prospectus contained in such
Registration Statement and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the Securities
Act, and such other documents as such seller may reasonably request;
(iv) use its best efforts to register or qualify all securities
covered by such Registration Statement under such other securities or blue
sky laws of jurisdictions as each seller thereof shall reasonably request,
to keep such registration or qualification in effect for so long as the
Registration Statement remains in effect, and to take any other action which
may be reasonably necessary or advisable to enable such seller to consummate
the disposition in such jurisdictions of the securities owned by such
seller, except that the Company shall not for any such purpose be required
to (a) qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not be obligated to be so qualified but for
the requirements of this subsection; (b) subject itself to taxation in any
such jurisdiction; or (c) consent to general service of process in any such
jurisdiction;
(v) use its best efforts to (a) obtain the withdrawal of any
order suspending the effectiveness of such Registration Statement or sales
thereunder at the earliest possible time and (b) cause all Registrable
Securities covered by such Registration Statement to be registered with or
approved by such other governmental agencies or authorities of United States
jurisdictions as may be necessary to enable the seller thereof to consummate
the disposition of such Registrable Securities;
(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller and the underwriters, of:
(x) an opinion of counsel for the Company dated the effective
date of the Registration Statement (and dated the closing date under the
underwriting agreement), reasonably satisfactory in form and substance to
such seller, and
(y) a "comfort letter" dated the effective date of the
Registration Statement (and dated the date of the closing under the
underwriting agreement), signed by the independent public accountants who
have certified the Company's financial statements included in such
Registration Statement, covering substantially the same matters with respect
to such Registration Statement and, in the case of the "comfort letter,"
with respect to events subsequent to the date of such financial statements,
as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to the underwriters
-7-
<PAGE>
in underwritten public offerings of securities, and, in the case of the
legal opinion, such other legal matters, and, in the case of the "comfort
letter," such other financial matters, as such seller or the underwriter may
reasonably request;
(vii) at any time when a prospectus relating thereto is required
to be delivered under the Securities Act, notify each seller of Registrable
Securities covered by such Registration Statement promptly after the Company
discovers that the prospectus included in such Registration Statement as
then in effect includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made, and at the request of any such seller promptly prepare
and furnish to such seller a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission;
(ix) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such Registration
Statement from and after a date not later than the effective date of such
Registration Statement; and
(x) use its best efforts to list all Registrable Securities
covered by such Registration Statement on a securities exchange on which
similar securities issued by the Company are then listed and shall take any
other action necessary or advisable to facilitate the disposition of such
Registrable Securities.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
request. Any Person participating in any Demand Registration or Piggyback
Registration must (a) agree to sell their securities on the basis provided in
the underwriting agreement and (b) complete and execute all documents required
under this Agreement or the underwriting agreement.
Each holder of Registrable Securities agrees that upon receipt of
any notice from the Company of the happening of any event of the kind described
in subparagraph (vii) of this Subsection 4(a), such holder will discontinue
immediately such holder's disposition of securities pursuant to the Registration
-8-
<PAGE>
Statement until such holder receives copies of the supplemented or amended
prospectus contemplated by such subparagraph (vii) and, if so directed by the
Company, will deliver to the Company all copies, other than permanent file
copies, then in such holder's possession of the prospectus relating to such
Registrable Securities current at the time of receipt of such notice.
(b) Underwriting Agreements. The Company will enter into an
underwriting agreement with the underwriters for any offering pursuant to a
Demand Registration or Piggyback Registration if requested by the underwriters
so to do. The underwriting agreement will contain such representations and
warranties by the Company and such other terms as are generally prevailing at
such time in underwriting agreements. The holders of Registrable Securities to
be distributed by the underwriters shall be parties to such underwriting
agreement and may, at their option, require that any or all of the
representations, warranties, and other agreements by the Company to and for the
benefit of the underwriters also be made to and for the benefit of such holders
of Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. No
holder of Registrable Securities shall be required to make representations or
warranties to, or agreements with, the Company or the underwriters other than
representations, warranties or agreements regarding such holder, such holder's
Registrable Securities, such holder's intended method of distribution and any
representations required by law.
(c) Holdback Agreements. (i) Each holder of Common Stock party
hereto agrees by acquisition of such Common Stock not to effect any public sale
or distribution of any equity securities of the Company or securities
convertible into or exchangeable or exercisable for any of such securities
during the seven days prior to and the 120 days after any Public Offering,
Demand Registration or Piggyback Registration has become effective, except as
part of such Public Offering, Demand Registration or Piggyback Registration, as
the case may be, unless the managing underwriter of the Public Offering, Demand
Registration or Piggyback Registration otherwise agrees to such sale or
distribution.
(ii) The Company agrees (x) not to effect any public sale or
distribution of its equity securities or securities convertible into or
exchangeable or exercisable for any of such securities during the seven days
prior to and the 120 days after any Public Offering, Demand Registration or
Piggyback Registration has become effective, except as part of such Demand
Registration or Piggyback Registration, as the case may be, and except
pursuant to registrations on Form S-4, S-8 or any successor or similar forms
thereto and (y) to use its best efforts to cause each holder of at least 5%
of its equity securities (on a fully-diluted basis), or any securities
convertible into or exchangeable or exercisable for any such securities, to
agree not to effect any such public sale or
-9-
<PAGE>
distribution of such securities during such period, unless the managing
underwriter otherwise agrees to such sale or distribution.
(d) Preparation; Reasonable Investigation. In connection with the
preparation and filing of each Registration Statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities to be registered under such Registration Statement, the underwriters
and their respective counsel and accountants, the opportunity to participate in
preparing the Registration Statement. The Company will also give each of such
Persons such access to its books and records and opportunities to discuss the
business of the Company with the Company's officers and independent public
accountants who have certified the Company's financial statements as shall, in
the opinion of such holders' and such underwriters' respective counsel, be
necessary to conduct a reasonable investigation within the meaning of the
Securities Act.
(e) Rule 144. The Company will file the reports required to be
filed by it under the Securities Act and the Exchange Act to enable the
Stockholders to sell their Registrable Securities without registration under the
Securities Act and within the exemptions provided under the Securities Act by
Rule 144 or any similar rule or regulation hereafter adopted by the Commission.
Upon the request of any holder of Registrable Securities, the Company will
deliver to such holder a written statement as to whether it has complied with
such requirements.
5. Registration Expenses. The Company will bear all expenses
incident to the Company's performance of or compliance with this Agreement,
including, without limitation, all registration, filing and NASD fees, all
securities and blue sky compliance fees and expenses, all word processing
expenses, duplicating expenses, printing expenses, engraving expenses, messenger
and delivery expenses, all Company general and administrative expenses, all
Company counsel and accountants fees and disbursements, all special audit,
financial statement and reconstruction costs, all comfort letter costs, all
underwriter fees and disbursements customarily paid by issuers or sellers of
securities (including fees paid to a "qualified independent underwriter"
required by the rules of the NASD in connection with a distribution), all "road
show" expenses and allocations and the expense for other Persons retained by the
Company, but excluding discounts, commissions or fees of underwriters, selling
brokers, dealer managers, sales agents or similar securities industry
professionals relating to the distribution of Registrable Securities and
applicable transfer taxes, if any, which shall be borne by the sellers of the
Registrable Securities being registered in all cases.
6. Indemnification.
(a) Indemnification by the Company. In the event of any Demand
Registration or Piggyback Registration of any Registrable
-10-
<PAGE>
Securities under the Securities Act, the Company shall, and hereby does,
indemnify and hold harmless each seller of any Registrable Securities covered by
the Registration Statement with respect thereto, such seller's partners,
directors and officers, each underwriter (including any "qualified independent
underwriter" required by the rules of the NASD) of the offering or sale of such
securities, and each Person who controls such seller or underwriter within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities to which such seller, partner, director, officer, underwriter or
controlling Person, as the case may be, may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of material fact contained in the Registration Statement under which such
Registrable Securities were sold or an omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company will reimburse each such
indemnified Person for expenses reasonably incurred by it in connection with
defending such loss, claim, damage, liability, action or proceeding; provided
that the Company shall not be liable in any such case for any losses, claims,
damages, liabilities (or actions or proceedings in respect thereof) or expenses
which arise out of or are based upon an untrue statement or alleged untrue
statement or omission or alleged omission made by the Company in such
Registration Statement in reliance upon information furnished to the Company by
such Person through an instrument duly executed by such Person specifically
stating that it is for use in the preparation thereof; and provided further that
the Company shall not be liable to and does not indemnify any underwriter in the
offering or sale of Registrable Securities, or any Person who controls an
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be supplemented or amended, to
the Person asserting an untrue statement or alleged untrue statement or omission
or alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person, if such statement or omission was
corrected in such final prospectus. This indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of an
indemnified party, and shall survive the transfer of such Registrable Securities
by the seller thereof.
(b) Indemnification by the Sellers. The Company may require, as a
condition to including any Registrable Securities in any Registration Statement,
that the Company receive an undertaking satisfactory to it from the prospective
seller of such Registrable Securities, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in subsection (a) of this
Section 6) the Company, its directors, its officers, and each other Person who
controls the Company within the meaning of the
-11-
<PAGE>
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such Registration Statement, if such statement
or alleged statement or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the Company through an
instrument duly executed by such seller specifically stating that it is for use
in the preparation of such Registration Statement. The prospective sellers'
obligation to indemnify will be several, not joint and several, among such
sellers and the liability of each such seller of Registrable Securities shall be
in proportion to and limited to the net amount received by such seller from the
sale of Registrable Securities pursuant to such Registration Statement. This
indemnity shall remain in full force and effect, regardless of any investigation
made by or on behalf of the Company, its directors, officers or controlling
Persons, and shall survive the transfer of such Registrable Securities by the
seller thereof.
(c) Notices of Claims, Etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Subsection 6(a) or (b), such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party,
give written notice to the latter of the commencement of such action. The
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 6, except to the extent that the indemnifying party
is prejudiced by the failure to give such notice. In case any such action is
brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified party and
the indemnifying parties may exist in respect of such claim, the indemnifying
party shall be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified to the extent that
it may wish, with counsel reasonably satisfactory to the indemnified party.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable for any settlement made by the indemnified party without its consent
(which consent will not be unreasonably withheld) or for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 6 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
securities under any Federal
-12-
<PAGE>
or state law or regulation of any governmental authority other than the
Securities Act.
(e) Indemnification Payments. The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) Contribution. If the indemnification provided for in this
Agreement is for any reason unavailable or insufficient to indemnify an
indemnified party under Subsection 6(a), (b) or (d) hereof in respect of any
loss, claim, damage or liability, or any action in respect thereof, or referred
to therein, then each indemnifying party shall, in lieu of indemnifying such
party, contribute to the amount payable by such indemnified party as a result of
such loss, claim, damage or liability, or action in respect thereof, in a
proportion which reflects: (i) first, the relative benefits received on the one
hand by the Company and on the other hand by the holders of the Registrable
Securities included in the offering; and (ii) second, the relative fault with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, on the one hand of the
Company and on the other hand of the holders of the Registrable Securities
included in the offering, as well as any other relevant equitable
considerations.
The relative benefits received shall be deemed to be in the same
proportion which the sum of the total subscription price paid to the Company in
respect of the Registrable Securities plus the total net proceeds from the
offering of the securities (before deducting expenses) received by the Company
bears to the amount by which the total net proceeds from the offering of the
securities (before deducting expenses) received by the holders of the
Registrable Securities with respect to such offering exceeds the subscription
price paid to the Company in respect of the Registrable Securities, and in each
case, the net proceeds received from such offering shall be determined as set
forth on the table of the cover page of the prospectus.
The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the holders of the Registrable Securities; the
intent of the parties; the parties' relative knowledge; the parties' access to
information; and the parties' opportunity to correct or prevent such statement
or omission. The Company and the Stockholders agree that it would not be just
and equitable if contribution pursuant to this Section 6 is determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to herein.
-13-
<PAGE>
The amount paid or payable by an indemnified party as a result of
the loss, claim, damage or liability, or action in respect thereof, referred to
in this Subsection 6(f) shall be deemed to include, for purposes of this
Subsection 6(f), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. No person guilty of "fraudulent misrepresentation" within the meaning
of Section 11 of the Securities Act shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
7. Miscellaneous.
(a) Amendments and Waivers. This Agreement may be amended or waived
by the consent of the Company and each of the Stockholders. Each holder of any
Registrable Securities at the time or thereafter outstanding shall be bound by
any consent authorized by this Subsection 7(a), whether or not such Registrable
Securities shall have been marked to indicate such consent.
(b) Nominees for Beneficial Owners. If Registrable Securities are
held by a nominee for the beneficial owner thereof, the beneficial owner thereof
may, at its election, be treated as the holder of such Registrable Securities
for purposes of (i) any action by holders of Registrable Securities pursuant to
this Agreement and (ii) any determination of number of Registrable Securities
held by any holders of Registrable Securities contemplated by this Agreement. If
the beneficial owner of any Registrable Securities so elects, the Company may
require assurances of such beneficial owner's ownership of such Registrable
Securities.
(c) Notices. All consents, notices and other communications
provided for hereunder shall be in writing and sent in the manner provided in
the Purchase Agreement. Communications to a stockholder must be addressed to
such stockholder in the manner set forth in the Purchase Agreement or at such
other address as such stockholder communicates to the Company, or to the address
of the last holder of such security who has communicated an address to the
Company. Communications to the Company must be addressed to the Company in the
manner set forth in the Purchase Agreement.
(d) Assignment. This Agreement is personal to the parties hereto
and not assignable and may not be enforced by any subsequent holder of
securities of the Company; provided, however, that upon execution and delivery
to the Company of a commitment to be bound by the terms of this Agreement, this
Agreement may be assigned to, and may be enforced by, a transferee of Common
Stock pursuant to clauses (i), (ii) and (iii) of the definition of "Exempt
Transfer", which transferee shall thereupon have all of the rights and
obligations of its transferor hereunder.
-14-
<PAGE>
(e) Descriptive Headings. The descriptive headings of the sections
and paragraphs of this Agreement are for reference only and shall not limit or
otherwise affect the meaning hereof.
(f) Governing Law. The rights and duties of the parties hereto
under this Agreement shall, pursuant to New York General Obligations Law Section
5-1401, be governed by the law of the State of New York.
(g) WAIVER OF JURY TRIAL. THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREON.
(h) Specific Performance. The parties hereto acknowledge that there
may be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to any
other remedy to which it may be entitled at law or in equity, shall be entitled
to compel specific performance of the obligations of any other party under this
Agreement in accordance with the terms and conditions of this Agreement, in any
court of the United States or any state thereof having jurisdiction.
(i) Counterparts. This Agreement may be executed in any number of
counterparts. Each counterpart is an original, but all counterparts shall
together constitute one and the same instrument.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
HOSPOSABLE PRODUCTS, INC.
By:_______________________________
Name:
Title:
G.H. WOOD + WYANT INC.
By:_______________________________
Name:
Title:
By:_______________________________
Name:
Title:
_______________________________
James A. Wyant
-16-
<PAGE>
EXHIBIT O
---------
G.H. WOOD + WYANT INC.
PRO-FORMA POST CLOSING BALANCE SHEET
JANUARY X, 1997(1)
================================================================================
Assets
- --------------------------------------------------------------------------------
Cash $600,000
(2) Hosposable shares (315,690) 2,162,476
(3) Redeemable Preferred shares 4,562,741
(4) Class "E" Exchangeable Preferred
shares 6,850,000
-------------
$14,175,217
=============
Liabilities NIL
Shareholder's equity 14,175,217
-------------
$14,175,217
=============
- --------------------------------------------------------------------------------
NOTES TO PRO-FORMA POST CLOSING BALANCE SHEET
1. Assumes transactions contemplated by the Asset Purchase Agreement have
occurred. All Wyant corporate reorganization transactions have occurred
prior to balance sheet preparation date.
2. Based on a market value of U.S. $5.00 per share and an exchange rate of
U.S. $1.00 = CDN $1.37.
3. The amount will increase dollar for dollar with 1996 pre-tax earnings.
4. The amount is derived from the product of 1,000,000 shares at a price of
U.S. $5.00 (the assumed value of Hosposable common shares) and an
exchange rate of U.S. $1.00 = CDN $1.37. Of the 1,000,000 Class "E"
Exchangeable Preferred shares in the Company, only 833,333 will be owned
and controlled by James A. Wyant. The remainder, 166,667 shares, will be
owned and controlled by James A. Wyant's siblings.
<PAGE>
Appendix B
To The Proxy Statement
HOSPOSABLE PRODUCTS, INC.
1997 STOCK INCENTIVE PLAN
Article I. Purpose, Adoption and Term of the Plan
1.01 Purpose. The purposes of the Plan are to advance the interests of
the Company and its stockholders by encouraging and providing for the
acquisition of an equity interest in the Company by Non-Employee Directors, key
employees of the Company and its Subsidiaries and consultants of the Company and
its Subsidiaries through the grant of awards with respect to shares of Common
Stock and to enable the Company to attract and retain the services of
outstanding Non-Employee Directors, key employees and consultants whose
judgment, interest, and special effort are essential to the successful conduct
of its operations.
1.02 Adoption and Term. The Plan shall become effective on the
Effective Date, subject to (1) the subsequent approval of a majority of the
holders of Voting Stock entitled to vote at an annual or special meeting of the
holders of Voting Stock, and (2) the acquisition of G. H. Wood + Wyant, Inc. by
Hosposable Products, Inc., both of which must occur within 12 calendar months of
the Effective Date. If the Plan shall have been approved by the Board prior to
shareholder approval and the acquisition, stock options and other awards under
the Plan may be granted by the Stock Option Committee as provided herein,
subject to such subsequent shareholder approval and completion of the
acquisition. The Plan shall terminate on November 5, 2006, or on such earlier
date as shall be determined by the Board.
Article II. Definitions
For purposes of the Plan, capitalized terms shall have the
following meanings:
2.01 "Annual Award" means an option to a Non-Employee Director for
1,000 shares of Common Stock.
2.02 "Award" means (a) any grant to an Employee or a Consultant
Participant of any one or a combination of Non-Qualified Stock Options,
Incentive Stock Options described in Article VI, or Stock Appreciation Rights,
Restricted Shares, Performance Units, Performance Shares, Dividends or Dividend
Equivalents described in Article VII, or (b) any grant to a Non-Employee
Director of a Non-Employee Director Option described in Article VIII.
2.03 "Award Agreement" means a written agreement between the Company
and a Participant or a written acknowledgment from the Company specifically
setting forth the terms and conditions of an Award granted to a Participant
under the Plan.
2.04 "Beneficiary" means an individual, trust or estate who or that, by
will or the laws of descent and distribution, succeeds to the rights and
obligations of the Participant under the Plan and an Award Agreement upon the
Participant's death.
2.05 "Board" means the Board of Directors of the Company.
2.06 "Cause" means, with respect to an Employee Participant or a
Consultant Participant, termination for, as determined by the Stock Option
Committee in its sole discretion, (i) dishonest or fraudulent conduct relating
to the Company or any of its Subsidiaries or their businesses; (ii) conviction
of any felony that, in the judgment of the Stock Option Committee, involves
moral turpitude or otherwise reflects on the Company or any of its Subsidiaries
in a significantly adverse way; or (iii) gross neglect by the Participant in the
B-1
<PAGE>
performance of his or her duties as an employee or a consultant, or any material
breach by a Participant under any employment agreement or consulting agreement
with the Company or any of its Subsidiaries.
2.07 "Change in Control" shall mean the occurrence, after the Effective
Date, of any of the following events, directly or indirectly or in one or more
series of transactions:
(i) Approval of the Company's shareholders of a consolidation,
merger or reorganization of the Company with any Third Party, unless
holders of the Voting Stock immediately before such consolidation,
merger or reorganization own, directly or indirectly, immediately
following such consolidation, merger or reorganization at least 80% of
the classes of stock entitled to vote generally in the election of
directors of the corporation resulting from the consolidation, merger
or reorganization;
(ii) Approval of the Company's shareholders of a transfer of
all or substantially all of the assets of the Company to a Third Party
or a complete liquidation or dissolution of the Company;
(iii) A Third Party (other than any person serving as a
director of the Company on the Effective Date, and his or her
affiliates), directly or indirectly, through one or more subsidiaries
or transactions or acting in concert with one or more persons or
entities:
(A) acquires beneficial ownership of more than 20% of
the Voting Stock;
(B) acquires irrevocable proxies representing more
than 20% of the Voting Stock;
(C) acquires any combination of beneficial ownership
of Voting Stock and irrevocable proxies representing more than
20% of the Voting Stock;
(D) acquires the ability to control in any manner the
election of a majority of the directors of the Company; or
(E) acquires the ability to directly or indirectly
exercise a controlling influence over the management or
policies of the Company;
(iv) Any election has occurred of persons to the Board that
causes a majority of the Board to consist of persons other than (A)
persons who were members of the Board on the Effective Date and/or (B)
persons who were nominated for election as members of the Board by the
Board (or a committee of the Board) at a time when the majority of the
Board (or of such committee) consisted of persons who were members of
the Board on the Effective Date; provided, however, that any persons
nominated for election by the Board (or a committee of the Board), a
majority of whom are persons described in clauses (A) and/or (B), or
are persons who were themselves nominated by such Board (or a committee
of such Board), shall for this purpose be deemed to have been nominated
by a Board composed of persons described in clause (A); or
B-2
<PAGE>
(v) A determination is made by the SEC or any similar agency
having regulatory control over the Company that a change in control to
a Third Party, as defined in the securities laws or regulations then
applicable to the Company, has occurred.
