<PAGE> 1
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
[ ] Preliminary Proxy Statement
[X] 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)
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(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). Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials: $2,886
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[ ] 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:
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LOGO
HOSPOSABLE PRODUCTS, INC.
100 READINGTON ROAD
SOMERVILLE, NEW JERSEY 08876
February 13, 1997
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
March 17, 1997 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"), the holder of a majority of the outstanding shares of HPI Common
Stock (as defined below), entered into an Asset Purchase Agreement, as amended
(the "Purchase Agreement"), pursuant to which HPI Sub will purchase the business
and all operating assets (excluding the HPI Common Stock held by Wyant) and
assume the operating liabilities of Wyant for (i) Cdn$5,000,000 (US$3,731,343),
(ii) a promissory note in the amount of Cdn$4,262,741 (US$3,181,150), 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
(US$2,835,821), 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"). As of February 6, 1997,
HPI estimated the fair value of (i) the Class A Preferred Stock to be issued in
exchange for the Note to be approximately Cdn$4,028,040 (US$3,006,000), (ii) the
Class B Preferred Stock to be approximately Cdn$3,115,500 (US$2,325,000) and
(iii) the Class E Preferred Stock to be approximately Cdn$6,627,640
(US$4,946,000). The total fair value of the consideration to be paid in the
Acquisition was estimated by HPI as of February 6, 1997 to be approximately
Cdn$18,771,180 (US$14,008,343). 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 (US$2,015,000) (without taking into account a deferred tax
liability that Wyant expects to record from January 1, 1996 to the closing date
of the Acquisition in the amount of approximately Cdn$1,000,000 (US$746,000)).
In the event that such earnings are greater or less than Cdn$2,700,000
(US$2,015,000), 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
(approximately US$3,825,373). All conversions from
<PAGE> 3
Canadian to United States dollars as set forth above are based on an exchange
rate of US$1.00 to Cdn$1.34.
Wyant currently holds approximately 55.4% of the outstanding shares of
HPI Common Stock. Immediately after the closing of the Acquisition, if Wyant, as
the holder of the Class E Preferred Stock, exercises in full its rights to
exchange the Class E Preferred Stock for HPI Common Stock, Wyant would increase
its percentage ownership of the total outstanding shares of HPI Common Stock
held by it from 55.4% to 72%.
The portion of the Acquisition consideration to be received, directly or
indirectly, by James A. Wyant, a director of HPI and shareholder of Wyant, will
be Cdn$600,000 (US$447,760) in cash, 762,741 shares of 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
to be received, directly or indirectly, by Gerald W. Wyant, James A. Wyant's
father and a director of HPI and, indirectly, a shareholder of Wyant, will be
Cdn$2.4 million (US$1,791,045) in cash. The balance of the Acquisition
consideration will be received, directly or indirectly, by the siblings of James
A. Wyant, as shareholders of Wyant. Furthermore, in connection with the proposed
Transactions (as defined below), Wyant has entered into employment agreements
with Gerald W. Wyant and James A. Wyant. See "SUMMARY OF PROXY STATEMENT" and
"DESCRIPTION OF THE TRANSACTIONS" in the enclosed Proxy Statement for a complete
description of Wyant's controlling interest in HPI and the benefits to be
received by certain directors and affiliates of HPI as a result of the proposed
Transactions. All conversions from Canadian to United States dollars set forth
in this paragraph are based on an exchange rate of US$1.00 to Cdn$1.34.
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) a
proposal to adopt the HPI 1997 Stock Incentive Plan (the "1997 Stock Incentive
Plan"), (iii) a proposal to amend the Certificate of Incorporation of HPI to
change the name of HPI to Wyant Corporation, (iv) a proposal to amend the
Certificate of Incorporation of HPI to increase the number of authorized shares
of HPI Common Stock (items (iii) and (iv) are hereinafter referred to as the
"Charter Proposals") and (v) any proposal to adjourn or postpone the Special
Meeting.
PLEASE READ CAREFULLY THE ENCLOSED PROXY STATEMENT IN ITS ENTIRETY FOR A
MORE COMPLETE DESCRIPTION OF THE TERMS OF THE TRANSACTIONS, THE 1997 STOCK
INCENTIVE PLAN AND THE CHARTER PROPOSALS.
Your Board of Directors (the "Board") has carefully considered the terms
of the Transactions, the 1997 Stock Incentive Plan and the Charter Proposals. In
addition, the Board has created a special committee consisting of disinterested
directors to consider the Transactions (the "Special Committee") in light of the
conflicts of interest resulting from Wyant's ownership of approximately 55.4% of
the outstanding shares of HPI Common Stock and the benefits to be received by
certain directors and affiliates of HPI as a result of the proposed
Transactions. 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. ("Houlihan Lokey") 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.
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THE BOARD BELIEVES THAT THE TRANSACTIONS, THE 1997 STOCK INCENTIVE PLAN
AND THE CHARTER PROPOSALS ARE FAIR TO, AND IN THE BEST INTERESTS OF, HPI AND ITS
SHAREHOLDERS AND THEREFORE HAS APPROVED THE TRANSACTIONS, THE 1997 STOCK
INCENTIVE PLAN AND THE CHARTER PROPOSALS AND RECOMMENDS THAT ALL SHAREHOLDERS
VOTE FOR APPROVAL OF THE PROPOSED TRANSACTIONS, THE 1997 STOCK INCENTIVE PLAN
AND THE CHARTER PROPOSALS.
The Board believes that the Transactions are fair to, and in the best
interests of, HPI and its shareholders, after consideration of 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 Transactions are fair to, and in the interests of, the
shareholders of HPI, in their capacity as such, the competitive environment in
the institutional sanitation business, Houlihan Lokey's fairness opinion and the
material risks associated with the Acquisition of Wyant. For a complete
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" and "-- Risks Associated with the
Acquisition of the Acquired Business" in the enclosed Proxy Statement.
Although not expressly conditioned on one another, if, for whatever
reason, the Transactions are not consummated, the Board will likely decide not
to effectuate the 1997 Stock Incentive Plan or the Charter Proposals.
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 1997 Stock Incentive Plan and
the Charter Proposals 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.
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Sincerely,
/s/ Joseph H. Weinkam, Jr.
Joseph H. Weinkam, Jr.
President and Chief Operating Officer
</TABLE>
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HOSPOSABLE PRODUCTS, INC.
100 READINGTON ROAD
SOMERVILLE, NEW JERSEY 08876
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 17, 1997
------------------------
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 March 17, 1997 at 10:00 a.m. local time (EST) 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, as amended (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"), the holder of a majority of the outstanding
shares of HPI Common Stock (as defined below), pursuant to which HPI Sub
will acquire the business and all operating assets (excluding the HPI
Common Stock (as defined below) held by Wyant) 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 "1997 Stock Incentive Plan").
3. To consider and act upon a proposal to amend the Certificate
of Incorporation of HPI to change the name of HPI to Wyant Corporation.
4. To consider and act upon a proposal to amend the Certificate
of Incorporation of HPI to 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 (items 3 and 4 are hereinafter
referred to as the "Charter Proposals").
5. To consider and act upon any proposal to adjourn or postpone
the Special Meeting.
6. 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
1997 Stock Incentive Plan and the Charter Proposals 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 February 3, 1997 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> 6
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 Amendment No. 1 thereto and
the 1997 Stock Incentive Plan are attached to the Proxy Statement as Appendices
A and A-1 and B, respectively.
By Order of the Board of Directors,
/s/ John C. Zisko
John C. Zisko
Secretary
Somerville, New Jersey
February 13, 1997
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 ACCOMPANYING PROXY STATEMENT.
<PAGE> 7
HOSPOSABLE PRODUCTS, INC.
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 17, 1997
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 February 3, 1997 (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 March 17,
1997 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"), the holder of a majority of the outstanding shares of HPI Common
Stock (as defined herein), entered into an Asset Purchase Agreement, as amended
(the "Purchase Agreement"), pursuant to which HPI Sub agreed to purchase the
business and all operating assets (excluding the HPI Common Stock held by Wyant)
(collectively, the "Acquired Business") and assume the operating liabilities of
Wyant for (w) Cdn$5,000,000 (US$3,731,343) (the "Cash Consideration"), (x) a
promissory note in the principal amount of Cdn$4,262,741 (US$3,181,150), 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 (US$2,835,821), 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"). As of February 6, 1997, HPI estimated the fair value of (i) the
Class A Preferred Stock to be issued in exchange for the Note to be
approximately Cdn$4,028,040 (US$3,006,000), (ii) the Class B Preferred Stock to
be approximately Cdn$3,115,500 (US$2,325,000) and (iii) the Class E Preferred
Stock to be approximately Cdn$6,627,640 (US$4,946,000). The total fair value of
the foregoing consideration to be paid in the Acquisition was estimated by HPI
as of February 6, 1997 to be approximately Cdn$18,771,180 (US$14,008,343). 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 (US$2,015,000) (without taking into
account a deferred tax liability that Wyant expects to record from January 1,
1996 to the Closing Date in the amount of approximately Cdn$1,000,000
(US$746,000)). In the event that such earnings are greater or less than
Cdn$2,700,000 (US$2,015,000), 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 (approximately US$3,825,373). On November 6, 1996,
the Board approved the form of Purchase Agreement. All conversions from Canadian
to United States dollars set forth above are based on an exchange rate of
US$1.00 to Cdn$1.34.
Wyant currently holds approximately 55.4% of the outstanding shares of HPI
Common Stock. Immediately after the Closing, if Wyant, as the holder of the
Class E Preferred Stock, exercises in full its rights to exchange the Class E
Preferred Stock for HPI Common Stock, Wyant would increase its percentage
ownership of the total outstanding shares of HPI Common Stock held by it from
55.4% to 72%.
The portion of the Acquisition Consideration (as defined herein) to be
received, directly or indirectly, by James A. Wyant, a director of HPI and
shareholder of Wyant, will be Cdn$600,000 (US$447,760) in cash, 762,741 shares
of 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 to be received, directly or indirectly, by Gerald
W. Wyant, James A. Wyant's father and a director of HPI and, indirectly, a
shareholder of Wyant, will be Cdn$2.4 million (US$1,791,045) in cash. The
balance of the Acquisition Consideration will be received, directly or
indirectly, by the siblings of James A. Wyant, as shareholders of Wyant.
Furthermore, in connection with the proposed Transactions (as defined below),
Wyant has entered into Employment Agreements (as defined herein) with Gerald W.
Wyant and James A. Wyant. See "SUMMARY OF PROXY STATEMENT" and "DESCRIPTION OF
THE TRANSACTIONS" for a complete description of Wyant's controlling interest in
HPI and the benefits to be received by certain directors and affiliates of HPI
as a result of the proposed Transactions. All conversions from Canadian to
United States dollars set forth above are based on an exchange rate of US$1.00
to Cdn$1.34.
In addition, on November 6, 1996 the Board approved the HPI 1997 Stock
Incentive Plan (the "1997 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 Proposals").
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 1997 Stock Incentive Plan, (iii) the Charter Proposals and (iv) any proposal
to adjourn or postpone the Special Meeting.
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 attached Notice of Special Meeting of
Shareholders, the attached letter to shareholders from HPI, and the enclosed
proxy card are first being mailed to HPI shareholders on or about February 13,
1997.
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TABLE OF CONTENTS
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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
The Acquired Business.......................................... 4
Acquisition Consideration...................................... 4
The Note and the Class A Preferred Stock....................... 4
Class B Preferred Stock........................................ 4
Class E Preferred Stock........................................ 5
Representations and Warranties................................. 5
Covenants...................................................... 5
Conditions..................................................... 5
Closing of the Acquisition..................................... 5
Indemnification................................................ 5
Covenant Agreement............................................. 6
Termination.................................................... 7
Expenses....................................................... 7
Regulatory Requirements and Approvals.......................... 7
Accounting Treatment................................................... 7
U.S. Federal Income Tax Consequences................................... 7
Interest of Certain Persons in Matters to be Acted Upon................ 8
Risks Associated with the Acquisition of the Acquired Business......... 8
The 1997 Stock Incentive Plan.......................................... 9
The Charter Proposals.................................................. 9
Comparative Market Price and Dividend Information...................... 9
Summary Financial Data of HPI.......................................... 10
Recent Financial Results of HPI (unaudited)............................ 11
Summary Financial Data of the Canadian Operations of Wyant............. 11
Summary Unaudited Pro Forma Condensed Combined Financial Information... 14
Comparative Pro Forma Historical and Unaudited Per Share Data.......... 15
THE SPECIAL MEETING............................................................ 16
General................................................................ 16
Record Date............................................................ 16
Votes Required; Effect of Abstentions and Non-Votes.................... 16
Voting and Revocation of Proxies....................................... 17
Adjournment of the Special Meeting..................................... 17
Solicitation of Proxies................................................ 18
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DESCRIPTION OF THE TRANSACTIONS................................................ 19
Effects of the Acquisition............................................. 19
Background of and Reasons for the Transactions......................... 19
Background..................................................... 19
Special Committee of the Board................................. 19
Reasons for the Transactions................................... 24
Opinion of the Financial Advisor....................................... 26
Houlihan, Lokey, Howard & Zukin................................ 26
Assessing the Fair Market Value of Wyant....................... 27
Assessing the Fair Market Value of Acquisition Consideration... 30
Assessing Reasonableness of HPI's Common Stock Value........... 30
Combination Benefits........................................... 31
Fees and Expenses.............................................. 32
Terms of the Acquisition............................................... 32
The Acquired Business.......................................... 32
Description of the Note........................................ 32
Description of the Class A Preferred Stock and the Class B
Preferred Stock................................................. 33
General................................................ 33
Voting Rights.......................................... 33
Dividends.............................................. 33
Liquidation............................................ 33
Mandatory Redemption................................... 33
Optional Tender........................................ 34
Description of the Class E Preferred Stock..................... 34
General................................................ 34
Voting Rights.......................................... 34
Dividends.............................................. 34
Liquidation............................................ 34
Exchange Rights........................................ 35
Registration Rights Agreement.................................. 35
Covenant Agreement............................................. 35
Effect on HPI Shareholders..................................... 35
Representations and Warranties................................. 36
Covenants...................................................... 36
Conditions..................................................... 37
Conduct of Business Prior to the Closing Date.................. 37
Indemnification................................................ 38
Termination.................................................... 40
Expenses....................................................... 40
Waiver and Amendment........................................... 40
Regulatory Requirements and Approvals.......................... 41
Accounting Treatment........................................... 41
U.S. Federal Income Tax Consequences........................... 41
Interests of Certain Persons in Matters to be Acted Upon............... 41
Risks Associated with the Acquisition of the Acquired Business......... 42
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION................... 44
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND HPI MANAGEMENT............. 52
EXECUTIVE COMPENSATION......................................................... 53
Summary Compensation Tables............................................ 53
Compensation of Directors.............................................. 55
PROPOSED ADOPTION OF THE HPI 1997 STOCK INCENTIVE PLAN......................... 56
Plan Administration.................................................... 56
Securities to be Offered............................................... 56
Individuals Who May Participate in the Plan............................ 56
Awards................................................................. 57
Options for Non-Employee Directors............................. 57
Options for Other Participants................................. 57
Stock Appreciation Rights...................................... 58
Restricted Stock............................................... 58
Performance Shares............................................. 58
Performance Units.............................................. 58
Share Withholding...................................................... 59
Term of Plan........................................................... 59
Federal Income Tax Consequences Relating to Options.................... 59
New Plan Benefits...................................................... 60
PROPOSED AMENDMENTS OF THE HPI CERTIFICATE OF INCORPORATION.................... 61
Corporate Name Change.................................................. 61
Increase of Authorized Shares.......................................... 61
INFORMATION CONCERNING HPI..................................................... 62
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF HPI......................... 63
Recent Financial Results of HPI (unaudited)............................ 64
INFORMATION CONCERNING THE CANADIAN OPERATIONS OF WYANT........................ 64
General................................................................ 64
Strategy and Marketing................................................. 65
Services and Operations................................................ 65
Customers.............................................................. 66
Technology............................................................. 66
Competition............................................................ 66
Supply of Raw Materials................................................ 66
Employees.............................................................. 67
Governmental Regulation................................................ 67
Properties............................................................. 67
Legal Proceedings...................................................... 68
SELECTED HISTORICAL FINANCIAL DATA OF THE CANADIAN OPERATIONS OF WYANT......... 69
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF THE
COMBINED OPERATIONS OF HPI AND THE CANADIAN OPERATIONS OF WYANT.............. 72
Overview............................................................... 72
Nine Months Ended September 30, 1996 as Compared with the Nine Months
Ended September 30, 1995.............................................. 72
Sales.......................................................... 72
</TABLE>
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<PAGE> 11
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Cost of Sales and Gross Profit................................. 72
Selling, General and Administrative............................ 73
Depreciation and Amortization.................................. 73
Other Income................................................... 73
Interest Expense............................................... 73
Income Before Income Tax....................................... 73
Income Taxes................................................... 73
Net Earnings Attributable to Common Shareholders............... 73
Liquidity and Capital Resources........................................ 74
HPI............................................................ 74
The Canadian Operations of Wyant............................... 74
Impact of the Acquisition on Continuing Operations............. 75
Fiscal Year 1995 as Compared with Fiscal Year 1994..................... 75
Sales.......................................................... 75
Cost of Sales and Gross Profit................................. 76
Selling, General and Administrative............................ 76
Depreciation and Amortization.................................. 76
Other Income (Expense)......................................... 76
Non-Recurring Items............................................ 76
Income Taxes................................................... 76
Net Earnings Attributable to Common Shareholders............... 77
Fiscal Year 1994 as Compared with Fiscal Year 1993..................... 77
Overview....................................................... 77
Sales.......................................................... 77
Cost of Sales and Gross Profit................................. 77
Selling, General and Administrative............................ 77
Depreciation and Amortization.................................. 77
Other Income................................................... 78
Interest Expense............................................... 78
Non-Recurring Items............................................ 78
Income Taxes................................................... 78
Net Earnings Attributable to Common Shareholders............... 78
Liquidity and Capital Resources........................................ 78
HPI............................................................ 78
The Canadian Operations of Wyant............................... 79
Seasonality............................................................ 80
Impact of Inflation.................................................... 80
ACCOUNTANT MATTERS............................................................. 81
SHAREHOLDER PROPOSALS.......................................................... 81
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.............................. 82
INDEX TO FINANCIAL STATEMENTS.................................................. F-1
APPENDICES
</TABLE>
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<PAGE> 12
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 Amendment No. 1 thereto, and the 1997 Stock Incentive
Plan included as Appendices A and A-1 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 1997 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 one of two national distributors
of sanitary paper products, janitorial chemicals and equipment, and sanitation
supplies to institutional markets in Canada, with Wyant being the only national
full line distributor focused solely on the institutional sanitation market.
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.
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 THE CANADIAN OPERATIONS OF WYANT."
<PAGE> 13
THE SPECIAL MEETING
The Special Meeting to consider and vote on the Transactions, the 1997
Stock Incentive Plan, the Charter Proposals and any proposal to adjourn or
postpone the Special Meeting will be held on March 17, 1997 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 1997 Stock Incentive Plan, to approve and adopt the Charter Proposals
and any proposal to adjourn or postpone the Special Meeting 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 AMENDMENTS OF 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 1997 Stock Incentive Plan and the Charter
Proposals requires approval of a majority of the outstanding shares of HPI
Common Stock entitled to vote.
The HPI shareholders will not have appraisal or dissenter rights in
connection with their vote on the Transactions, the 1997 Stock Incentive Plan or
the Charter Proposals.
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 1997 Stock Incentive Plan and the Charter Proposals. Such
shares represent less than 1% of the outstanding shares of HPI Common Stock.
Wyant, which currently holds approximately 55.4% of the outstanding shares of
HPI Common Stock, has agreed in the Purchase Agreement to vote in favor of the
Transactions.
If Wyant votes in favor of the Transactions as it has agreed to do in the
Purchase Agreement, then a sufficient number of shares will have been cast in
favor of the Transactions, the 1997 Stock Incentive Plan and the Charter
Proposals 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." In the event that the
Transactions are not consummated, both HPI and Wyant expect to continue to
operate consistent with past practices.
2
<PAGE> 14
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") in light of the
conflicts of interest resulting from Wyant's ownership of approximately 55.4% of
the outstanding shares of HPI Common Stock and the benefits to be received by
certain directors and affiliates of HPI as a result of the proposed
Transactions. See "-- Interest of Certain Persons in Matters to be Acted Upon."
The Special Committee has concluded that the Transactions are fair to, and in
the 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. See
"DESCRIPTION OF THE TRANSACTIONS -- Background of and Reasons for the
Transactions -- Special Committee of the Board" and "-- Reasons for the
Transactions" for a description of the material factors considered by the
Special Committee and the reasons for its recommendation to the Board. Pursuant
to the 1997 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 1997 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 Financial
Advisor."
RECOMMENDATION OF THE BOARD
The Board has approved the Transactions, the 1997 Stock Incentive Plan
and the Charter Proposals and has adopted resolutions recommending that the
shareholders of HPI vote FOR approval and adoption of the Transactions, the 1997
Stock Incentive Plan and the Charter Proposals.
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
3
<PAGE> 15
material factors; for a further description of the material 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." Among the material factors considered by the Board were the
financial terms of the Transactions, financial information concerning Wyant, the
report of the Special Committee to the effect that the Transactions are fair to,
and in the interests of, the shareholders of HPI, in their capacity as such, the
competitive environment in the institutional sanitation business, Houlihan
Lokey's fairness opinion and the material risks associated with the Acquisition
of the Acquired Business (see "-- Risks Associated with the Acquisition of the
Acquired Business").
THE ACQUISITION
The Acquired Business. Pursuant to the Purchase Agreement, HPI Sub has
agreed to purchase the Acquired Business. The operating assets that constitute
the Acquired Business principally include inventory, accounts receivable,
property, plant and equipment (including Wyant's converting facility in
Pickering, Ontario), patents, trademarks, customer lists and any and all other
assets, tangible or intangible, of Wyant that are required to operate the
Acquired Business. The HPI Common Stock held by Wyant is not part of the
Acquired Business.
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"). As of February
6, 1997, HPI estimated the fair value of (i) the Class A Preferred Stock to be
issued in exchange for the Note to be approximately Cdn$4,028,040
(US$3,006,000), (ii) the Class B Preferred Stock to be approximately
Cdn$3,115,500 (US$2,325,000) and (iii) the Class E Preferred Stock to be
approximately Cdn$6,627,640 (US$4,946,000). The total Acquisition Consideration
was estimated by HPI as of February 6, 1997 to be approximately Cdn$18,771,180
(or US$14,008,343). 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 (US$2,015,000)
(without taking into account a deferred tax liability that Wyant expects to
record from January 1, 1996 to the Closing Date in the amount of approximately
Cdn$1,000,000 (US$746,000)). In the event that such earnings are greater or less
than Cdn$2,700,000 (US$2,015,000), 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$3,825,373). All conversions from Canadian to United States
dollars in this paragraph are based on an exchange rate of US$1.00 to Cdn$1.34.
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 (US$3,181,150),
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 the 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
4
<PAGE> 16
Sub Articles. The holders of Class A and Class B Preferred Stock will have the
right, voting as a single class, 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
(as defined herein)) to pay dividends on, or to redeem, the Class A and Class B
Preferred Stock pursuant to the terms thereof. See "DESCRIPTION OF THE
TRANSACTIONS -- Terms of the Acquisition -- Description of the Class A Preferred
Stock and the 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. Immediately after
the Closing, if Wyant, as the holder of the Class E Preferred Stock, exercises
in full its rights to exchange the Class E Preferred Stock for HPI Common Stock,
Wyant would increase its percentage ownership of the total outstanding shares of
HPI Common Stock held by it from 55.4% to 72%. As a result, upon such exercise,
HPI shareholders will experience a reduction in their percentage ownership of
the total outstanding shares of HPI Common Stock. See "DESCRIPTION OF THE
TRANSACTIONS -- Terms of the Acquisition -- Description of the Class E Preferred
Stock" and "-- Effect on HPI Shareholders."
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."
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 and (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
(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
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<PAGE> 17
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.
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
never have materially more than approximately Cdn$12,800,000 (US$9,558,000 based
on an exchange rate of US$1.00 to Cdn$1.34) in assets to satisfy its
indemnification obligations under the Purchase Agreement.
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
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<PAGE> 18
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 April 30, 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
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 the Canadian Operations 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 the Canadian Operations of Wyant immediately prior to the Transactions,
subject to adjustments, if any, required to conform the accounting policies of
the Canadian Operations 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 -- Terms of the Acquisition -- 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 taxable 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. "DESCRIPTION OF THE
TRANSACTIONS -- Terms of the Acquisition -- U.S. Federal Income Tax
Consequences."
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<PAGE> 19
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 to be received,
directly or indirectly, by James A. Wyant, a director of HPI and shareholder of
Wyant, will be Cdn$600,000 (US$447,760) in cash, 762,741 shares of 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 to be received, directly or indirectly, by Gerald W.
Wyant, a director of HPI, James A. Wyant's father, and, indirectly, a
shareholder of Wyant, will be Cdn$2.4 million (US$1,791,045) in cash. The
portion of the Acquisition Consideration to be received, directly or indirectly,
by 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 (US$746,269) each and 83,333 shares of Class
E Preferred Stock each. All conversions from Canadian to United States dollars
in this paragraph are based upon an exchange rate of US$1.00 to Cdn$1.34.
In connection with the proposed Transactions, Wyant has entered into
employment agreements with Gerald W. Wyant and James A. Wyant (each, an
"Employment Agreement"). Each of these Employment Agreements initially takes
effect as of January 1, 1997. However, if the Transactions are not completed on
or prior to April 30, 1997 the Employment Agreements will automatically
terminate. Provided that the Transactions are completed on or prior to April 30,
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. See "DESCRIPTION OF THE TRANSACTIONS -- Interest of
Certain Persons in Matters to be Acted Upon."
RISKS ASSOCIATED WITH THE ACQUISITION OF THE ACQUIRED BUSINESS
As a result of the Acquisition, HPI's results of operations will be
significantly dependent on, and materially affected by, the results of
operations of the Acquired Business and the attendant business risks that are
associated with the operation of the Acquired Business as a going concern. See
"DESCRIPTION OF THE TRANSACTIONS -- Risks Associated with the Acquisition of the
Acquired Business" for a complete description of these material risks. Among
these material risks are U.S. - Canadian dollar exchange rate risks, the risks
associated with increased financial leverage at both Wyant and HPI after the
consummation of the Transactions and the competitive environment in the
institutional sanitation business. There can be no assurance as to the degree to
which such risks may have a material adverse effect on the results of operations
of the Acquired Business and, thus, the results of operations of HPI. See also
"INFORMATION CONCERNING THE CANADIAN OPERATIONS OF WYANT" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF THE COMBINED
OPERATIONS OF HPI AND THE CANADIAN OPERATIONS OF WYANT."
8
<PAGE> 20
THE 1997 STOCK INCENTIVE PLAN
The 1997 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 PROPOSALS
In connection with the Acquisition, the Board of Directors intends to
change the corporate name of HPI to Wyant Corporation. The primary reason for
the corporate name change is that management believes that the Hosposable name
will no longer reflect the business composition and the mission of HPI
subsequent to the consummation of the Transactions.
Of the 3,000,000 currently authorized shares of HPI Common Stock, as of
February 13, 1997, 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 Proposals 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 corporate purposes. See "PROPOSED AMENDMENTS OF 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.
9
<PAGE> 21
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
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
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 (1)....... 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
</TABLE>
- ---------------
1. 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.
10
<PAGE> 22
RECENT FINANCIAL RESULTS OF HPI (UNAUDITED)
HPI's results of operations for the three month period ended December 31,
1996 were negatively impacted by significant non-recurring expenses incurred in
connection with the Transactions and significant unanticipated losses resulting
from certain uncollectible customer accounts. HPI's loss before income tax
recoveries, net loss and loss per common share for the three month period ended
December 31, 1996 were approximately $982,000, $642,000 and $0.38, respectively,
and for the year ended December 31, 1996 were approximately $1,663,000,
$1,055,000 and $0.62, respectively.
Excluding the effect of the non-recurring expenses incurred in connection
with the Transactions, HPI's loss before income tax recoveries, net loss and
loss per common share for the three month period ended December 31, 1996 would
have been approximately $432,000, $293,000 and $0.17, respectively, and for the
year ended December 31, 1996 would have been approximately $1,113,000, $706,000
and $0.41, respectively.
SUMMARY FINANCIAL DATA OF THE CANADIAN OPERATIONS OF WYANT
The summary financial data set forth below is derived from the financial
statements of the Canadian Operations of Wyant. The financial statements for
each of the fiscal years in the two-year period ended December 31, 1994 have
been audited by Deloitte & Touche, its prior independent auditor, and the
financial statements for the fiscal year ended December 31, 1995 have been
audited by Ernst & Young, its current independent auditor. The financial
statements have been prepared in accordance with accounting principles generally
accepted in Canada ("Canadian GAAP"). The summary financial information for the
nine months ended September 30, 1996 and 1995 is derived from the unaudited
interim 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 "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF THE COMBINED
OPERATIONS OF HPI AND THE CANADIAN OPERATIONS OF WYANT" and the financial
statements and notes thereto contained elsewhere herein.
11
<PAGE> 23
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
------------------------------------ -----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
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.................. 42,200 16,899 69,157 53,660 61,102
Unusual and Non-Recurring Items
(2,3,4)....................... (1,852,368) (272,687) (1,594,000) -- --
---------- ---------- ---------- ---------- ----------
Income (Loss) Before Income
Taxes and Share of Net Income
of Affiliates................. (7,231,906) (3,574,193) 556,040 1,631,728 2,437,446
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 of Affiliates...... (5,332,099) (2,824,825) 522,511 1,533,828 1,357,446
Share of Net Income of
Affiliates.................... 107,259 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net Income (Loss)............... $(5,224,840) $(2,824,825) $ 522,511 $1,533,828 $1,357,446
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30,
---------------------------------------- -------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSETS DATA:
Working Capital....... $3,878,953 $4,525,814 $3,545,360 $5,395,517 $4,869,452
Total Assets.......... 48,226,411 34,720,866 31,137,840 34,717,111 29,125,129
Long-Term Debt........ 8,851,029 6,895,090 4,292,285 5,421,258 3,553,999
Deferred Income
Taxes............... 683,159 -- -- -- 775,408
Net Assets............ 14,755,067 10,335,526 10,362,741 11,843,267 11,720,935
</TABLE>
- ---------------
1. The Summary Financial Data of the Canadian Operations 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 financial statements of the Canadian Operations 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 financial statements of the Canadian Operations of Wyant.
All of these financial statements are expressed in Canadian dollars and
have been prepared in accordance with Canadian GAAP.
2. During 1993, the Canadian Operations of 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.
3. (a) On February 21, 1994, the Canadian Operations of 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, a program was initiated to reduce
the number of distribution centers and consolidate the paper converting
operations. The resulting restructuring charge comprised:
12
<PAGE> 24
<TABLE>
<S> <C>
Employee severance pay................................................ $1,582,070
Lease abandonment..................................................... 628,610
Employee relocation................................................... 256,000
Consulting fees....................................................... 180,000
Write-off of obsolete marketing and operating materials............... 173,000
Consolidation of paper converting operations -- other expenses........ 170,000
Other................................................................. 43,431
---------
$3,033,111
=========
</TABLE>
4. (a) On February 17, 1993, as part of an asset purchase agreement, the
Canadian Operations of 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, the Canadian Operations of 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, the Canadian Operations of 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:
<TABLE>
<S> <C>
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
=========
</TABLE>
(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, surplus machinery was identified. 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.
13
<PAGE> 25
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 of the Canadian Operations of 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, 1994 for purposes of the pro forma statements of operations. The pro forma
statement of operations data for 1993 reflects the line-by-line results of the
Canadian Operations of Wyant and its proportionate share of the results of HPI,
determined in accordance with equity accounting as reflected in "Share of Net
Income of Affiliates." The pro forma information gives effect to adjustments
necessary to conform the Canadian Operations of 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 condition. 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)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales........................................ $ 57,944 $ 86,120 $ 91,355 $ 69,724
Cost of Sales................................ 34,645 58,356 62,113 47,569
------------ ------------ ------------ -------------
Gross profit................................. 23,299 27,764 29,242 22,155
Selling, General and Administrative
Expenses................................... 25,969 26,887 25,994 20,260
Depreciation and Amortization................ 664 766 659 425
Other Income................................. (29) (397) (168) (178)
Interest Expense............................. 891 1,305 1,308 745
Non-Recurring Items.......................... 1,436 62 1,849 --
------------ ------------ ------------ -------------
28,931 28,623 29,642 21,252
Income (Loss) Before Income Taxes and Share
of Net Income or Affiliates................ (5,632) (859) (400) 903
Provision for (Recovery of) Income Taxes..... (1,466) (8) (339) 443
------------ ------------ ------------ -------------
Income (Loss) Before Share of Net Income of
Affiliates................................. (4,166) (851) (61) 460
Share of Net Income of Affiliates............ 588 -- -- --
------------ ------------ ------------ -------------
Net Income (Loss)............................ (3,578) (851) (61) 460
Dividend Requirements and Accretion of
Mandatorily Redeemable Preferred Shares.... -- 343 313 213
------------ ------------ ------------ -------------
Net Income (Loss) Attributable to Common
Shares..................................... $ (3,578) $ (1,194) $ (374) $ 247
========== ========== ========== ==========
Income (Loss) Per Common Share............... $ (2.10) $ (0.71) $ (0.22) $ 0.09
Weighted Average Number of Common Shares
Outstanding................................ 1,704,158 1,691,906 1,692,476 2,692,476
</TABLE>
14
<PAGE> 26
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1996
-------------
<S> <C>
BALANCE SHEET DATA:
Working Capital............................................................ $ 6,751
Total Assets............................................................... 44,442
Long-Term Debt............................................................. 8,020
Redeemable Preferred Shares................................................ 5,331
Deferred Income Taxes...................................................... 961
Total Shareholders' Equity................................................. 12,398
</TABLE>
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 financial statements of the Canadian
Operations of Wyant. The pro forma information gives effect to adjustments
necessary to conform the historical financial statements to U.S. GAAP and all
dollar amounts expressed are in United States dollars. The historical data for
HPI and the Canadian Operations of 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
----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Net Income (Loss) 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............... $ 0.70 $ 0.61 $ (0.12) $ (0.24)
Pro forma................ $ (2.10) $ (0.71) $ (0.22) $ 0.09
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................ $ 5.10 $ 4.65 $ 4.51 $ 4.60
</TABLE>
- ---------------
(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.
15
<PAGE> 27
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 March 17, 1997 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 1997
Stock Incentive Plan and the Charter Proposals and any proposal to adjourn or
postpone the Special Meeting and to transact such other business as may properly
come before the Special Meeting or any adjournments or postponements thereof.
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 1997 STOCK
INCENTIVE PLAN AND (III) THE CHARTER PROPOSALS.
RECORD DATE
The Board has fixed the close of business on February 3, 1997 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 1997 Stock Incentive Plan and the Charter
Proposals 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 and adoption of the 1997 Stock
Incentive Plan and the Charter Proposals by the shareholders of HPI requires the
affirmative vote of a majority of the shares of HPI Common Stock entitled to
vote at the Special Meeting. The HPI shareholders will not have appraisal or
dissenter rights in connection with their vote on the Transactions, the 1997
Stock Incentive Plan or the Charter Proposals.
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
1997 Stock Incentive Plan and the Charter Proposals 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 1997 Stock Incentive
Plan and the Charter Proposals. 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. Pursuant to such rules,
shareholder approval is required in connection with the acquisition of
16
<PAGE> 28
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 in
the aggregate own 3,100 shares of HPI Common Stock, intends to vote in favor of
the Transactions, the 1997 Stock Incentive Plan and the Charter Proposals. Such
shares represent less than 1% of the outstanding shares of HPI Common Stock.
Wyant, which currently holds approximately 55.4% of the outstanding shares of
HPI Common Stock, has agreed in the Purchase Agreement to vote in favor of the
Transactions.
If Wyant votes in favor of the Transactions as it has agreed to do in the
Purchase Agreement, then a sufficient number of shares will have been cast in
favor of the Transactions, the 1997 Stock Incentive Plan and the Charter
Proposals for each to have been approved. In the event that the Transactions are
not consummated, both HPI and Wyant expect to continue to operate consistent
with past practices.
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
1997 Stock Incentive Plan and the Charter Proposals. 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 1997 Stock Incentive Plan or the Charter Proposals, HPI
may adjourn the Special Meeting with a vote of the majority of its shareholders
present or represented at the meeting. To the extent any HPI shareholder intends
to vote against the Transactions, the 1997 Stock Incentive Plan or the Charter
Proposals, such shareholder would have no incentive to vote in favor of
discretionary adjournment by the Board, which would allow HPI to adjourn the
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meeting in order to solicit additional votes in favor of the Transactions, the
1997 Stock Incentive Plan or the Charter Proposals.
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.
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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, and Amendment No. 1 thereto,
which are included as Appendices A and A-1, respectively, 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 and all conditions are
satisfied or waived, 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. HPI expects
that expenses incurred by HPI in connection with the Transactions will be
approximately US$700,000.
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. During the first half of
1996, Wyant concluded that a business combination of HPI and Wyant would be
advantageous to the shareholders of both companies because the resulting
company, with an integrated management team, a larger balance sheet and strong
earnings and cash flow, would be better positioned to access capital markets and
to compete in the institutional health care and sanitation markets. At a June
12, 1996 meeting of the Board, representatives of Wyant made a New York
presentation outlining the proposed terms of the Transactions and providing
financial and other information concerning Wyant. Prior to the June 12, 1996
meeting of the Board, and Wyant's presentation to the Board at such meeting,
there were no meetings between representatives of Wyant and the Board. The Board
appointed the Special Committee to review the Transactions in light of the
conflicts of interest resulting from Wyant's ownership of approximately 55.4% of
the outstanding shares of HPI Common Stock and the benefits to be received by
certain directors and affiliates of HPI as a result of the proposed
Transactions. For the same reasons, subsequent to the June 12, 1996 Board
meeting, the Special Committee and its representatives acted on behalf of the
Company in negotiating with Wyant the terms of the Transactions as set forth
under "-- Interest of Certain Persons in Matters to be Acted Upon."
Special Committee of the Board
By resolutions adopted at its June 12, 1996 meeting, the Board created
the Special Committee, comprised of Ms. Jane M. Curtis, Mr. Nicholas A. Gallopo
and Mr. Joseph H. Weinkam, Jr. Ms. Curtis
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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. 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 promptly took action to retain an independent
financial advisor. During the first six months of 1996, various members of the
Special Committee had, in their capacity as directors of HPI, interviewed or
worked with various investment banking firms in connection with valuation and
other matters unrelated to the Transactions. In June of 1996, Mr. MacMartin and
Mr. Weinkam conducted a preliminary interview of Houlihan Lokey in connection
with their possible retention as independent financial advisor to the Special
Committee. At its initial meeting on June 21, 1996, based on Mr. Weinkam's
report of his preliminary interview of Houlihan Lokey, the Special Committee as
a whole interviewed representatives of that firm. The Special Committee
concluded that Houlihan Lokey would be better suited to act as financial advisor
to the Special Committee than the other investment banking firms HPI had
interviewed or retained earlier in the year because of Houlihan Lokey's
experience in valuation of companies of a similar size to Wyant and Houlihan
Lokey's performance record in conducting fairness analyses in a timely manner
and in accordance with budget, including a recent valuation of a privately held
Canadian company. The Special Committee also considered that, unlike the firm
that HPI had engaged earlier in the year to perform unrelated valuation
services, (i) Houlihan Lokey was based in New York and so would be readily
accessible to the members of the Special Committee and (ii) Houlihan Lokey had
no prior relationship with HPI or Wyant and thus could act with independence in
advising the Special Committee. Accordingly, at its June 21, 1996 meeting the
Special Committee decided to retain Houlihan Lokey as its independent financial
advisor pursuant to an agreement described below under "--Opinion of the
Financial Advisor." 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 during the period from July through
early November 1996. Such legal due diligence included a lien search, a review
of employee benefit plans, litigation involving Wyant, environmental permits and
material contracts and leases, interviews with Wyant's counsel concerning
environmental and other matters and an inquiry with governmental authorities in
the Provinces of Quebec and Ontario confirming that such authorities did not
have any proceedings pending against 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, on
October 16 and 17, 1996, 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,
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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 and analyzed 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 as described below.
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. On the
basis of this presentation, the Special Committee preliminarily concluded that,
as more fully discussed under "--Reasons for the Transactions" below, a business
combination of HPI and Wyant would present favorable strategic opportunities,
that the proposed purchase price for Wyant was favorable to HPI, and that the
stability of Wyant's cash flow was likely to enhance HPI's ability to pursue
acquisitions in the future should it wish to do so. Accordingly, the Special
Committee determined to proceed with the negotiation of the agreements necessary
to effect the Transactions. The Special Committee also discussed various issues
arising from the terms of the Transactions as they had been proposed by Wyant.
On August 2, 1996, counsel to the Special Committee, at the Special Committee's
direction, sent a letter to Wyant's U.S. counsel regarding these issues,
including the following:
(i) Given the low dividend rate on the Class A Preferred Stock and
the Class B Preferred Stock, the redemption value of such stock
exceeds its current fair value. This difference must be accreted for
financial reporting purposes over the 10-year period from the
issuance of such stock to the final redemption date for such stock,
resulting in a charge to the earnings of HPI in an amount the
Special Committee estimated to be $1,500,000 over such 10-year
period. The Special Committee proposed omitting the redemption
feature from some or all of the Class A Preferred Stock and the
Class B Preferred Stock so as to reduce or eliminate the effect of
such accretion.
(ii) The proposed terms of the Transactions contemplated that a fixed
number of shares of Class E Preferred Stock would be issued,
regardless of the market price, at the time the Transactions were
consummated, of the underlying HPI Common Stock. The Special
Committee proposed a "collar mechanism" be adopted for the
determination of the amount of Class E Preferred Stock to be issued
based on the market price of the underlying HPI Common Stock, so
that there would be a floor and ceiling on the value of the Class E
Preferred Stock to be issued.
(iii) The Special Committee sought assurance that Wyant's liquidity
and financing capacity immediately prior to the consummation of the
Transactions would be satisfactory, and noted that HPI's and Wyant's
credit facilities might have to be modified to assure that HPI would
be able to fund the Cash Consideration.
(iv) The Special Committee proposed that the scope of Wyant
liabilities to be assumed by HPI Sub in the Transactions be limited
to disclosed liabilities.