Notwithstanding any provision contained herein, a Change in Control shall not
include any of the above described events if they are the result of a Third
Party's inadvertently acquiring beneficial ownership or irrevocable proxies or a
combination of both for 20% or more of the Voting Stock, and the Third Party as
promptly as practicable thereafter divests itself of beneficial ownership or
irrevocable proxies for a sufficient number of shares so that the Third Party no
longer has beneficial ownership or irrevocable proxies or a combination of both
for 20% or more of the Voting Stock.
2.08 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto. References to a section of the Code
shall include that section and any comparable section or sections of any future
legislation that amends, supplements, or supersedes said section.
2.09 "Common Stock" means the Common Stock, par value $.01 per share,
of the Company.
2.10 "Company" means Hosposable Products, Inc., a corporation organized
under the laws of the State of New York, and its successors, and also means and
includes G. H. Wood + Wyant, Inc., a corporation organized under the laws of
Canada, which is an affiliated company under common ownership with Hosposable
Products, Inc., and which is to be merged into Hosposable Products, Inc.
subsequent to the Effective Date.
2.11 "Consultant Participant" means a Participant who is a consultant
to the Company or one of its Subsidiaries.
2.12 "Date of Grant" means the date designated by the Plan or the Stock
Option Committee as the date as of which an Award is granted, which shall not be
earlier than the date on which the Stock Option Committee approves the granting
of such Award.
2.13 "Disability" means any physical or mental injury or disease of a
permanent nature that renders an Employee or a Consultant Participant incapable
of meeting the requirements of the employment or other work that Employee or
Consultant Participant performed immediately before that disability commenced.
The determination of whether an Employee or a Consultant Participant is disabled
and when an Employee or a Consultant Participant becomes disabled shall be made
by the Stock Option Committee in its sole and absolute discretion.
2.14 "Disability Date" means the date which is six months after the
date on which an Employee or a Consultant Participant is first absent from
active employment or work with the Company due to a Disability.
2.15 "Effective Date" means November 6, 1996.
2.16 "Employee Participant" means a Participant who is an employee of
the Company or one of its Subsidiaries.
2.17 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
2.18 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.19 "Fair Market Value" of a share of Common Stock means, as of any
given date, the closing sale price of a share of Common Stock on such date on
the principal national securities exchange on which the Common Stock is then
B-3
<PAGE>
traded or, if the Common Stock is not then traded on a national securities
exchange, the closing sale price or, if none, the average of the bid and asked
prices of the Common Stock on such date as reported on the National Association
of Securities Dealers Automated Quotation System ("Nasdaq"); provided, however,
that, if there were no sales reported as of such date, Fair Market Value shall
be computed as of the last date preceding such date on which a sale was
reported; provided, further, that, if any such exchange or quotation system is
closed on any day on which Fair Market Value is to be determined, Fair Market
Value shall be determined as of the first date immediately preceding such date
on which such exchange or quotation system was open for trading. In the event
the Common Stock is not admitted to trade on a securities exchange or quoted on
Nasdaq, the Fair Market Value of a share of Common Stock as of any given date
shall be as determined in good faith by the Stock Option Committee, which
determination may be based on, among other things, the opinion of one or more
independent and reputable appraisers qualified to value companies in the
Company's line of business. Notwithstanding the foregoing, the Fair Market Value
of a share of Common Stock shall never be less than par value per share.
2.20 "Incentive Stock Option" means an Option designated as an
incentive stock option and that meets the requirements of Section 422 of the
Code.
2.21 "Non-Employee Director" means each member of the Board who is not
an employee of the Company or of any of its Subsidiaries.
2.22 "Non-Employee Director Option" means an Option granted in
accordance with Article VIII.
2.23 "Non-Qualified Stock Option" means an Option that is not an
Incentive Stock Option.
2.24 "Option" means any option to purchase Common Stock granted to a
Participant pursuant to Article VI or to a Non-Employee Director pursuant to
Article VIII.
2.25 "Participant" means any employee of or consultant to the Company
or any of its Subsidiaries selected by the Stock Option Committee to receive an
Option under the Plan in accordance with Article VI and/or Restricted Shares and
other forms of awards in accordance with Article VII and, solely to the extent
provided in Article VIII, any Non-Employee Director.
2.26 "Performance Shares" means awards granted to employee or
consultant participants pursuant to Part 7.4 of Article VII.
2.27 "Performance Units" means awards granted to employee or consultant
participants pursuant to Part 7.3 of Article VII.
2.28 "Plan" means the Hosposable Products, Inc. 1997 Stock Incentive
Plan as set forth herein, and as the same may be amended from time to time.
2.29 "Reload Option" shall have the meaning set forth in Section
6.03(e) of the Plan.
2.30 "Restricted Shares" means shares of Common Stock subject to
restrictions imposed in connection with Awards granted under Part 7.2 of Article
VII.
2.31 "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act, as amended, and any
successor rule.
2.32 "SEC" means the Securities and Exchange Commission.
B-4
<PAGE>
2.33 "Section 162(m)" means Section 162(m) of the Code and the
regulations thereunder.
2.34 "Stock Appreciation Rights" means awards granted to employee or
consultant participants pursuant to Part 7.1 of Article VII.
2.35 "Stock Option Committee" means a committee of the Board as may be
appointed, from time to time, by the Board. The Board may, from time to time,
appoint members of the Stock Option Committee in substitution for those members
who were previously appointed and may fill vacancies, however caused, in the
Stock Option Committee. The Stock Option Committee shall be composed of at least
two directors of the Company, each of whom is a Non-Employee Director. At any
time, however, to the extent permitted by law, the Board may by resolution
designate the entire Board as the Stock Option Committee under this Plan in lieu
of appointing a committee of two or more Non-Employee Directors. The Stock
Option Committee shall have the power and authority to administer the Plan in
accordance with Article III.
2.36 "Subsidiary" means a company more than 50% of the equity interests
of which are beneficially owned, directly or indirectly, by the Company.
2.37 "Ten Percent Shareholder" means a Participant who, at the time of
grant of an Option, owns (or is deemed to own under Section 424(d) of the Code)
more than 10% of the Voting Stock.
2.38 "Termination of Employment" means, with respect to an Employee
Participant, the voluntary or involuntary termination of a Participant's
employment with the Company or any of its Subsidiaries for any reason, including
death, Disability, retirement or as the result of the sale or other divestiture
of the Participant's employer or any similar transaction in which the
Participant's employer ceases to be the Company or one of its Subsidiaries.
Whether entering military or other government service shall constitute
Termination of Employment, and whether a Termination of Employment is a result
of Disability, shall be determined in each case by the Stock Option Committee.
Termination of Employment means, with respect to a consultant, termination of
his or her services as a consultant to the Company or one of its Subsidiaries.
2.39 "Third Party" includes a single person or a group of persons or
entities acting in concert not affiliates of the Company or wholly owned
directly or indirectly by the Company and shall exclude James A. Wyant, John
Derek Wyant, Lynne Emond, Gerald Wyant, the spouse or descendants (whether
natural or adopted) of any such individual, and any trust or family partnership
whose primary beneficiary shall be any of the aforesaid individuals (including
said spouse or descendants), and any trust, corporation, partnership, limited
liability company or other entity directly or indirectly controlled by any one
or any combination of the aforesaid persons or entities (including said spouses
or descendants).
2.40 "Voting Stock" means the classes of stock of the Company entitled
to vote generally in the election of directors of the Company.
Article III. Administration
3.01 Stock Option Committee. The Plan shall be administered by the
Stock Option Committee, which shall have exclusive and final authority in each
determination, interpretation, or other action affecting the Plan and its
Participants other than as provided with respect to Non-Employee Director
Options under Article VIII. The Stock Option Committee shall have the sole and
absolute discretion to interpret the Plan, to establish and modify
administrative rules for the Plan, to select the Employee and Consultant
Participants to whom Awards may be granted, to determine the terms and
provisions of the respective Award Agreements (which need not be identical), to
determine all claims for benefits under the Plan, to impose such conditions and
restrictions on Awards as it determines appropriate, to determine
B-5
<PAGE>
whether the shares offered with respect to an Award will be treasury shares or
will be authorized but previously unissued shares, and to take such steps in
connection with the Plan and Awards granted hereunder as it may deem necessary
or advisable. No action of the Stock Option Committee will be effective if it
contravenes or amends the Plan in any respect.
3.02 Actions of the Stock Option Committee. All determinations of the
Stock Option Committee shall be made by a majority vote of its members. Any
decision or determination reduced to writing and signed by all of the members
shall be fully as effective as if it had been made by a majority vote at a
meeting duly called and held. The Stock Option Committee shall also have express
authorization to hold Stock Option Committee meetings by conference telephone,
or similar communication equipment by means of which all persons participating
in the meeting can hear each other.
Article IV. Shares of Common Stock Subject to the Plan
4.01 Number of Shares of Common Stock Issuable. The maximum number of
shares of Common Stock that may be made the subject of Options and Awards
granted under the Plan is 300,000; provided, however, that in the aggregate, not
more than one-third of the number of allotted shares may be made the subject of
Restricted Stock Awards under Part 7.2 of Article VII of the Plan. Upon a change
in capitalization, the maximum number of shares shall be adjusted in number and
kind pursuant to Section 9.05. The Company shall reserve for the purposes of the
Plan, out of its authorized but unissued shares or out of shares held in the
Company's treasury, or partly out of each, such number of shares as shall be
determined by the Board.
4.02 Calculation of Number of Shares of Common Stock Awarded to any
Participant. In the event the exercise price of an Option is paid, or tax or
withholding payments relating to an Award are satisfied, in whole or in part
through the delivery of shares of Common Stock, a Participant will be deemed to
have received an Award with respect to those shares of Common Stock.
4.03 Shares of Common Stock Subject to Terminated Awards. The Common
Stock covered by any unexercised portions of terminated Options, shares of
Common Stock forfeited as provided in Section 7.21(a) and shares of Common Stock
subject to Awards that are otherwise surrendered by the Participant without
receiving any payment or other benefit with respect thereto may again be subject
to new Awards under the Plan.
Article V. Participation
5.01 Eligible Participants. Participants in the Plan shall include such
officers, other key employees of and consultants to the Company or its
Subsidiaries, whether or not directors of the Company, as the Stock Option
Committee, in its sole discretion, may designate from time to time. In making
such designation, the Stock Option Committee may take into account the nature of
the services rendered by the officers, key employees and consultants, their
present and potential contributions to the success of the Company, and such
other factors as the Stock Option Committee, in its discretion, may deem
relevant. The Stock Option Committee's designation of a Participant in any year
shall not require the Stock Option Committee to designate such person to receive
Awards in any other year. The Stock Option Committee shall consider such factors
as it deems pertinent in selecting Participants and in determining the type and
amount of their respective Awards. A Participant may hold more than one Award
granted under the Plan.
5.02 Awards to Non-Employee Directors. Non-Employee Directors shall
receive Non-Employee Director Options in accordance with Article VIII, the
provisions of which are automatic and non-discretionary in operation.
Non-Employee Directors shall not be eligible to receive any other
B-6
<PAGE>
Awards under the Plan unless they are no longer Non-Employee Directors on the
Date of Grant of such Awards or unless said other Awards are approved by a
resolution adopted by a majority of the entire Board of Directors, excluding any
Director directly affected by such resolution.
Article VI. Stock Options
6.01 Grant of Option. Any Option granted under this Article VI shall
have such terms as the Stock Option Committee may, from time to time, approve,
and the terms and conditions of Options need not be the same with respect to
each Participant. Under this Article VI, the Stock Option Committee may grant to
any Employee or Consultant Participant one or more Incentive Stock Options,
Non-Qualified Stock Options or both types of Options; provided, however, that
Incentive Stock Options may only be granted to Employee Participants. To the
extent any Option does not qualify as an Incentive Stock Option (whether because
of its provisions, the time or manner of its exercise or otherwise), that Option
or the portion thereof that does not so qualify shall constitute a separate
Non-Qualified Stock Option.
6.02 Incentive Stock Options. In the case of any grant of an Incentive
Stock Option, whenever possible, each provision hereof and each provision in any
Award Agreement relating to such Option shall be interpreted to entitle the
holder thereof to the tax treatment afforded by Section 422 of the Code, except
(a) in connection with the exercise of Options following a Participant's
Termination of Employment; (b) in accordance with a specific determination of
the Stock Option Committee with the consent of the affected Participant and (c)
to the extent that the operation of Section 9.05 would cause an Option to no
longer be entitled to such treatment. If any provision of this Plan or any
provision of any Award Agreement is held not to comply with the requirements
necessary to entitle that Option to that tax treatment, then, except as
otherwise provided in the preceding sentence: (a) that provision shall be deemed
to have contained from the outset such language as is necessary to entitle the
Option to the tax treatment afforded under Section 422 of the Code; and (b) all
other provisions hereof and of that Award Agreement remain in full force and
effect. Except as otherwise specified in the first sentence of this Section
6.02, if any Award Agreement covering an Option the Stock Option Committee
designates to be an Incentive Stock Option hereunder does not explicitly include
any term required to entitle that Incentive Stock Option to the tax treatment
afforded by Section 422 of the Code, all such terms shall be deemed implicit in
the designation of that Option, and that Option shall be deemed to have been
granted subject to all such terms.
6.03 Terms and Conditions of Options. Options granted under this
Article VI shall be subject to the following terms and conditions and shall be
in such form and contain such additional terms and conditions, not inconsistent
with the terms of the Plan, as the Stock Option Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock
purchasable under an Option shall be determined by the Stock Option
Committee at the time of grant, but shall not be less than 100% of the
Fair Market Value of a share of Common Stock on the date immediately
preceding the Date of Grant, in the case of a Non-Qualified Option, or
the Date of Grant, in the case of an Incentive Stock Option; provided,
however, that, if an Incentive Stock Option is granted to a Ten Percent
Shareholder, the option price per share shall be at least 110% of the
Fair Market Value of a share of Common Stock on the Date of Grant.
(b) Option Term. The term of each Option shall be fixed by the
Stock Option Committee, but no Option shall be exercisable more than
ten years after its Date of Grant; provided, however, that, if an
Incentive Stock Option is granted to a Ten Percent Shareholder, the
Option shall not be exercisable more than five years after its Date of
Grant.
B-7
<PAGE>
(c) Exercisability. An Award Agreement with respect to Options
may contain such performance targets, vesting periods, exercise dates,
restrictions on exercise (including, but not limited to, a requirement
that an Option is exercisable in periodic installments), and
restrictions on the transfer of the underlying shares of Common Stock,
if any, as may be determined by the Stock Option Committee at the time
of grant. To the extent not exercised, installments shall cumulate and
be exercisable, in whole or in part, at any time after becoming
exercisable, subject to the limitations set forth in Sections 6.03(b)
and (h). If an Option is an Incentive Stock Option, and if required by
Section 422 of the Code, the aggregate Fair Market Value of the shares
of Common Stock underlying such Option (determined at the time the
Option is granted) that becomes exercisable in any one calendar year
shall not exceed $100,000, or such other limit as may be required by
the Code, giving consideration to the effect of any carryover options.
(d) Method of Exercise. Subject to whatever installment
exercise and vesting period provisions that apply under Section 6.03(c)
above, Options may be exercised in whole or in part at any time during
the term of the Option, by giving written notice of exercise to the
Company specifying the number of shares of Common Stock to be
purchased. Such notice shall be accompanied by payment in full of the
purchase price in such form as the Stock Option Committee may accept
(including payment in accordance with a cashless exercise program
approved by the Stock Option Committee). If and to the extent the Stock
Option Committee determines in its sole discretion at or after grant,
payment in full or in part may also be made in the form of shares of
Common Stock already owned by the Participant (and for which the
Participant has good title, free and clear of any liens or
encumbrances) based on the Fair Market Value of the shares of Common
Stock on the date the Option is exercised; provided, however, that the
right to make payment of the purchase price of an Incentive Stock
Option in the form of already owned shares may be authorized only at
the time of grant. Any already owned Common Stock used for payment must
have been held by the Participant for at least six months. No Common
Stock shall be issued on exercise of an Option until payment, as
provided herein, therefor has been made. A Participant shall generally
have the right to dividends or other rights of a stockholder with
respect to Common Stock subject to the Option only when certificates
for shares of Common Stock are issued to the Participant.
(e) Reload Options. The Stock Option Committee shall have the
authority to specify, at the time of grant or, with respect to
Non-Qualified Stock Options, at or after the time of grant, that an
Employee or a Consultant Participant shall be granted a Non-Qualified
Stock Option (a Reload Option) in the event such Participant exercises
all or a part of an Option (an "Original Option") by surrendering in
accordance with Section 6.03(d) of the Plan already owned shares of
Common Stock in full or partial payment of the purchase price under the
Original Option, subject to the availability of shares of Common Stock
under the Plan at the time of such exercise; provided, however, that no
Reload Option shall be granted to a Non-Employee Director. Each Reload
Option shall cover a number of shares of Common Stock equal to the
number of shares of Common Stock surrendered in payment of the purchase
price under such Original Option, shall have a purchase price per share
of Common Stock equal to the 100% of the Fair Market Value of a share
of Common Stock on the Date of Grant of such Reload Option, and shall
expire on the stated expiration date of the Original Option. A Reload
Option shall be exercisable at any time and from time to time after the
time of grant of such Reload Option (or, as the Stock Option Committee
in its sole discretion shall determine at or after the time of grant,
at such time or times as shall be specified in the Reload Option). Any
Reload Option may provide for the grant, when exercised, of subsequent
Reload Options to the extent and upon such terms and conditions,
consistent with this Section 6.03(e), as the Stock Option Committee in
its sole discretion shall specify at or after the Date of Grant of such
Reload Option. A Reload Option shall contain such other terms and
B-8
<PAGE>
conditions, as the Stock Option Committee in its sole discretion shall
deem desirable, and which may be set forth in rules or guidelines
adopted by the Stock Option Committee or in the Award Agreements
evidencing the Reload Options.
(f) Transferability of Options. During the lifetime of an
optionee, an Option shall not be transferable, except pursuant to a
domestic relations order; provided, however, that the Stock Option
Committee may, in its sole discretion, permit an optionee to transfer a
Non-Qualified Stock Option to (i) a member of the optionee's immediate
family, (ii) a trust, the beneficiaries of which consist exclusively of
members of the optionee's immediate family, (iii) a partnership, the
partners of which consist exclusively of members of the optionee's
immediate family, or (iv) a tax-exempt charitable organization
qualified under Section 501(c)(3) of the Code. After the death of an
optionee, an Option may be transferred pursuant to the laws of descent
and distribution.
(g) Acceleration or Extension of Exercise Time. The Stock
Option Committee, in its sole discretion, shall have the right (but
shall not in any case be obligated) to permit purchase of Common Stock
subject to any Option granted to an Employee or a Consultant
Participant prior to the time such Option would otherwise become
exercisable under the terms of the Award Agreement. In addition, the
Stock Option Committee, in its sole discretion, shall have the right
(but shall not in any case be obligated) to permit any Option granted
to an Employee or a Consultant Participant to be exercised after its
expiration date, subject, however to the limitation set forth in
Section 6.03(b).
(h) Exercise of Options Upon Termination of Employment.
(i) Exercise of Vested Options Upon Termination of
Employment.
(A) Termination. Unless the Stock Option
Committee, in its sole discretion, provides for a
shorter or longer period of time in the Award
Agreement or a longer period of time in accordance
with Section 6.03(g), upon an Employee or a
Consultant Participant's Termination of Employment
other than by reason of death or Disability, the
Employee or a Consultant Participant may, within
three months from the date of such Termination of
Employment, exercise all or any part of his or her
Options as were exercisable on the date of
Termination of Employment, but only to the extent not
previously exercised, if such Termination of
Employment is not for Cause. If such Termination of
Employment is for Cause, the right of the Employee or
Consultant Participant to exercise such Options shall
terminate on the date of Termination of Employment.
In no event, however, may any Option be exercised
later than the date determined pursuant to Section
6.03(b).
(B) Disability. Unless the Stock Option
Committee, in its sole discretion, provides for a
shorter or longer period of time in the Award
Agreement or a longer period of time in accordance
with Section 6.03(g), upon an Employee or a
Consultant Participant's Disability Date, the
Employee or Consultant Participant may, within one
year after the Disability Date, exercise all or a
part of his or her Options, whether or not
B-9
<PAGE>
such Option was exercisable on the Disability Date,
but only to the extent not previously exercised. In
no event, however, may any Option be exercised later
than the date determined pursuant to Section 6.03(b).