On August 21, 1996, Wyant, through its counsel, distributed a draft of
the Purchase Agreement to the Special Committee. After considering this draft
with its counsel and financial advisors, the Special Committee, also acting
through counsel, prepared and sent to Wyant on September 11, 1996, a set of
comments on that draft. In addition to the issues described above, the principal
issues raised in this set of comments related to the indemnification by Wyant
for any breaches of representations and warranties contained in the Purchase
Agreement, and the nature of the assets Wyant would have
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available after consummation of the Transactions to fund any such
indemnification payments. Many of the issues relating to indemnification were of
the kind typically arising in acquisition transactions, such as the scope and
duration of the indemnity provisions and the amount of any "deductible" (i.e.,
the amount of any losses from breaches of representations to be absorbed by the
purchaser before it is entitled to make claims under the indemnity). In
addition, since Wyant contemplated distributing to certain Wyant family members
a portion of the consideration to be received by Wyant in the Transactions, the
Special Committee sought assurance as to the amount of assets that Wyant would
have available to pay any indemnification claims. The Special Committee also
proposed that HPI should not have direct liability for the Wyant obligations to
be assumed by HPI Sub in the Transactions.
On September 19, 1996, U.S. counsel for Wyant and for the Special
Committee, respectively, met to discuss the Special Committee's comments on the
draft Purchase Agreement and to identify significant business issues. Subsequent
to that meeting representatives of Wyant and of the Special Committee had
numerous telephone conferences addressing the issues raised by the Special
Committee, and counsel for Wyant distributed a new draft of the Purchase
Agreement on September 27, 1996. Based on that draft and the discussions with
Wyant, the Special Committee reviewed the status of the issues it had raised as
described above. Wyant had indicated it was unwilling to change the proposed
redemption terms of the Class A Preferred Stock and the Class B Preferred Stock
to address the accretion issue. The Special Committee determined that this
issue, considered in light of the favorable aspects of the Transactions noted by
the Special Committee at its August 1, 1996 meeting, was not in itself
significant enough to pursue further. With respect to the proposed collar on the
amount of Class E Preferred Stock, the Special Committee noted that the market
price of HPI Common Stock had declined since the date the issue had been raised
with Wyant, which had the effect of reducing the value of the Class E Preferred
Stock and thus the value of the Acquisition Consideration HPI would pay in the
Transactions. The Special Committee also noted that, despite this reduction,
Wyant had not sought to renegotiate the amount of Class E Preferred Stock to be
issued. The Special Committee accordingly determined that a collar would no
longer be in HPI's interest and decided to withdraw its proposal of a collar.
The Special Committee also noted that the September 27 draft of the Purchase
Agreement addressed certain concerns it had raised with regard to the
indemnification provisions, including an expansion of the scope of liabilities
covered by the provisions and the lengthening of the period the provisions would
be in effect. With respect to the Special Committee's concern about the scope of
liabilities to be assumed by HPI Sub and whether HPI would be directly
responsible for such liabilities, Wyant maintained its position that all
liabilities should be assumed, subject to exceptions for criminal or fraudulent
acts or claims of Wyant family members. Wyant did indicate, however, that it was
willing to consider limiting HPI's direct responsibility for assumed
liabilities. The new draft of the Purchase Agreement also contained a new
proposal by Wyant that any indemnification claim against Wyant should be
satisfied first through a surrender of stock of HPI Sub issued to Wyant in the
Transactions, as well as HPI Common Stock held by Wyant, before recourse would
be available against cash or other assets of Wyant. Other issues previously
raised by the Special Committee remained under discussion.
On October 16, 1996, Mr. Weinkam and the Special Committee's counsel met
with representatives of Wyant and its counsel to negotiate the Purchase
Agreement and related documentation. At this meeting, tentative agreement was
reached on several of the remaining issues, including a reduction of the
deductible under the indemnification provisions from Cdn$500,000 to Cdn$350,000.
Subsequent to the October 16 meeting, the Special Committee approved the
tentative agreements reached at such meeting, and the discussions among the
parties regarding the remaining open issues continued over the next few weeks by
means of telephone conferences. During this period, the parties agreed that
HPI's direct responsibility for liabilities assumed from Wyant would be limited
to
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disclosed liabilities. The parties also agreed on the terms of the Covenant
Agreement pursuant to which HPI would be obligated to pay the dividends on the
Class A, Class B and Class E Preferred Stock and the redemption payments on the
Class A and Class B Preferred Stock in the event that HPI Sub was unable to pay
them. Also during this period, Wyant provided to the Special Committee a pro
forma balance sheet of Wyant after giving effect to the Transactions and the
contemplated distributions to Wyant family members. This pro forma balance sheet
indicated that the value of the assets Wyant would have available to satisfy any
indemnification claims was estimated to be approximately Cdn$13,000,000, or
approximately seventy percent of the estimated value of the consideration to be
paid by HPI in the Transactions. While the Special Committee regarded this limit
on the amount of assets available for indemnification claims, together with the
provision requiring that any such claims be satisfied first though the surrender
of stock held by Wyant, to be unfavorable factors from HPI's perspective, the
Special Committee determined that these terms were acceptable in light of (i)
the overall terms of the Transactions, which the Special Committee believed to
be favorable to HPI and (ii) the fact that the Special Committee's due diligence
investigation of Wyant as described above had not revealed a high level of risk
that Wyant had material undisclosed liabilities. In addition, the parties
negotiated the Guaranty Agreement as a means of assuring that such assets would
remain available for the purpose of paying indemnification by limiting the
business Wyant is permitted to engage in after the Closing to the making of
certain investments, and by providing that (subject to specified exceptions)
James A. Wyant would become liable as a guarantor of Wyant's indemnification
obligations to the extent of any distributions he received from Wyant.
On October 31, 1996, counsel for Wyant and the Special Committee,
respectively, met to discuss, among other things, the Special Committee's
continuing interest in assuring that HPI and HPI Sub would have sufficient
borrowing capacity to consummate the Transactions and to finance their
operations after such consummation. Following that meeting, the draft Purchase
Agreement was revised to address this concern by adding, as a mutual condition
precedent to the parties' obligations to consummate the Transactions, the
requirement that HPI Sub would have available to it credit facilities on
substantially the same terms as the existing credit facilities of Wyant, and
that HPI would continue to have the benefit of its existing credit facilities
and, in addition, the availability of up to US$2,000,000 in additional financing
for a term of at least three years.
At its October 31, 1996 meeting, the Special Committee received an
updated presentation by Houlihan Lokey with respect to that firm's analysis of
the Transactions and the matters to be addressed in its fairness opinion. At
this meeting, the Special Committee confirmed the conclusions preliminarily
reached at its August 1 meeting, including the conclusion that the purchase
price for Wyant was favorable to HPI. At its November 6, 1996 meeting, the
Special Committee reviewed a copy of the fairness opinion by 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. The Board, in
part as a result of the report of the Special Committee, adopted the
recommendations of the Special Committee and approved the Transactions. As of
November 6, 1996, the Special Committee and the Board estimated the fair value
of (i) the Class A Preferred Stock to be issued in exchange for the Note to be
approximately
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Cdn$3,956,850 (US$2,931,000), (ii) the Class B Preferred Stock to be
approximately Cdn$3,115,800 (US$2,308,000) and (iii) the Class E Preferred Stock
to be approximately Cdn$6,907,950 (US$5,117,000). The total fair value of the
consideration to be paid in the Acquisition was estimated by the Special
Committee and the Board as of November 6, 1996 to be approximately
Cdn$18,980,600 (US$14,059,000). The foregoing valuations are based on an
exchange rate of US$1.00 to Cdn$1.35.
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.
Reasons for the Transactions
The Board and the Special Committee believe that the terms of the
Transactions are fair to, and in the interests of, HPI and its shareholders. In
reaching its decision to approve the Transactions, in the case of the Board, and
the determination of the fairness of the Transactions, in the case of the
Special Committee, the Board and the Special Committee (except as otherwise
indicated) considered the following factors:
(i) The business, operations, earnings, cash flow and financial
condition of Wyant on a historical, prospective and pro forma basis;
the overall quality and scope of Wyant's business operations; the
complementary fit of (A) Wyant's geographical location in Canada
with HPI's in the United States, (B) Wyant's functions in
distribution with HPI's in manufacturing, and (C) HPI's markets in
health care with Wyant's in hygiene; 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 in Canada; and the overall economies of scale and
certain operating efficiencies that are likely to result from the
Transactions and the continued recognition of the growth
opportunities in the health care products and institutional
sanitation businesses, especially given Wyant's strength in paper
products and distribution and HPI's strength in institutional health
care products. The Special Committee and the Board viewed the
foregoing business and strategic factors as positive factors in
arriving at their conclusions with respect to the Transactions.
(ii) The foreign exchange rate risk implicit in owning a business
based in a foreign country, the risk of competition with the
Acquired Business, and the risk of increased financial leverage
resulting in part from financing the Acquisition Consideration, all
as more fully discussed under "--Risks Associated with the
Acquisition of the Acquired Business." The Special Committee and the
Board considered these risks to be negative factors, but acceptable
risks in light of the anticipated benefits of the Transactions. In
particular, the Special Committee and the Board noted that the
exchange rate of the Canadian and US dollar was historically
relatively stable.
(iii) The terms of the Purchase Agreement, including the Acquisition
Consideration, the scope of liabilities to be assumed by HPI and HPI
Sub, the negative covenants of Wyant, the indemnification provisions
(including the scope and duration of such provisions, the amount of
the "deductible" and the amount of assets available to Wyant
post-Closing to satisfy any indemnification claims), the Covenant
Agreement and the Guaranty Agreement. Although, as with any
agreement such as the Purchase Agreement, the Special Committee and
the Board viewed individual provisions of the Purchase
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Agreement as being favorable or unfavorable depending on the
particular provision, on balance the Special Committee and the Board
viewed the terms of the Purchase Agreement as a positive factor in
arriving at their conclusions with respect to the Transactions. See
"--Special Committee of the Board."
(iv) The mutual condition precedent in the Purchase Agreement that HPI
Sub would have available to it credit facilities on substantially
the same terms as the existing credit facilities of Wyant, and that
HPI would continue to have the benefit of its existing credit
facilities and the availability of up to US$2,000,000 of additional
financing for a term of up to three years. The Special Committee and
the Board viewed this condition precedent and the resulting
availability of sufficient liquidity and financing capacity for both
the Acquired Business and HPI as of the Closing Date as positive
factors in arriving at their conclusions with respect to the
Transactions.
(v) Wyant's potential increase in control of HPI from 55.4% to 72% if
Wyant exercised in full its rights to exchange the Class E Preferred
Stock for HPI Common Stock. The Special Committee and the Board
viewed this increase in control as a neutral factor in arriving at
their conclusions with respect to the Transactions, in that Wyant
already holds a controlling voting interest in HPI.
(vi) The counter-dilutive effect on pro forma net income per share and
the dilutive effect on pro forma book value per share, in each case
assuming consummation of the Transactions. The Special Committee and
the Board viewed the counter-dilutive effect on net income per share
as a positive factor and the dilutive effect on pro forma book value
per share as being not a significant factor in arriving at their
conclusions with respect to the Transactions.
(vii) The fairness opinion of Houlihan Lokey. The Special Committee and
the Board viewed the fairness opinion of Houlihan Lokey as a
positive factor in arriving at their conclusions with respect to the
Transactions. See "--Opinion of the Financial Advisor."
(viii) The benefits to be received by certain directors and affiliates
of HPI as a result of the proposed Transactions as set forth under
"--Interest of Certain Persons in Matters to be Acted Upon." As
described under "--Background," the Board recognized that the
existence of such benefits gave rise to conflicts of interest that
made it appropriate to appoint the Special Committee to review the
Transactions, and the Special Committee took such conflicts of
interest into account in determining the procedures it would follow
in conducting such review and negotiating the terms of the
Transactions so as to assure their fairness to the stockholders of
HPI. Apart from such procedural considerations, the Board and the
Special Committee regarded the fact that certain directors and
affiliates of HPI would receive benefits in the Transactions as a
neutral factor in evaluating the Transactions.
(ix) The report of the Special Committee that the Transactions are
fair to, and in the interests of, the HPI shareholders, in their
capacity as such. The Board viewed the report of the Special
Committee as a positive factor in arriving at their conclusions with
respect to the Transactions. See "--Special Committee of the Board."
The foregoing discussion of the information and factors considered and
given weight by the Board and the Special Committee is not intended to be
exhaustive but is believed to include the material factors considered by the
Board and the Special Committee. Furthermore, in making the determination to
approve the Transactions, in the case of the Board, and the determination of the
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fairness of the Transactions, in the case of the Special Committee, in view of
the wide variety of factors considered in connection with their evaluation of
the Transactions, the Board and the Special Committee 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 the individual directors and the respective
members of the Special Committee may have given differing weights to different
factors. Furthermore, despite the characterizations of the above factors as
positive, negative or neutral, the evaluation of the factors on balance, as
discussed elsewhere in this Proxy Statement, led both the Board and the Special
Committee to conclude that the terms of the Transactions are fair to, and in the
best interests of, HPI and its shareholders.
OPINION OF THE 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, corporate and other
purposes. HPI retained Houlihan Lokey 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 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 through December 31, 1995 and the unaudited
financial statements for the nine months ended September 30, 1996,
which Wyant's management 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 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;
26
<PAGE> 38
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.
In determining whether the Transactions are fair from a financial point
of view, Houlihan Lokey first assessed the fair market value of Wyant. Next
Houlihan Lokey assessed the fair market value of the Acquisition Consideration
and compared it to the valuation of Wyant. Because a portion of the Acquisition
Consideration consists of exchangeable preferred stock Houlihan Lokey also
assessed the reasonableness of the public trading value of HPI's common equity.
Assessing the Fair Market Value of Wyant. In determining the fair market
value of Wyant, Houlihan Lokey considered three generally accepted valuation
methodologies, namely: the comparable company approach, the comparable
transaction approach and the discounted cash flow approach.
The comparable company approach, which provides indications of equity
value on a trading basis, involved the multiplication of various earnings
measures by appropriate risk-adjusted multiples. Multiples were determined
through an analysis of certain publicly traded companies, selected on the basis
of operational and economic similarity with Wyant. A comparative risk analysis
between Wyant and the public companies formed the basis for the selection of
appropriate risk adjusted multiples for Wyant. The risk analysis incorporates
both quantitative risk factors such as size, financial leverage, profitability
and growth, and qualitative risk factors which relate to, among other things,
the nature of the industry in which Wyant and the comparative companies are
engaged. The companies selected for
27
<PAGE> 39
comparison were: Boise Cascade Office Products, Ecolab, Inc., Minuteman
International, Inc., National Sanitary Supply Co., United Stationers Inc. and
Vallen Corp.
With respect to the selected companies, Houlihan Lokey considered, among
other things, enterprise value ("Enterprise Value") (the summation of the
current trading market value of common equity, the redemption value of preferred
equity and book value of funded debt) as a multiple of fiscal year end, latest
twelve months ("LTM") and estimated fiscal year 1996 revenues, earnings before
interest, taxes, depreciation and amortization ("EBITDA"), and earnings before
interest and taxes ("EBIT"). Houlihan Lokey's analyses of the companies
indicated a range of Enterprise Value multiples as shown in the following table:
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
RESULTS PERIOD REVENUES EBITDA EBIT
- -------------------------------------------------------------------------------------------------
Range Latest Twelve Months.......... 0.30x -- 1.65x 5.3x -- 11.4x 6.7x -- 13.9x
Median........................... 0.62x 7.6x 10.4x
- -------------------------------------------------------------------------------------------------
Range Fiscal Year 1995.............. 0.29x -- 1.72x 5.7x -- 15.0x 7.5x -- 18.2x
Median........................... 0.64x 8.4x 11.4x
- -------------------------------------------------------------------------------------------------
Range Estimated Fiscal year 1996.... Not Applicable 6.4x -- 9.7x 7.8x -- 11.5x
Median........................... Not Applicable 7.4x 10.2x
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
To determine an Enterprise Value of Wyant, Houlihan Lokey chose the
following Enterprise Value multiples to apply to Wyant's revenues, EBITDA and
EBIT for fiscal year 1995, LTM and estimated fiscal year 1996:
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
FY 1995 LTM ESTIMATED FY 1996
- ---------------------------------------------------------------------------------------------------
Revenues..................... 0.43x -- 0.48x 0.40x -- 0.45x 0.38x -- 0.43x
- ---------------------------------------------------------------------------------------------------
EBITDA....................... 6.50x -- 7.50x 5.50x -- 6.50x 5.00x -- 6.00x
- ---------------------------------------------------------------------------------------------------
EBIT......................... 9.50x -- 10.50x 8.50x -- 9.50x 7.00x -- 8.00x
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 40
The comparable transaction approach, which provides indications of equity
value on an acquisition or controlling interest basis, involved the
multiplication of various earnings measures by multiples. In this approach the
multiples were developed by analyzing transactions completed within the past two
years involving the acquisition of office products and sanitation supply
companies. Because none of the transactions analyzed were directly comparable,
this approach was used primarily as a supporting methodology. The comparable
transactions used by Houlihan Lokey in its analysis are shown below, including
calculation of the purchase price as a multiple of LTM revenues, EBIT and
EBITDA:
<TABLE>
<CAPTION>
ENTERPRISE
DATE TARGET BUSINESS VALUE
EFFECTIVE TARGET NAME DESCRIPTION ACQUIROR NAME ($ IN MILLIONS) REVENUE EBIT EBITDA
- --------- --------------------------- ---------------------- ------------------ --------------- ------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
08/03/92 Wheeler Group Wholesale office Investor Group $ 84.0 1.12 NA NA
stationery
10/20/92 Pittway-Barr Custom Mfg Div Mnfr aerosol products CCL Industries Inc $ 8.0 0.25 NA NA
12/31/92 Drackett Co Mnfr cleaning, SC Johnson & Sons $1,150.0 1.95 NA NA
polishing prod Inc
09/17/93 Omnifax Wholesale fax mach, Danka Business $ 69.0 0.84 46.0 8.3
equip, supp Systems PLC
11/08/93 SPX Corp-Truth Division Wholesale building FKI PLC $ 102.5 1.21 10.0 NA
products
12/30/93 American Office Equipment Wholesale office Danka Business $ 8.3 0.30 NA NA
Co. equipment Systems PLC
03/05/94 National Office Supply Co Wholesale office Staples Inc $ 101.5 0.74 NMF 84.6
Inc. supplies
04/02/94 Reliable Corp. Direct mail specialist Boise Cascade $ 71.0 0.46 NA NA
Office Products
12/12/94 Philadelphia Stationers Wholesale stationary, Staples Inc $ 13.0 0.29 NA NA
Inc. office supplies
12/08/94 Kay Chemical Mnfr janitorial Ecolab Inc $ 95.0 1.46 NA NA
cleaning prod
02/05/95 Grand & Toy Own and operate dist. Boise Cascade $ 104.0 0.37 34.2 16.2
centers Office Products
04/05/95 United Stationers Inc Wholesale office Associated $ 437.0 0.30 20.6 12.0
supplies Stationers Inc
06/09/95 CW Mills Co Wholesale office US Office Prod Co $ 5.5 0.32 NA NA
stationery
05/07/96 Mile High Maintenance Wholesale electrical Wilmar Industries, $ 1.5 0.36 6.0 NA
Supply appliances Inc.
Mean 0.71 23.4 12.2
Median 0.41 20.6 14.1
</TABLE>
The discounted cash flow approach utilized projections prepared by Wyant.
The projected cash flows were analyzed on a debt-free basis (before payments to
debt investors) in order to develop an Enterprise Value indication for Wyant. A
provision, based on these projections, for the Enterprise Value of Wyant at the
end of the forecast period, or terminal value, was also made. The terminal value
was determined by applying an EBITDA multiple to Wyant's EBITDA at the end of
the forecast period. The EBITDA multiple used was 4.5x and represents a discount
to the range of EBITDA multiples concluded from the comparable company approach
due to the future uncertainty of market dynamics. The present value of the cash
flows and the terminal value was determined using a risk-adjusted rate of return
or "discount rate." The discount rate, in turn, was developed through an
analysis of rates of return on alternative investment opportunities on
investments in companies with similar risk characteristics to Wyant. The
companies used to develop a discount rate to apply to Wyant's future debt-free
cash flows were: Boise Cascade Office Products, Ecolab, Inc., Minuteman
International, Inc., National Sanitary Supply Co., United Stationers Inc. and
Vallen Corp.
29
<PAGE> 41
Assessing the Fair Market Value of Acquisition Consideration. To
determine the fair market value of the Class A Preferred Stock and Class B
Preferred Stock, Houlihan Lokey analyzed recently issued comparable Canadian
public issues of preferred stock to determine the yield required to compensate a
hypothetical investor for the risk/return characteristics of the Class A
Preferred Stock and Class B Preferred Stock. The comparable Canadian public
issues of preferred stock used in Houlihan Lokey's analysis were as follows:
<TABLE>
<CAPTION>
COUPON
OFFER AT PRICE AT CURRENT CURRENT CALLABLE
DATE ISSUER RATING ISSUE SIZE ISSUE MATURITY ISSUE PRICE YIELD DATE
-------- --------------- ------ -------------- ------ -------- -------- -------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
09/30/93 Consumers Gas Aa3 C$ 2,000 5.72% 10/01/02 C$25.00 C$26.00 5.50% 10/01/98
Canadian
10/15/93 Utility Aa1 C$ 5,000 5.90% 12/01/02 C$25.00 C$26.15 5.64% 12/01/98
Canadian
04/14/94 Utility Aa1 C$ 6,000 5.30% 06/01/04 C$25.00 C$25.75 5.15% 06/01/99
06/28/94 Consumers Gas Aa2 C$ 2,000 6.45% 07/05/07 C$25.00 C$26.35 6.12% 07/05/99
09/29/94 BC Gas Utility NA C$ 3,000 7.10% 09/30/06 C$25.00 C$27.00 6.57% 09/30/99
Canadian
12/01/94 Utility Aa1 C$ 2,000 6.60% 03/01/10 C$25.00 C$26.30 6.27% 03/01/00
09/15/95 Laurentian Bank A2 C$ 2,000 7.75% 06/15/08 C$25,00 C$26.40 7.34% 06/15/03
10/18/95 Laurentian Bank Aa3 C$ 2,000 7.75% 06/16/05 C$25.00 C$26.90 7.20% 11/12/96
10/31/95 BC Gas Utility NR C$ 3,000 6.32% 10/31/00 C$25.00 C$26.28 6.01% 10/31/00
MEAN 6.54% 6.20%
MEDIAN 6.45% 6.12%
</TABLE>
A discounted cash flow analysis using a discount rate of 6% for the Class
A Preferred Stock and 7% for the Class B Preferred Stock was performed on the
expected stream of dividends and amortization payments to provide an indication
of the value of each security. Because of the difference in the amortization
schedule of the Class A Preferred Stock and the Class B Preferred Stock,
Houlihan Lokey valued each class separately.
To determine the value of the Class E Preferred Stock, Houlihan Lokey
analyzed the terms of the proposed security and based on those terms concluded
that one share of Class E Preferred Stock is equivalent in value to one share of
HPI Common Stock.
The concluded value of the Acquisition Consideration is the summation of
the values of the Class A Preferred Stock, the Class B Preferred Stock, the
Class E Preferred Stock, the cash paid at Closing and the debt assumed.
Assessing Reasonableness of HPI's Common Stock Value. In assessing the
reasonableness of HPI's Common Stock trading price Houlihan Lokey analyzed
trading prices and volume for HPI over the last twelve months. Additionally,
Houlihan Lokey completed a comparable company analysis, in which it compared
HPI's trading multiples to a group of comparable companies. The companies
selected for comparison were: Alba-Waldensian Inc., Inbrand Corp., Medical
Action Industries, Inc., Technol Medical Products, Inc. and Tranzonic Cos.
30
<PAGE> 42
Houlihan Lokey's analyses of the companies compared with HPI indicated a
range of Enterprise Value multiples as shown in the following table:
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
RESULTS PERIOD REVENUES EBITDA EBIT
- -------------------------------------------------------------------------------------------------
Latest Twelve Months................ 0.40x -- 2.09x 4.8x -- 18.9x 6.9x -- 18.8x
Median........................... 0.59x 9.4x 11.9x
- -------------------------------------------------------------------------------------------------
Fiscal Year 1995.................... 0.40x -- 2.40x 5.9x -- 22.7x 9.5x -- 18.8x
Median........................... 0.61x 10.0x 12.3x
- -------------------------------------------------------------------------------------------------
Estimated Fiscal Year 1996.......... Not Applicable 7.7x -- 9.4x 9.4x -- 11.3x
Median........................... Not Applicable 8.5x 10.3x
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
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>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
RESULTS PERIOD REVENUES EBITDA EBIT
- -------------------------------------------------------------------------------------------------
Latest Twelve Months................ 0.33x 30.6x NMF
- -------------------------------------------------------------------------------------------------
Fiscal Year 1995.................... 0.34x 13.0x NMF
- -------------------------------------------------------------------------------------------------
Estimated Fiscal Year 1996.......... 0.30x 5.7x 9.4x
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
HPI's implied LTM and fiscal year 1995 EBIT multiples were not meaningful
due to operating losses incurred. In its analysis, Houlihan Lokey more heavily
weighted HPI's estimated fiscal year 1996 expected multiples to conclude that
the HPI Common Stock was trading at a reasonable value relative to the
comparable companies.
Combination Benefits. In rendering its opinion, Houlihan Lokey also
considered the value and allocation of certain cost 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.
The full text of the opinion of Houlihan Lokey, dated November 12, 1996,
is attached 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. Houlihan Lokey's
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
31
<PAGE> 43
the opinion of Houlihan Lokey set forth in this Proxy Statement is qualified in
its entirety by reference to the full text of such opinion set forth as Appendix
C to this Proxy Statement.
Fees and Expenses. Pursuant to an agreement dated July 11, 1996,
Houlihan Lokey was retained by HPI 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 a fairness opinion. HPI
has further agreed to indemnify Houlihan Lokey against certain liabilities and
expenses in connection with the rendering of Houlihan Lokey's 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 (US$2,015,000)
(without taking into account a deferred tax liability that Wyant expects to
record from January 1, 1996 to the Closing Date in the amount of approximately
Cdn$1,000,000 (US$746,000)). In the event that such earnings are greater or less
than Cdn$2,700,000 (US$2,015,000) as determined by the preparation by Wyant, and
subsequent review by HPI, of a statement of net assets, 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").
Although HPI and Wyant intend to effect the Adjustment as soon as reasonably
possible after the Closing, pursuant to the terms of the Purchase Agreement, the
Adjustment could take place up to 145 days after the Closing or a longer period
if disputes arise between HPI and Wyant with respect to the statement of net
assets. The conversions from Canadian to United States dollars in this paragraph
are based on an exchange rate of US$1.00 to Cdn$1.34.
The Acquired Business
Pursuant to the Purchase Agreement, HPI Sub has agreed to purchase the
Acquired Business. The operating assets that constitute the Acquired Business
principally include inventory, accounts receivable, property, plant and
equipment (including Wyant's converting facility in Pickering, Ontario),
patents, trademarks, customer lists and any and all other assets, tangible or
intangible, of Wyant that are required to operate the Acquired Business. The HPI
Common Stock held by Wyant is not part of the Acquired Business.
Description of the Note
At the Closing, HPI Sub will issue to Wyant the Note in the principal
amount of Cdn$4,262,741 (US$3,181,150 based on an exchange rate of US$1.00 to
Cdn$1.34). 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."
32
<PAGE> 44
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 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").
The holders of Redeemable Preferred Stock shall have the right, voting as a
single class, 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 which shall be deemed to be the Closing Date, 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,
33
<PAGE> 45
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.
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
junior to holders of Class E Preferred Stock, one share of HPI Common Stock for
each share of Class E
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<PAGE> 46
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
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 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 in full
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its rights to exchange the Class E Preferred Stock for HPI Common Stock, 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.
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
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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
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
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stock, (viii) change the certificate or articles of incorporation or by-laws of
Wyant 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, and its
stockholders 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, (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, and its stockholders 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, 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 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 and its stockholders 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
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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 never have materially more
than approximately Cdn$12,800,000 (US$9,558,000 based on an exchange rate of
US$1.00 to Cdn$1.34) in assets 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
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."
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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 April 30, 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, 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
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parties to the Purchase Agreement. If HPI determined that any waiver or
amendment to the Purchase Agreement would be material to a HPI shareholder's
voting decision with respect to the Transactions, HPI would revise this Proxy
Statement and resolicit proxies from HPI shareholders. In any event, HPI will
resolicit proxies from HPI shareholders if any waiver or amendment to the
Purchase Agreement affected the conditions regarding the accounting treatment or
the tax implications with respect to the Transactions.
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 the Canadian Operations 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 the Canadian Operations of Wyant
immediately prior to the Transactions, subject to adjustments, if any, required
to conform the accounting policies of the Canadian Operations 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 taxable 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.
INTERESTS 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 to be received,
directly or indirectly, by James A. Wyant, a director of HPI and shareholder of
Wyant, will be Cdn$600,000 (US$447,760) in cash, 762,741 shares of 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 to be received, directly or indirectly, by Gerald W.
Wyant, a director of HPI, James A. Wyant's father, and, indirectly, a
shareholder of Wyant, will be Cdn$2.4 million (US$1,791,045) in cash. The
portion of the Acquisition Consideration to be received, directly or indirectly,
by Lynne Emond and John Derek Wyant, as siblings of James A.
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Wyant and, indirectly, as shareholders of Wyant, will be 1,750,000 shares of
Class A Preferred Stock each, Cdn$1,000,000 (US$746,269) each and 83,333 shares
of Class E Preferred Stock each. All conversions from Canadian to United States
dollars in this paragraph are based on an exchange rate of US$1.00 to Cdn$1.34.
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 as of January 1, 1997. However, if
the Transactions are not completed on or prior to April 30, 1997 the Employment
Agreements will automatically terminate. Provided that the Transactions are
completed on or prior to April 30, 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.
RISKS ASSOCIATED WITH THE ACQUISITION OF THE ACQUIRED BUSINESS
As a result of the Acquisition, HPI's results of operations will be
significantly dependent on, and materially affected by, the results of
operations of the Acquired Business and the attendant business risks that are
associated with the operation of the Acquired Business as a going concern. These
material risks include the following:
- -- After the Transactions are consummated and HPI Sub acquires the Acquired
Business, a significant portion of HPI's earnings, on a consolidated
basis, will come from HPI Sub, a Canadian corporation. As a result, HPI's
results of operations and earnings may be adversely affected by the
fluctuation in the currency exchange rate between US and Canadian
dollars.
- -- Since the Acquired Business conducts its business, and will conduct its
business after the Transactions are consummated, using Canadian dollars
as its operational currency, to the extent the Canadian dollar
strengthens against the US dollar, United States competitors in the
institutional sanitation business may become more active in the Canadian
market. As a result, HPI's results of operations and earnings may be
adversely affected in light of potential greater competition in times of
a strong Canadian dollar.
- -- In connection with the proposed Transactions, both HPI and HPI Sub, after
acquiring the Acquired Business from Wyant, will be substantially
increasing their financial leverage, in part to finance the Acquisition
Consideration. As a result, although HPI believes that liquidity is, and
will be, at sufficient levels, there can be no assurance that cash flow
from operations and existing credit facilities will be sufficient to meet
the required debt service created by this leverage after the consummation
of the proposed Transactions.
- -- The Acquired Business is not fully integrated and competes with fully
integrated sanitary paper products producers that have substantial
financial resources and significant market share relative to the Acquired
Business. Therefore, since the institutional sanitation business is
highly competitive and has few barriers to entry, the results of
operation of the Acquired Business,
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and, therefore, the results of operation of HPI, on a consolidated basis,
may be adversely affected if any of such fully integrated producers
attempt to increase market share in the markets that the Acquired
Business currently target.
There can be no assurance as to the degree to which such risks may have a
material adverse effect on the results of operations of the Acquired Business
and, thus, the results of operations of HPI. See "INFORMATION CONCERNING THE
CANADIAN OPERATIONS OF WYANT" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF THE COMBINED OPERATIONS OF HPI AND THE
CANADIAN OPERATIONS OF WYANT" for a further discussion of the Acquired Business
and management's discussion and analysis with respect to recent operating
performance of the Canadian Operations of Wyant.
43
<PAGE> 55
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 ("Historical HPI") and of
the historical financial statements of the Canadian Operations of Wyant
("Historical Wyant"). The pro forma financial information gives pro forma effect
to the acquisition as if it had occurred on September 30, 1996 for balance sheet
purposes and as of January 1, 1994 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 the Canadian Operations 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 the Canadian Operations of Wyant
immediately prior to the Transactions, subject to adjustments, if any, required
to conform the accounting policies of the Canadian Operations of Wyant to U.S.
GAAP and such other adjustments as may be necessary to comply with
pooling-of-interests rules and regulations. Wyant, the common parent of each of
HPI and the Canadian Operations of Wyant, obtained legal control (in excess of
50% of voting shares) of HPI on August 4, 1994. Accordingly, operations of the
Canadian Operations of Wyant and HPI will be reflected as being combined from
January 1, 1994. The pro forma statement of operations for 1993 reflects the
line-by-line results of the Canadian Operations of Wyant and its proportionate
share of the results of HPI, determined in accordance with equity accounting as
reflected in "Share of Net Income of Affiliates." 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 the Canadian
Operations 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 the Canadian
Operations of Wyant's historical financial statements incorporated herein by
reference or appearing elsewhere in this Proxy Statement.
44
<PAGE> 56
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUBTOTAL
HISTORICAL HISTORICAL PRO FORMA PRO FORMA PRO FORMA
HPI WYANT COMBINED ADJUSTMENTS COMBINED
---------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents............. $ 686 $ -- $ 686 $ (686)(1) $ --
Accounts Receivable -- Net............ 6,509 7,523 14,032 (450)(2) 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............................. -- 2 2 -- 2
Property, Plant and Equipment, Net...... 11,280 7,740 19,020 -- 19,020
Goodwill................................ -- 451 451 -- 451
Other Assets............................ 398 88 486 -- 486
---------- ---------- --------- ----------- ---------
Total Assets............................ $ 24,250 $ 21,328 $45,578 $(1,136) $44,442
======= ======= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank Indebtedness..................... $ -- $ 1,186 $ 1,186 $ 3,045(1) $ 4,231
Accounts Payable and Accrued
Expenses........................... 5,347 6,703 12,050 (450)(2) 11,600
Current Portion of Long-Term Debt..... 350 1,551 1,901 -- 1,901
---------- ---------- --------- ----------- ---------
Total Current Liabilities............... 5,697 9,440 15,137 2,595 17,732
Long Term Debt.......................... 5,387 2,633 8,020 -- 8,020
Redeemable Preferred Shares............. -- -- -- 5,331(1) 5,331
Acquisition Clearing Account............ -- 8,681 8,681 (8,681)(1) --
Deferred Income Taxes................... 387 574 961 -- 961
---------- ---------- --------- ----------- ---------
Total Liabilities....................... 11,471 21,328 32,799 (755) 32,044
Stockholders' Equity
Common Stock.......................... 17 -- 17 10(1) 27
Additional Paid-in Capital............ 6,894 -- 6,894 4,936(1) 6,503
(5,327)(1)
Retained Earnings..................... 5,899 -- 5,899 -- 5,899
---------- ---------- --------- ----------- ---------
12,810 -- 12,810 (381) 12,429
Less: Treasury Stock Held, At Cost.... 31 -- 31 -- 31
---------- ---------- --------- ----------- ---------
Total Stockholders' Equity.............. 12,779 -- 12,779 (381) 12,398
---------- ---------- --------- ----------- ---------
Total Liabilities and Stockholders'
Equity................................ $ 24,250 $ 21,328 $45,578 $(1,136) $44,442
======= ======= ======== ========= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
45
<PAGE> 57
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
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)(3) $-- $ 69,724
Cost of Sales........... 26,473 22,844 49,317 (1,748)(3) -- 47,569
--------- ------- ------- --------- ---- ---------
Gross Profit............ 5,398 16,757 22,155 -- -- 22,155
--------- ------- ------- --------- ---- ---------
Selling, General and
Administrative........ 6,113 14,284 20,397 (167)(6) 30 (8) 20,260
Depreciation and
Amortization.......... 62 363 425 -- -- 425
Other Income............ (285) (60) (345) 167(6) -- (178)
Interest Expense........ 189 373 562 183(4) -- 745
--------- ------- ------- --------- ---- ---------
6,079 14,960 21,039 183 30 21,252
--------- ------- ------- --------- ---- ---------
Income (Loss)
Before Income Tax..... (681) 1,797 1,116 (183) (30) 903
Provision for (Recovery
of)
Income Taxes.......... (268) 789 521 (66)(5) (12) (10,11) 443
--------- ------- ------- --------- ---- ---------
Net Income (Loss)....... (413) 1,008 595 (117) (18) 460
Dividend Requirements
and Accretion of
Mandatorily Redeemable
Preferred
Shares................ -- -- -- (213)(1) -- (213)
--------- ------- ------- --------- ---- ---------
Net Income (Loss)
Attributable to Common
Shares................ $ (413) $ 1,008 $ 595 $ (330) $(18) $ 247
========= ======= ======= ========= ==== =========
Income (Loss) Per Common
Share ................ $ (0.24) -- -- -- -- $ 0.09
Weighted Average Number
of Common Shares
Outstanding........... 1,692,476 1,000,000(7) 2,692,476
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
46
<PAGE> 58
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
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)(3) $ -- $ 91,355
Cost of Sales............ 33,000 30,404 63,404 (1,291)(3) -- 62,113
-------
-
-------- -------- -------- -------- --------
Gross Profit............. 7,481 21,761 29,242 -- -- 29,242
-------
-
-------- -------- -------- -------- --------
Selling, General and
Administrative......... 7,329 18,930 26,259 (317)(6) 52(8) 25,994
Depreciation and
Amortization........... 87 572 659 -- -- 659
Other Income............. (435) (50) (485) 317(6) -- (168)
Interest Expense......... 322 742 1,064 244(4) -- 1,308
Non-Recurring Items...... 550 1,161 1,711 -- 138(9) 1,849
-------
-
-------- -------- -------- -------- --------
7,853 21,355 29,208 244 190 29,642
-------
-
-------- -------- -------- -------- --------
Income (Loss) Before
Income Tax............. (372) 406 34 (244) (190) (400)
Provision for (Recovery
of) Income Taxes....... (163) 24 (139) (88)(5) (112)(10)(11) (339)
-------
-
-------- -------- -------- -------- --------
Net Income (Loss)........ (209) 382 173 (156) (78) (61)
Dividend Requirements and
Accretion of
Mandatorily Redeemable
Preferred Shares....... -- -- -- (313)(1) -- (313)
-------
-
-------- -------- -------- -------- --------
Net Income (Loss)
Attributable to Common
Shares................. $ (209) $ 382 $ 173 $ (469) $ (78) $ (374)
======== ======== ======== ======== ======== ========
Income (Loss) Per Common
Share.................. $ (0.12) -- -- -- -- $ (0.22)
Weighted Average Number
of Common Shares
Outstanding............ 1,692,476 --(7) 1,692,476
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
47
<PAGE> 59
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
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)(3) $ -- $ 86,120
Cost of Sales......... 26,534 32,440 58,974 (618)(3) -- 58,356
---------- ---------- --------- ----------- ----- ---------
Gross Profit.......... 7,981 19,783 27,764 -- -- 27,764
---------- ---------- --------- ----------- ----- ---------
Selling, General and
Administrative...... 6,454 20,936 27,390 (298)(6) (205) (8) 26,887
Depreciation and
Amortization........ 165 601 766 -- -- 766
Other Income.......... (672) (23) (695) 298(6) -- (397)
Interest Expense...... 385 676 1,061 244(4) -- 1,305
Non-Recurring Items... -- 200 200 -- (138) (9) 62
---------- ---------- --------- ----------- ----- ---------
6,332 22,390 28,722 244 (343) 28,623
---------- ---------- --------- ----------- ----- ---------
Income (Loss) Before
Income Tax.......... 1,649 (2,607) (958) (244) 343 (859)
Provision for
(Recovery of) Income
Taxes............... 613 (549) 64 (98)(5) 26 (10,11) (8)
---------- ---------- --------- ----------- ----- ---------
Net Income (Loss)..... 1,036 (2,058) (1,022) (146) 317 (851)
Dividend Requirements
and Accretion of
Mandatorily
Redeemable Preferred
Shares.............. -- -- -- (343)(1) -- (343)
---------- ---------- --------- ----------- ----- ---------
Net Income (Loss)
Attributable to
Common Shares....... $ 1,036 $ (2,058) $(1,022) $(489) $317 $ (1,194)
========= ======== ========= ========== ===== =========
Income (Loss) Per
Common Share........ $0.61 -- -- -- -- $(0.71)
Weighted Average
Number of Common
Shares
Outstanding......... 1,691,906 --(7) 1,691,906
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
48
<PAGE> 60
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL U.S. GAAP PRO FORMA
WYANT ADJS. COMBINED
---------- --------- ---------
<S> <C> <C> <C>
Sales....................................... $ 57,944 $ -- $ 57,944
Cost of Sales............................... 34,645 -- 34,645
---------- --------- ---------
Gross Profit................................ 23,299 -- 23,299
---------- --------- ---------
Selling, General and Administrative......... 25,947 22(8) 25,969
Depreciation and Amortization............... 664 -- 664
Other Income................................ (29) -- (29)
Interest Expense............................ 891 -- 891
Non-Recurring Items......................... 1,436 -- 1,436
---------- --------- ---------
28,909 22 28,931
---------- --------- ---------
Income (Loss) Before Income Tax and Share of
Net Income of Affiliates.................. (5,610) (22) (5,632)
Provision for (Recovery of) Income Taxes.... (1,473) 7(10,11) (1,466)
---------- --------- ---------
Income (Loss) Before Share of Net Income of
Affiliates................................ (4,137) (29) (4,166)
Share of Net Income of Affiliates........... 588 -- 588
---------- --------- ---------
Net Income (Loss)........................... $ (3,549) $ (29) $ (3,578)
======= ======== =========
Income (Loss) Per Common Share.............. $ (2.10)
Weighted Average Number
of Common Shares Outstanding.............. 1,704,158
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
49
<PAGE> 61
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 $3,731,343
(Cdn$5,000,000) in cash, through the utilization of $686,000
available cash and incurring bank indebtedness of $3,045,343, and
the issuance of the following shares:
<TABLE>
<CAPTION>
NO. REDEMPTION VALUE FAIR VALUE
----------------------------------------- ---------------- ----------
<S> <C> <C>
4,262,741 Class A Preferred Stock........ $ 3,181,150 $3,006,000
3,800,000 Class B Preferred Stock........ $ 2,835,821 $2,325,000
1,000,000 Class E Preferred Stock........ N/A $4,946,000
</TABLE>
The shares of Class E Preferred Stock having a fair value of
$4,946,000 are recorded at par of $10,000 in HPI Common Stock and
$4,936,000 in Additional Paid-in Capital. The fair value was based
on the thirty day (to February 5, 1997) average closing price of the
HPI Common Stock.