(C) Death. Unless the Stock Option
Committee, in its sole discretion, provides for a
shorter or longer period of time in the Award
Agreement or a longer period of time in accordance
with Section 6.03(g), in the event of the death of an
Employee or a Consultant Participant while employed
by the Company, the right of the Employee or
Consultant Participant's Beneficiary to exercise the
Option in full or in part (whether or not all or any
part of the Option was exercisable as of the date of
death of the Employee or Consultant Participant, but
only to the extent not previously exercised) shall
expire upon the expiration of one year from the date
of the Employee or Consultant Participant's death or
on the date of expiration of the Option determined
pursuant to Section 6.03(b), whichever is earlier.
(ii) Expiration of Unvested Options Upon Termination
of Employment. Subject to Sections 6.03(g) and 6.03(h)(i)(B)
and (C), to the extent all or any part of an Option granted to
an Employee or a Consultant Participant was not exercisable as
of the date of Termination of Employment, such right shall
expire at the date of such Termination of Employment.
Notwithstanding the foregoing, the Stock Option Committee, in
its sole discretion and under such terms as it deems
appropriate, may permit an Employee or a Consultant
Participant who will continue to render significant services
to the Company after his or her Termination of Employment to
continue to accrue service with respect to the right to
exercise his or her Options during the period in which the
individual continues to render such services.
6.04 Limitations on the Grant of Incentive Stock Options. The aggregate
Fair Market Value of the Common Stock (determined as of the date the Option is
granted) with respect to which Incentive Stock Options granted under the Plan
and all other stock option plans of the Company (or any parent or subsidiary of
the Company) are exercisable for the first time by any specific individual
during any calendar year shall not exceed $100,000. No Incentive Stock Option
may be granted hereunder to an individual who immediately after such Option is
granted is a Ten Percent Shareholder unless (a) the Option price is at least
110% of the fair market value of such stock on the date of grant and (b) the
Option may not be exercised more than five (5) years after the date of grant.
Article VII. Stock Appreciation Rights, Restricted Shares, and Other Awards
7.01 Awards. The Stock Option Committee, in its discretion, may grant
to Employee Participants and Consultant Participants Stock Appreciation Rights,
Restricted Shares, Performance Units, Performance Shares, Dividends and Dividend
Equivalents under this Article VII.
7.02 Non-Employee Directors. Nothing in this Article VII shall apply to
Non-Employee Directors or authorize the grant of any award to Non-Employee
Director Participants.
B-10
<PAGE>
Part 7.1 Stock Appreciation Rights.
7.11 Grants and Valuation. Awards may be granted in the form of stock
appreciation rights ("SARs"). SARs may be granted in tandem with all or a
portion of a related stock option under the Plan ("Tandem SARs"), or may be
granted separately ("Freestanding SARs"). A Tandem SAR may be granted either at
the time of the grant of the related stock option or at any time thereafter
during the term of the stock option. SARs shall entitle the recipient to receive
a payment equal to the appreciation in Fair Market Value of a stated number of
shares of Common Stock from the exercise price to the Fair Market Value on the
date of exercise. In the case of SARs granted in tandem with stock options
granted prior to the grant of such SARs, the appreciation in value is from the
option price of such related stock option to the Fair Market Value on the date
of exercise.
7.12 Terms and Conditions of Tandem SARs. A Tandem SAR shall be
exercisable only to the extent that the related stock option is exercisable, and
the "exercise price" of such an SAR (the base from which the value of the SAR is
measured at its exercise) shall be the option price under the related stock
option. If a related stock option is exercised as to some or all of the shares
covered by the Award, the related Tandem SAR, if any, shall be canceled
automatically to the extent of the number of shares covered by the stock option
exercise. Upon exercise of a Tandem SAR as to some or all of the shares covered
by the Award, the related stock option shall be canceled automatically, to the
extent of the number of shares covered by such exercise, and such shares shall
again be eligible for grant in accordance with paragraph 4.01 hereof.
7.13 Terms and Conditions of Freestanding SARs. Freestanding SARs shall
be exercisable in whole or in such installments and at such time as may be
determined by the Stock Option Committee. The Exercise Price of a Freestanding
SAR shall also be determined by the Stock Option Committee; provided, however,
that such price shall not be less than the Fair Market Value of the Common Stock
on the date of the Freestanding SAR's grant.
7.14 Deemed Exercise. The Stock Option Committee may provide that an
SAR shall be deemed to be exercised at the close of business on the scheduled
expiration date of such SAR, if at such time the SAR by its terms remains
exercisable and, if so exercised, would result in a payment to the holder of
such SAR.
Part 7.2 Restricted Shares
7.21 Restricted Share Awards. Restricted Shares may be issued either
alone or in addition to other Awards granted under the Plan. The Stock Option
Committee may grant to any Employee or Consultant Participant an Award of shares
of Common Stock in such number, and subject to such terms and conditions
relating to forfeitability and restrictions on delivery and transfer (whether
based on performance standards, periods of service or otherwise), as the Stock
Option Committee shall establish. The terms of any Restricted Share Award
granted under the Plan shall be set forth in an Award Agreement, which shall
contain provisions determined by the Stock Option Committee and not inconsistent
with the Plan. The provisions of Restricted Share Awards need not be the same
for each Participant receiving such Awards.
(a) Issuance of Restricted Shares. As soon as practicable
after the Date of Grant of a Restricted Share Award by the Stock Option
Committee, the Company shall cause to be transferred on the books of
the Company shares of Common Stock, registered on behalf of the
Participant in nominee form, evidencing the Restricted Shares covered
by the Award, but subject to forfeiture to the Company retroactive to
the Date of Grant if an Award Agreement delivered to the Participant by
the Company with respect to the Restricted Shares covered by the Award
is not duly executed by the Participant and timely returned to the
B-11
<PAGE>
Company. Each Participant, as a condition to the receipt of a
Restricted Share Award, shall pay to the Company in cash the par value
of a share of Common Stock multiplied by the number of shares of Common
Stock covered by such Restricted Share Award. All shares of Common
Stock covered by Awards under this Article VII shall be subject to the
restrictions, terms and conditions contained in the Plan and the Award
Agreement entered into by and between the Company and the Participant.
Until the lapse or release of all restrictions applicable to an Award
of Restricted Shares, the stock certificates representing such
Restricted Shares shall be held in custody by the Company or its
designee. Upon the lapse or release of all restrictions with respect to
an Award as described in Section 7.21(d), one or more stock
certificates, registered in the name of the Participant, for an
appropriate number of shares of Common Stock as provided in Section
7.21(d), free of any restrictions set forth in the Plan and the Award
Agreement, shall be delivered to the Participant.
(b) Shareholder Rights. Beginning on the Date of Grant of the
Restricted Share Award, and subject to execution of the Award Agreement
as provided in Section 7.21(a), the Participant shall become a
shareholder of the Company with respect to all shares of Common Stock
subject to the Award Agreement and shall have all of the rights of a
shareholder, including, but not limited to, the right to vote such
shares of Common Stock and, except as otherwise determined by the Stock
Option Committee and specified in the applicable Award Agreement, the
right to receive dividends (or dividend equivalents); provided,
however, that any shares of Common Stock distributed as a dividend or
otherwise with respect to any Restricted Shares as to which the
restrictions have not yet lapsed shall be subject to the same
restrictions as such Restricted Shares and shall be held in custody by
the Company as prescribed in Section 7.21(a).
(c) Restriction on Transferability. None of the Restricted
Shares may be assigned or transferred (other than by will or the laws
of descent and distribution), pledged or sold prior to lapse or release
of the restrictions applicable thereto.
(d) Delivery of Shares of Common Stock Upon Release of
Restrictions. Upon expiration or earlier termination of the forfeiture
period without a forfeiture and the satisfaction of or release from any
other conditions prescribed by the Stock Option Committee, the
restrictions applicable to the Restricted Shares shall lapse. As
promptly as administratively feasible thereafter, subject to the
requirements of Section 9.04, the Company shall deliver to the
Participant or, in case of the Participant's death, to the
Participant's Beneficiary, one or more stock certificates for the
appropriate number of shares of Common Stock, free of all such
restrictions, except for any restrictions that may be imposed by law.
7.22 Terms of Restricted Shares.
(a) Forfeiture of Restricted Shares. Subject to Section
7.22(b), all Restricted Shares shall be forfeited and returned to the
Company, and all rights of the Participant with respect to such
Restricted Shares shall terminate, unless the Participant continues in
the service of the Company or any Subsidiary of the Company as an
employee or consultant, as the case may be, until the expiration of the
forfeiture period for such Restricted Shares and satisfies any and all
other conditions set forth in the Award Agreement. The Stock Option
Committee, in its sole discretion, shall determine the forfeiture
period (which may, but need not, lapse in installments) and any other
terms and conditions applicable with respect to any Restricted Share
Award.
(b) Waiver of Forfeiture Period. Notwithstanding anything
contained in this Article VII to the contrary, the Stock Option
Committee may, in its sole discretion, waive the forfeiture period and
any other conditions set forth in any Award Agreement under appropriate
circumstances (including the death, Disability or retirement of the
Participant or a material change in circumstances arising after the
date of an Award) and subject to such terms and conditions
B-12
<PAGE>
(including forfeiture of a proportionate number of Restricted Shares)
as the Stock Option Committee shall deem appropriate, provided that the
Participant shall at that time have completed at least one year of
employment or service as a consultant after the Date of Grant.
Part 7.3 Performance Units
7.31 Grants. Awards may be granted in the form of performance units.
Performance units shall refer to the Units valued by reference to designated
criteria established by the Stock Option Committee, other than Units which are
expressed in terms of Common Stock.
7.32 Performance or Service Criteria. Performance units shall be
contingent on the attainment during a performance period of certain performance
or service objectives. The length of the performance period, the performance or
service objectives to be achieved, and the extent to which such objectives have
been attained shall be conclusively determined by the Stock Option Committee in
the exercise of its absolute discretion. Performance or service objectives may
be revised by the Stock Option Committee during the performance period, in order
to take into consideration any unforeseen events or changes in circumstances.
Part 7.4 Performance Shares
7.41 Grants. Awards may be granted in the form of performance shares.
Performance shares shall refer to shares of Common Stock or Units which are
expressed in terms of Common Stock, including, without limitation, shares of
phantom stock.
7.42 Performance or Service Criteria. Performance shares shall be
contingent upon the attainment during a performance period of certain
performance or service objectives. The length of the performance period, the
performance or service objectives to be achieved, and the extent to which such
objectives have been attained shall be conclusively determined by the Stock
Option Committee in the exercise of its absolute discretion. Performance and
service objectives may be revised by the Stock Option Committee during the
performance period, in order to take into consideration any unforeseen events or
changes in circumstances.
Part 7.5 Discretionary Provisions
7.51 Payment of Awards. At the discretion of the Stock Option
Committee, payment of Awards to Employee and Consultant Participants under this
Article VII may be made in cash, Common Stock, a combination of cash and Common
Stock, or any other form of property as the Stock Option Committee shall
determine.
7.52 Dividends and Dividend Equivalents. If an Award is granted in the
form of Restricted Shares, stock options, or performance shares, or in the form
of any other stock-based grant, the Stock Option Committee may, at any time up
to the time of payment, include as part of an Award an entitlement to receive
dividends or dividend equivalents, subject to such terms and conditions as the
Stock Option Committee may establish. Dividends and dividend equivalents shall
be paid in such form and manner (i.e., lump sum or installments), and at such
time as the Stock Option Committee shall determine. All dividends or dividend
equivalents which are not paid currently may, at the Stock Option Committee's
discretion, accrue interest, be reinvested into additional shares of Common
Stock or, in the case of dividends or dividend equivalents credited in
connection with performance shares, be credited as additional performance shares
and paid to the Participant if and when, and to the extent that, payment is made
pursuant to such Award.
B-13
<PAGE>
7.53 Deferral of Awards. At the discretion of the Stock Option
Committee, the receipt of the payment of shares of Restricted Shares,
performance shares, performance units, dividends, dividend equivalents, or any
portion thereof, may be deferred by a Participant until such time as the Stock
Option Committee may establish. All such deferrals shall be accomplished by the
delivery of a written, irrevocable election by the Participant prior to such
time payment would otherwise be made, on a form provided by the Company.
Further, all deferrals shall be made in accordance with administrative
guidelines established by the Stock Option Committee to ensure that such
deferrals comply with all applicable requirements of the Code and its
regulations. Deferred payments shall be paid in a lump sum or installments, as
determined by the Stock Option Committee. The Stock Option Committee may also
credit interest, at such rates to be determined by the Stock Option Committee,
on cash payments that are deferred and credit dividends or dividend equivalents
on deferred payments denominated in the form of Common Stock.
Article VIII. Non-Employee Director Options
8.01 Initial Award of Non-Employee Director Options. On the date a
Non-Employee Director, other than those persons serving as Non-Employee
Directors on the Effective Date, is elected as such for the first time by the
holders of Voting Stock, such person shall be granted a Non-Employee Director
Option consisting of an Option to purchase 10,000 shares of Common Stock;
provided, however, that each Non-Employee Director serving as a director of the
Company on the Effective Date shall, on the Effective Date, receive a
Non-Employee Director Option consisting of an Option to purchase 10,000 shares
of Common Stock, less any shares exercisable and not already exercised under
options previously granted to said Non-Employee Director under the Hosposable
Products, Inc. 1991 Stock Option Plan.
8.02 Annual Awards. For each year after receipt of an initial award,
effective as of the close of each annual meeting of the stockholders of the
Company, each Non-Employee Director shall be granted an Annual Award.
8.03 Terms of Award. The option price for such Non-Employee Director
Options shall be the Fair Market Value of a share of Common Stock on the date
immediately preceding the Date of Grant. All such Options shall be designated as
Non-Qualified Stock Options and shall have a ten year term. Each Initial Award
of Stock Options shall become exercisable in full on the Date of Grant of such
Option. Each Annual Award shall become exercisable six months after the date of
grant.
8.04 Award Agreement. Each Option shall be evidenced by an Award
Agreement that shall specify the exercise price, the term of the Option, the
number of shares of Stock to which the Option pertains and such other matters,
not inconsistent herewith, as the Stock Option Committee deems necessary or
appropriate.
8.05 Termination of Service. If a Non-Employee Director's service with
the Company terminates for any reason, any Option held by such Non-Employee
Director may be exercised by said person or by his or her estate until the
expiration of the stated term of the Option or until the third anniversary of
the Non-Employee Director's date of termination, whichever is earlier.
8.06 Other Plan Provisions. All applicable provisions of the Plan not
inconsistent with this Article VIII shall apply to Options granted to
Non-Employee Directors.
B-14
<PAGE>
Article IX. Terms Applicable to All Awards Granted Under the Plan
9.01 Award Agreement. No person shall have any rights under any Award
granted under the Plan unless and until the Company and the Participant to whom
such Award shall have been granted shall have executed and delivered an Award
Agreement authorized by the Stock Option Committee expressly granting the Award
to such person and containing provisions setting forth the terms of the Award.
9.02 Plan Provisions Control Award Terms. The terms of the Plan shall
govern all Awards granted under the Plan, and in no event shall the Stock Option
Committee have the power to grant to a Participant any Award under the Plan that
is contrary to any provisions of the Plan. If any provision of any Award shall
conflict with any of the terms in the Plan as constituted on the Date of Grant
of such Award, the terms in the Plan as constituted on the Date of Grant of such
Award shall control.
9.03 Modification of Award After Grant. Except with respect to Awards
to Non-Employee Directors under Article VIII, the Stock Option Committee may at
any time unilaterally modify or amend any unexercised, unearned, or unpaid
Award, including, but not by way of limitation, Awards earned but not yet paid,
to the extent it deems appropriate; provided, however, that any such amendment
which is adverse to the Participant shall require the Participant's consent; and
provided further that any such changes shall not be inconsistent with the terms
of the Plan.
9.04 Taxes. The Company shall be entitled, if the Stock Option
Committee deems it necessary or desirable, to withhold (or secure payment from
the Participant in lieu of withholding) the amount of any withholding or other
tax required by law to be withheld or paid by the Company with respect to any
Award. The Company may defer issuance of Common Stock under an Award unless
indemnified to its satisfaction against any liability for any such tax. The
amount of such withholding or tax payment shall be determined by the Stock
Option Committee or its delegate and shall be payable by the Participant at such
time as the Stock Option Committee determines. A Participant shall be permitted
to satisfy his or her tax or withholding obligation by (a) having cash withheld
from the Participant's salary or other compensation payable by the Company, (b)
the payment of cash by the Participant to the Company, (c) the payment in shares
of Common Stock already owned by the Participant valued at Fair Market Value,
and/or (d) the withholding from the Award, at the appropriate time, but in any
event not during the six month period immediately following the grant of the
Award, of a number of shares of Common Stock sufficient, based upon the Fair
Market Value of such Common Stock, to satisfy such tax or withholding
requirements. The Stock Option Committee shall be authorized, in its sole
discretion, to establish rules and procedures relating to any such withholding
methods it deems necessary or appropriate.
9.05 Adjustments to Reflect Capital Changes; Change in Control.
(a) Recapitalization. The number and kind of shares subject to
outstanding Awards, the purchase price or exercise price of such
Awards, the amount of Non-Employee Director Options to be granted on
any date under Article VIII, and the number and kind of shares
available for Awards subsequently granted under the Plan shall be
appropriately adjusted to reflect any stock or property dividend, stock
split, reverse stock split, combination or exchange of shares, merger,
consolidation, spin-off, issuance of warrants, rights or debentures or
other change in capitalization or corporate structure with a similar
substantive effect upon the Plan or the Awards granted under the Plan.
The Stock Option Committee shall have the power and sole discretion to
determine the nature and amount of the adjustment to be made in each
case. In no event shall any adjustments be made under the provisions of
B-15
<PAGE>
this Section 9.05(a) to any outstanding Restricted Share Award if an
adjustment has been or will be made to the shares of Common Stock
awarded to a Participant in such person's capacity as a stockholder.
(b) Sale or Reorganization. Subject to Section 9.05(c), after
any reorganization, merger, or consolidation, each Participant shall,
at no additional cost, be entitled upon the exercise of an Option
outstanding prior to such event to receive, in lieu of the number of
shares of Common Stock receivable on exercise pursuant to such Option,
the number and class of shares of stock, securities, cash, property or
other consideration to which such Participant would have been entitled
pursuant to the terms of the reorganization, merger, or consolidation
if, at the time of such reorganization, merger, or consolidation, such
Participant had been the holder of record of a number of shares of
Common Stock equal to the number of shares of Common Stock receivable
on exercise of such Option; provided, however, that such consideration
shall remain subject to all of the conditions, restrictions and
performance criteria that would apply to the Award in the absence of
the reorganization, merger or consolidation. Comparable rights shall
accrue to each Participant in the event of successive reorganizations,
mergers, or consolidations of the character described above.
(c) Options to Purchase Stock of Acquired Companies. After any
reorganization, merger, or consolidation in which the Company shall be
a surviving entity, the Stock Option Committee may grant substituted
Options under the provisions of the Plan, replacing old options granted
under a plan of another party to the reorganization, merger, or
consolidation whose stock subject to the old options may no longer be
issued following such reorganization, merger, or consolidation. The
foregoing adjustments and manner of application of the foregoing
provisions shall be determined by the Stock Option Committee in its
sole discretion. Any such adjustments may provide for the elimination
of any fractional shares of Common Stock that might otherwise become
subject to any Options.
(d) Change in Control. Upon a Change in Control:
(1) Any and all Options and Stock Appreciation Rights
shall become exercisable as of the date of the Change in
Control; and
(2) The restrictions on vesting on all Restricted
Share, Performance Unit and Performance Share Awards shall be
deemed to have been satisfied as of the date of the Change in
Control.
(e) Existence of Awards. The existence of outstanding Awards
shall not affect the right of the Company or its stockholders to make
or authorize any and all adjustments, recapitalizations,
reclassifications, reorganizations and other changes in the Company's
capital structure, the Company's business, any merger or consolidation
of the Company, any issue of bonds, debentures or preferred stock of
the Company, the Company's liquidation or dissolution, any sale or
transfer of all or any part of the Company's assets or business, or any
other corporate act or proceeding, whether of a similar nature or
otherwise.
9.06 Surrender of Awards. Any Award granted to a Participant under the
Plan may be surrendered to the Company for cancellation on such terms as the
Stock Option Committee and holder approve.
9.07 No Right to Award; No Right to Employment. Except as provided in
Article VIII, no director, employee, consultant or other person shall have any
claim or right to be granted an Award.
B-16
<PAGE>
Neither the Plan nor any action taken thereunder shall be construed as giving
any director, employee or consultant any right to be retained by the Company or
any of its Subsidiaries.
9.08 Awards Not Includable for Benefit Purposes. Income recognized by a
Participant pursuant to the provisions of the Plan shall not be included in the
determination of benefits under any employee pension benefit plan (as such term
is defined in Section 3(2) of ERISA) or group insurance or other benefit plans
applicable to the Participant that are maintained by the Company or any of its
Subsidiaries, except as may be provided under the terms of such plans or
determined by resolution of the Board.
9.09 Noncompetition Provision. Notwithstanding anything contained in
this Plan to the contrary, unless the Award Agreement specifies otherwise, a
Participant shall forfeit all unexercised, unearned, and/or unpaid Awards,
including, but not by way of limitation, Awards earned but not yet paid, all
unpaid dividends and dividend equivalents, and all interest, if any, accrued on
the foregoing if, (i) in the opinion of the Committee, the Participant, without
the written consent of the Company, engages directly or indirectly in any manner
or capacity as principal, agent, partner, officer, director, employee, or
otherwise, in any business or activity competitive with the business conducted
by the Company or any Subsidiary; or (ii) the Participant performs any act or
engages in any activity which in the opinion of the Committee is inimical to the
best interests of the Company. In addition, the Committee may, in its
discretion, condition the deferral of any Award, dividend, or dividend
equivalent under section 7.53 hereof on a Participant's compliance with the
terms of this section 9.09, and cause such a Participant to forfeit any payment
which is so deferred if the Participant fails to comply with the terms hereof.
The provisions of this Section 9.09 shall not be applicable following a Change
of Control as defined in Section 2.07 of this Plan.
9.10 Governing Law. The Plan and all determinations made and actions
taken pursuant to the Plan shall be governed by the laws of the State of New
York other than the conflict of laws provisions of such laws, and shall be
construed in accordance therewith.
9.11 No Strict Construction. No rule of strict construction shall be
implied against the Company, the Stock Option Committee, or any other person in
the interpretation of any of the terms of the Plan, any Award granted under the
Plan or any rule or procedure established by the Stock Option Committee.
9.12 Compliance with Rule 16b-3 and Section 162(m). It is intended that
the Plan be applied and administered in compliance with Rule 16b-3. If any
provision of the Plan would be in violation of Rule 16b-3 if applied as written,
such provision shall not have effect as written and shall be given effect so as
to comply with Rule 16b-3 as determined by the Stock Option Committee. The Board
is authorized to amend the Plan and to make any such modifications to Award
Agreements to comply with Rule 16b-3, as it may be amended from time to time,
and to make any other such amendments or modifications deemed necessary or
appropriate to better accomplish the purposes of the Plan in light of any
amendments made to Rule 16b-3. Notwithstanding the foregoing, the Board may
amend the Plan so that it (or certain of its provisions) no longer comply with
Rule 16b-3 if the Board specifically determines that such compliance is no
longer appropriate. It is initially intended that the Plan not be administered
to comply with Section 162(m). If, however, the Board determines that it would
be in the best interest of the Company to modify the Plan so that it complies
with Section 162(m), the Board may amend the Plan (or certain of its provisions)
to achieve such compliance, subject to shareholder approval if required.
9.13 Captions. The captions (i.e., all Section headings) used in the
Plan are for convenience only, do not constitute a part of the Plan, and shall
not be deemed to limit, characterize, or affect in any way any provisions of the
Plan, and all provisions of the Plan shall be construed as if no captions have
been used in the Plan.
B-17
<PAGE>
9.14 Severability. Whenever possible, each provision in the Plan and
every Award at any time granted under the Plan shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of the Plan or any Award at any time granted under the Plan shall be held to be
prohibited by or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law, and (b) all other provisions of
the Plan and every other Award at any time granted under the Plan shall remain
in full force and effect.
9.15 Legends. All certificates for Common Stock delivered under the
Plan shall be subject to such transfer restrictions set forth in the Plan and
such other restrictions as the Stock Option Committee may deem advisable under
the rules, regulations, and other requirements of the SEC, any stock exchange
upon which the Common Stock is then listed, and any applicable federal or state
securities law. The Stock Option Committee may cause a legend or legends to be
put on any such certificates to make appropriate references to such
restrictions.
9.16 Investment Representation. The Stock Option Committee may, in its
discretion, demand that any Participant awarded an Award deliver to the Stock
Option Committee at the time of grant or exercise of such Award a written
representation that the shares of Common Stock subject to such Award are to be
acquired for investment and not for resale or with a view to the distribution
thereof. Upon such demand, delivery of such written representation by the
Participant prior to the delivery of any shares of Common Stock pursuant to the
grant or exercise of his or her Award shall be a condition precedent to the
Participant's right to purchase or otherwise acquire such shares of Common Stock
by such grant or exercise. The Company is not legally obliged hereunder if
fulfillment of its obligations under the Plan would violate federal or state
securities laws.
9.17 Regulatory Approvals and Listings. Notwithstanding anything
contained in this Plan to the contrary, the Company shall have no obligation to
issue or deliver certificates of Common Stock evidencing Awards resulting in the
payment of Common Stock prior to (a) the obtaining of any approval from any
governmental agency which the Company shall, in its sole discretion, determine
to be necessary or advisable, (b) the admission of such shares to listing on the
stock exchange on which the Common Stock may be listed, and (c) the completion
of any registration or other qualification of said shares under any state or
federal law or ruling of any governmental body that the Company shall, in its
sole discretion, determine to be necessary or advisable.
9.18 Amendment and Termination.
(a) Amendment. The Board shall have complete power and
authority to amend the Plan at any time it is deemed necessary or
appropriate; provided, however, that the Board shall not, without the
affirmative approval of the holders of Voting Stock entitled to vote at
an annual or special meeting of the holders of Voting Stock, make any
amendment that requires stockholder approval under any applicable law
or rule, unless the Board determines that compliance with such law or
rule is no longer appropriate. No termination or amendment of the Plan
may, without the consent of the Participant to whom any Award shall
theretofore have been granted under the Plan, adversely affect the
right of such individual under such Award; provided, however, that the
Stock Option Committee may, in its sole discretion, make provision in
an Award Agreement for such amendments that, in its sole discretion, it
deems appropriate.
(b) Termination. The Board shall have the right and the power
to terminate the Plan at any time. No Award shall be granted under the
Plan after the termination of the Plan, but the termination of the Plan
shall not have any other effect and any Award outstanding at the time
of the termination of the Plan may be exercised and may vest after
B-18
<PAGE>
termination of the Plan at any time prior to the expiration date of
such Award to the same extent such Award would have been exercisable or
vest had the Plan not terminated.
9.19 Costs and Expenses. All costs and expenses incurred in
administering the Plan shall be borne by the Company.
9.20 Unfunded Plan. The Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or make any other
segregation of assets to assure the payment of any award under the Plan.
B-19
<PAGE>
APPENDIX C
To The Proxy Statement
November 12, 1996
To The Board of Directors
Hosposable Products, Inc.
Ladies and Gentlemen:
We understand that Hosposable Products, Inc. ("HPI" or the "Company"), 3290441
Canada Inc., a wholly owned and newly-formed Canadian subsidiary of HPI ("HPI
Sub"), and G.H. Wood + Wyant Inc. ("Wyant") are contemplating entering into an
Asset Purchase Agreement (the "Purchase Agreement") pursuant to which HPI Sub
will agree to purchase (the "Transaction") the business and all operating assets
(collectively, the "Acquired Business") and assume the operating liabilities of
Wyant for (w) Cdn$5,000,000 (the "Cash Consideration"), (x) a promissory note in
the principal amount of Cdn$4,262,741, subject to adjustment, if any, pursuant
to the terms of the Purchase Agreement (the "Note"), which Note will be
exchanged for shares of Class A Preferred Stock immediately after such
adjustment, having a liquidation preference of Cdn$1.00 per share (on the basis
of one share of Class A Preferred Stock of HPI Sub for each Cdn$1.00 of unpaid
principal amount of the Note), which shares will be manditorily redeemable
pursuant to the terms thereof (the "Class A Preferred Stock"), (y) 3,800,000
shares of Class B Preferred Stock of HPI Sub having an aggregate liquidation
preference of Cdn$3,800,000, which shares will be mandatorily redeemable
pursuant to the terms thereof (the "Class B Preferred Stock"), and (z) 1,000,000
shares of Class E Preferred Stock of HPI Sub having an aggregate liquidation
preference per share satisfied by delivery of one share of HPI Common Stock
pursuant to the terms thereof (the "Class E Preferred Stock"). The purchase
price is based on the December 31, 1995 financial statements of Wyant. Except
for certain deferred taxes of Wyant, any profits or losses retained by Wyant
from January 1, 1996 until the closing date of the Transaction will be for the
account of Wyant and will be reflected by adjusting the amount of the Note
issued at the Closing of the Transaction.
<PAGE>
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. 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
inquires as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed Wyant's audited financial statements for the fiscal
years ended December 31, 1993 through December 31, 1995 and
the unaudited financial statements for the nine months ended
September 30, 1996, which Wyant's management has identified as
being the most current financial statements available;
2. reviewed HPI's audited financial statements for the fiscal
years ended December 31, 1993 through December 31, 1995 and
unaudited statements for the nine months ended September 30,
1996, which HPI's management has identified as being the most
current financial statements available;
3. reviewed copies of the following documents and agreements:
(i) Asset Purchase Agreement by and among Wyant, HPI
Sub and the Company dated as of November 12, 1996,
including the exhibits thereto (the "Asset Purchase
Agreement");
(ii) Share Conditions of Class A Preferred Stock in the
form annexed to the Asset Purchase Agreement;
(iii) Share Conditions of Class B Preferred Stock in the
form annexed to the Asset Purchase Agreement;
(iv) Share Conditions of Exchangeable Shares in the form
annexed to the Asset Purchase Agreement;
(v) Covenant Agreement among HPI, HPI Sub and Wyant in
the form annexed to the Asset Purchase Agreement;
4. met with certain members of the senior management of HPI and
Wyant to discuss the operations, financial condition, future
prospects and projected operations and performance of HPI and
Wyant, respectively;
5. reviewed projections prepared by Wyant for the fiscal years
ending December 31, 1996 through December 31, 1999;
6. reviewed a projected income statement prepared by HPI for the
fiscal year ending December 31, 1996;
7. reviewed the historical market prices and trading volume for
HPI's publicly traded common stock;
-2-
<PAGE>
8. reviewed certain publicly available financial data for certain
companies that we deem comparable to Wyant and HPI;
9. reviewed certain publicly available financial data for certain
transactions that we deem comparable to the Transaction;
10. reviewed certain alternatives to the Transaction available to
HPI that we deemed relevant; and
11. 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 Wyant, and that there has been no
material change in the assets, financial condition, business or prospects of the
Company or Wyant 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 Wyant and do not
assume any responsibility with respect to it. We have not made any physical
inspection or independent appraisal of any of the properties or assets of the
Company or Wyant. 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.
As you are aware, certain aspects of the financing for the Transaction have not
been finalized. Accordingly, this Opinion is subject to the following
assumptions and is qualified to the extent thereof. We are assuming that the
Company and HPI Sub will obtain the financing and financial commitments referred
to in section 6.9 of the Asset Purchase Agreement prior to the closing of the
Transaction.
Based upon the foregoing, and in reliance thereon, it is our opinion that the
Transaction is fair to the shareholders of the Company, in their capacity as
such, from a financial point of view.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
-3-
<PAGE>
APPENDIX D
To The Proxy Statement
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended 12/31/95
------------------------------------------------------
OR
[X] 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 0-8410
---------------------------------------------------------
HOSPOSABLE PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2236837
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Readington Road Somerville, New Jersey 08876
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code 908-707-1800
-------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
on Which Registered
Common Stock Traded on the NASDAQ
par value $.01 per share National Market
Securities registered pursuant to Section 12 (g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of the
registrant (i.e., by persons other than officers and directors of Hosposable
Products, Inc. as reflected in the table incorporated by reference in Item 12 of
this Annual Report on Form 10-K) as of March 22, 1996, was $4,064,434.
As of March 22, 1996, there were 1,692,476 Common Shares of the Registrant
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. The Exhibits identified in Item 14 (b).
-ii-
<PAGE>
TABLE OF CONTENTS
Item Page
PART I. 1. Business 1
2. Properties 4
3. Legal Proceedings 5
4. Submission of Matters to a
Vote of Security Holders 5
PART II.
5. Market for the Registrant's Common
Stock and Related Shareholder
Matters 6
6. Selected Financial Data 7
7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
8. Financial Statements and
Supplementary Data 10
9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure 10
PART III.
10. Directors and Executive Officers 11
11. Executive Compensation 11
12. Security Ownership of Certain
Beneficial Owners and Management 11
13. Certain Relationships and
Related Transactions 11
PART IV.
14. Exhibits, Consolidated Financial
Statements and Schedules and Reports
on Form 8-K 12
-iii-
<PAGE>
PART I
Item 1. BUSINESS
A. GENERAL
Hosposable Products, Inc., a New York corporation incorporated
in 1971(hereinafter "Hosposable"), and its wholly-owned subsidiaries,
Bridgewater Manufacturing Corp., a New Jersey corporation ("Bridgewater"), and
IFC Disposables, Inc., a Tennessee corporation ("IFC"), manufacture disposable
medical products, wiping products, and nonwoven roll goods. The disposable
medical products are produced by various converting equipment some of which
utilize in-house "airlaid" processing technology and equipment. The disposable
medical products include bedpads incorporating unique designs for incontinent
patients. Wiping products include disposable airlaid nonwoven patient washcloths
and general wiping products in addition to the use of other nonwoven materials
which are purchased and converted in-house. (The "Company" is used herein to
make general references, without distinction among Hosposable, Bridgewater and
IFC.)
The majority of the sales of the Company's branded products
are to distributors for eventual use by hospitals, nursing homes and other
health care institutions, and to government agencies. The bedpads are the
Company's principal products. Their end-use is for protection against
mattress-soiling, caused primarily by incontinence. A portion of the Company's
revenue is derived through the sale of finished products as private label brands
for major customers. The Company's airlaid fabrics (AirlayTM )are used as
components of end-products manufactured by the Company, and also are sold in
roll good form to converters who produce a wide range of health care, consumer
and industrial products.
The Company's products are manufactured on a number of
continuous production lines that automatically assemble the various layers of
product materials, bond them with various fixative means, cut the materials to
specific lengths, and fold, count, stack and bag/box the completed products.
During 1995, the Company produced the vast majority of its products with its own
equipment, at leased facilities in Fresno, California and Jackson, Tennessee,
and at the premises and plant facility in Branchburg, New Jersey purchased by
Hosposable in December 1993. (See "The 1993 Purchase of Property, The Related
Bond Issue and Loan Agreement.")
i. The 1993 Purchase of Property, The
Related Bond Issue and Loan Agreement
In December 1993, the Company entered into a loan agreement
with the New Jersey Economic Development Authority (the "Authority"), pursuant
to which the Authority issued Economic Development Bonds with an aggregate
principal amount of $5,325,000, to be loaned to the Company to finance the
acquisition of additional airlaid production equipment, land and a
warehouse-type facility with 111,640 square feet of space situated in
Branchburg, New Jersey (the "Branchburg Property"). (Although the property is in
Branchburg, the mailing address is 100 Readington Road, Somerville, New Jersey
08876.)
On December 22, 1993, the Company purchased the Branchburg
Property for $3,741,331. The purchase was an 'arms-length' purchase from Green
Acres Partnership. Neither the Company nor any member of its management had any
prior relations with that partnership or any of its partners.
The bonds issued by the Authority have maturity dates which
commenced on December 1, 1994 and continue annually through December 1, 2013.
They bear interest at fixed rates of 3.1% to 5.7%. In connection with the bond
financing, The Company made the following principal agreements, all dated as of
December 1, 1993 and effected December 23, 1993: a Loan Agreement with the
Authority, a Letter of Credit and Reimbursement Agreement with the First
<PAGE>
Fidelity Bank, National Association, New Jersey (the "New Jersey Bank") and a
Trust Indenture Agreement with the Bank of New York. In consequence, the
Authority sold the bonds and proceeds of $5,325,000 therefrom were paid to the
Bank of New York, as trustee of The Company. The Bank of New York then paid
approximately $3,200,000 to The Company for and in respect of the Branchburg
Property acquisition, and approximately $127,000 to reimburse The Company for
new purchases of equipment. As of December 31, 1995, total proceeds of
approximately $5,000,000 had been distributed to the Company in order to
complete its purchase of the Branchburg Property (land and building), and
machinery and equipment. During 1995 an additional $1,070,000 of the fund was
utilized by The Company for purchases of new equipment.
The bonds are secured by the New Jersey Bank's letter of
credit, and the New Jersey Bank therefore holds (a) a first mortgage upon the
Branchburg Property, (b) an assignment of all of The Company's right, title and
interest in and to all leases with respect to the Branchburg Property,(c)a
security interest in machinery and equipment purchased with a portion of the
bond proceeds and (d) IFC's and Bridgewater's guarantees of The Company's
obligations.
ii. The 1990/1991 Agreements with G.H. Wood + Wyant Inc.
On July 10, 1990, the shareholders of the Company approved a
series of agreements with Wyant & Company Limited, now known as G.H. Wood +
Wyant Inc., a Canadian corporation ("Wood-Wyant"), pursuant to which and among
other things Wood-Wyant (a)purchased 229,288 shares of the Company's common
stock and received an option to purchase an additional 456,157 of such shares
(see "Security Ownership of Certain Beneficial Owners and Management"); (b)
agreed, for a six-year term, to purchase 72 hours of production time, per week,
of the Company's airlaid fabric production ("Supply Agreement"); and (c) agreed
to pay $1,900,000 ($100,000 "down" and nine semi-annual payments of $200,000)
for six years of The Company's services, in the nature of consultation
concerning product research and development, sales training, marketing and
advertising.
On February 27, 1991, the Supply Agreement was amended. The
Company believed that it might be unable to fulfill all Supply Agreement
commitments because IFC's purchase of the assets of IFC Nonwovens, Inc. (see
"The 1991 Start-up of IFC") would result in additional utilization of the
Company's airlaid equipment. Thus, pursuant to the amendment, the Company was
required only to advise Wood-Wyant of the availability of production time, to
use its best efforts to meet Wood-Wyant's demands and, if unable to meet such
demands, to use its best efforts to obtain additional equipment. In turn,
Wood-Wyant provided the Company with a right of first refusal in respect of all
Wood-Wyant's requirements for airlaid product.
iii. The 1991 "Start-up" of IFC
In December 1990, IFC was incorporated in Tennessee, and in
January 1991 purchased substantially all of the assets of IFC Nonwovens, Inc.
for $4,722,831. (The purchase was made pursuant to an 'arms-length' agreement
from the unrelated entity. IFC Nonwovens, Inc. was required to change its
name, and discontinued its business in the field in which IFC competes.)
IFC produces disposable, industrial and "clean-room" wiping products,
some of which utilize airlaid, nonwoven fabric. The Company, prior to 1991, was
a supplier of such fabric to IFC Nonwovens, Inc.
B. INDUSTRY SEGMENTS
The Company operates in one industry segment. Its assets, net
sales and net income are shown in "Selected Financial Data" (Part II, Item 6)
and "Consolidated Financial Statements" (Part IV, Item 14).
-2-
<PAGE>
C. SUPPLY OF RAW MATERIALS
The Company purchases raw materials necessary for the
manufacture of its products from several unaffiliated suppliers. These raw
materials are readily available from numerous sources. The Company is not
dependent upon any one major source of supply, and is not limited by any supply
contracts.
D. MARKETING AND SALES
The Company's products are sold by 13 sales and marketing
personnel who are paid salaries and several independent sales organizations that
work on a commission basis.
Most of the Company's sales (other than inter-company
transactions with IFC) are made to distributors that, in turn, sell the
Company's products to institutional users such as hospitals and nursing homes,
and to industrial users. Other sales are made to retail outlets through private
labellers that sell to individual/chain stores. The distributors and retail
chains usually sell the products under private label.
The following table shows, for the years-ended as indicated,
percentage information in respect of the Company's net sales.
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Major Distributor . . . . . . . . . 8.7 12.5 12.5 11.1 11.8
Other Distributors. . . . . . . . . 50.2 51.0 52.9 55.9 47.9
Government Agencies . . . . . . . . 0.5 1.5 1.0 0.8 1.0
Private Label . . . . . . . . . . . 4.3 3.2 3.1 2.5 7.2
Converters (airlaid/non-
woven fabrics). . . . . . . . . . . 5.8* 4.7* 6.1* 7.0* 8.2*
Industrial Wiping Products
(IFC Disposables, Inc.) . . . . . . 30.5 27.1 24.4 22.7 23.9
* Does not include inter-company sales of $1,709,494, $1,266,306, $1,235,853,
$1,428,746 and $1,353,087, in 1995, 1994, 1993, 1992 and 1991, respectively, to
IFC Disposables, Inc.