The excess of the fair value of the consideration paid of
$14,008,343 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 $5,327,343.
The deemed dividend is computed as follows:
Fair value of consideration:
<TABLE>
<S> <C>
Class A Preferred Stock.................................. $3,006,000
Class B Preferred Stock.................................. 2,325,000
Class E Preferred Stock.................................. 4,946,000
Cash..................................................... 3,731,343
----------
Total.................................................... $14,008,343
Less: Book value of net assets acquired.................. 8,681,000
----------
Excess of fair value of consideration
over book value of net assets acquired............. $5,327,343
===========
</TABLE>
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
($685,971) 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.
The dividends on the mandatorily redeemable preferred stock are
computed at the rate of 4.0% on the Class A Preferred Stock and
3.999999% on the Class B Preferred Stock, on the number of shares of
each class outstanding during the applicable periods. These
dividends and the accretion of the excess of the redemption value of
the Class A and B shares over their fair value at the Closing Date
are broken down as follows:
50
<PAGE> 62
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPT. 30, 1996 1995 1994
-------------- -------- --------
<S> <C> <C> <C>
Dividends........................... $145,000 $217,000 $241,000
Accretion........................... 68,000 96,000 102,000
-------------- -------- --------
$213,000 $313,000 $343,000
=========== ========= =========
</TABLE>
2. Elimination of receivables and payables of $450,000 relating to
transactions between HPI and the Canadian Operations of Wyant.
The pro forma adjustments on the Pro Forma Condensed Combined Statements
of Operations result from:
3. Elimination of sales between HPI and the Canadian Operations of
Wyant.
4. Interest of 8% per annum on the debt incurred of $3,045,343.
5. Income tax benefit resulting from note 4 above.
6. Elimination of other income and a corresponding selling, general
and administrative expense to remove the effect of payments made by
the Canadian Operations of Wyant to HPI relating to a marketing
agreement between the companies.
7. 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 only when the effect on earnings per
share is dilutive.
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:
8. The difference in accounting for pension benefits compared to
Canadian GAAP.
9. The timing of recognition of certain employee severance costs.
10. The income tax effect of notes 8 and 9 above.
11. The difference in accounting for income taxes.
The statements of operations of the Canadian Operations of Wyant have
been translated into United States dollars at the following average rates of
exchange for each of the years ended December 31 ($1.00 United States is equal
to the following Canadian dollar amounts):
<TABLE>
<S> <C>
1995............................................... $1.3726
1994............................................... $1.3659
1993............................................... $1.2898
</TABLE>
For the nine months ended September 30, 1996 the average exchange rate
was $1.3680 for every United States dollar. The balance sheet of the Canadian
Operations of Wyant has been translated at September 30, 1996 using the exchange
rate of $1.3500 for every United States dollar.
51
<PAGE> 63
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 February 13,
1997, (b) each director of HPI, (c) each executive officer of HPI named in Table
1 -- 1996 Summary Compensation Table under "EXECUTIVE COMPENSATION" and (d) all
directors and executive officers of HPI as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) PERCENT OF CLASS
- --------------------------------------------------- -------------------- ----------------
<S> <C> <C>
G.H. Wood + Wyant Inc.............................. 937,690(2) 55.4%
1475 32nd Avenue
Lachine, Quebec
Donald C. MacMartin................................ 42,100(3) 2.4%
(Board Chairman & CEO)
Joseph H. Weinkam, Jr.............................. 36,000(4) 2.1%
(President/Chief Operating Officer)
John C. Zisko...................................... 5,000(5) 0.3%
(Vice President, Finance & Secretary)
Stephen A. Maskrey................................. 4,000(6) 0.2%
(Vice President, Sales)
Gerald W. Wyant.................................... 0(2) 0%
(A Director)
James A. Wyant..................................... 0(2) 0%
(A Director)
John B. Wight...................................... 6,000(7) 0.4%
(A Director)
Jane M. Curtis..................................... 4,000(8) 0.2%
(A Director)
Nicholas A. Gallopo................................ 0(9) 0%
(A Director)
Thomas R.M. Davis.................................. 0(10) 0%
(A Director)
All Directors and Officers as a Group (10 1,034,790(11) 57.9%(11)
persons).........................................
</TABLE>
- ---------------
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.
2. 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
52
<PAGE> 64
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, as voting trustee, will be entitled to
exercise all voting rights on shares of HPI Common Stock held by Wyant,
Lynneco and Derekco.
3. Includes 40,000 shares subject to stock options granted under the HPI 1991
Stock Option Plan.
4. Includes 35,000 shares subject to stock options granted under the HPI 1991
Stock Option Plan.
5. Includes 5,000 shares subject to stock options granted under the HPI 1991
Stock Option Plan.
6. Includes 4,000 shares subject to stock options granted under the HPI 1991
Stock Option Plan.
7. Includes 6,000 shares subject to stock options granted under the HPI 1991
Stock Option Plan.
8. 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 1997 Stock Incentive Plan, which grant is contingent upon
shareholder approval of the 1997 Stock Incentive Plan and completion of the
Transactions.
9. Does not reflect 10,000 shares subject to the Non-Employee Director Option
granted to Mr. Gallopo on November 6, 1996 under the 1997 Stock Incentive
Plan, which grant is contingent upon shareholder approval of the 1997 Stock
Incentive Plan and completion of the Transactions.
10. Does not reflect 10,000 shares subject to the Non-Employee Director Option
granted to Mr. Davis on November 6, 1996 under the 1997 Stock Incentive
Plan, which grant is contingent upon shareholder approval of the 1997 Stock
Incentive Plan and completion of the Transactions.
11. Includes 937,690 shares beneficially owned by G.H. Wood + Wyant Inc.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLES
The following table summarizes compensation earned in 1996, 1995 and 1994
by the Chief Executive Officer and the only other executive officers whose 1996
salary and bonus exceeded $100,000 (the "named officers").
53
<PAGE> 65
TABLE 1
1996 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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>
Donald C. MacMartin 1996 -0- -0- -0- 47,000 -0-
(1).................... 1995 -0- -0- -0- 8,000 -0-
Chief Executive Officer 1994 -0- -0- -0- -0- -0-
appointed 3/14/96
Gerald W. Wyant (1)...... 1996 -0- -0- -0- -0- -0-
Chief Executive Officer 1995 -0- -0- -0- -0- -0-
resigned 3/14/96 1994 -0- -0- -0- -0- -0-
Joseph H. Weinkam, Jr.... 1996 $207,511 $31,500 -0- 30,000 -0-
President and Chief 1995 115,384 22,500 -0- 15,000 -0-
Operating Officer 1994 -0- -0- -0- -0- -0-
appointed 5/24/95
John C. Zisko............ 1996 115,000 5,000 -0- 6,000 -0-
Vice President, Finance 1995 48,653 5,000 -0- 4,000 -0-
and Secretary appointed 1994 -0- -0- -0- -0- -0-
7/7/95
Stephen A. Maskrey....... 1996 100,000 5,000 $6,000 (2) 8,000 -0-
Vice President, Sales 1995 97,282 5,000 6,000 (2) -0- -0-
appointed 10/17/94 1994 16,628 -0- 1,000 (2) -0- -0-
</TABLE>
- ------------------
(1) Neither Gerald W. Wyant nor Donald C. MacMartin received any compensation
for services to HPI, except for the stock options received by Mr. MacMartin
which are included on Tables 1, 2 and 3.
(2) Automobile allowance.
The following tables identify 1996 fiscal-year option grants and
exercises by the named officers and reports a valuation of their options.
TABLE 2
1996 INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZED
NO. OF TOTAL OPTIONS VALUE AT ASSUMED
SECURITIES GRANTED ANNUAL RATE OF
UNDERLYING TO EMPLOYEES EXERCISE STOCK PRICE
OPTIONS IN FISCAL PRICE EXPIRATION APPRECIATION FOR
NAME GRANTED YEAR ($/SH) DATE OPTION TERM
- ------------------------------------- ---------- ------------- -------- ---------- -------------------
5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Donald C. MacMartin.................. 47,000 25.0 7.50 06/11/06 222,075 560,475
Joseph H. Weinkam, Jr................ 30,000 16.0 7.50 06/11/06 141,750 357,750
John C. Zisko........................ 6,000 3.2 7.50 06/11/06 28,350 71,550
Stephen A. Maskrey................... 8,000 4.3 7.50 06/11/06 37,800 95,400
</TABLE>
54
<PAGE> 66
TABLE 3
1996 STOCK OPTIONS TABLE
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE NUMBER OF SHARES COVERED VALUE OF UNEXERCISED
ACQUIRED ON REALIZED BY UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME EXERCISE $ DECEMBER 31, 1996 DECEMBER 31, 1996(1)
- ----------------------------------- ------------ -------- --------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald C. MacMartin................ -0- -0- 40,000 15,000 -0- -0-
Joseph H. Weinkam, Jr.............. -0- -0- 35,000 10,000 -0- -0-
John C. Zisko...................... -0- -0- 5,000 5,000 -0- -0-
Stephen A. Maskrey................. -0- -0- 4,000 4,000 -0- -0-
</TABLE>
- ---------------
(1) Based on the price of $4.63 per share, the closing price of the shares on
Nasdaq on December 31, 1996.
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.
On November 6, 1996, options to purchase HPI Common Stock at $5.25 per
share were awarded under the 1997 Stock Incentive Plan to the following
directors: Jane M. Curtis (6,000 shares), Thomas R. M. Davis (10,000 shares),
Nicholas A. Gallopo (10,000 shares). The options awarded to Ms. Curtis, Mr.
Davis and Mr. Gallopo are contingent upon shareholder approval of the 1997 Stock
Incentive Plan and completion of the Transactions. The terms of these options
are described in greater detail below under "-- PROPOSED ADOPTION OF THE HPI
1997 STOCK INCENTIVE PLAN." In addition, on June 11, 1996, John B. Wight, a
director, was awarded an option to purchase 3,000 shares of HPI Common Stock at
$7.50 per share under the HPI 1991 Stock Option Plan.
55
<PAGE> 67
PROPOSED ADOPTION OF THE HPI 1997 STOCK INCENTIVE PLAN
This section of the Proxy Statement describes the significant aspects of
the 1997 Stock Incentive Plan and does not purport to be complete. This section
is qualified in its entirety by reference to the 1997 Stock Incentive Plan which
is included as Appendix B to this Proxy Statement.
On November 6, 1996, the Board of Directors adopted the 1997 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.
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
56
<PAGE> 68
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
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
57
<PAGE> 69
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.
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
58
<PAGE> 70
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
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
59
<PAGE> 71
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:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OPTION RECIPIENTS SUBJECT TO OPTION
- --------------------------------------------------------------------- -----------------
<S> <C>
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
</TABLE>
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 1997 Stock Incentive Plan. Consequently, any shares not voted (whether by
abstention or broker non-votes) have the same effect as votes against the 1997
Stock Incentive Plan.
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF THE 1997
STOCK INCENTIVE PLAN.
60
<PAGE> 72
PROPOSED AMENDMENTS OF THE HPI CERTIFICATE OF INCORPORATION
CORPORATE NAME CHANGE
In connection with the Acquisition, the Board intends to change the
corporate name of HPI to Wyant Corporation. The primary reason for the corporate
name change is that management believes that the Hosposable name will no longer
reflect the business composition and the mission of HPI subsequent to the
consummation of the Transactions.
INCREASE OF AUTHORIZED SHARES
Of the 3,000,000 currently authorized shares of HPI Common Stock, as of
February 13, 1997, 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 Proposals 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
corporate purposes.
While HPI from time to time 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 Proposals are 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 Proposals 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 Proposals.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE CHARTER
PROPOSALS.
61
<PAGE> 73
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."
62
<PAGE> 74
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
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
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(1).......... -- -- -- -- 550,000 -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
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
</TABLE>
- ---------------
1. 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.
63
<PAGE> 75
RECENT FINANCIAL RESULTS OF HPI (UNAUDITED)
HPI's results of operations for the three month period ended December 31,
1996 were negatively impacted by significant non-recurring expenses incurred in
connection with the Transactions and significant unanticipated losses resulting
from certain uncollectible customer accounts. HPI's loss before income tax
recoveries, net loss and loss per common share for the three month period ended
December 31, 1996 were approximately $982,000, $642,000 and $0.38, respectively,
and for the year ended December 31, 1996 were approximately $1,663,000,
$1,055,000 and $0.62, respectively.
Excluding the effect of the non-recurring expenses incurred in connection
with the Transactions, HPI's loss before income tax recoveries, net loss and
loss per common share for the three month period ended December 31, 1996 would
have been approximately $432,000, $293,000 and $0.17, respectively, and for the
year ended December 31, 1996 would have been approximately $1,113,000, $706,000
and $0.41, respectively.
INFORMATION CONCERNING THE CANADIAN OPERATIONS OF 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 one of two national distributors of
sanitary paper products, janitorial chemicals and equipment, and sanitation
supplies to institutional markets in Canada with Wyant being the only national
full line distributor focused solely on the institutional sanitation market.
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. On
December 30, 1996, Wyant Chemicals was wound up and now operates as a division
of Wyant. 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 only national full line distributor of
institutional sanitation supplies focused solely on the institutional sanitation
market. 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
64
<PAGE> 76
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.
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.
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<PAGE> 77
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.
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.
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<PAGE> 78
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 14, 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 had joined the Communications,
Energy and Paper Workers Union of Canada. Wyant management and union
representatives met on January 7, 1997 and February 3, 1997 to negotiate a
collective bargaining agreement. Employee negotiating demands include improved
wages and benefits as well as additional paid leave. Wyant has estimated the
total cost of these demands to be less than $250,000 annually. Wyant believes
that the cost of a final negotiated agreement will be less than what was
requested during the meetings of January 7, 1997 and February 3, 1997.
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 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:
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<PAGE> 79
<TABLE>
<CAPTION>
AREA IN YEAR OF
FACILITY SQUARE FEET EXPIRATION
- -------------------------------------------------------------------- ----------- ----------
<S> <C> <C>
Dartmouth (Halifax), Nova Scotia.................................... 15,700 1997
Lachine (Montreal), Quebec.......................................... 91,700 2004
Scarborough (Toronto), Ontario...................................... 42,800 2001
Scarborough (Toronto), Ontario...................................... 42,100 2001
Winnipeg, Manitoba.................................................. 12,500 2001
Edmonton, Alberta................................................... 14,000 1998
Burnaby (Vancouver), B.C............................................ 10,400 2000
</TABLE>
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.
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<PAGE> 80
SELECTED HISTORICAL FINANCIAL DATA OF
THE CANADIAN OPERATIONS OF WYANT
The selected financial data set forth below is derived from audited
financial statements of the Canadian Operations 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, its prior independent auditor, and the
financial statements for the fiscal year ended December 31, 1995 have been
audited by Ernst & Young, its current independent auditor. The financial
statements have been prepared in accordance with Canadian GAAP. 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 "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF THE COMBINED OPERATIONS OF HPI AND THE CANADIAN OPERATIONS OF
WYANT" and the financial statements and notes thereto contained elsewhere
herein.
CANADIAN GAAP
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------ ------------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
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
Selling, General And
Administrative......... 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)
Other Income............. 39,641 37,203 42,200 16,899 69,157 53,660 61,102
Unusual and non-recurring
items (3,4,5,6,7)...... -- -- (1,852,368) (272,687) (1,594,000) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (Loss) Before
Income Taxes and Share
of Net Income of
Affiliates............. 406,428 (1,223,812) (7,231,906) (3,574,193) 556,040 1,631,728 2,437,446
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 of
Affiliates............. 548,666 (1,153,182) (5,332,099) (2,824,825) 522,511 1,533,828 1,357,446
Share of Net Income of
Affiliates............. 561,136 331,244 107,259 -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Income (Loss)........ $1,109,802 $ (821,938) $(5,224,840) $(2,824,825) $ 522,511 $1,533,828 $1,357,446
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
------------------------------------------------------------------ ------------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET 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(2).......... 33,589,440 40,679,454 48,226,411 34,720,866 31,137,840 34,717,111 29,125,129
Long-Term Debt........... 6,517,235 7,111,200 8,851,029 6,895,090 4,292,285 5,421,258 3,553,999
Deferred Income Taxes.... 535,359 638,056 683,159 -- -- -- 775,408
Net Assets............... 21,340,973 20,421,585 14,755,067 10,335,526 10,362,741 11,843,267 11,720,935
</TABLE>
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<PAGE> 81
U.S. GAAP
The selected financial data presented above is prepared in accordance
with Canadian GAAP. In the case of the Canadian Operations of Wyant, these
differ in certain respects from U.S. GAAP, as shown in the reconciliation
presented in note 19 to the financial statements on page F-15. Earnings and
statement of net asset data based on U.S. GAAP follow:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
------------------------------------------------------------------ ------------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income (loss)........ $1,521,856 $ (987,241) $(5,262,740) $(2,390,825) $ 416,111 $1,426,228 $1,332,446
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............. 33,589,440 40,679,454 48,226,411 34,906,927 31,275,291 34,853,362 29,264,646
Long term debt........... 6,517,235 7,111,200 8,851,029 6,895,090 4,292,285 5,421,258 3,553,999
Deferred income taxes.... 522,305 790,305 844,744 131,265 -- -- 748,342
Net Assets............... 21,354,027 20,269,336 14,564,918 10,579,377 10,500,192 11,979,518 11,833,386
</TABLE>
- ---------------
1. The summary financial data for the nine months ended September 30, 1996 have
been derived from the unaudited financial statements of the Canadian
Operations of Wyant which are expressed in Canadian dollars and which also
have been prepared in accordance with Canadian GAAP.
2. Effective December 31, 1992, the Canadian Operations of Wyant acquired
substantially all of the assets of the G.H.Wood division of Ecolab Ltd. for
a total consideration of $7,616,000.
3. During 1993, the Canadian Operations of 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.
4. During the fourth quarter of 1994, a program was initiated to reduce the
number of distribution centers and consolidate the paper converting
operations. The resulting restructuring charge comprised:
<TABLE>
<S> <C>
Employee severance pay............................................................................. $1,582,070
Lease abandonment.................................................................................. 628,610
Employee relocation................................................................................ 256,000
Consulting Fees.................................................................................... 180,000
Write-off of obsolete marketing and operating materials............................................ 173,000
Consolidation of paper converting operations -- other expenses..................................... 170,000
Other.............................................................................................. 43,431
----------
$3,033,111
==========
</TABLE>
5. On February 21, 1994, the Canadian Operations of 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.
6. On February 17, 1993, as part of an asset purchase agreement, the Canadian
Operations of 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, the
Canadian Operations of 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, the Canadian Operations of 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:
<TABLE>
<S> <C>
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
==========
</TABLE>
The entire balance plus applicable sales taxes was paid on January 15, 1996.
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<PAGE> 82
7. As a result of the wind-up of its wholly owned subsidiary, Papiers Grande
Ville Inc., and the consolidation of the paper converting operations,
surplus machinery was identified. 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.
EXCHANGE RATES
The following table sets forth (i) the rate of exchange for the United
States dollar expressed in Canadian dollars, in effect at the end of the periods
indicated, (ii) the average of exchange rates in effect on the last day of each
month during such periods, and (iii) the high and low exchange rates during such
periods, based on the noon buying rate in New York City for cable transfers in
Canadian dollars as certified for customs purposes by the Federal Reserve Bank
of New York.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Period end............................... $1.1555 $1.2711 $1.3256 $1.4030 $1.3655 $1.3417 $1.3620
Average.................................. 1.1458 1.2083 1.2902 1.3664 1.3725 1.3781 1.3681
High..................................... 1.1618 1.2938 1.3443 1.4079 1.4267 1.4267 1.3865
Low...................................... 1.1197 1.1401 1.2429 1.3103 1.3275 1.3345 1.3515
</TABLE>
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<PAGE> 83
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF THE COMBINED OPERATIONS
OF HPI AND THE CANADIAN 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 pro-forma condensed combined financial statements and
accompanying notes contained herein. As described herein, those financial
statements are prepared in a manner similar to a pooling-of-interest.
Accordingly, upon consummation of the Transactions, the assets and liabilities
of the Canadian Operations of Wyant will be included with the consolidated
balance sheet of HPI and its subsidiaries in the amounts that were included in
the financial statements of the Canadian Operations of Wyant immediately prior
to the Transactions, subject to adjustments required to conform the accounting
policies of the Canadian Operations of Wyant to U.S. GAAP and subject to the
adjustments required to conform to pooling-of-interests accounting rules and
regulations. Wyant, the common parent of each of HPI and the Canadian Operations
of Wyant, obtained legal control (in excess of 50% of voting shares) of HPI on
August 4, 1994. Accordingly, operations of the Canadian Operations of Wyant and
HPI will be reflected as being combined from January 1, 1994. The Statement of
Operations for 1993, reflects the line-by-line results of the Canadian
Operations of Wyant and its proportionate share of the results of HPI,
determined in accordance with equity accounting as reflected in "Share of Net
Earnings of Affiliates." Unless otherwise indicated, all dollar amounts are in
U.S. dollars.
As described more fully under "INFORMATION CONCERNING THE CANADIAN
OPERATIONS OF WYANT", Wyant is primarily a distribution business that purchases
items in large quantities, inventories such products in leased warehouse
facilities and resells them in smaller quantities to its customer base. Wyant
currently stocks approximately 3,800 core products.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AS COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Sales. Sales for the nine months ended September 30, 1996 increased by
$1,361,000 to $69,724,000 from the year earlier period total of $68,363,000. At
HPI, sales for the nine months ended September 30, 1996 were $31,871,000 as
compared with $30,065,000 in 1995. The increase of $1,806,000 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.