At December 31, 1995, the Company had 'backlogs' of firm
orders of approximately $2,700,000, or approximately 29% less than the backlog
at December 31, 1994. The Company has fairly consistently maintained a four to
five week "backlog" of orders.
There is no seasonal fluctuation in demand for the Company's
products.
Delivery of the Company's products to its customers is
primarily accomplished through the use of unaffiliated truckers. The Company
leases two tractor-trailer trucks, which it uses for some 'local' deliveries.
The majority of sales are delivered in trailer-load quantities.
E. COMPETITION
The industry in which the Company competes is highly
competitive. Among the competitors are such major firms as Inbrand Corporation,
Paper-Pak Products, Inc. and others with substantially greater resources than
the Company's, as well as many firms comparable to the Company in 'size' and the
-3-
<PAGE>
primary businesses of which are directly competitive. The Company is not a
significant factor in its market.
The Company's ability to compete successfully is dependent
upon its ability to make timely deliveries of value added products of the
quality of its competitors and at competitive prices.
F. EMPLOYEES/UNION CONTRACT
The Company has 276 employees. 162 are employed in New Jersey,
62 in Fresno, California and 52 in Jackson, Tennessee. Over 90% work in sales
and production.
The Company is party to collective bargaining agreements with
the International Production Service & Sales Employees Union that serves its New
Jersey factory-labor employees. The agreements expire in 1998. The Company
considers its relations with its employees to be satisfactory, and no labor
disputes are anticipated or have affected operations negatively to date.
G. PATENTS AND TRADEMARKS
The Company is the owner of one unexpired United States
patent; No. 4,391,010. (It expires July 5, 2000.) The patent concerns features
of the construction or method of producing the Company's "TuckableTM" underpads.
While the sale of "TuckableTM" underpads has increased in recent years, the
Company cannot assess any economic advantage particularly attributable to the
patent.
The Company acquired a group of 13 trademarks with its
purchase of the assets of IFC Nonwovens, Inc. ("Presto Wipes," "Bench-Pac,"
"Busboy," "IFC," "Jumbies," "Lab Grade," "Like-Rags," "Redd Rags," "Suit-All,"
"Tuff-Job," "Ultras," "Drawing of Hand on Wiper" and "Vacuumed and Packaged in a
Class 100 Clean Room"). Trademarks are used to protect the individual
identifications of products, but the Company cannot assess any economic
advantage particularly attributable to any trademark. Moreover, there is no
assurance that trademark rights are enforceable as mere consequence of trademark
registration.
Item 2. PROPERTIES
For several years and through the first half of 1994, the
Company was a tenant under two leases for an aggregate of approximately 82,650
square feet in two one-story buildings in the Central Jersey Industrial Park,
Bound Brook, New Jersey. The leases expired in January 1994 and May 1994,
respectively. Now (and since May 31, 1994), all New Jersey operations are (and
have been) conducted at the Branchburg Property. (See Item 1, "Business -- The
1993 Purchase of Property, The Related Bond Issue and Loan Agreement".)
The Company leases approximately 80,000 square feet, used for
manufacturing and warehousing, in a building at 95 Santa Fe Avenue, Fresno,
California, from Len-Sid Realty Co. Leonard Schramm, the former President of the
Company is a partner in Len-Sid Realty Co. The terms of the lease agreement,
including $109,968 as annual rent, are comparable to terms that might be
obtainable from an unaffiliated lessor of like property in the immediate
vicinity of the Fresno warehouse. The lease term is for one year, but terminable
on 90 days' notice (essentially, because the landowner, The Atchison, Topeka and
Santa Fe Railroad, has the right to terminate Len-Sid Realty CO.'s 'possession'
on 90 days' notice).
IFC leases a warehouse-type facility in Madison County,
Tennessee. The base rent was $428,480 in 1995. The lease expires in 1997, and
provides for a base-rent increase of $20,000 in 1996 with no change in 1997. The
lease
-4-
<PAGE>
contains an option to renew for a seven year term ending in 2004 (with rent
escalation potential based upon consumer-price indices). IFC subleases
approximately 85,000 square feet in its leased premises to an unrelated party
and is paid rent of $150,000 per annum. The sub-lease expires May 31, 1996.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 24, 1995, the Company held its annual meeting of
shareholders. 1,496,669 shares, a quorum, were represented in person or by
proxy. Gerald W. Wyant, James A. Wyant, Richard L. Cohan, John B. Wight, Jane
Curtis, and Leonard Schramm were each elected to serve as a director for a
one-year period expiring in 1996. (1,490,916 'for'). The appointment of Arthur
Andersen LLP as auditors for the year ended December 31, 1995 was ratified
(1,493,316 'for'). Mr. Schramm resigned as a director.
The Board of Directors meeting was held directly following the
annual meeting. Mr. G.W. Wyant was approved as Chairman of the Board of
Directors. Mr. Joseph H. Weinkam, Jr. was elected as a Director to serve
until the next annual meeting and named President and Chief Operating Officer.
Mr. Schramm was retained and appointed as a consultant for a three-year term.
-5-
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON
STOCK AND RELATED SHAREHOLDER MATTERS
a. Principal Market and Sales Prices
The Company's Common Stock is traded on the NASDAQ National
Market. The sales highs and lows during each quarter of the last three fiscal
years, as reported by the National Quotation Bureau, Inc. are as follows:
High Low
1993
1st Quarter 6 3/4 5
2nd Quarter 6 4 3/8
3rd Quarter 6 1/2 4 3/4
4th Quarter 7 1/4 6
1994
1st Quarter 7 1/2 5 3/4
2nd Quarter 9 1/2 6 3/4
3rd Quarter 9 1/4 7
4th Quarter 8 1/4 7 1/4
1995
1st Quarter 7 3/4 5 1/2
2nd Quarter 7 5/8 5
3rd Quarter 8 1/4 4
4th Quarter 8 3/4 6 3/4
b. Holders
The number of holders of the Company's Common Stock as at
March 22, 1996, was approximately 600 based on the number of holders of record
and an estimate of the number of individual participants represented by security
position listings.
c. Dividends
The Company has never paid a cash dividend, and does not
anticipate paying dividends in the foreseeable future.
-6-
<PAGE>
<TABLE>
<CAPTION>
Item 6 SELECTED FINANCIAL DATA
Year ended December 31
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operations Data:
Net Sales $40,481 $34,515 $29,909 $29,748 $27,120
Cost of Sales 33,000 26,534 22,253 22,384 20,873
Selling, general and
administrative expenses 7,417 6,619 6,115 6,134 5,376
Operating income 64 1,362 1,541 1,230 871
Other income, Net (436) 288 385 358 316
Income before income taxes (372) 1,650 1,926 1,588 1,187
Income taxes (163) 613 726 637 477
Net income (209) 1,037 1,200 951 710
Per Share Data:
Net income:
Primary $ (.12) $ .61 $ .70 $ .56 $ .41
Fully-diluted (.12) .61 .70 .56 .41
Weighted average
number of Common and
Common equivalent
shares outstanding 1,692 1,692 1,704 1,703 1,716
At December 31
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Balance Sheet Data:
Working capital $ 7,950 $ 7,836 $ 8,859 $ 9,259 $ 8,656
Total assets 23,531 21,572 23,023 16,799 15,860
Long-term obligations
(excluding current
maturities) 4,290 4,637 6,120 2,209 2,884
Stockholders' equity 13,192 13,402 12,357 11,121 10,149
Cash Dividends declared
per common share -- -- -- -- --
</TABLE>
-7-
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
Introduction
The following discussion and analysis of financial condition
and results of operations should be read in conjunction with the consolidated
financial statements and accompanying notes. (See Item 14.)
Results of Operations for Year Ended December 31, 1995
Compared to Year Ended December 31, 1994
SALES: Sales were $40,480,738 in 1995 as compared to $34,515,494 in 1994.
The increase of 17.3% was due to significantly higher sales in the health care
and airlaid nonwoven segments of the business.
COST OF SALES AND GROSS PROFIT: Gross profit was 18.5% of sales in 1995 compared
with 23.1% in 1994. As a ratio to sales, cost of sales was 81.5% of sales in
1995 and 76.9% in 1994. The decrease in gross profit was primarily due to
significantly higher raw material costs, particularly for paper pulp.
OTHER INCOME (EXPENSES): Selling, general and administrative expenses increased
to $7,416,448 in 1995 from $6,619,308 in 1994, a decrease to 18.3% of sales in
1995 from 19.2% in 1994.
Interest income decreased to $148,571 compared with $216,638 in 1994, due to
lower rates on portfolio holdings. Other income declined to $286,647 compared
with $455,783 in 1994, due to reduced rental income at the Branchburg corporate
facility. An assessment of the IFC segment of business resulted in taking a
pre-tax charge to earnings of $550,000 for machinery and equipment, leasehold
improvements and leased space not currently being utilized for operations.
NET INCOME: A net loss of $209,206 was incurred in 1995 as compared to net
income of $1,036,350 in 1994.
Results of Operations for Year Ended December 31, 1994
Compared to Year Ended December 31, 1993
SALES: Sales were $34,515,494 in 1994 as compared to $29,909,296 in 1993.
The increase of 15.4% was due to increased sales in the health care and
airlaid nonwoven businesses.
COST OF SALES AND GROSS PROFIT: Gross profit was 23.1% of sales in 1994 compared
with 25.6% in 1993. Cost of sales was 76.9% of sales in 1994 and 74.4% in 1993.
The decrease in gross profit was mainly attributable to sharply rising raw
material costs, particularly for paper pulp.
OTHER INCOME (EXPENSES): Selling, general and administrative expenses increased
to $6,619,308 in 1994 from $6,115,045 in 1993, but that represented a decrease
to 19.2% of sales in 1994 from 20.4% in 1993.
Interest expense increased to $384,638 in 1994 compared to $161,893 in 1993 (see
Liquidity and Capital Resources). Other income increased to $455,783 in 1994
compared with $334,857 in 1993.
NET INCOME: Net income was $1,036,350 in 1994 as compared to $1,199,478 in
1993, a decrease of 13.6%.
-8-
<PAGE>
Liquidity and Capital Resources
In December 1993, the Company entered into a loan agreement
with the New Jersey Economic Development Authority (the "Authority") and a bank,
whereby the Authority issued Economic Development Bonds with an aggregate
principal amount of $5,325,000 to be loaned to the Company to finance the
acquisition of a building and the land on which it is situated (the "Branchburg
Property"), as well as the purchase of machinery and equipment to add a
production line (see Item 14). As of December 31, 1995, total proceeds of
approximately $5,000,000 had been distributed to the Company in order to
purchase the Branchburg Property, and machinery and equipment. The remaining
balance is held in escrow and will be distributed to the Company as new
machinery and equipment is purchased.
The bonds are secured by a letter of credit provided by a bank
which has obtained; (a) a first mortgage and security interest on the building
and land that was acquired; (b) an assignment of the Company's right, title and
interest in and to all leases with respect to the building and land; and (c) a
security interest on any machinery and equipment purchased with a portion of the
bond proceeds and (d) IFC's and Bridgewater's guarantees of The Company's
obligations.
The agreement contains several restrictive financial covenants
which include; (a) minimum net worth requirement; (b) maximum leverage ratio;
(c) minimum debt service coverage ratio; (d) minimum current ratio; and (e)
maximum amount of annual capital expenditures.
The remaining bond maturity dates range from December 1, 1996
to December 1, 2013 and bear interest at fixed rates between 4.1% and 5.7%. The
bonds mature at various amounts throughout this period in amounts ranging from
$140,000 to $940,000. The bonds maturing December 1, 2007, 2009 and 2013 are to
be redeemed commencing December 1, 2005 and on each December 1 thereafter
through sinking fund payments ranging from $165,000 to $255,000.
The Company's stockholders' equity was $13,192,426 at December
31, 1995 and $13,401,632 at December 31, 1994. The decrease resulted from a net
loss of $209,206 in 1995.
The Company's working capital position amounted to $7,959,164
at December 31, 1995, including cash and marketable securities of $4,281,702.
Funds for the Company's current operations are derived from
the sale of its products and the ability, when necessary, to borrow on a secured
line of credit with First Fidelity Bank, N.A., New Jersey. (As at December 31,
1995, none of the credit line was utilized.)
As a result, the Company believes that it has adequate funds
available to conduct and continue to expand its business and that of its
subsidiaries. In addition, the Company believes that, if necessary, it will be
able to make favorable financial arrangements for any future capital
requirements.
Backlog, Impact of Inflation, Seasonality
The Company attempts to maintain sufficient inventory levels
for all products to allow shipment against most orders within a three week
period. To some extent, however, certain components must be inventoried further
in advance of actual orders to ensure availability. For the most part, purchases
are based upon quarterly requirements as projected after calculating sales
indications from the sales and marketing departments.
The Company's products are not subject to seasonal influences.
Because its products are sold to distributors and wholesale
and retail outlets throughout the United States, the Company is affected by
-9-
<PAGE>
general economic conditions. Accordingly, any adverse change in the economic
climate may have an adverse impact on the Company's sales and financial
condition.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-10-
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
Information as required for this Item 10 is incorporated by
reference to the Company's definitive proxy statement for its Annual Meeting of
Shareholders (the "1996 Proxy Statement"), to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A.
Item 11. EXECUTIVE COMPENSATION
Information as required in respect of this Item 11 is
incorporated by reference to the 1996 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information as required in respect of this Item 12 is
incorporated by reference to the 1996 Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information as required in respect of this Item 13 is
incorporated by reference to the 1996 Proxy Statement.
-11-
<PAGE>
PART IV
Item 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The following Financial Statements are included in Item 8.
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1995 and 1994. F-2
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993. F-3
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1995, 1994 and 1993. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993. F-5
Notes to Consolidated Financial Statements. F-6
2. Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts. F-13
All other schedules are omitted because they are not
applicable or not required, or the applicable information is shown in the
Consolidated Financial Statements or in notes thereto.
(b) Exhibit Table
1. Articles of Incorporation and Amendments thereof and By-Laws are
incorporated by reference. They were filed as exhibits with the
Company's February 2, 1984 and January 7, 1987 Registration Statements
and the Registrant's Proxy Statement filed May 1990 (the "May 1990
Proxy").
2. Material Contracts and Amendments: The Stock Purchase and Option
Agreement, the Supply Agreement and the Marketing and Sales Support
Agreement, each between the Company and Wood-Wyant and filed as
exhibits with the May 1990 Proxy, are incorporated by reference
thereto; as are, and by the same reference, the Stock Option Agreement
between Leonard Schramm and Wood-Wyant, the Employment Agreement
between Leonard Schramm and the Company, and the Non-Competition
Agreement between Leonard Schramm and Wood-Wyant.
3. The Purchase Contract for the "Branchburg Property," the Loan
Agreement, and the Letter of Credit and Reimbursement Agreement (see
Item 1, BUSINESS - The 1993 Purchase of Property, The Related Bond
Issue and Loan Agreement) and the Company's 1991 Stock Option Plan,
filed with the Company's 1994 Proxy Statement, are incorporated by
reference thereto.
Shareholders may obtain a copy of any exhibit not filed herewith by
writing to Hosposable Products, Inc., P.O. Box 8609, Somerville, New Jersey
08876.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Company has duly caused this annual report
to be signed on its behalf by the undersigned, thereunto duly authorized.
-13-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders' of
Hosposable Products, Inc.:
We have audited the accompanying consolidated balance sheets
of Hosposable Products, Inc. (a New York corporation) and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. 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 financial statements referred to above
present fairly, in all material respects, the financial position of Hosposable
Products, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on
the basic financial statements. The schedule in Item 14(a)2 is not a required
part of the basic financial statements but is supplementary information required
by the Securities and Exchange Commission. This information has been subjected
to the auditing procedures applied in our audit of the basic financial
statements, and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
New York, New York
February 15, 1996
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
NET SALES $ 40,480,738 $ 34,515,494 $ 29,909,296
COST OF SALES 33,000,141 26,534,271 22,253,329
------------- ------------ ------------
Gross Profit 7,480,597 7,981,223 7,655,967
OTHER EXPENSES (INCOME):
Selling, General & Administrative 7,416,448 6,619,308 6,115,045
Interest Income (148,571) (216,638) (211,769)
Interest Expense 321,655 384,638 161,893
Other Income (286,647) (455,783) (334,857)
Write-down of assets(Note 9) 550,000 - -
-------------- ------------- ------------
Income(loss)before income tax expense (372,288) 1,649,698 1,925,655
INCOME TAX (BENEFIT) EXPENSE (Note 7) (163,082) 613,348 726,177
-------------- ------------ ------------
Net Income (loss) $ (209,206) 1,036,350 1,199,478
EARNINGS (LOSS)PER SHARE $ (.12) $ .61 $ .70
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES 1,692,476 1,691,906 1,704,158
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Common Additional Total
Stock, $.01 Paid-in Retained Treasury Stockholders'
Par Value Capital Earnings Stock Equity
<S> <C> <C> <C> <C> <C>
BALANCE, December 31,1993 $ 17,017 $6,885,769 $5,485,526 $(31,530) $12,356,782
Net Income for the Year - - 1,036,350 - 1,036,350
Exercise of 2,000 Stock
Options 20 8,480 - - 8,500
--------- ---------- ---------- --------- ----------
BALANCE, December 31, 1994 17,037 6,894,249 6,521,876 (31,530) 13,401,632
Net loss for the Year - - (209,206) - (209,206)
--------- ----------- ---------- --------- -----------
BALANCE, December 31, 1995 $ 17,037 $6,894,249 $6,312,670 $(31,530) $13,192,426
========= ========== ========== ========= ===========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1994 1993
---- ------ ----
<S> <C> <C> <C>
Net Income (Loss) $ (209,206) $1,036,350 1,199,478
Adjustments to reconcile net income (loss) to
net cash provided by operating activities-
Depreciation and Amortization 982,352 1,064,718 795,076
Provision for Doubtful Accounts 14,289 37,000 25,497
Loss on Sale of Fixed Asset 33,426 - -
Deferred Income Tax Benefit (156,157) (38,365) (51,209)
Write-down of Assets 550,000 - -
Changes in Assets and Liabilities-
(Increase)Decrease in-
Accounts Receivable, trade (1,252,859) (485,657) (596,109)
Advances to Officers and Directors - - 17,373
Other Accounts Receivable 9,061 13,383 137,089
Prepaid Income Taxes (202,738) (83,686) 4,939
Inventories 468,275 (485,848) 84,365
Prepaid Expenses and Other 147,784 (74,419) (162,480)
Increase (decrease) in-
Accounts Payable and Accrued Expenses 2,462,532 240,905 193,703
Income Taxes Payable - (178,931) 178,931
--------- --------- ---------
Net Cash Provided by Operating Activities 2,846,759 1,045,450 1,826,653
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (1,505,141) (2,433,372) (4,155,724)
Cash Proceeds from Sale of Fixed Asset 130,000 - -
Sale (purchase) of Marketable Securities 1,049,936 2,265,376 (549,378)
--------- ---------- ---------
Net Cash Used in Investing Activities (325,205) (167,996) (4,705,102)
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Utilization of Acquisition Escrow Fund 712,737 843,150
Principal Payments Under Borrowing Agreements (340,000) (2,520,114) (666,608)
Borrowing Under Long-term Debt Agreement,
Net Acquisition Escrow Fund - - 3,401,510
Proceeds from Issuance of Common Stock - 8,500 36,250
--------- --------- ---------
Net Cash Provided by (Used in)Financing Activities 372,737 (1,668,464) 2,771,152
--------- --------- ---------
Net Increase (Decrease)in Cash and Cash Equivalents 2,894,291 (791,010) (107,297)
CASH AND CASH EQUIVALENTS, Beginning of Year 25,178 816,188 923,485
--------- --------- ---------
CASH AND CASH EQUIVALENTS, End of Year $2,919,469 $ 25,178 $ 816,188
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid During the Year for-
Interest $ 296,530 $ 368,920 $ 150,584
Income Taxes 287,037 863,046 618,128
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
F-3
<PAGE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 & 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Hosposable Products, Inc., a New York corporation incorporated
in 1971, and its wholly owned subsidiaries, Bridgewater Manufacturing Corp., a
New Jersey corporation ("Bridgewater"), and IFC Disposables, Inc., a Tennessee
corporation ("IFC"), manufacture disposable medical products, wiping products,
and nonwoven roll goods. The disposable medical products are produced by various
converting equipment, some of which utilize in-house "airlaid" processing
technology and equipment. The disposable medical products include bedpads
incorporating unique designs for incontinent patients. Wiping products include
disposable airlaid nonwoven patient washcloths and general wiping products in
addition to the use of other nonwoven materials which are purchased and
converted in-house.
Principles of Consolidation
The consolidated financial statements include the accounts of
Hosposable Products, Inc. and its wholly owned subsidiaries, Bridgewater
Manufacturing Corp. and IFC (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated in consolidation.
Utilization of Estimates
The preparation of 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Inventories
Inventories are stated at the lower of cost (first-in,
first-out) or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost.
Depreciation of property, plant and equipment is provided over the estimated
useful life of the respective assets on the straight-line basis ranging from 5
to 30 years. Leasehold improvements are amortized on a straight-line basis over
the term of the related leases or the estimated useful life, whichever is
shorter.
Income Taxes
The Company files a consolidated federal income tax return.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the year in which those temporary
differences are expected to be recovered or settled. Deferred income taxes
F-4
<PAGE>
result primarily from differences between financial and tax reporting of
depreciation.
Per Share Data
Per share data is based on the weighted average number of
common shares and common equivalent shares which would arise from the exercise
of dilutive stock options (Note 8).
2. MARKETABLE SECURITIES
Marketable securities at December 31, consist of:
1995 1994
---- ----
U.S. Treasury Bills $ - $ 358,115
U.S. Government Obligations 623,048 327,755
Municipal Bonds 654,035 1,633,314
Other Bonds 85,150 92,985
--------- -----------
$ 1,362,233 $ 2,412,169
As of December 31, 1995 and 1994, substantially all short-term investments have
been classified as held to maturity. These investments are stated at amortized
cost.
3. INVENTORIES
Inventories at December 31, consist of:
1995 1994
---- ----
Raw Materials $ 2,308,121 $ 2,812,716
Finished Goods 1,098,959 1,062,639
------------ ------------
$ 3,407,080 $ 3,875,355
4. LONG-TERM DEBT
Long-term debt at December 31, consisted of the following:
1995 1994
---- ----
Authority Bonds - II(a) $ 4,655,000 $ 4,995,000
------------ ------------
Total long-term debt $ 4,655,000 $ 4,995,000
Less:
Unamortized discount on bonds 15,195 17,726
Current maturities 350,000 340,000
------------ ------------
$ 4,289,805 $ 4,637,274
Maturities of long-term debt over the next five years are as
follows:
1996 $ 350,000
1997 365,000
1998 380,000
1999 395,000
2000 415,000
(a) In December 1993, the Company entered into a loan agreement with the
New Jersey Economic Development Authority (the "Authority") and a bank,
whereby the Authority issued Economic Development bonds with an
F-5
<PAGE>
aggregate principal amount of $5,325,000 to be loaned to the Company to
finance the acquisition of a building and the land upon which it is
situated, as well as to purchase machinery and equipment to add a
production line. As of December 31, 1995, total proceeds of
approximately $4,978,000 had been distributed to the Company in order
to complete its purchase of the above-mentioned land and building and
machinery and equipment. The remaining balance is held in escrow, as
identified in the accompanying consolidated balance sheets, and will be
distributed to the Company as machinery and equipment is purchased. The
bonds are secured by a letter of credit provided by a bank which has
obtained: (i) a first mortgage and security interest on the building
and land that was acquired; (ii) an assignment of all of the Company's
right, title and interest in and to all leases with respect to the
building and land; and (iii) a security interest in any machinery and
equipment purchased with a portion of the bond proceeds.
The agreement contains several restrictive financial covenants which
include: (i)minimum net worth requirement; (ii) maximum leverage
ration; (iii) minimum debt service coverage ratio; (iv) minimum current
ratio; and (v) maximum amount of annual capital expenditures.
The remaining bond maturity dates range from December 1, 1996
to December 1, 2013, and bear interest at fixed rates from 4.1% to 5.7%. The
bonds mature at various amounts throughout this period ranging from $140,000 to
$940,000. The bonds maturing December 1, 2007, 2009 and 2013 are to be redeemed
commencing December 1, 2005 and on each December 1 thereafter through sinking
fund payments ranging from $165,000 to $255,000.
Line of Credit
The Company has available a secured line of credit from a bank
which expires on July 31, 1996, in the amount of $2,000,000 which bears interest
at the prime rate (8.5% at December 31, 1995). The Company had no borrowing
outstanding under the line at December 31, 1995 and 1994. Under the agreement,
the Company is required to provide the bank a first priority lien on accounts
receivable and inventory.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, consisted of the
following:
1995 1994
---------- ----------
Land $ 374,133 $ 374,133
Building and improvements 3,639,338 3,589,752
Capitalized equipment leases 72,311 126,997
Machinery and equipment 9,208,427 9,344,140
Machinery and equipment -
in progress 2,196,677 1,124,608
Trucks and automobiles 68,198 68,198
Furniture and fixtures 659,913 604,176
Leasehold improvements 113,759 112,762
---------- -----------
$16,332,756 $15,344,766
Less-Accumulated depreciation
and amortization 6,887,558 5,933,940
----------- -----------
$ 9,445,198 $ 9,410,826
6. RELATED-PARTY TRANSACTIONS
On July 10, 1990, the Company entered into a six-year
marketing and sales support agreement with a significant shareholder, G.H. Wood
+ Wyant
F-6
<PAGE>
Inc. ("Wood + Wyant"), pursuant to which the Company would be paid by Wood +
Wyant, over a five-year period, for providing services based upon and in respect
of its air-laid fabric production and marketing expertise. At the closing,
$100,000 was paid and thereafter $200,000 was payable on June 30, and December
31, of each year through December 1994. Income recognized in connection with
this agreement amounted to $316,667 in each of the three years ended 1995, 1994
and 1993. Deferred income of $166,662 and $283,450 is included in other accrued
liabilities as of December 31, 1995 and 1994, respectively.
Sales made to Wood + Wyant amounted to approximately $222,000, $373,000
and $313,000 in 1995, 1994 and 1993 respectively. Purchases made from Wood +
Wyant amounted to approximately $1,040,000, $261,799 and $124,000 in 1995, 1994
and 1993, respectively.
7. INCOME TAXES
Components of income tax expense (benefit) are as follows:
Current Deferred Total
1995:
Federal $ (19,407) $ (119,339) $ (138,746)
State 12,482 (36,818) (24,336)
-------- ---------- ----------
$ (6,925) $ (156,157) $ (163,082)
1994:
Federal $ 581,251 $ (73,302) $ 507,949
State 120,249 (14,850) 105,399
-------- ----------- ----------
$ 701,500 $ (88,152) $ 613,348
1993:
Federal $ 618,438 $ (27,211) $ 591,227
State 158,948 (23,998) 134,950
--------- ----------- ----------
$ 777,386 $ (51,209) $ 726,177
The actual tax expense differed from the "expected" amounts by
applying the U.S. federal income tax rate of 34% as follows:
Years Ended December 31
1995 1994 1993
Federal income tax expense at
statutory rate $(126,578) $560,897 $ 654,723
State income taxes net of federal income
tax benefit (16,062) 69,563 89,067
Other (20,442) (17,112) (17,613)
--------- -------- ---------
Actual tax (benefit)expense $(163,082) $613,348 $ 726,177
8. COMMON STOCK
During 1991, 1987, and 1986, the stockholders of the Company
approved the adoption of stock option plans that each permit the granting of
options for up to 250,000 shares of the Company's common stock. Options under
these three plans may be either incentive or nonqualified stock options.
Incentive stock options may be granted to employees only, while nonqualified
stock options may be granted to directors, employees, and consultants of the
Company. The exercise price of the nonqualified and incentive stock options must
be equal to 85% and 100% respectively, of the fair market value of common stock
on the date of grant. Any plan participant who is granted an incentive stock
option and possesses more than 10% of the voting rights of the Company's
outstanding common stock is granted an option price of 110% of the fair market
value on the date of grant and the option must be exercised within five years
F-7
<PAGE>
from the date of grant. Other participants also must exercise the options within
five years of the date of grant.
Number Option Price
of Shares Per Share
Outstanding and exercisable,
December 31, 1993 93,700 $ 2.50 - $ 6.00
Exercised (2,000) 4.25
Expired/Canceled (3,000) 2.50 - 6.00
------- ---------------
Outstanding and exercisable,
December 31, 1994 88,700 4.25 - 6.00
Expired/Canceled (47,700) 4.25 - 6.00
Granted 65,000 5.00 - 7.25
------ ---------------
Outstanding and exercisable,
December 31, 1995 106,000 $ 4.25 - $ 7.25
On July 10, 1990, the Company's stockholders approved a series
of capitalization agreements between the Company and Wood + Wyant in which Wood
+ Wyant acquired 229,288 newly issued shares from the Company for $5.75 per
share, 448,702 shares from the President of the Company and received a five-year
option to acquire an additional 456,157 common shares from the Company at $7.00
per share or 1.25 times the market price, whichever is greater. These options
expired in 1995. Wood + Wyant's current ownership is 55%.
9. WRITE-DOWN OF ASSETS
During the fourth quarter of 1995, the Company recorded a
charge of $550,000 ($340,000 or $.20 per share after tax) for selected asset
write-downs including machinery and equipment, leasehold improvements, and
leased property. The charge resulted from management's decision to dispose of
certain machinery and accrue for under-utilized space at its IFC facility.
10. COMMITMENTS
The Company occupies manufacturing and office facilities under
an operating lease which expires on December 31, 1997. At December 31, 1995, the
minimum rental commitment under this lease is as follows:
Year:
1996 $ 448,480
1997 448,480
---------
$ 896,960
Aggregate rental expense amounted to $410,148 (net of sublease
income of $152,000), $525,301 and $967,493 for the years ended December 31,
1995, 1994 and 1993, respectively.
The Company maintains a consulting agreement with its former
president which expires on July 9, 1998. The aggregate commitment for future
fees on this agreement is approximately $400,000.
11. SIGNIFICANT CUSTOMERS/CONCENTRATIONS OF CREDIT
The Company operates primarily in the disposable health care
products industry.
For the years ended December 31, 1995, 1994 and 1993, the
largest customer accounted for approximately 11.8%, 11% and 13% of net sales,
respectively.
12. RECENTLY ISSUED ACCOUNTING STANDARDS
F-8
<PAGE>
In March 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." This statement establishes financial accounting and reporting
standards for the impairment of long-lived assets and certain identifiable
intangibles to be disposed of. This statement is effective for financial
statements for fiscal years beginning after December 15, 1995, although earlier
application is encouraged. The Company has not concluded its evaluation of the
effect, if any, the adoption of SFAS No. 121 will have on its financial position
or results of operations.
In November 1995, the FASB issued SFAS No. 123, "Accounting
for Stock-Based Compensation." This statement establishes a fair value-based
method of accounting for an employee stock option or similar equity instrument
but allows companies to continue to measure compensation cost for those plans
using the intrinsic value-based method of accounting prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Companies electing to remain
with the accounting under APB Opinion No. 25 must, however, make pro forma
disclosures of net income and earnings per share as if the fair value-based
method of accounting defined in SFAS No. 123 has been applied. These disclosure
requirements are effective for years beginning after December 15, 1995.
F-9
<PAGE>
SCHEDULE II
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Deductions(6) of Year
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31 -
1995 $118,759 $125,399 $111,110 $133,048
1994 95,643 37,000 13,884 118,759
1993 170,795 25,497 100,649 95,643
(1) Represents amounts written off, net of recoveries
</TABLE>
F-10
<PAGE>
APPENDIX E
To The Proxy Statement
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
-------------------------------------------------
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 0-8410
---------------------------------------------------------------------
HOSPOSABLE PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2236837
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
100 Readington Road Somerville, New Jersey 08876
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code 908-707-1800
------------------------------
NONE
- --------------------------------------------------------------------------------
(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
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
<PAGE>
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the latest practicable date.
Class Outstanding at May 10, 1996
- --------------------------------------------------------------------------------
Common Stock, $.01 par Value 1,692,476
-2-
<PAGE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The attached unaudited consolidated financial statements of Hosposable Products,
Inc.("Hosposable") and Subsidiaries reflect all adjustments which are, in the
opinion of management, necessary to present a fair statement of the operating
results for the interim periods.
Consolidated balance sheets 3-4
Consolidated statements of operations 5
Consolidated statements of cash flows 6-7
Note to consolidated financial statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
-3-
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1996 1995
-------------- ------------
(unaudited) (see note
below)
Current assets:
Cash and cash equivalents $ 2,385,761 $ 2,919,469
--------------- --------------
Marketable securities 1,181,163 1,362,233
--------------- --------------
Receivables:
Trade accounts 5,175,312 5,396,185
Other 61,157 40,000
--------------- --------------
5,236,469 5,436,185
Less: allowance for doubtful
accounts 155,851 133,048
--------------- --------------
5,080,618 5,303,137
--------------- --------------
Inventories:
Raw materials 2,880,768 2,308,121
Finished goods 1,335,170 1,098,959
--------------- --------------
4,235,938 3,407,080
--------------- --------------
Prepaid income taxes 286,424 286,424
Prepaid expenses and other 157,196 196,659
--------------- --------------
Total current assets 13,327,100 13,475,002
--------------- --------------
Property, plant and equipment 16,605,941 16,332,756
Less: accumulated depreciation
and amortization 7,149,669 6,887,558
--------------- --------------
Net property, plant and
equipment 9,456,272 9,445,198
--------------- --------------
-4-
<PAGE>
Acquisition escrow fund 351,509 347,346
--------------- --------------
Other assets 301,636 263,888
--------------- --------------
Total assets $ 23,436,517 $ 23,531,434
=============== ==============
Note: The balance sheet at December 31, 1995 has been taken from the audited
financial statements at that date.
See accompanying note.
-5-
<PAGE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1996 1995
------------- ---------------
(unaudited) (See note
below)
Current liabilities:
Current maturities of
long-term debt $ 350,000 $ 350,000
Accounts payable-trade 4,128,220 4,016,185
Accrued expenses 817,932 1,158,599
Income taxes payable 118,700 -
-------------- -------------
Total current liabilities 5,414,852 5,524,784
-------------- -------------
Long-term debt, excluding current
maturities 4,292,500 4,389,805
-------------- -------------
Deferred income taxes 398,019 424,419
-------------- -------------
Total liabilities 10,105,371 10,339,008
-------------- -------------
Stockholders' equity:
Common stock, par value
$.01 per share 17,037 17,037
Additional paid-in capital 6,894,249 6,894,249
Retained earnings 6,451,390 6,312,670
Less:Cost of 11,200 shares of
common stock held in treasury (31,530) (31,530)
-------------- -------------
Total stockholders' equity 13,331,146 13,192,426
-------------- -------------
Total liabilities and
stockholders' equity $ 23,436,517 $ 23,531,434
============== =============
Note: The balance sheet at December 31, 1995 has been taken from the audited
financial statements at that date.
See accompanying note.
-6-
<PAGE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
1996 1995
------------- --------------
Net sales $ 11,180,969 $ 9,628,562
Cost of sales 9,041,351 7,627,570
-------------- --------------
Gross profit 2,139,618 2,000,992
Selling, general and administrative
expenses 2,005,703 1,691,371
-------------- --------------
Operating income 133,915 309,621
-------------- --------------
Other income (expense):
Interest income 51,688 44,391
Interest expense (40,001) (73,467)
Other 85,418 45,935
-------------- --------------
97,105 16,859
-------------- --------------
Income before income taxes 231,020 326,480
-------------- --------------
Income tax expense (benefit):
Current 118,700 142,510
Deferred (26,400) (13,600)
-------------- --------------
92,300 128,910
-------------- --------------
Net income $ 138,720 $ 197,570
============== ==============
Net income per share-primary
and fully diluted $ .08 $ .12
============== ==============
Weighted average number of common
and common equivalent shares 1,692,476 1,692,476
============== ==============
See accompanying note.
-7-
<PAGE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
1996 1995
-------------- ---------------
Cash flows from operating activities:
Net income $ 138,720 $ 197,570
--------------- ---------------
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities-
Depreciation and amortization 262,111 258,732
Loss on sale of equipment - 33,425
Provision for doubtful accounts 23,500 5,700
Deferred income tax expense (benefit) (26,400) (13,600)
Changes in assets and liabilities -
(Increase) decrease in -
Accounts receivable, trade 220,009 (52,161)
Accounts receivable, other (21,157) (34,492)
Inventories (828,858) (572,806)
Prepaid income taxes - 83,686
Prepaid expenses and other 39,463 (61,364)
Other assets (37,748) -
(Decrease) increase in -
Accounts payable/Accrued expenses (228,465) 306,492
Income taxes payable 118,700 56,861
--------------- ---------------
Total adjustments (478,845) 10,473
--------------- ---------------
Net cash provided by
(used in) operating
activities (340,125) 208,043
--------------- ---------------
Cash flows from investing activities:
Capital expenditures (273,185) (382,494)
Proceeds from sale of equipment - 130,000
Sale of marketable securities 181,070 263,111
--------------- ---------------
Net cash provided by
(used in) investing
activities (92,115) (10,617)
--------------- ---------------
-8-
<PAGE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED MARCH 30, 1996 AND 1995
(unaudited)
1996 1995
--------------- --------------
Cash flows from financing activities:
Principal payments under borrowing
agreements $ (97,305) $ (85,000)
Utilization of acquisition escrow
fund (4,163) 243,867
--------------- --------------
Net cash provided by (used in)
financing activities (101,468) 158,867
--------------- --------------
Net increase (decrease) in cash
and cash equivalents (533,708) 377,527
Cash and cash equivalents, beginning
of year 2,919,469 25,178
--------------- --------------
Cash and cash equivalents, March 31 $ 2,385,761 $ 402,705
=============== ==============
Supplemental disclosure of cash flow
information:
Cash paid during the three months for-
Interest $ 19,973 $ 63,447
Income taxes - 1,966
---------------- --------------
$ 19,973 $ 65,413
=============== ==============
See accompanying note.
-9-
<PAGE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited 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. In the opinion of management, the accompanying
consolidated financial statements contain all adjustments, consisting only of
normal recurring accruals considered necessary to present fairly the financial
position as of March 31 1996. The results of operations for the three months
ended March 31, 1996 and 1995 and cash flows for the three months ended March
31, 1996 and 1995. For further information, refer to the financial statements
and notes thereto included in the Company's annual report for the year ended
December 31, 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the accompanying
unaudited financial statements and the note thereto included in Item I of this
quarterly report, and the financial statements and the notes thereto and
management's discussion and analysis of financial condition and results of
operations contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1995.
Sales for the three months ended March 31, 1996 were $11,180,969 as compared
with $9,628,562 in 1995, an increase of 16.1%. The increase resulted from
stronger revenues in both the healthcare and airlaid nonwoven segments of the
business.
Cost of sales for the three months ended March 31, 1996 was 80.9% of sales
compared with 79.2% of sales in 1995. This slight increase in the cost of sales
was due to higher raw material costs, particularly pulp, which had been
purchased in late 1995 and early 1996. After the first month of the quarter raw
material costs began to decrease.
-10-
<PAGE>
Gross profit decreased to 19.1% of sales in the first quarter of 1996 compared
to 20.8% in 1995. This was due to higher raw material costs.
Selling, general and administrative expenses for the first quarter of 1996
totalled $2,005,703 or 17.9% of sales compared to $1,691,371 or 17.6% in 1995.
The other income (expense) category increased in the first quarter to $97,105
from $16,859, a change of $80,246. The principal components of this change were
lower interest expense due to the retirement of long-term debt, and higher other
income due to a non-recurring loss on the sale of fixed assets in 1995.
The pre-tax income earned in the first quarter of 1996 amounted to $231,020
compared to $326,480 in 1995, a decrease of $95,460. This change was primarily
due to reduced gross profit margin performance in 1996 partially offset by
increased other income.
Net income for the three months ended March 31, 1996 amounted to $138,720
compared to $197,570 in 1995, a decrease of 29.8%. Net income per share was $.08
in 1996 compared with $.12 in 1995 and reflects a weighted average of 1,692,476
shares outstanding in both years.
LIQUIDITY AND CAPITAL RESOURCES
Funds for the Company's current operations are derived from the sale of
its products and the ability, when necessary, to borrow on a secured line of
credit with First Fidelity Bank, N.A., New Jersey. At March 31, 1996, none of
the above credit line was utilized.
The Company believes that it has adequate funds available to conduct
and continue to expand its business and that of its subsidiaries. In addition,
the Company believes that, if necessary, it will be able to make favorable
financial arrangements for any future capital requirements.
-11-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEMS 2,3,4 & 6
Not applicable
ITEM 5
Mr. Gerald W. Wyant chose to relinquish the position of Chairman of the Board of
Directors, but to remain active as a director. Accordingly, Mr. Donald C.
MacMartin was appointed Chairman of the Board of Directors on March 25, 1996 to
serve out the remainder of the term. (See 1996 Proxy Statement).
-12-
<PAGE>
HOSPOSABLE PRODUCTS, INC.
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.
HOSPOSABLE PRODUCTS, INC.
(Registrant)
Date: SIGNATURE:
---------------- ---------------------------------
Joseph H. Weinkam, Jr.
President and
Chief Operating Officer
-13-
<PAGE>
APPENDIX F
To The Proxy Statement
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
- --------------------------------------------
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 0-8410
-------------------------------------------------------
HOSPOSABLE PRODUCTS, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2236837
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
100 Readington Road Somerville, New Jersey 08876
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code 908-707-1800
---------------------------
NONE
- -------------------------------------------------------------------------------
(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
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the latest practicable date.