Sales of the Canadian Operations of Wyant at $39,601,000 were unchanged
from the year earlier period as increased sales of paper products ($804,000)
were for the most part offset by decreases in sales ($660,000) of other
products.
The increase in the sales of paper products was the result of higher
average selling prices in 1996 over the same period in 1995, partially offset by
lower unit volumes of approximately 8%. The decrease in sales of other products
is primarily due to lower unit volumes as product pricing was essentially stable
in both periods.
Cost of Sales and Gross Profit. HPI's 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.
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<PAGE> 84
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.
Gross profit for the Canadian Operations of Wyant at 42.3% ($16,757,000)
for 1996 increased marginally from the year ago performance of 42.0%
($16,483,000). As previously described, the Canadian Operations of Wyant's
revenues are derived from the resale of products which are purchased directly
from manufacturers or from items processed at one of its two manufacturing
facilities. Accordingly, cost of sales do not include a significant fixed cost
component and vary proportionally with sales activity. Gross profit performance
is measured primarily as a percentage of sales.
Selling, General and Administrative. Selling, general and administrative
expenses increased by $900,000 or 4.65% over the year ago period. Selling,
general and administrative expenses at HPI for the nine months ended September
30, 1996 amounted to $6,113,000 or 19.2% of its sales compared with $5,195,000
or 17.3% of its sales in 1995. The increase was due to higher research and
development expenditures as well as higher professional and consulting fees.
Marketing and promotion expenses for the Canadian Operations of Wyant increased
by $145,000 due primarily to publishing a new source guide (catalogue) of
products. Due to anticipated changes to the product line, new source guides are
required in three year intervals. This increase in marketing and promotional
expenses was offset by lower general and administrative expenses resulting from
lower staff levels. In June 1996, the Canadian Operations of Wyant improved
certain benefits under its defined benefit pension plan. The improvements are
expected to reduce the annual pension income by approximately $27,000 and to
reduce the plan surplus by approximately $490,000. Wyant is not required to fund
benefits under this plan during 1996 due to the large accumulated surplus which
approximated $2,542,000 at December 31, 1995. The Canadian Operations of Wyant
has not yet determined when it will be required to resume funding and has not
funded any benefits under this plan since early 1994.
Depreciation and Amortization. Depreciation and amortization of $425,000
decreased by $27,000 due to lower capital expenditures in late 1995.
Other Income. Other income of $178,000 increased by $71,000. The
increase was evenly split between Wyant and HPI and no single item was of
significance.
Interest Expense. Interest expense decreased by $269,000 due to lower
borrowing levels and lower borrowing costs. Borrowing costs for the Canadian
Operations of Wyant are directly related to the prime lending rate in Canada
which as of September 30, 1996 was 5.75% (1995 - 8.0%).
Income Before Income Tax. Income before income tax decreased by $403,000
as the increased earnings of the Canadian Operations of Wyant of $758,000 was
offset by a decrease of $1,161,000 in pre-tax earnings at HPI. The decrease in
pre-tax results for HPI was due to the decrease in gross profit and higher
general, selling and administrative expenses.
Income Taxes. Income taxes increased by $355,000 in 1996 as tax loss
carryforwards available to the Canadian Operations of Wyant were utilized in
1995.
Net Earnings Attributable to Common Shareholders. During the period, net
earnings attributable to common shares decreased to $247,000 ($0.09 per common
share) as compared to $985,000 ($0.37 per common share) in 1995. The decrease in
net earnings is attributable to the decline of $712,000 in net earnings of HPI.
The earnings per common share are fully diluted giving full effect to the Class
E Preferred Shares of HPI sub.
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<PAGE> 85
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and capital resources of each segment of the combined entity
(HPI and the Canadian Operations of Wyant) will be discussed in detail
individually as each segment is self-financing, has separate banking facilities
and there were no cross guarantees of either party's obligations.
HPI
Trade accounts receivable increased from $5,396,000 at December 31, 1995
to $6,744,000 at September 30, 1996, a change of $1,348,000 or 25.0%. This
change is primarily due to a concentration of sales in the latter part of the
third quarter of 1996 and some general seasonal related slowness in collections.
Management believed that accounts receivable collections will improve during the
fourth quarter of 1996.
Marketable securities decreased from $1,362,000 at December 31, 1995 to
$41,000 at September 30, 1996. This change was due to the sale of marketable
securities to support the working capital needs of HPI.
Funds for HPI'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 HPI 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.
HPI believes that it has adequate funds available to conduct and continue
to expand its business and that of its subsidiaries. In addition, HPI believes
that, if necessary, it will be able to make favorable financial arrangements for
any future capital requirements.
The Canadian Operations of Wyant
During the nine months ended September 30, 1996, the Canadian Operations
of Wyant generated $599,000 in cash as compared to a utilization of cash of
$284,000 in the year earlier period. This significant improvement results from
increased cash flow from operations which totalled $2,007,000 (1995 -
$1,114,700). Cash requirements for working capital increased by $242,000 during
the nine month period primarily as a result of paying negotiated amounts to
terminate a supply agreement. Under the terms of this settlement, the Canadian
Operations of Wyant agreed to pay $1,063,000 to commute its obligations under
the agreement and to immediately repay the $618,000 unpaid balance of a note
that originally was repayable in monthly installments through the year 2000.
Both amounts were included in current liabilities at December 31, 1995 and were
paid in early January 1996. In addition, during the period income tax refunds of
$436,000 were received and inventories were reduced by $1,167,000 as a result of
centralizing inventory forecasting and management. Cash provided by operations
was used to fund $713,000 in addition to capital assets, the majority of which
were upgrades to paper converting operations that were required following the
restructuring of these operations in 1994. The disposal of surplus and obsolete
equipment identified during this restructuring generated cash proceeds of
$232,000 and Wyant has now liquidated all such surplus equipment.
The maximum credit available under the revolving credit facility was
reduced in 1996 to $4,444,000 (Cdn$6,000,000) from $5,556,000 (Cdn$7,500,000) to
reduce the standby fees required to keep the higher revolving credit facility in
place. In connection with the payments under the supply agreement settlement
discussed in the preceding paragraph, $731,000 of bank indebtedness under this
revolving credit facility was converted to term debt and is repayable over three
years. Unused
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availability under the existing revolving credit facility totalled almost
$3,216,000 (Cdn$4,400,000) as of September 30, 1996. A term credit facility in
the amount of $1,925,000 (Cdn$2,600,000) has been arranged and is available to
finance future capital asset additions.
Management does not expect any significant changes in the future cash
flows, and believes that operating cash flows and the unused availability under
existing credit facilities will be sufficient to meet on-going operating cash
requirements, to repay the term debt as it becomes due and to meet cash
requirements for capital asset additions.
Impact of the Acquisition on Continuing Operations
As described in this Proxy Statement, HPI Sub will issue Cdn$3,800,000
aggregate liquidation preference of Class B Preferred Stock and Cdn$4,262,741
aggregate liquidation preference of Class A Preferred Stock, subject to
adjustment, as part of the Acquisition Consideration. These shares are to be
redeemed over a 10 year period at their stated capital amount.
The Canadian bankers of the Canadian Operations of Wyant have executed a
letter of intent to the effect that existing credit facilities will be made
available to HPI Sub on substantially the same terms and conditions as they are
currently available to the Canadian Operations of Wyant, provided there are no
material adverse changes in the Canadian Operations of Wyant's financial
condition prior to closing. Management is not aware of any such material adverse
change.
Management believes that operating cash flows and expected credit
facilities will be sufficient to fund all previously discussed cash requirements
and to meet the requirements in respect of the retirement and dividends of the
mandatorily redeemable preferred shares.
In addition, HPI has arranged, through its bankers, a credit facility
sufficient to fund its estimated cash requirements in connection with the
Transactions provided there are no material adverse changes to HPI's financial
condition prior to closing. Management is not aware of any such material adverse
change.
Upon completion of the Transactions, management intends to attempt to
exploit synergistic opportunities made available by the complementary
geographical fit of both HPI and Wyant, the opportunities to HPI afforded by
Wyant's presence in Canadian health care markets, the opportunities available by
enhanced access to Wyant of HPI's IFC divisions's customer base, as well as any
economies of scale which may be achieved by the combined entity. At this time,
management is not aware of any significant service, supply or cost sharing
arrangements, and/or any other significant business arrangements that will be
materially affected by the Transactions.
Management does not anticipate any material changes to accounting
principles, methods and practices as a result of the Transactions, other than
those required to conform to U.S. GAAP as described in note 19 on page F-15.
FISCAL YEAR 1995 AS COMPARED WITH FISCAL YEAR 1994
Sales. Sales for the year ended December 31, 1995 increased $5,235,000
or 6.0%, to $91,355,000. This increase is entirely attributable to a 17.4%
increase in sales (from $34.5 million to $40.5 million) at HPI as a result of
significantly higher sales in the health care and nonwoven segments of its
business. During 1995, sales of the Canadian Operations of Wyant were $52.2
million, unchanged from 1994. Sales of paper products increased by approximately
$3.1 million which was offset by decreases in sales of other products of
approximately $3.1 million.
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Approximately $500,000 of the increase in paper products sales resulted
from an increase in unit volumes of approximately 2%. The remainder of the
increase is attributable to price increases implemented throughout the year.
The decrease in the sales of other products was caused by the
restructuring plan initiated in the fourth quarter of 1994 as well as the
refocusing of sales efforts toward higher margined products.
Cost of Sales and Gross Profit. At HPI, gross profit was 18.5% of sales
in 1995 compared with 23.1% in 1994. The decrease in gross profit was primarily
due to significantly higher raw material costs, particularly for paper pulp.
This decrease in gross profit was fully offset by increased gross profit of
$1,978,000 of the Canadian Operations of Wyant. As a percentage of sales, gross
profit increased from 37.9% in 1994 to 41.7% in 1995 due to improved pricing on
paper products (approximately $1,457,000), selected pricing increases in other
products and improved product mix.
Selling, General and Administrative. At HPI, selling, general and
administrative expenses increased to $7,329,000 in 1995 from $6,454,000 in 1994,
a decrease to 18.1% of sales in 1995 from 19.2% in 1994. With respect to the
Canadian Operations of Wyant, 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.
Depreciation and Amortization. Amortization of capital assets and
goodwill amounted to $659,000 in 1995 compared to $766,000 in 1994. The
reduction of $107,000 reflected lower capital spending in 1995.
Other Income (Expense). Other income decreased by $229,000 as interest
derived from portfolio investments decreased by approximately $149,000 due to
lower rates. The remainder of the decrease is due to lower rental income at
HPI's Branchburg corporate facility. Interest expense totalled $1,064,000 in
1995, almost unchanged from 1994.
Non-Recurring Items. Non-recurring charges of $1,849,000 were incurred
in 1995 as compared to a net amount of $62,000 in 1994. At HPI, 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.
During 1995, the Canadian Operations of Wyant incurred charges of
$1,063,000 to commute its obligations under a supply agreement, incurred
$138,000 in severance related to a restructuring program initiated in 1994 and
incurred a write-down of surplus machinery and equipment of $198,000. The
write-down of surplus machinery resulted from the consolidation of paper
converting operations at Pickering. These unusual charges were partially offset
by gains on the disposal of other capital assets of $96,000.
During the fourth quarter of 1994 the Canadian operations of Wyant
initiated a program to reduce the number of its distribution centers and
consolidate its paper converting operations. The resulting restructuring charge
of $2,221,000 was comprised primarily of employee severance costs ($1,160,000),
lease abandonment ($460,000), employee relocation ($137,000) and other expenses
of $414,000.
These restructuring costs were partially offset by the gain ($2,021,000)
realized on the sale of the 50% interest in Industries Cascades, Inc. On
February 21, 1994, Wyant sold its 50% investment in Industries Cascades Inc. for
cash consideration of $7,270,000. The proceeds were used to repay existing
obligations.
Income Taxes. Income tax recoveries totalled $339,000 in 1995 as
compared to a recovery of $8,000 in 1994. During 1995, HPI's income before
income taxes was a loss of $372,000 versus an
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income of $1,649,000 for 1994. Consequently, 1995 income taxes were $776,000
lower than 1994 reflecting HPI's ability to recover previously incurred income
taxes. Income before income taxes for the Canadian Operations of Wyant improved
to $216,000 from a loss of $2,264,000 in 1994. Income tax recoveries decreased
to $88,000 from $523,000 in 1994 as a result of the return to profitability in
1995.
Net Earnings Attributable to Common Shareholders. For the year ended
December 31, 1995 the net loss attributable to common shareholders improved to
($374,000) (($0.22) per common share) from a loss of $1,194,000 (($0.71) per
common share) for 1994. This improvement of $820,000 or $0.49 per common share
is due to a $2,045,000 improvement in the results of the Canadian Operations of
Wyant partially offset by the decline of $1,245,000 in the net results of HPI.
Dividend requirements and accretion of mandatorily redeemable preferred shares
decreased from $343,000 to $313,000 as a result of having fewer shares
outstanding. All earnings per common share data exclude the effect of the Class
E Preferred Shares of HPI Sub as such effects would be anti-dilutive.
FISCAL YEAR 1994 AS COMPARED WITH FISCAL YEAR 1993
Overview. The pro forma combined Statement of Operations for the year
ended December 31, 1994 is the first fiscal period in which the operations of
the Canadian Operations of Wyant are combined with those of HPI. Earlier periods
cannot be presented on a combined basis as Wyant's legal control (ownership of
in excess of 50% of shares with voting rights) was attained on August 4, 1994.
For earlier periods, the results of the new entity are those of Wyant with its
investment in HPI presented on the equity basis.
Sales. Sales for the year ended December 31, 1994 increased
substantially to $86,120,000 from $57,944,000 in 1993. Sales in 1994 reflect the
combined sales of the Canadian Operations of Wyant with those of HPI. Sales of
HPI for 1994 amounted to $34,515,000. Sales of the Canadian Operations of Wyant
decreased by $5,721,000 from $57,944,000 in 1993 to $52,223,000. The stronger
U.S. dollar in 1994 reflected in a higher average exchange rate used to
translate the Canadian Operations of Wyant's results into U.S. dollars ($1.3759
versus $1.2898), represents approximately $5.4 million of the approximately $5.7
million decrease. The remainder of the decrease was due to competitive pressures
in all geographic regions as well as lower average selling prices for paper
products.
Cost of Sales and Gross Profit. Cost of sales increased by $23,711,000
and gross profit increased by $4,465,000. In 1994, cost of sales and gross
profit from HPI operations amounted to $26,534,000 (1993 - $Nil) and $7,981,000
(1993 - $Nil), respectively. Cost of sales of the Canadian Operations of Wyant
decreased to $32,440,000 in 1994 from $34,645,000 in 1993. The stronger U.S.
dollar in 1994 had the effect of reducing cost of sales by approximately
$3,372,000. As a percentage of sales, gross profit decreased from 40.2% to 37.9%
due to lower average selling prices of paper products and an unfavorable product
mix.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $26,887,000 in 1994 as compared to $25,969,000 in 1993.
The 1994 expenses included $6,454,000 (1993 - $Nil) of HPI expenses. The 1994
expenses of the Canadian Operations of Wyant totalled $20,936,000 as compared to
$25,969,000 in 1993. The decrease is due to the exchange rate impact, as
previously discussed, of approximately $1,750,000, lower salaries and benefits
(approximately $1,546,000), which resulted from personnel reductions late in
1993 and reduced rent expense (approximately $355,000) and reduced
communications expenses (approximately $645,000).
Depreciation and Amortization. Depreciation and amortization amounted to
$766,000 in 1994, an increase of $102,000 over 1993. The 1994 depreciation and
amortization for HPI amounted to
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$165,000 (1993 - $Nil). Depreciation and amortization for the Canadian
Operations of Wyant was $601,000 in 1994 as compared to $664,000 in 1993. This
decrease of $63,000 was largely due to the exchange rate impact previously
discussed.
Other Income. Other income increased from $29,000 in 1993 to $397,000 in
1994 as a result of HPI's other income (largely investment income on portfolio
investments) earned in 1994 (1993 - $Nil).
Interest Expense. Interest expense increased to $1,061,000 in 1994 from
$891,000 in 1993. The increase is due to the inclusion in 1994 of HPI interest
of $385,000 (1993 - $Nil) partially offset by the previously discussed exchange
rate impact of $70,000 on interest incurred by the Canadian Operations of Wyant.
In Canadian dollars, the interest expense of the Canadian Operations of Wyant
decreased by almost 20% as a result of lower debt levels partially offset by
higher average interest rates. The lower debt levels were largely the result of
repaying $7,270,000 (Can.$10,000,000) of bank debt from the proceeds realized on
the sale of the 50% interest in Industries Cascades Inc.
Non-Recurring Items. Non-recurring items in 1994 totalled $62,000 in
1994 as compared to $1,436,000 in 1993. Non-recurring items incurred in 1993
includes $575,000 of employee severance costs and approximately $360,000 in
non-recurring transitional expenses related to the integration of the G.H. Wood
business purchased as of December 31, 1992.
During the fourth quarter of 1994 the Canadian Operations of Wyant
initiated a program to reduce the number of its distribution centers and
consolidate its paper converting operations. The resulting restructuring charge
of $2,221,000 was comprised primarily of employee severance costs ($1,160,000),
lease abandonment ($460,000), employee relocation ($137,000) and other expenses
of $414,000.
These restructuring costs were partially offset by the gain ($2,021,000)
realized on the sale of the 50% interest in Industries Cascades, Inc. On
February 21, 1994, Wyant sold its 50% investment in Industries Cascades Inc. for
cash consideration of $7,270,000. The proceeds were used to repay existing
obligations.
Income Taxes. Income tax recoveries decreased to $8,000 in 1994 as tax
recoveries on operating losses incurred by the Canadian Operations of Wyant
($523,000) were offset by the income tax expense ($515,000) incurred by HPI. The
year earlier recovery of $1,466,000 was due to the loss incurred by the Canadian
Operations of Wyant.
Net Earnings Attributable to Common Shareholders. During the year, the
net loss attributable to common shares was ($1,194,000) (($0.71) per common
share) an improvement of $2,384,000 over the year earlier period. This
significant improvement is due to an improvement of $1,837,000 in the results of
the Canadian Operations of Wyant and due to the inclusion of 100% of HPI's
results in 1994 versus only 42% in 1993. HPI's net earnings in 1994 at
$1,036,000 were $163,000 worse than its 1993 net earnings. For both 1994 and
1993 the Class E Preferred Shares are not reflected in the earnings per common
share calculations as it would be anti-dilutive. The difference between the 1994
and 1993 weighted average number of common shares outstanding is not
significant.
LIQUIDITY AND CAPITAL RESOURCES
HPI
In December, 1993, HPI 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 HPI to finance
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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. As of December 31, 1995, total proceeds of approximately
$5,000,000 had been distributed to HPI in order to purchase the Branchburg
Property, and the machinery and equipment. The remaining balance is held in
escrow and will be distributed to HPI 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 HPI's right, title and interest in and
to all leases with respect to the building and land; (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 HPI'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.
HPI'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.
HPI's working capital position amounted to $7,959,164 at December 31,
1995, including cash and marketable securities of $4,281,702.
Funds for HPI's current operations are derived from the sale of its
products and the ability, when necessary, to borrower 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, HPI believes that it has adequate funds available to conduct
and continue to expand its business and that of its subsidiaries. In addition,
HPI believes that, if necessary, it will be able to make favorable financial
arrangements for any future capital requirements.
The Canadian Operations of Wyant
During 1995, total bank indebtedness was reduced by $2,428,000
(Cdn$3,334,000), represented by repayments of long-term bank debt of $1,457,000
(Cdn$2,000,000) and a reduction of $979,000 (Cdn$1,334,000) in bank indebtedness
under the revolving credit facility.
The reduction in total bank indebtedness resulted from cash generated
from operating activities which amounted to $3,020,000 (Cdn$4,145,000) less the
$91,800 (Cdn$126,046) of cash used in investing activities and less the $360,000
(Cdn$495,000) distributed to Wyant. Cash generated from operations during 1995
increased significantly to $3,020,000 (Cdn$4,145,000) from $1,356,000
(Cdn$1,852,000) in 1994 primarily as a result of the return to profitability.
Included in the cash generated from operations was $1,630,000 (Cdn$2,238,000) in
cash generated from working capital, comprised primarily of reductions of
$656,000 (Cdn$900,000) in accounts receivable, the receipt of $510,000
(Cdn$700,000) in income tax refunds, reductions of almost $219,000 (Cdn$300,000)
in inventories and reductions of $315,000 (Cdn$433,000) in prepaid expenses. The
reduction in accounts receivable and inventory are a direct result of a
management program initiated in 1994 to improve collection efforts for accounts
receivable and to reduce inventory levels.
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During 1995, investing activities consumed only $92,000 (Cdn$126,000) as
capital asset purchases were partially funded by the proceeds from the sale of
surplus and obsolete equipment. Distributions to Wyant totalled $361,000
(Cdn$495,000) during 1995.
In 1995, working capital decreased to $2,596,000 (Cdn$3,545,000) from
$3,226,000 (Cdn$4,526,000) in 1994. The decrease of $630,000 (Cdn$981,000) is
primarily the result of the December 29, 1995 agreement to commute obligations
under a supply agreement and to repay a promissory note due January 2000. This
agreement increased the current liabilities by $1,131,000 (Cdn$1,545,000) and
increased the current portion of long-term debt by $444,000 (Cdn$606,000), the
balance of the promissory note net of the $176,000 (Cdn$240,000) which would
have been due in 1997.