Class Outstanding at June 30, 1996
- --------------------------------------------------------------------------------
Common Stock, $.01 par Value 1,692,476
<PAGE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1996
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The attached unaudited consolidated financial statements of Hosposable Products,
Inc.("Hosposable") and Subsidiaries reflect all adjustments which are, in the
opinion of management, necessary to present a fair statement of the operating
results for the interim periods.
Consolidated balance sheets 3-4
Consolidated statements of operations 5-6
Consolidated statements of cash flows 7-8
Note to consolidated financial statements 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
-2-
<PAGE>
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1996 1995
--------------- ------------
(unaudited) (see note
below)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 806,454 $ 2,919,469
--------------- ------------
Marketable securities 1,168,190 1,362,233
--------------- ------------
Receivables:
Trade accounts 5,146,579 5,396,185
Other 21,094 40,000
--------------- ------------
5,167,673 5,436,185
Less: allowance for doubtful
accounts 170,351 133,048
--------------- ------------
4,997,322 5,303,137
--------------- ------------
Inventories:
Raw materials 3,438,402 2,308,121
Finished goods 1,473,159 1,098,959
--------------- ------------
4,911,561 3,407,080
--------------- ------------
Prepaid income taxes 312,024 286,424
Prepaid expenses and other 255,517 196,659
--------------- ------------
Total current assets 12,451,068 13,475,002
--------------- ------------
Property, plant and equipment 17,037,638 16,332,756
Less: accumulated depreciation
and amortization 7,418,836 6,887,558
--------------- ------------
Net property, plant and
equipment 9,618,802 9,445,198
--------------- ------------
Acquisition escrow fund 93,348 347,346
--------------- ------------
Other assets 296,782 263,888
--------------- ------------
Total assets $ 22,460,000 $ 23,531,434
=============== ============
Note: The balance sheet at December 31, 1995 has been taken from
the audited financial statements at that date.
See accompanying note.
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1996 1995
------------- ---------------
(unaudited) (See note below)
<S> <C> <C>
Current liabilities:
Current maturities of
long-term debt $ 350,000 $ 350,000
Accounts payable-trade 3,337,076 4,016,185
Accrued expenses 1,090,269 1,158,599
--------------- ------------
Total current liabilities 4,777,345 5,524,784
-------------- ------------
Long-term debt, excluding current
maturities 4,180,000 4,389,805
-------------- ------------
Deferred income taxes 398,019 424,419
-------------- ------------
Total liabilities 9,355,364 10,339,008
-------------- -----------
Stockholders' equity:
Common stock, par value
$.01 per share 17,037 17,037
Additional paid-in capital 6,894,249 6,894,249
Retained earnings 6,224,880 6,312,670
Less:Cost of 11,200 shares of
common stock held in treasury (31,530) (31,530)
--------------- ------------
Total stockholders' equity 13,104,636 13,192,426
-------------- ------------
Total liabilities and
stockholders' equity $ 22,460,000 $ 23,531,434
============== ============
Note: The balance sheet at December 31, 1995 has been taken from
the audited financial statements at that date.
See accompanying note.
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
1996 1995
--------------- ---------------
<S> <C> <C>
Net sales $ 21,337,655 $ 19,968,212
Cost of sales 17,543,515 16,161,251
--------------- ---------------
Gross profit 3,794,140 3,806,961
Selling, general and administrative
expenses 4,065,306 3,428,958
--------------- ---------------
Operating income (loss) (271,166) 378,003
--------------- ---------------
Other income (expense):
Interest income 86,238 87,029
Interest expense (119,070) (174,220)
Other 163,988 126,483
--------------- ---------------
131,156 39,292
--------------- ---------------
Income (loss) before income taxes (140,010) 417,295
--------------- ---------------
Income tax expense (benefit):
Current (25,600) 188,444
Deferred (26,400) (27,000)
--------------- ---------------
(52,000) 161,244
--------------- ---------------
Net income (loss) $ (88,010) $ 256,051
=============== ===============
Net income (loss) per share-primary
and fully diluted $ (.05) $ 15
=============== ===============
Weighted average number of common
and common equivalent shares 1,692,476 1,692,476
=============== ===============
See accompanying note.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
1996 1995
--------------- ---------------
<S> <C> <C>
Net sales $ 10,156,687 $ 10,339,650
Cost of sales 8,502,168 8,533,681
--------------- ---------------
Gross profit 1,654,519 1,805,969
Selling, general and administrative
expenses 2,059,607 1,737,587
-------------- ---------------
Operating income (loss) (405,088) 68,382
--------------- ---------------
Other income (expense):
Interest income 34,280 42,638
Interest expense (79,069) (100,753)
Other 79,067 80,548
--------------- ---------------
34,278 22,433
--------------- ---------------
Income (loss) before income taxes (370,810) 90,815
--------------- ---------------
Income tax expense (benefit):
Current (144,300) 45,934
Deferred - (13,600)
--------------- ---------------
(144,300) 32,334
--------------- ---------------
Net income (loss) $ (226,510) $ 58,481
=============== ===============
Net income (loss) per share-primary
and fully diluted $ (.13) $ .03
=============== ===============
Weighted average number of common
and common equivalent shares 1,692,476 1,692,476
=============== ===============
See accompanying note.
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (88,010) $ 256,051
--------------- ---------------
Adjustments to reconcile net
income (loss) to net cash provided by
(used in) operating activities-
Depreciation and amortization 531,278 483,367
Loss on sale of equipment - 33,425
Provision for doubtful accounts 37,303 5,700
Deferred income tax expense (benefit) (26,400) (27,200)
Changes in assets and liabilities -
(Increase) decrease in -
Accounts receivable, trade 249,606 (75,306)
Accounts receivable, other 18,906 ( 1,736)
Inventories (1,504,481) (1,217,484)
Prepaid income taxes (25,600) 38,035
Prepaid expenses and other (58,858) 103,009
Other assets (32,894) -
(Decrease) increase in -
Accounts payable/Accrued expenses (747,219) 388,340
--------------- ---------------
Total adjustments (1,558,359) (269,850)
--------------- ---------------
Net cash (used in)
operating activities (1,646,369) (13,799)
--------------- ---------------
Cash flows from investing activities:
Capital expenditures (704,882) (934,254)
Proceeds from sale of equipment - 130,000
Sale of marketable securities 194,043 221,573
--------------- ---------------
Net cash (used in)
investing activities (510,839) (582,681)
--------------- ---------------
See accompanying note.
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from financing activities:
Utilization of acquisition escrow
fund $ 253,998 $ 611,743
Borrowings - 17,726
Decrease (increase) in other assets - (67,884)
Principal payments under borrowing
agreements (209,805) (170,000)
Principal payments under capital
lease obligations - (4,456)
--------------- ---------------
Net cash provided by
financing activities 44,193 387,129
--------------- ---------------
Net increase (decrease) in cash and
cash equivalents (2,113,015) (209,351)
Cash and cash equivalents, beginning
of year 2,919,469 25,178
--------------- ---------------
Cash and cash equivalents, June 30 $ 806,454 $ (184,173)
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the six months for-
Interest $ 119,068 $ 148,498
Income taxes - 38,035
--------------- ---------------
$ 119,068 $ 186,533
=============== ===============
See accompanying note.
</TABLE>
-8-
<PAGE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited 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. In the opinion of management, the accompanying
consolidated financial statements contain all adjustments, consisting only of
normal recurring accruals considered necessary to present fairly the financial
position as of June 30, 1996, the results of operations for the six months and
three months ended June 30, 1996 and 1995 and cash flows for the six months
ended June 30, 1996 and 1995. For further information, refer to the financial
statements and notes thereto included in the Company's annual report for the
year ended December 31, 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the accompanying
unaudited financial statements and the note thereto included in Item I of this
quarterly report, and the financial statements and the notes thereto and
management's discussion and analysis of financial condition and results of
operations contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1995.
Sales for the three months ended June 30, 1996 were $10,156,687 as compared with
$10,339,650 in 1995. The decrease resulted from lower sales of the airlaid roll
goods product line, partially offset by increased sales in the health care and
airlaid wiper segments of the business.
Cost of sales for the three months ended June 30, 1996 increased to 83.7% of
sales compared with 82.5% in 1995. The increase was due to operational issues
including downtime associated with the installation of machine enhancements,
resulting in unfavorable labor and overhead spending and higher training costs.
Gross profit decreased to 16.3% in the second quarter of 1996 compared to 17.5%
in 1995. The decrease was due to operational issues.
Selling, general and administrative expenses for the second quarter of 1996
totaled $2,059,607 or 20.3% of sales compared to $1,737,587 or 16.8% of sales in
1995. This change is principally due to increased research and development
spending and higher professional and consulting fees.
Net other income increased in the second quarter of 1996 to $34,278 from $22,433
in 1995, mainly as a result of lower interest expense in 1996.
-9-
<PAGE>
The pre-tax loss of $370,810 incurred in the second quarter compared with a
profit of $90,815 in 1995, a decline of $461,625. This adverse pre-tax change
resulted from a reduced gross profit margin performance in 1996 and higher
selling, general and administrative expenses.
The net loss for the three months ended June 30, 1996 amounted to $226,510
compared to net income of $58,481 in 1995. The net loss per share was $.13 in
1996 compared with net income per share of $.03 in 1995. The per share
calculation reflects a weighted average of 1,692,476 shares outstanding in both
1996 and 1995.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995.
Sales for the six months ended June 30, 1996 were $21,337,655 compared with
$19,968,212 in 1995. The increase of 6.9% resulted from increases in the health
care and airlaid wiper segments of the business, partially offset by lower sales
in the airlaid roll goods product line.
Cost of sales for the six months ended June 30, 1996 increased to 82.2% of sales
compared with 80.9% of sales in 1995. The increase was due to operational issues
in the second quarter, principally downtime and unfavorable labor and overhead
spending associated with the installation of machine enhancements and to higher
raw material costs in the first quarter which moderated in the second quarter.
Gross profit decreased to 17.8% of sales for the six months ended June 30, 1996
as compared to 19.1% in 1995. The decrease was due to operational issues and
higher raw material costs during the first quarter.
Selling, general and administrative expenses for the six months ended June 30,
1996 amounted to $4,065,306 or 19.1% of sales compared to $3,428,958 or 17.2% of
sales in 1995. The increase was due to higher research and development
expenditures as well as higher professional and consulting fees.
The pre-tax loss incurred for the six months ended June 30, 1996 amounted to
$140,010 compared to a pre-tax profit of $417,295 in 1995. This adverse change
was principally due to the gross profit shortfall in the second quarter and
higher selling, general and administrative expenses.
The net loss for the six months ended June 30, 1996 amounted to $88,010 compared
with net income of $256,051 in 1995. The net loss per share was $.05 in 1996
compared with net income per share of $.15 in 1995. The per share calculation
reflects a weighted average of 1,692,476 shares outstanding in both 1996 and
1995.
LIQUIDITY AND CAPITAL RESOURCES
Funds for the Company's current operations are derived from the sale of
its products and the ability, when necessary, to borrow on a secured line of
credit with First Fidelity Bank, N.A., New Jersey. At June 30, 1996, none of the
above credit line was utilized.
The Company believes that it has adequate funds available to conduct
and continue to expand its business and that of its subsidiaries. In addition,
the Company believes that, if necessary, it will be able to make favorable
financial arrangements for any future capital requirements.
-10-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEMS 2,3,4 & 6
Not applicable
-11-
<PAGE>
HOSPOSABLE PRODUCTS, INC.
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.
HOSPOSABLE PRODUCTS, INC.
(Registrant)
Date: SIGNATURE:
---------------- -------------------------------
Joseph H. Weinkam, Jr.
President and Chief
Operating Officer
-12-
<PAGE>
APPENDIX G
To The Proxy Statement
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
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 0-8410
-----------------------------------------------------------
HOSPOSABLE PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2236837
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
100 Readington Road Somerville, New Jersey 08876
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code 908-707-1800
-----------------------------
NONE
- --------------------------------------------------------------------------------
(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
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the latest practicable date.
Class Outstanding at September 30, 1996
- --------------------------------------------------------------------------------
Common Stock, $.01 par Value 1,692,476
<PAGE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The attached unaudited consolidated financial statements of Hosposable Products,
Inc.("Hosposable") and Subsidiaries reflect all adjustments which are, in the
opinion of management, necessary to present a fair statement of the operating
results for the interim periods.
Consolidated balance sheets 3-4
Consolidated statements of operations 5-6
Consolidated statements of cash flows 7-8
Note to consolidated financial statements 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
-2-
<PAGE>
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1996 1995
---------------- ------------------
(unaudited) (see note
below)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 645,158 $ 2,919,469
--------------- ---------------
Marketable securities 41,312 1,362,233
--------------- ---------------
Receivables:
Trade accounts 6,744,513 5,396,185
Other 12,199 40,000
--------------- ---------------
6,756,712 5,436,185
Less: allowance for doubtful
accounts 247,356 133,048
--------------- ---------------
6,509,356 5,303,137
--------------- ---------------
Inventories:
Raw materials 3,143,830 2,308,121
Finished goods 1,430,263 1,098,959
--------------- ---------------
4,574,093 3,407,080
--------------- ---------------
Prepaid income taxes 536,477 286,424
Prepaid expenses and other 265,478 196,659
--------------- ---------------
Total current assets 12,571,874 13,475,002
--------------- ---------------
Property, plant and equipment 19,023,833 16,332,756
Less: accumulated depreciation
and amortization 7,743,899 6,887,558
--------------- ---------------
Net property, plant and
equipment 11,279,934 9,445,198
--------------- ---------------
Acquisition escrow fund 94,593 347,346
--------------- ---------------
Other assets 303,828 263,888
--------------- ---------------
Total assets $ 24,250,229 $ 23,531,434
=============== ===============
Note: The balance sheet at December 31, 1995 has been taken from
the audited financial statements at that date.
See accompanying note.
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1996 1995
-------------- ---------------
(unaudited) (See note below)
<S> <C> <C>
Current liabilities:
Current maturities of
long-term debt $ 350,000 $ 350,000
Accounts payable-trade 4,315,720 4,016,185
Accrued expenses 1,031,211 1,158,599
--------------- ---------------
Total current liabilities 5,696,931 5,524,784
--------------- ---------------
Long-term debt, excluding current
maturities 5,386,641 4,389,805
--------------- ---------------
Deferred income taxes 387,419 424,419
--------------- ---------------
Total liabilities 11,470,991 10,339,008
--------------- ---------------
Stockholders' equity:
Common stock, par value
$.01 per share 17,037 17,037
Additional paid-in capital 6,894,249 6,894,249
Retained earnings 5,899,482 6,312,670
Less: Cost of 11,200 shares of
common stock held in treasury (31,530) (31,530)
--------------- ---------------
Total stockholders' equity 12,779,238 13,192,426
--------------- ---------------
Total liabilities and
stockholders' equity $ 24,250,229 $ 23,531,434
=============== ===============
Note: The balance sheet at December 31, 1995 has been taken from
the audited financial statements at that date.
See accompanying note.
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
1996 1995
--------------- ---------------
<S> <C> <C>
Net sales $ 31,871,537 $ 30,065,150
Cost of sales 26,473,449 24,375,052
--------------- ---------------
Gross profit 5,398,088 5,690,098
Selling, general and administrative
expenses 6,175,297 5,268,409
--------------- ---------------
Operating income (loss) (777,209) 421,689
--------------- ---------------
Other income (expense):
Interest income 118,315 100,502
Interest expense (188,852) (247,898)
Other 166,558 205,294
--------------- ---------------
96,021 57,898
--------------- ---------------
Income (loss) before income taxes (681,188) 479,587
--------------- --------------
Income tax expense (benefit):
Current (231,000) 233,300
Deferred (37,000) (52,800)
--------------- --------------
(268,000) 180,500
--------------- -------------
Net income (loss) $ (413,188) $ 299,087
=============== ===============
Net income (loss) per share-primary
and fully diluted $ (.24) $ .18
=============== ===============
Weighted average number of common
and common equivalent shares 1,692,476 1,692,476
=============== ===============
See accompanying note.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
1996 1995
--------------- ---------------
<S> <C> <C>
Net sales $ 10,533,883 $ 10,096,938
Cost of sales 8,821,406 8,213,801
--------------- ---------------
Gross profit 1,712,477 1,883,137
Selling, general and administrative
expenses 2,219,209 1,839,451
--------------- ---------------
Operating income (loss) (506,732) 43,686
--------------- ---------------
Other income (expense):
Interest income 28,339 13,473
Interest expense (69,782) (73,678)
Other 6,997 78,811
--------------- ---------------
(34,446) 18,606
--------------- ---------------
Income (loss) before income taxes (541,178) 62,292
--------------- ---------------
Income tax expense (benefit):
Current (205,400) 44,856
Deferred (10,600) (25,600)
--------------- ---------------
(216,000) 19,256
--------------- ---------------
Net income (loss) $ (325,178) $ 43,036
=============== ===============
Net income (loss) per share-primary
and fully diluted $ (.19) $ .03
=============== ===============
Weighted average number of common
and common equivalent shares 1,692,476 1,692,476
=============== ===============
See accompanying note.
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (413,188) $ 299,087
--------------- ---------------
Adjustments to reconcile net
income (loss) to net cash provided by
(used in) operating activities-
Depreciation and amortization 856,341 714,028
Loss on sale of equipment - 33,425
Provision for doubtful accounts 114,308 22,400
Deferred income tax expense (benefit) (37,000) (52,800)
Changes in assets and liabilities -
(Increase) decrease in -
Accounts receivable, trade (1,348,328) (947,877)
Accounts receivable, other 27,801 ( 1,736)
Inventories (1,167,013) (120,567)
Prepaid income taxes (250,053) 83,686
Prepaid expenses and other (68,819) 82,979
Other assets (39,940) -
(Decrease) increase in -
Accounts payable/Accrued expenses 172,147 1,196,138
--------------- ---------------
Total adjustments (1,740,556) 1,009,676
--------------- ---------------
Net cash provided by(used in)
operating activities (2,153,744) 1,308,763
--------------- ---------------
Cash flows from investing activities:
Capital expenditures (2,691,077) (1,128,125)
Proceeds from sale of equipment - 130,000
Sale (purchase) of marketable securities 1,320,921 (382,325)
--------------- ---------------
Net cash (used in)
investing activities (1,370,156) (1,380,450)
--------------- ---------------
See accompanying note.
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from financing activities:
Utilization of acquisition escrow
fund $ 252,753 $ 717,103
Borrowings 1,320,000 17,726
Decrease (increase) in other assets - (53,988)
Principal payments under borrowing
agreements (323,164) (237,274)
Principal payments under capital
lease obligations - (5,870)
--------------- ---------------
Net cash provided by
financing activities 1,249,589 437,697
--------------- --------------
Net increase (decrease) in cash and
cash equivalents (2,274,311) 366,010
Cash and cash equivalents, beginning
of year 2,919,469 25,178
--------------- ---------------
Cash and cash equivalents, September 30 $ 645,158 $ 391,188
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the nine months for-
Interest $ 188,851 $ 189,028
Income taxes 19,053 83,686
--------------- --------------
$ 207,904 $ 272,714
=============== ===============
See accompanying note.
</TABLE>
-8-
<PAGE>
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited 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. In the opinion of management, the accompanying
consolidated financial statements contain all adjustments, consisting only of
normal recurring accruals considered necessary to present fairly the financial
position as of September 30, 1996, the results of operations for the nine months
and three months ended September 30, 1996 and 1995 and cash flows for the nine
months ended September 30, 1996 and 1995. For further information, refer to the
financial statements and notes thereto included in the Company's annual report
for the year ended December 31, 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995
Sales for the three months ended September 30, 1996 were $10,533,883 as compared
with $10,096,938 in 1995, an increase of 2.6%. The increase resulted from higher
sales volume in the health care and airlaid wiper segments of the business due
to general business growth. This improved performance was partially offset by
lower sales volume of the airlaid roll goods product line. Selling price
movement did not factor in significantly in the sales change.
Cost of sales for the three months ended September 30, 1996 increased to 83.7%
of sales compared with 81.3% in 1995. The increase was due to several
operational matters including increased overhead spending, unfavorable material
usage and to volume variances associated with reduced activity, principally in
the airlaid roll goods business.
Gross profit decreased to 16.3% in the third quarter of 1996 compared to 18.7%
in 1995. This change is due to the previously mentioned operational issues.
Selling, general and administrative expenses for the third quarter of 1996
totalled $2,219,209 or 21.1% of sales as compared with $1,839,451 or 18.2% of
sales in 1995. This change is principally due to higher professional and
consulting fees, increased research and development spending and employee
separation costs.
Other income and expense resulted in an expense of $34,446 in the third quarter
of 1996 as compared with income of $18,606 in the third quarter of 1995. The
change was primarily due to the lower other income associated with the expiry of
the sales and marketing consulting agreement between the Company and G.H. Wood +
Wyant.