During 1994, total bank indebtedness decreased by approximately
$6,935,000 (Cdn$9,540,000) primarily as a result of utilizing cash proceeds of
$7,270,000 (Cdn$10,000,000) from the sale of the investment in Industries
Cascades Inc. Cash provided by operating activities of $1,355,000
(Cdn$1,852,000) came entirely from working capital $1,168,000 (Cdn$6,714,000) as
operating losses consumed $3,560,000 (Cdn$4,862,000) in cash. Cash distributions
to Wyant increased to $1,168,000 (Cdn$1,595,000) during the year. At the end of
both 1994 and 1995, Wyant had a revolving credit facility of $5,492,000
(Cdn$7,500,000). In 1995, in excess of $3,662,000 (Cdn$5,000,000) of this
facility was available and in 1994, in excess of $2,637,000 (Cdn$3,700,000) was
available. Management believes that cash generated from operations and the
unused credit facility will be sufficient to meet anticipated cash requirements
including all required long-term debt repayments and capital asset purchases.
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.
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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 by January 13, 1997. Shareholders wishing to
present proposals at the 1998 Annual Meeting of Shareholders of HPI should
submit such proposals, in writing, to HPI at its principal executive offices not
later than January 21, 1998.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by HPI (the "Incorporated Documents") with
the Securities and Exchange Commission (the "Commission") 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), as amended by Form 10-K/A (filed with the Commission on
February 11, 1997), included as Appendices D and E hereto,
respectively.
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), as amended by
Form 10-Q/A (filed with the Commission on January 16, 1997), included
as Appendices F, G, H and I 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 J 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.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Auditor's Reports.............................................................. F-2
Statement of Net Assets of The Canadian Operations of G.H. Wood + Wyant Inc. as
at December 31, 1994 and 1995................................................ F-4
Statement of Earnings of The Canadian Operations of G.H. Wood + Wyant Inc. for
the Years Ended December 31, 1993, 1994 and 1995............................. F-5
Statement of Changes in Net Assets of The Canadian Operations of G.H. Wood +
Wyant Inc. for the Years Ended December 31, 1993, 1994 and 1995.............. F-6
Statement of Changes in Financial Position of The Canadian Operations of
G.H. Wood + Wyant Inc. for the Years Ended December 31, 1993, 1994 and
1995......................................................................... F-7
Notes to Financial Statements of The Canadian Operations of G.H. Wood + Wyant
Inc.......................................................................... F-8
Unaudited Statement of Net Assets of The Canadian Operations of G.H. Wood +
Wyant Inc. as at December 31, 1995 and September 30, 1996.................... F-18
Unaudited Statement of Earnings of The Canadian Operations of G.H. Wood + Wyant
Inc. for the Nine Months Ended September 30, 1995 and 1996................... F-19
Unaudited Statement of Changes in Net Assets of The Canadian Operations of
G.H. Wood + Wyant Inc. for the Nine Months Ended September 30, 1995 and
1996......................................................................... F-20
Unaudited Statement of Changes in Financial Position of The Canadian Operations
of G.H. Wood + Wyant Inc. for the Nine Months Ended September 30, 1995 and
1996......................................................................... F-21
Notes to Unaudited Financial Statements of The Canadian Operations of
G.H. Wood + Wyant Inc. ...................................................... F-22
</TABLE>
F-1
<PAGE> 95
AUDITOR'S REPORT
To the Directors of
G.H. WOOD + WYANT INC.
We have audited the statement of net assets of The Canadian Operations of G.H.
Wood + Wyant Inc. as at December 31, 1995 and the statements of earnings,
changes in net assets and changes in financial position for the year then ended.
These financial statements are the responsibility of the management of The
Canadian Operations of G.H. Wood + Wyant Inc. 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 financial statements present fairly, in all material
respects, the financial position of The Canadian Operations of G.H. Wood + Wyant
Inc. 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.
The Canadian Operations of G.H. Wood + Wyant Inc. is a component of G.H. Wood +
Wyant Inc. and has no separate legal status or existence. Transactions with
other divisions and affiliates of G.H. Wood + Wyant Inc. are described in notes
2 and 12.
Ernst & Young
Chartered Accountants
Montreal, Canada
February 15, 1996
(except for notes 19 and 20 for
which the date is November 12, 1996)
F-2
<PAGE> 96
AUDITOR'S REPORT
To the Directors of
G.H. WOOD + WYANT INC.
We have audited the statement of net assets of The Canadian Operations of G.H.
Wood + Wyant Inc. as at December 31, 1994 and the statements of earnings,
changes in net assets and changes in financial position for each of the years
ended December 31, 1994 and 1993. These financial statements are the
responsibility of the management of The Canadian Operations of G.H. Wood + Wyant
Inc. 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 financial statements present fairly, in all material
respects, the financial position of The Canadian Operations of G.H. Wood + Wyant
Inc. 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.
The Canadian Operations of G.H. Wood + Wyant Inc. is a component of G.H. Wood +
Wyant Inc. and has no separate legal status or existence. Transactions with
other divisions and affiliates of G.H. Wood + Wyant Inc. are described in notes
2 and 12.
Deloitte & Touche
Chartered Accountants
Montreal, Canada
March 10, 1995
(except for notes 19 and 20, which were not part
of the audited financial statements)
F-3
<PAGE> 97
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
STATEMENT OF NET ASSETS
AS AT DECEMBER 31
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
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, 12)................... $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, at cost (note 7)................................... 3,079 1,179
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)........................................... 119,400 2,576
Deferred income taxes........................................... 54,591 65,406
---------- ----------
Total Assets.................................................... $31,137,840 $34,720,866
---------- ----------
LIABILITIES
Current:
Bank indebtedness (note 10)................................... $2,421,030 $3,765,744
Accounts payable and accrued liabilities (note 12)............ 8,648,772 8,501,211
Termination of supply agreement (note 14)..................... 1,454,000 --
Restructuring accrual (note 13)............................... 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 17)
TOTAL NET ASSETS................................................ $10,362,741 $10,335,526
========== ==========
</TABLE>
- ---------------
See accompanying notes
F-4
<PAGE> 98
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Sales (note 12)................................... $71,602,554 $71,331,954 $74,736,007
Cost of sales (including amortization of $527,174;
1994 - $560,000; 1993 - $595,777) (note 12)..... 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 13).................... -- 3,033,111 1,852,368
Termination of supply agreement (note 14)......... 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 7)............... -- (2,760,424) --
Other income...................................... (69,157) (16,899) (42,200)
----------- ----------- -----------
Earnings (loss) before income taxes and share of
net income (loss) of affiliates................. 556,040 (3,574,193) (7,231,906)
----------- ----------- -----------
Provision for (recovery of) income taxes (note
15):
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 (2,824,825) (5,332,099)
Share of net income (loss) of affiliates (note
7).............................................. -- -- 107,259
----------- ----------- -----------
Net earnings (loss)............................... $ 522,511 $(2,824,825) $(5,224,840)
=========== =========== ===========
</TABLE>
- ---------------
See accompanying notes
F-5
<PAGE> 99
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net Assets at beginning of year................... $10,335,526 $14,755,067 $20,421,585
Net Income (loss) for the year.................... 522,511 (2,824,825) (5,224,840)
Distributions to Wyant............................ (495,296) (1,594,716) (441,678)
----------- ----------- -----------
Net Assets at end of year......................... $10,362,741 $10,335,526 $14,755,067
=========== =========== ===========
</TABLE>
- ---------------
See accompanying notes
F-6
<PAGE> 100
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
STATEMENT OF CHANGES IN FINANCIAL POSITION
YEAR ENDED DECEMBER 31
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss)............................... $ 522,511 $(2,824,825) $(5,224,840)
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............. -- -- (107,259)
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 (4,875,777) (3,838,408)
Changes in non-cash working capital balances
related to operations (note 18)................. 2,237,528 6,713,824 (3,182,064)
----------- ----------- -----------
Cash provided by (used in) operating activities... 4,144,587 1,838,047 (7,020,472)
----------- ----------- -----------
INVESTING ACTIVITIES:
Proceeds on sale of capital assets................ 373,069 -- 57,118
Acquisition of long-term investments.............. (1,900) (342) --
Purchases of capital assets....................... (497,215) (926,365) (844,762)
Purchase of goodwill.............................. -- -- (26,660)
Proceeds on sale of investment.................... -- 10,000,000 --
----------- ----------- -----------
Cash provided by (used in) investing activities... (126,046) 9,073,293 (814,304)
----------- ----------- -----------
FINANCING ACTIVITIES:
Increase in other long-term liabilities........... -- 223,501 3,700,000
Repayment of short-term debt...................... -- -- (5,163,000)
Repayment of long-term debt....................... (2,178,531) (1,960,170) (1,041,036)
Distributions to Wyant............................ (495,296) (1,594,716) (441,678)
----------- ----------- -----------
Cash provided by (used in) financing activities... (2,673,827) (3,331,385) (2,945,714)
----------- ----------- -----------
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)
=========== =========== ===========
</TABLE>
- ---------------
See accompanying notes
F-7
<PAGE> 101
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
G.H. Wood + Wyant Inc. ("Wyant") is a company incorporated in Canada, and
is an integrated distributor and manufacturer of sanitation products in Canada.
The Canadian Operations of G.H. Wood + Wyant Inc. ("Canadian Operations")
comprise only those subsidiaries and divisions of Wyant which operate in Canada.
Sales by the Canadian Operations are primarily within Canada except for those to
related parties as described in note 12.
2. BASIS OF FINANCIAL STATEMENT PRESENTATION
These financial statements include the accounts of the Canadian
Operations of Wyant and its wholly owned Canadian subsidiary, Wyant Chemicals
Company Limited, and are expressed in Canadian dollars. These financial
statements reflect the financial position and results of the Canadian Operations
of Wyant which are to be sold to Hosposable Products, Inc. ("HPI") pursuant to
the transaction described in note 20 and do not reflect Wyant's investment in
HPI.
The net assets of the Canadian Operations comprise the accumulated
earnings of the Canadian Operations and contributions of Wyant, net of
distributions to Wyant.
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 financial statements have been prepared by management in accordance
with generally accepted accounting principles generally accepted in Canada, and
conform in all material respects to accounting principles generally accepted in
the United States except as set forth in note 19. 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.
REVENUE RECOGNITION
Revenue is recognized upon shipment of merchandise.
INVENTORIES
Inventories are stated at the lower of cost and net realizable value.
Cost is determined on a first-in, first-out basis.
F-8
<PAGE> 102
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CAPITAL ASSETS
Capital assets are recorded at cost. The capital assets are amortized
over their estimated useful lives on the following basis and rates:
<TABLE>
<S> <C> <C>
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
</TABLE>
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
The Canadian Operations of G.H. Wood + Wyant Inc. 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
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.
4. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1995 1994
--------- ----------
<S> <C> <C>
Trade................................................... $9,485,401 $10,328,771
Other................................................... 390,704 444,202
---------- -----------
$9,876,105 $10,772,973
========== ===========
</TABLE>
The Canadian Operations of G.H. Wood + Wyant Inc. operate primarily in
the institutional sanitation industry in Canada. The Canadian Operations of G.H.
Wood + Wyant Inc. sell to a large number of customers and no single customer
accounts for more than 2% of sales or 1% of accounts receivable.
F-9
<PAGE> 103
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INVENTORIES
<TABLE>
<CAPTION>
1995 1994
--------- ----------
<S> <C> <C>
Raw materials........................................... $1,659,196 $1,117,796
Finished goods.......................................... 7,151,912 7,982,561
---------- -----------
$8,811,108 $9,100,357
========== ===========
</TABLE>
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, The Canadian Operations of
G.H. Wood + Wyant Inc. 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
<TABLE>
<CAPTION>
1995 1994
--------- ----------
<S> <C> <C>
Portfolio investments, at cost.......................... $ 3,079 $ 1,179
========== ===========
</TABLE>
Industries Cascades Inc., which was 50% owned by the Canadian Operations
of Wyant is the principal paper supplier to the Canadian Operations. The
investment in this company, which was accounted for under the equity method, was
disposed of on February 21, 1994 for a cash consideration of $10,000,000,
resulting in a gain on sale of $2,760,424. The carrying value of the investment
at the date of sale consisted of the investment in share capital of $350,500 and
the share of accumulated earnings of $6,889,076.
F-10
<PAGE> 104
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. CAPITAL ASSETS
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
---------- ---------- ----------
<S> <C> <C> <C>
1995
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>
9. OTHER ASSETS
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred pension costs............................................... $119,400 $ --
Organization costs................................................... -- 2,576
------- ------
$119,400 $ 2,576
======= ======
</TABLE>
10. REVOLVING CREDIT FACILITY
The Canadian Operations of G.H. Wood + Wyant Inc. 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 HPI owned by Wyant and a general security agreement. The weighted average
prime rate of interest was 8.64% for 1995 (1994 -- 6.76%).
F-11
<PAGE> 105
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
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 14, 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
========== ==========
</TABLE>
The loans are recorded at book value which approximates market value.
<TABLE>
<S> <C>
Principal payments required are as follows:
1996........................................................................... $2,603,714
1997........................................................................... 3,696,287
1998........................................................................... 595,998
----------
$6,895,999
==========
</TABLE>
Cash payments for interest in 1995 amounted to $1,017,000 (1994 -
$986,000; 1993 - $1,086,000).
12. RELATED PARTY TRANSACTIONS
During the year, The Canadian Operations of G.H. Wood + Wyant Inc.
purchased raw materials and finished goods in the amount of $334,000 (1994 -
$498,000; 1993 - $508,000) from HPI. The Canadian Operations of G.H. Wood +
Wyant Inc. 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.
During 1995, the Canadian Operations distributed cash to Wyant in the
amount of $495,296 (1994 - $1,595,716; 1993 - $441,678).
F-12
<PAGE> 106
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. RESTRUCTURING CHARGE
During the fourth quarter of 1994, The Canadian Operations of G.H. Wood +
Wyant Inc. initiated a program to reduce the number of its distribution centers
and consolidate its paper converting operations. The resulting restructuring
charge comprised:
<TABLE>
<S> <C>
Employee severance pay......................................................... $1,582,070
Lease abandonment.............................................................. 628,610
Employee relocation............................................................ 256,000
Consulting fees................................................................ 180,000
Write-off of obsolete marketing and operating materials........................ 173,000
Consolidation of paper converting operations -- other expenses................. 170,000
Other.......................................................................... 43,431
----------
$3,033,111
==========
</TABLE>
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, The Canadian Operations of G.H. Wood + Wyant Inc. 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.
14. TERMINATION OF SUPPLY AGREEMENT
On February 17, 1993, as part of an asset purchase agreement, The
Canadian Operations of G.H. Wood + Wyant Inc. 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, The Canadian Operations of G.H. Wood + Wyant Inc. 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, The Canadian Operations of G.H. Wood + Wyant Inc.
entered into an agreement to commute the obligation under the above supply
agreement and the related charges and to repay the promissory note.
The payment has been allocated as follows:
<TABLE>
<S> <C>
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
==========
</TABLE>
The entire balance plus applicable sales taxes was paid on January 15,
1996.
F-13
<PAGE> 107
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. 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>
The Canadian Operations of G.H. Wood + Wyant Inc. 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).
16. PENSION PLAN
The Canadian Operations of G.H. Wood + Wyant Inc. maintains a
contributory defined benefit pension plan. The pension plan includes the
employees of Wyant Chemicals Company Limited, as well as certain Canadian
employees of G.H. Wood + Wyant Inc. The remaining Canadian 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). The Canadian Operations of G.H. Wood + Wyant Inc. 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, The Canadian Operations
of G.H. Wood + Wyant Inc. 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)).
F-14
<PAGE> 108
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
17. COMMITMENTS & CONTINGENCIES
(a) The Canadian Operations of G.H. Wood + Wyant Inc. leases its premises
under operating leases which expire at various dates to 2004. Future minimum
lease payments will aggregate $8,034,000 as follows:
<TABLE>
<S> <C>
1996....................................................... $1,417,000
1997....................................................... $1,264,000
1998....................................................... $1,195,000
1999....................................................... $1,142,000
2000....................................................... $1,078,000
Thereafter................................................. $1,938,000
</TABLE>
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, The Canadian Operations of G.H. Wood + Wyant Inc.
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.
18. 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
---------- ---------- -----------
$2,237,528 $6,713,824 $(3,182,064)
========== ========== ===========
</TABLE>
19. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES
These financial statements have been prepared in accordance with
accounting principles generally accepted ("GAAP") in Canada. They conform in all
material respects to accounting principles generally accepted in the United
States, except as set forth below, and the requirements of the Securities and
Exchange Commission pursuant to Item 17 of Form 20-F:
EARNINGS ADJUSTMENTS
<TABLE>
<CAPTION>
1995 1994 1993
-------- ---------- ----------
<S> <C> <C> <C>
Net earnings (loss) in accordance with Canadian
GAAP.............................................. $522,511 $(2,824,825) $(5,224,840)
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 (20,900)
-------- ----------- -----------
Net earnings (loss) in accordance with U.S. GAAP.... $416,111 $(2,390,825) $(5,262,740)
======== =========== ===========
</TABLE>
F-15
<PAGE> 109
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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, 1991. 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).
NET ASSETS ADJUSTMENTS
<TABLE>
<CAPTION>
1995 1994
------------------- ---------------------
CANADIAN U.S. CANADIAN U.S.
GAAP GAAP GAAP GAAP
------- ------- -------- --------
<S> <C> <C> <C> <C>
Other assets (1)............................... 119,400 300,167 2,576 254,043
Deferred income tax asset (2).................. 54,591 (31,637) 65,406 (142,116)
Restructuring accrual (3)...................... 219,000 219,000 1,991,685 1,802,630
</TABLE>
NOTES TO NET ASSETS ADJUSTMENTS
(1) 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.
(2) 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.
(3) 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.
F-16
<PAGE> 110
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CASH FLOW PRESENTATION
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
Cash provided by (used in) financing activities
in accordance with Canadian GAAP.............. $(2,673,827) $(3,331,385) $(2,945,714)
Repayments (drawdown) of revolving credit
facility(1)................................... (1,344,714) (7,579,955) 10,780,490
------------ ------------- -------------
Cash provided by (used in) financing activities
in accordance with U.S. GAAP.................. $(4,018,541) $(10,911,340) $ 7,834,776
============ ============= =============
Increase (Decrease) in cash during the year in
accordance with Canadian GAAP................. $1,344,714 $ 7,579,955 $(10,780,490)
Repayment (drawdown) of revolving credit
facility as included in financing
activities(1)................................. (1,344,714) (7,579,955) 10,780,490
------------ ------------- -------------
Increase (Decrease) in cash during the year in
accordance with U.S. GAAP..................... 0 0 0
Cash and cash equivalents at beginning of year
in accordance with U.S. GAAP(2)............... 0 0 0
------------ ------------- -------------
Cash and cash equivalents at end of year in
accordance with U.S. GAAP..................... $ 0 $ 0 $ 0
============ ============= =============
</TABLE>
NOTES TO CASH FLOW PRESENTATION
(1) 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.
(2) Under U.S. GAAP, amounts outstanding under a revolving credit facility are
classified as debt and consequently are not included in the cash and cash
equivalents balance.
20. SUBSEQUENT EVENT
As of November 12, 1996, Wyant, HPI and 3290441 Canada Inc., a wholly
owned and newly formed subsidiary of HPI, entered into an agreement whereby
3290441 Canada Inc. would acquire all of the assets and assume all of the
liabilities of the Canadian Operations. In consideration for this sale, The
Canadian Operations will receive cash of $5,000,000, a promissory note ("Note")
in the amount of $4,262,741 (the amount of the Note is subject to adjustment on
closing of the transaction and will be exchanged, after adjustment, for Class A
Preferred shares of 3290441 Canada Inc. on the basis of one share for each
dollar of unpaid principal amount of Note), 3,800,000 shares of Class B
Preferred shares and 1,000,000 Class E Preferred shares. The Class A and B
shares carry cumulative dividends of 4% and 3.9999% respectively and are
mandatorily redeemable over ten (10) years. The Class E Preferred shares are
exchangeable into 1,000,000 shares of HPI Common Stock.