The pre-tax loss of $541,178 in 1996 compares to a pre-tax profit of $62,292 in
1995, an unfavorable change of $603,470, which resulted from a reduced gross
profit margin performance in 1996 as well as higher selling, general and
administrative expenses.
The net loss for the three months ended September 30, 1996 amounted to $325,178
compared to net income of $43,036 in 1995. The net loss per share
-9-
<PAGE>
was $.19 in 1996 compared with net income per share of $.03 in 1995. The per
share calculation reflects a weighted average of 1,692,476 shares outstanding in
both 1996 and 1995.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995.
Sales for the nine months ended September 30, 1996 were $31,871,537 as compared
with $30,065,150 in 1995. The increase of $1,806,387 or 6.0% resulted from
general business growth in the health care and airlaid wiper segments of the
business, partially offset by lower sales in the airlaid roll goods product
line. Selling price movement did not factor in significantly into the change.
Cost of sales for the nine months ended September 30, 1996 increased to 83.1% of
sales in 1996 compared with 81.1% in 1995. The increase was due to operational
matters in both the second and third quarters of 1996. Issues include downtime,
unfavorable material usage and production volume variances and unfavorable labor
and overhead spending associated with the installation of machine enhancements.
Gross profit decreased to 16.9% of sales for the nine months ended September 30,
1996 as compared with 18.9% in 1995. The decrease was due to operational matters
in the second and third quarters mentioned above.
Selling, general and administrative expenses for the nine months ended September
30, 1996 amounted to $6,175,297 or 19.4% of sales compared with $5,268,409 or
17.5% of sales in 1995. The increase was due to higher research and development
expenditures as well as higher professional and consulting fees.
Other income and expense resulted in income of $96,021 for the nine months ended
September 30, 1996 compared with $57,898 in 1995. The principal components of
this change were slightly higher interest income and lower interest expense due
to the retirement of debt.
The pre-tax loss incurred for the nine months ended September 30, 1996 amounted
to $681,188 compared to a pre-tax profit of $479,587 in 1995. This unfavorable
change was principally due to the gross profit shortfall in the second and third
quarters and higher selling, general and administrative expenses.
The net loss for the nine months ended September 30, 1996 amounted to $413,188
compared with net income of $299,087 in 1995. The net loss per share was $.24 in
1996 compared with net income per share of $.18 in 1995. The per share
calculation reflects a weighted average of 1,692,476 shares outstanding in both
1996 and 1995.
-10-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Funds for the Company's current operations are derived from the sale of
its products and the ability, when necessary, to borrow on a secured line of
credit with First Fidelity Bank, N.A., New Jersey. At September 30, 1996,
$1,320,000 was utilized by the company for the short term financing of
equipment. Equipment term financing was subsequently established during October,
1996 and the secured line of credit was replenished at that time.
The Company believes that it has adequate funds available to conduct
and continue to expand its business and that of its subsidiaries. In addition,
the Company believes that, if necessary, it will be able to make favorable
financial arrangements for any future capital requirements.
-11-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEMS 2,3,4 & 6
Not applicable
-12-
<PAGE>
PRODUCTS, INC.
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.
HOSPOSABLE PRODUCTS, INC.
(Registrant)
Date: SIGNATURE:
---------------- -------------------------------------
Joseph H. Weinkam, Jr.
President and
Chief Operating Officer
-13-
<PAGE>
APPENDIX H
To The Proxy Statement
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date earliest event reported): November 12, 1996
Registrant, State of
Incorporation, Address I.R.S. Employer
Commission File Number and Telephone Number Identification No.
0-8410 HOSPOSABLE PRODUCTS, INC. 11-2236837
(a New York corporation)
100 Readington Road
Somerville, New Jersey 08876
Telephone (908) 707-1800
<PAGE>
Form 8-K Page 1
Item 5. Other Information.
The following press release was released on November 12, 1996:
FOR IMMEDIATE RELEASE
HOSPOSABLE PRODUCTS INC. AGREES TO ACQUIRE G.H. WOOD + WYANT INC.
November 12, 1996
CONTACT: JOSEPH H. WEINKAM, JR. (908) 707-1800 EXT. 310
Hosposable Products, Inc. (Hosposable) (Nasdaq: HOSP) today announced that it
has entered into a definitive agreement under which a wholly owned and newly
formed Canadian subsidiary (Buyer) will purchase the business and all operating
assets and assume the operating liabilities of G.H. Wood + Wyant Inc.
(Wood-Wyant).
The consideration to be paid by Buyer consists of cash and three classes of
preferred stock. At the closing of the proposed transaction, Buyer will pay
Wood-Wyant Cdn$5 million (US$3.7 million). In addition, Buyer will issue two
classes of preferred stock to Wood-Wyant that will be mandatorily redeemable
over ten years, will have dividend rates of 4% and 3.999% per annum,
respectively, and will have an aggregate liquidation preference of Cdn$8,062,741
(US$5,972,400), subject to adjustment. Lastly, Buyer will issue to Wood-Wyant
one million shares of a third class of preferred stock that will be exchangeable
for Hosposable common stock on a share for share basis. Hosposable anticipates
closing the proposed transaction in January 1997.
Wood-Wyant owns approximately 55.4% of the outstanding shares of Hosposable
common stock. The proposed transaction was negotiated on behalf of Hosposable by
a special committee composed of disinterested members of its board of directors.
The special committee, which engaged a financial advisor, Houlihan, Lokey,
Howard & Zukin, Inc. (Houlihan Lokey), and legal counsel, concluded that the
terms and conditions of the proposed transaction are fair to Hosposable
shareholders, and that the consummation of the proposed transaction on such
terms and conditions is in the interests of Hosposable shareholders. Houlihan
Lokey has rendered its opinion setting forth its view that the proposed
transaction is fair from a financial point of view to Hosposable shareholders.
The proposed transaction was then approved by Hosposable's board of directors.
<PAGE>
Form 8-K Page 2
The closing of the proposed transaction is contingent upon, among other things,
the approval of a majority of Hosposable's shareholders in accordance with the
applicable rules of the NASD. Wood-Wyant has undertaken to vote all of its
shares of Hosposable common stock in favor of the proposed transaction.
Hosposable will distribute definitive proxy materials to its shareholders in
connection with a special meeting to consider the proposed transaction. The date
for the special meeting has not been determined.
After the consummation of the proposed transaction, Hosposable, which will be
renamed Wyant Corporation, is expected to have combined assets of approximately
US$45 million and annual sales of approximately US$95 million.
Hosposable manufactures and markets premium branded and custom absorbent
products and air-laid nonwoven fabrics for health care and industrial markets.
Headquartered in Branchburg, New Jersey, Hosposable had sales of approximately
US$40.5 million in 1995 and currently employs 333 people. Hosposable is
diversified through its subsidiary, IFC Disposables, Inc., and has manufacturing
facilities in New Jersey, Tennessee and California and markets products in the
United States and abroad via an extensive sales and distribution network.
Wood-Wyant is Canada's leading national manufacturer and distributor of sanitary
paper products, janitorial chemicals, caretaking equipment and sanitation
supplies to institutional markets in Canada. Headquartered in Montreal,
Wood-Wyant had sales of approximately US$52.2 million in 1995 and currently
employs 375 people. Wood-Wyant operates a paper converting plant and a chemical
blending facility in Ontario and services approximately 20,000 customers through
a direct sales organization supported by customer service centers located across
Canada.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: the statements which are not historical facts contained in this press
release are forward looking statements that involve risks and uncertainties,
including, but not limited to, risks associated with Hosposable's future growth
and profitability, the ability of Hosposable to successfully integrate the
business and personnel of Wood-Wyant into Hosposable's operations and the
effects of competitive and general economic conditions.
<PAGE>
Form 8-K Page 3
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(c) Exhibits
2.1 Asset Purchase Agreement dated as of November
12, 1996 among Hosposable Products, Inc.,
3290441 Canada Inc. and G.H. Wood + Wyant
Inc.
<PAGE>
Form 8-K Page 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HOSPOSABLE PRODUCTS, INC.
By: /s/ Joseph H. Weinkam, Jr.
-------------------------------
Name: Joseph H. Weinkam, Jr.
Title: President and Chief Operating Officer
Dated: November 14, 1996
<PAGE>
EXHIBIT 2.1
To Form 8-K
[See Asset Purchase Agreement included
as Appendix A to Proxy Statement]
<PAGE>
APPENDIX 1
CONFIDENTIAL: FOR USE OF THE COMMISSION ONLY
HOSPOSABLE PRODUCTS, INC.
100 Readington Road
Somerville, New Jersey 08876
----------------------
----------------------
To the Shareholders of Hosposable Products, Inc.:
You are cordially invited to attend a Special Meeting of Shareholders
(the "Special Meeting") of Hosposable Products, Inc. ("HPI"), to be held on
December __, 1996 at 10:00 a.m. (EST), at the offices of HPI, 100 Readington
Road, Somerville, New Jersey. Notice of this meeting, a Proxy Statement and a
proxy card are enclosed.
As of November 12, 1996, HPI, 3290441 Canada Inc., a wholly owned and
newly formed Canadian subsidiary of HPI ("HPI Sub"), and G.H. Wood + Wyant Inc.
("Wyant") entered into an Asset Purchase Agreement (the "Purchase Agreement")
pursuant to which HPI Sub will purchase the business and all operating assets
and assume the operating liabilities of Wyant for (i) Cdn$5,000,000, (ii) a
promissory note in the amount of Cdn$4,262,741, subject to adjustment, if any,
pursuant to the terms of the Purchase Agreement (the "Note"), which Note will be
exchanged for shares of Class A Preferred Stock of HPI Sub immediately after
such adjustment, having a liquidation preference of Cdn$1.00 per share (on the
basis of one share of Class A Preferred Stock of HPI Sub for each Cdn$1.00 of
unpaid principal amount of the Note), which shares will have a dividend rate of
4% per annum and will be mandatorily redeemable over ten years pursuant to the
terms thereof, (iii) 3,800,000 shares of Class B Preferred Stock of HPI Sub
having an aggregate liquidation preference of Cdn$3,800,000, which shares will
have a dividend rate of 3.999999% per annum and will be mandatorily redeemable
over ten years pursuant to the terms thereof, and (iv) 1,000,000 shares of Class
E Preferred Stock of HPI Sub having a liquidation preference per share of one
share of HPI common stock, par value $.01 per share ("HPI Common Stock"), which
shares will be exchangeable for 1,000,000 shares of HPI Common Stock pursuant to
the terms thereof and will be entitled to dividends equivalent, on a per share
basis, to any dividends paid on the HPI Common Stock (collectively, the
"Acquisition"). The total fair value of the foregoing consideration to be paid
in the Acquisition is estimated by the Special Committee (as defined herein) to
be approximately Cdn$18,701,000 (or US$13,853,000, based on an exchange rate of
US$1.00 to Cdn$1.35). The amount of the Note included in such consideration is
based on the assumption that Wyant's earnings for the period from January 1,
1996 to the closing date of the Acquisition will equal Cdn$2,700,000 (without
taking into account a deferred tax liability that Wyant expects to record in
1996 in the amount of approximately Cdn$1,000,000). In the event that such
earnings are greater or less than Cdn$2,700,000, then the amount of the Note
issued at the closing of the Acquisition will be increased or decreased by a
corresponding amount. The liabilities of Wyant to be assumed by HPI Sub in the
Acquisition will include bank term debt in an amount estimated to be
approximately Cdn$5,126,000 (or approximately US$3,797,000).
The purpose of the Special Meeting is to consider and vote on the
Purchase Agreement necessary to consummate the Acquisition and the related
transactions provided for in the Purchase Agreement (the "Transactions"), a
proposal to adopt the HPI 1997 Stock Incentive Plan (the "Stock Incentive Plan")
and a proposal to amend the Certificate of Incorporation of HPI to (i) change
the name of HPI to Wyant Corporation and (ii) increase the number of authorized
shares of HPI Common Stock (the "Charter Proposal").
<PAGE>
Please read carefully the enclosed Proxy Statement in its entirety for
a more complete description of the terms of the Transactions, the Stock
Incentive Plan and the Charter Proposal.
Your Board of Directors (the "Board") has carefully considered the
terms of the Transactions, the Stock Incentive Plan and the Charter Proposal. In
addition, the Board has created a special committee consisting of disinterested
directors to consider the Transactions (the "Special Committee"). The Special
Committee concluded that the Transactions are fair to, and in the best interests
of, the HPI shareholders, in their capacity as such, and has reported this
conclusion to the Board. The members of the Special Committee are: Ms. Jane M.
Curtis, Mr. Nicholas A. Gallopo and Mr. Joseph H. Weinkam, Jr. Also, the
investment banking firm of Houlihan, Lokey, Howard & Zukin, Inc. has provided
the Board with an opinion that the Transactions are fair, from a financial point
of view, to the shareholders of HPI, in their capacity as such.
The Board believes that the Transactions, the Stock Incentive Plan and
the Charter Proposal are fair to, and in the best interests of, HPI and its
shareholders and therefore has approved the Transactions, the Stock Incentive
Plan and the Charter Proposal and recommends that all shareholders vote FOR
approval of the proposed Transactions, the Stock Incentive Plan and the Charter
Proposal.
All shareholders are invited to attend the Special Meeting in person.
Approval of the Transactions requires the approval, in person or by proxy, of a
majority of the total votes cast. Approval of the Stock Incentive Plan and the
Charter Proposal requires the approval of a majority of the outstanding shares
of HPI Common Stock entitled to vote. Whether or not you plan to attend, in
order that your shares may be represented at the Special Meeting, you are urged
to complete, sign and date the enclosed proxy card and return it as promptly as
possible in the enclosed envelope. If you attend the Special Meeting in person,
you may, if you wish, vote personally on all matters brought before the Special
Meeting even if you have previously returned your proxy. Your interest and
participation are appreciated.
Sincerely,
Joseph H. Weinkam, Jr.
President and Chief Operating Officer
November ___, 1996
IMPORTANT
All shareholders are cordially invited to attend the Special Meeting in
person.
Whether or not you plan to attend the Special Meeting in person, in
order to assure your representation at the meeting, you are urged to complete,
sign and date the enclosed proxy card, which is being solicited by the Board and
promptly return it in the self-addressed return envelope enclosed for that
purpose. The envelope requires no postage if mailed in the United States. Any
shareholder who signs and sends in a proxy card may revoke it at any time prior
to the vote at the Special Meeting by following the procedures set forth above
and in the Proxy Statement.
-2-
<PAGE>
APPENDIX 2
CONFIDENTIAL: FOR USE OF THE COMMISSION ONLY
HOSPOSABLE PRODUCTS, INC.
100 Readington Road
Somerville, New Jersey 08876
----------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On December __, 1996
----------------------
TO THE SHAREHOLDERS OF HOSPOSABLE PRODUCTS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Special Meeting") of Hosposable Products, Inc., a New York corporation ("HPI"),
will be held on December __, 1996 at 10:00 a.m. local time (E.S.T.) at the
offices of HPI, 100 Readington Road, Somerville, New Jersey, for the following
purposes:
1. To consider and vote upon a proposal to approve the Asset
Purchase Agreement dated as of November 12, 1996 (the "Purchase
Agreement"), by and among HPI, 3290441 Canada Inc., a wholly owned and
newly formed Canadian subsidiary of HPI ("HPI Sub"), and G.H. Wood +
Wyant Inc. ("Wyant"), pursuant to which HPI Sub will acquire the
business and all operating assets and assume the operating liabilities
of Wyant upon the terms and conditions set forth in the Purchase
Agreement (collectively, the "Acquisition"). The proposed Acquisition
and the related transactions provided for in the Purchase Agreement are
referred to herein collectively as the "Transactions."
2. To consider and act upon a proposal to approve the HPI 1997
Stock Incentive Plan (the "Stock Incentive Plan").
3. To consider and act upon a proposal to amend the
Certificate of Incorporation of HPI to (i) change the name of HPI to
Wyant Corporation and (ii) increase the number of authorized shares of
HPI common stock, par value $.01 per share ("HPI Common Stock"), from
3,000,000 shares to 6,000,000 shares (the "Charter Proposal").
4. To transact such other business as may properly come before
the Special Meeting or any adjournments or postponements thereof.
Approval of the Transactions requires the approval of a majority of the
total votes cast in person or by proxy at the Special Meeting. Approval of the
Stock Incentive Plan and the Charter Proposal requires the approval of a
majority of the outstanding shares of HPI Common Stock entitled to vote. The
Board of Directors of HPI has fixed the close of business on November __, 1996
as the record date for the determination of shareholders entitled to receive
notice of and to vote at the Special Meeting and only shareholders of record at
such time will be entitled to receive notice of and to vote at the Special
Meeting and any adjournments or postponements thereof. A list of such
shareholders will be available for examination at the offices of HPI located at
100 Readington Road, Somerville, New Jersey at least ten days prior to the
Special Meeting.
<PAGE>
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before the proxy is voted by (a) filing with the
Secretary of HPI, at or before the Special Meeting, a written notice of
revocation bearing a date later than the date of the proxy, (b) duly executing a
subsequent proxy relating to the same shares and delivering it to the Secretary
of HPI at or before the Special Meeting or (c) attending the Special Meeting and
voting in person (although attendance at the Special Meeting will not in and of
itself constitute a revocation of a proxy).
A proxy card and a Proxy Statement containing more detailed information
with respect to the matters to be considered at the Special Meeting accompany
this notice. Copies of the Purchase Agreement and the Stock Incentive Plan are
attached to the Proxy Statement as Appendices A and B, respectively.
By Order of the Board of Directors,
John C. Zisko
Secretary
Somerville, New Jersey
November __, 1996
IMPORTANT
All shareholders are cordially invited to attend the Special Meeting in
person.
Whether or not you plan to attend the Special Meeting in person, in
order to assure your representation at the meeting, you are urged to complete,
sign and date the enclosed proxy card, which is being solicited by the Board of
Directors of HPI and promptly return it in the self-addressed return envelope
enclosed for that purpose. The envelope requires no postage if mailed in the
United States. Any shareholder who signs and sends in a proxy card may revoke it
at any time prior to the vote at the Special Meeting by following the procedures
set forth above and in the Proxy Statement.
-2-
<PAGE>
APPENDIX 3
CONFIDENTIAL: FOR USE OF THE COMMISSION ONLY
HOSPOSABLE PRODUCTS, INC.
This Proxy is Solicited by the Board of Directors.
PROXY for Special Meeting of Shareholders, December 12, 1996
The undersigned, revoking all prior proxies, hereby appoints Joseph H.
Weinkam, Jr. and John B. Wight, or each or either of them, with full power of
substitution, as proxy or proxies of the undersigned to vote all shares of
common stock of HOSPOSABLE PRODUCTS, INC. which the undersigned would be
entitled to vote if personally present at the Special Meeting of Shareholders of
HOSPOSABLE PRODUCTS, INC. to be held on December 12, 1996, at 10:00 A.M.
(E.S.T.), at the offices of Hosposable Products, Inc., 100 Readington Road,
Somerville, New Jersey, or any adjournments or postponements thereof, including,
without limiting such general authorization, the following proposals described
in the accompanying Proxy Statement:
1. Approval of the Asset Purchase Agreement, by and among Hosposable Products,
Inc., 3290441 Canada Inc., and G.H. Wood + Wyant Inc., pursuant to which
3290441 Canada Inc. will acquire the business and all operating assets and
assume the operating liabilities of G.H. Wood + Wyant Inc. upon the terms
and conditions set forth therein.
FOR AGAINST ABSTAIN
|_| |_| |_|
2. Approval of the amendment to the Certificate of Incorporation of Hosposable
Products, Inc., which changes the corporate name to Wyant Corporation and
increases the number of authorized shares of common stock from 3,000,000 to
6,000,000.
FOR AGAINST ABSTAIN
|_| |_| |_|
3. Approval of the 1997 Stock Incentive Plan.
FOR AGAINST ABSTAIN
|_| |_| |_|
4. Such other matters as may properly come before the meeting or any
adjournments thereof. Abstentions will be counted for purposes of
determining whether a quorum is present. With respect to the votes
represented in Item 1 above, abstentions will not be counted in connection
with the approval of the matter. With respect to the votes represented in
Items 2 and 3 above, abstentions will have the effect of a vote against the
matter.
(Continued and to be signed on reverse side)
<PAGE>
(Continued from other side)
This proxy is being solicited by the management of Hosposable Products, Inc. and
will be voted as specified. If not otherwise specified, this proxy will be voted
for the proposals described in Items 1, 2 and 3 above.
The undersigned agrees that said proxies may vote in accordance with their
discretion with respect to any other matters that may properly come before the
meeting. The undersigned instructs such proxies to vote as directed on the
reverse side.
Dated:----------------- , 1996
Signature of Shareholder(s)
Signature of Shareholder(s)
This Proxy should be dated, signed by the shareholder(s) and returned promptly
in the enclosed envelope. Persons signing in a fiduciary capacity should so
indicate.
<PAGE>