F-17
<PAGE> 111
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
UNAUDITED STATEMENT OF NET ASSETS
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30 31
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
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 3)....................................... 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, at cost............................................ 3,079 3,079
Capital assets.................................................. 10,449,425 10,183,076
Goodwill (net of amortization of $702,675; 1995 -- $562,140).... 608,986 749,520
Other assets.................................................... 119,400 119,400
Deferred income taxes........................................... -- 54,591
----------- -----------
Total Assets.................................................... $29,125,129 $31,137,840
----------- -----------
LIABILITIES
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
Deferred income taxes........................................... 775,408 --
----------- -----------
Total Liabilities............................................... $17,404,194 $20,775,099
----------- -----------
TOTAL NET ASSETS................................................ $11,720,935 $10,362,741
=========== ===========
</TABLE>
- ---------------
See accompanying notes
F-18
<PAGE> 112
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
UNAUDITED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
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.................................................... (61,102) (53,660)
Interest Expense................................................ 509,668 803,387
----------- -----------
Earnings Before Income Tax...................................... 2,437,446 1,631,728
Provision For Income Taxes...................................... 1,080,000 97,900
----------- -----------
Net Earnings.................................................... $1,357,446 $1,533,828
=========== ===========
</TABLE>
- ---------------
See accompanying notes
F-19
<PAGE> 113
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
UNAUDITED STATEMENT OF CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net Assets at beginning of period............................... $10,362,741 $10,335,526
Net Income for the period....................................... 1,357,446 1,533,828
Distributions from (to) Wyant................................... 748 (26,087)
----------- -----------
Net Assets at end of period..................................... $11,720,935 $11,843,267
=========== ===========
</TABLE>
- ---------------
See accompanying notes
F-20
<PAGE> 114
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
UNAUDITED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings.................................................... $1,357,446 $1,533,828
Items not affecting cash:
Amortization.................................................. 872,820 955,062
Deferred income taxes......................................... 830,000 --
Gain on disposal of capital assets............................ (3,682) --
Decrease in deferred charges.................................. -- 38,529
---------- ----------
3,056,584 2,527,419
Changes in non-cash working capital balances related to
operations.................................................... (331,553) (1,002,482)
---------- ----------
Cash provided by operating activities........................... 2,725,031 1,524,937
---------- ----------
INVESTING ACTIVITIES:
Proceeds on sale of capital assets.............................. 318,039 --
Acquisition of long-term investments............................ -- (1,900)
Purchases of capital assets..................................... (976,358) (196,754)
---------- ----------
Cash provided by (used in) investing activities................. (658,319) (198,654)
---------- ----------
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)
Distributions from (to) Wyant................................... 748 (26,087)
---------- ----------
Cash used in financing activities............................... (1,247,539) (1,714,189)
---------- ----------
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)
========== ==========
</TABLE>
- ---------------
See accompanying notes
F-21
<PAGE> 115
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
G.H. Wood + Wyant Inc. ("Wyant") is a company incorporated in Canada, and
is an integrated distributor and manufacturer of sanitation products in Canada.
The Canadian Operations of G.H. Wood + Wyant Inc. ("Canadian Operations")
comprise only those subsidiaries and divisions of Wyant which operate in Canada.
Sales by the Canadian Operations are primarily within Canada except for those to
related parties as described in note 5.
2. BASIS OF INTERIM FINANCIAL STATEMENT PRESENTATION
These financial statements include the accounts of the Canadian
Operations of Wyant and its wholly owned Canadian subsidiary, Wyant Chemicals
Company Limited, and are expressed in Canadian dollars. These financial
statements reflect the financial position and results of the Canadian Operations
of Wyant which are to be sold to HPI pursuant to the transaction described in
note 6 and do not reflect Wyant's investment in HPI.
The net assets of the Canadian Operations comprise the accumulated
earnings of the Canadian Operations and contributions of Wyant, net of
distributions to Wyant.
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 financial statements
contain all adjustments, consisting only of normal recurring adjustments
necessary to present fairly the net assets 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 the Canadian Operations of Wyant" and "Financial Statements of the
Canadian Operations of G.H.Wood + Wyant Inc." contained in this Proxy Statement.
3. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30 31
1996 1995
--------- ---------
<S> <C> <C>
Raw Materials..................................................... $1,330,818 $1,659,196
Finished Goods.................................................... 5,884,427 7,151,912
---------- ----------
$7,215,245 $8,811,108
========== ==========
</TABLE>
4. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES
The financial statements have been prepared in accordance with accounting
principles generally accepted (GAAP) in Canada. These financial statements
conform in all material respects to accounting principles generally accepted in
the United States, except as set out below.
F-22
<PAGE> 116
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS ADJUSTMENTS
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net earnings in accordance with Canadian GAAP..................... $1,357,446 $1,533,828
Restructuring charge, net of income taxes (1)..................... -- (112,600)
Pension (expense), net of income taxes (2)........................ (25,000) (32,000)
Deferred income taxes (3)......................................... -- 37,000
--------- ---------
Net earnings in accordance with United States GAAP................ $1,332,446 $1,426,228
========= =========
</TABLE>
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.
5. RELATED PARTY TRANSACTIONS
During the period, The Canadian Operations of G.H. Wood + Wyant Inc.
purchased raw materials and finished goods in the amount of $343,000 (1995 --
$287,000) from HPI. The Canadian Operations of G.H. Wood + Wyant Inc. also sold
finished goods in the amount of $2,048,000 (1995 -- $953,000) to HPI. At
September 30, 1996 accounts receivable includes $544,000 (1995 -- $341,000) due
from HPI and accounts payable includes $69,000 (1995 -- $82,000) due to HPI.
During 1996, the Canadian Operations received cash from Wyant in the
amount of $748. For the comparative period in 1995, the Canadian Operations
distributed cash of $26,087 to Wyant.
6. SUBSEQUENT EVENT
As of November 12, 1996, Wyant, HPI and 3290441 Canada Inc., a wholly
owned and newly formed subsidiary of HPI, entered into an agreement whereby
3290441 Canada Inc. would acquire all of the assets and assume all of the
liabilities of the Canadian Operations. In consideration for this sale, The
Canadian Operations will receive cash of $5,000,000, a promissory note ("Note")
in the amount of $4,262,741 (the amount of the Note is subject to adjustment on
closing of the transaction and will be exchanged, after adjustment, for Class A
Preferred shares of 3290441 Canada Inc. on the basis of one share for each
dollar of unpaid principal), 3,800,000 shares of Class B Preferred shares and
1,000,000 Class E Preferred shares. The Class A and B shares carry cumulative
dividends of 4% and 3.9999% respectively and are mandatorily redeemable over ten
(10) years. The Class E Preferred shares are exchangeable into 1,000,000 shares
of HPI Common Stock.
F-23
<PAGE> 117
APPENDICES
<TABLE>
<S> <C> <C>
APPENDIX A -- PURCHASE AGREEMENT
APPENDIX A-1 -- AMENDMENT NO. 1 TO PURCHASE AGREEMENT
APPENDIX B -- 1997 STOCK INCENTIVE PLAN
APPENDIX C -- FAIRNESS OPINION
APPENDIX D -- HPI'S 1995 ANNUAL REPORT ON FORM 10-K
APPENDIX E -- AMENDMENT NO. 1 TO HPI'S 1995 ANNUAL REPORT ON FORM 10-K/A
APPENDIX F -- HPI'S QUARTERLY REPORT ON FORM 10-Q (March 31, 1996)
APPENDIX G -- HPI'S QUARTERLY REPORT ON FORM 10-Q (June 30, 1996)
APPENDIX H -- HPI'S QUARTERLY REPORT ON FORM 10-Q (September 30, 1996)
APPENDIX I -- AMENDMENT NO. 1 TO HPI'S QUARTERLY REPORT ON FORM 10-Q/A
(September 30, 1996)
APPENDIX J -- HPI'S CURRENT REPORT ON FORM 8-K (November 14, 1996)
</TABLE>
<PAGE> 118
===============================================================================
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> 119
CROSS-REFERENCE SHEET FOR DEFINITIONS
<TABLE>
<CAPTION>
Defined in
Term Section
- ---- -------
<S> <C>
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
</TABLE>
<PAGE> 120
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
<PAGE> 121
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE 1
TRANSFER OF BUSINESS, PROPERTIES AND ASSETS
<S> <C> <C>
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
</TABLE>
<PAGE> 122
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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<TABLE>
<CAPTION>
MISCELLANEOUS
<S> <C> <C>
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
</TABLE>
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> 125
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> 126
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
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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".
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(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")
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(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,
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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
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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).
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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
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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
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and any subsidiary of Buyer Parent. Except as disclosed in Schedule 3.4 and
except for securities of Buyer Parent, American Converting Paper Corporation 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"),
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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
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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.
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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
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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
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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.
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(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
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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
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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
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(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).
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(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.
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(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,
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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
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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,
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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
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Business or to decrease materially its services or supplies to the Acquired
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
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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
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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
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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
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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.
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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
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(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
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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
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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
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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.
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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
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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.
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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<PAGE> 171
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
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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
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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.
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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> 175
3290441 CANADA INC.
By /s/ Donald C. MacMartin
-------------------------------------
Name: Donald C. MacMartin
Title: President
<PAGE> 176
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> 177
APPENDIX A
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.
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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
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3
January of each 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.
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<PAGE> 180
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 (a) 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
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<PAGE> 181
5
the payments of dividends or (b) 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.
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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
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<PAGE> 183
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
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<PAGE> 184
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
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9
trading day prior to the 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 the
Liquidation Call
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<PAGE> 186
10
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
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<PAGE> 187
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"):
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<PAGE> 188
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 Retracted Shares for a
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<PAGE> 189
13
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 be, shall not be
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<PAGE> 190
14
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.
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<PAGE> 191
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.
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<PAGE> 192
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.
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<PAGE> 193
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.
3. Any invitation to the public to subscribe for securities of the
Corporation is prohibited.
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<PAGE> 194
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> 195
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:
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<PAGE> 196
SCHEDULE 1
PURCHASED ASSETS
All of the assets of Seller not listed on Schedule 2
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<PAGE> 197
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
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<PAGE> 198
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> 199
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> 200
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.
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<PAGE> 201
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> 202
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:______
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<PAGE> 203
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> 204
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> 205
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> 206
EXHIBIT F
<PAGE> 207
(1) Registry /X/ Land Notes / /
(2) Page 1 of 3 Pages
(3) Property Block Property Additional
Identifier(s) See / /
Schedule
(4) Consideration
FOUR MILLION ---------------------------------- Dollars $4,000,000.00
(5) Description This is a Property Property
Division / / Concession / /
Part of Lot 18, Range 3, Broken Front Concession, Town of Pickering, Regional
Municipality of Durham, designated as Part 4 on Plan 40R-3303.
New Property Identifiers Additional
See / /
Schedule
Executions Additional
See / /
Schedule
(6) This Document Contains
(a) Redescription (b) Schedule for Additional
New Easement / / Description / / Partners / / Other / /
Plan/Sketch
(7) Interest/Estate Transferred Fee Supplies
(8) Transfer(s) The transferer hereby transfers the land to the transferee xxxx
Name(s) Signature(s) Date of Signature
Y M D
G.H. WOOD + WYANT INC. Per:
Name:
Title:
"I/We have the authority to bind the Corporation."
Per:
Name:
Title:
(9) Spouse(s) of Transferer(s) I hereby consent to this transaction
Name(s) Signature(s) Date of Signature
Y M D
(10) Transferer(s) Address for Service
1475, 32 Avenue, Lachine, Quebec H8T 3J1
(11) Transferee(s) Date of
3290441 CANADA INC. Y M D
(12) Transferee(s) Address for Service
1725 McPherson Court, Pickering, Ontario
(13) Transferer(s) The transferor verifies that to the best of the
transferor's knowledge and belief, the transfer does not contravene
Section 50 of the Planning Act
Date of Signature Date of Signature
Y M D Y M D
Signature Signature
Solicitor for Transferor(s) I have explained the effect of Section 50 of the
Planning Act to the transferor and I have made inquiries of the transferor
to determine that this transfer does not contravene that Section and based on
the information supplied by the transferor, to the best of my knowledge and
belief this transfer does not contravene that section I am a solicitor of good
standing
Name and Date of Signature
Address of Y M D
Solicitor
Signature
(14) Solicitor for Transferee(s) I have investigated the land and to ___?___
land where relevant and I am satisfied that the title records revedal no
contravention as set out in subclause 50 (22) of the Planning Act and that
to the best of my knowledge and belief this transfer does not contravene
Section 50 of the Planning Act 1 act independently of the solicitor for
the transferor(s) and I am an Ontario solicitor in good standing
Name and Date of Signature
Address of Y M D
Solicitor
Signature
(15) Assessment Roll Numbers of Property
18 01 020 022 06250
(16) Municipal Address of Property
1725 McPherson Court
Pickering, Ontario
(17) Document Prepared by
Danny C. Grandilli
McCARTHY TETRAULT
Suite 4700, P.O. Box 48
Toronto Dominion Bank Tower
Toronto-Dominion Centre
Toronto, Ontario M5K 1E6
FOR OFFICIAL USE ONLY
Fees and Taxes
Registration Fee
Land Transfer Tax
Total
<PAGE> 208
Page 2 of 3
By articles of amendment effective April 1, 1993, P.H.A. Industries Limited
changed its name to G.H. Wood + Wyant Inc. as evidenced by a certified copy of
said articles filed in the General Register of the Land Registry Office for the
Registry Division of Durham as no. D480261.
By articles of amalgamation effective July 31, 1994, G.H. Wood + Wyant Inc.
amalgamated with Wyant & Company Limited to continue as G.H. Wood + Wyant Inc.
a federally incorporated corporation, as evidenced by a certified copy of the
said articles filed in the General Register of the Land Registry Office for the
Registry Division of Durham as no. D480260.
<PAGE> 209
Page 3 of 3
A F F I D A V I T
<PAGE> 210
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> 211
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> 212
EXHIBIT H-1
ASSIGNMENT OF LEASE
This assignment made as of the - day of -, 19-
between:
-
(hereinafter referred to as the "Assignor")
of the first part,
- and -
-
(hereinafter referred to as the "Assignee")
of the second part,
- and -
-
(hereinafter referred to as the "Landlord")
of the third part.
witnesses that whereas:
1. by a lease (the "Lease") dated the - day of -, 19- , 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 -, 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 - day of -,
19-;
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> 213
-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 - day of -, 19-;
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 - day of -, 19- 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> 214
-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 - day of -, 19-;
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.
-
By:
c/s
-
By:
c/s
-
By:
c/s
<PAGE> 215
EXHIBIT H-2
ASSIGNMENT OF LEASE
This assignment made as of the - day of -, 19-
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
<PAGE> 216
thousand nine hundred and thirty-nine (2,939) of the 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;
(ii) all rents and other amounts payable under the Lease
have been paid up to the - day of -, 19-;
(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
-2-
<PAGE> 217
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 - day of -, 19- 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> 218
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 - day of -, 19-;
(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> 219
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> 220
TRIAD LACHINE DEVELOPMENT INC.
By:_____________________________________
________________________________________
________________________________________
Witness
________________________________________
Witness
-6-
<PAGE> 221
EXHIBIT I
SELLER'S BEST KNOWLEDGE
Gerald Wyant
James A. Wyant
Donald C. MacMartin
Marc D'Amour
John B. Wight
Edward DeFreitas
<PAGE> 222
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> 223
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> 224
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
such party is a signatory, (ii) each
<PAGE> 225
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> 226
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> 227
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> 228
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> 229
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> 230
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> 231
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> 232
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> 233
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> 234
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> 235
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> 236
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)
<PAGE> 237
G.H. Wood + Wyant Inc.
3287858 Canada Inc.
1186020 Ontario Limited
January __, 1997
Page 4
any provision of its 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> 238
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> 239
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
<PAGE> 240
G.H. Wood + Wyant Inc.
3287858 Canada Inc.
1186020 Ontario Limited
January __, 1997
Page 3
required to be made 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> 241
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
accordance with the Purchase Agreement as it now reads has been duly authorized
<PAGE> 242
G.H. Wood + Wyant Inc.
3287858 Canada Inc.
1186020 Ontario Limited
January __, 1997
Page 5
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> 243
EXHIBIT M
COVENANT AGREEMENT
MEMORANDUM OF AGREEMENT MADE AS OF THE - DAY OF - , 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 - , 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> 244
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> 245
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
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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
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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;
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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,
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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".
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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
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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 2, 3, 5 and 6 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:
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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.
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17. The parties hereto recognize the non-exclusive jurisdiction of the
courts of the State of New York over disputes relating to this
Agreement.
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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:_____________________________________
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INTERVENTION
Each of 3287858 Canada Inc. ("3287858") and 1186020 Ontario Limited
("1186020") intervene to the covenant agreement dated January - 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.
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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<PAGE> 267
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
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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.
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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.
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(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.
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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
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<PAGE> 272
EXHIBIT O
G.H. WOOD + WYANT INC.
PRO-FORMA POST CLOSING BALANCE SHEET
JANUARY X, 1997(1)
<TABLE>
<CAPTION>
===================================================================================
Assets
- -----------------------------------------------------------------------------------
<S> <C>
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
===============
</TABLE>
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> 273
APPENDIX A-1
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 dated as of January 22, 1997 (the
"Amendment"), 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"), to the Asset Purchase Agreement dated as
of November 12, 1996 (the "Asset Purchase Agreement").
The parties hereto, being the parties to the Asset Purchase
Agreement, required to amend the Asset Purchase Agreement in accordance with
Section 10.9 thereof, hereby amend the Asset Purchase Agreement as follows:
1. Section 1.2 of the Asset Purchase Agreement is hereby
amended by inserting in the seventh line after the word "note" the words "dated
the Closing Date".
2. Section 1.2 of the Asset Purchase Agreement is hereby
amended by adding a sentence to the end thereof as follows: "In connection with
such exchange, Buyer agrees to pay, and Buyer Parent agrees to cause Buyer to
pay, the interest accrued on the Note pursuant to the terms thereof from and
including the Closing Date to and excluding the date of such exchange, such
amount to be due and payable on the first dividend payment date with respect to
the Class A Mandatorily Redeemable Preferred Stock."
3. Section 2.2(b) of the Asset Purchase Agreement is hereby
amended by deleting the words "January 31, 1997" and by substituting therefor
the words "April 30, 1997".
4. This Amendment may be executed simultaneously in two or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together will constitute one and the
same Amendment.
5. This Amendment shall be governed by the internal law, and
not the law of conflicts, of the State of New York.
<PAGE> 274
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment on the date first written above.
HOSPOSABLE PRODUCTS, INC.
By /s/ Joseph H. Weinkam, Jr.
--------------------------------------
Name: Joseph H. Weinkam, Jr.
Title: President and Chief
Operating Officer
3290441 CANADA INC.
By /s/ Donald C. MacMartin
--------------------------------------
Name: Donald C. MacMartin
Title: President
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
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<PAGE> 275
APPENDIX B
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
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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
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
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(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
(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.
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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
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.
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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.
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.
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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 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
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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 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:
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(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.
(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,
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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 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
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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 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
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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.
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.
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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 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.
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(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 (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.
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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.
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.
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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.
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
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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 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
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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. 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.
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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.
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
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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 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.
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APPENDIX C
FAIRNESS OPINION
<PAGE> 295
[HOULIHAN, LOKEY, HOWARD & ZUKIN FAIRNESS OPINION LETTERHEAD]
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.
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.
<PAGE> 296
To The Board of Directors
Hosposable Products, Inc.
November 12, 1996
Page 2
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;
<PAGE> 297
To The Board of Directors
Hosposable Products, Inc.
November 12, 1996
Page 3
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.
/s/ Houlihan, Lokey, Howard & Zukin, Inc.
<PAGE> 298
APPENDIX D
FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1995
<PAGE> 299
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:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange
on Which Registered
<S> <C>
Common Stock Traded on the NASDAQ
par value $.01 per share National Market
</TABLE>
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> 300
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> 301
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> 302
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 (Airlay(TM))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> 303
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> 304
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.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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
</TABLE>
* 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> 305
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 "Tuckable(TM)"
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> 306
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> 307
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:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<C> <C> <C>
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
</TABLE>
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> 308
Item 6 SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
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
<CAPTION>
At December 31
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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> 309
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> 310
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> 311
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> 312
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> 313
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> 314
PART IV
Item 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES AND REPORTS
ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
(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
</TABLE>
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> 315
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> 316
HOSPOSABLE PRODUCTS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
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
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-1
<PAGE> 317
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
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
======= ========== =========== ======== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 318
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
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
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-3
<PAGE> 319
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> 320
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:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Raw Materials $2,308,121 $2,812,716
Finished Goods 1,098,959 1,062,639
---------- ----------
$3,407,080 $3,875,355
</TABLE>
4. LONG-TERM DEBT
Long-term debt at December 31, consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
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
</TABLE>
Maturities of long-term debt over the next five years are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 $350,000
1997 365,000
1998 380,000
1999 395,000
2000 415,000
</TABLE>
(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> 321
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:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
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
</TABLE>
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> 322
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:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
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
</TABLE>
The actual tax expense differed from the "expected" amounts by
applying the U.S. federal income tax rate of 34% as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
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> 323
from the date of grant. Other participants also must exercise the options within
five years of the date of grant.
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
--------- ---------
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Year:
<S> <C> <C>
1996 $ 448,480
1997 448,480
---------
$ 896,960
</TABLE>
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> 324
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> 325
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
</TABLE>
(1) Represents amounts written off, net of recoveries
F-10
<PAGE> 326
APPENDIX E
AMENDMENT NO. 1 TO HPI'S 1995 ANNUAL REPORT ON FORM 10-K/A
<PAGE> 327
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 10-K/A
AMENDMENT NO. 1
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:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange
on Which Registered
<S> <C>
Common Stock Traded on the NASDAQ
par value $.01 per share National Market
</TABLE>
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> 328
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> 329
PART IV
Item 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C>
(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
</TABLE>
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.
-iii-
<PAGE> 330
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.
HOSPOSABLE PRODUCTS, INC.
(Registrant)
Date: February 11, 1997 Signature:/c/ Joseph H. Weinkam, Jr.
----------------- --------------------------
Joseph H. Weinkam, Jr.
President and
Chief Operating Officer
-iv-
<PAGE> 331
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.
Arthur Andersen, LLP
New York, New York
February 15, 1996
<PAGE> 332
HOSPOSABLE PRODUCTS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
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
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-1
<PAGE> 333
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
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
========= ========== ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 334
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
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
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-3
<PAGE> 335
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> 336
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:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Raw Materials $2,308,121 $2,812,716
Finished Goods 1,098,959 1,062,639
---------- ----------
$3,407,080 $3,875,355
</TABLE>
4. LONG-TERM DEBT
Long-term debt at December 31, consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
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
</TABLE>
Maturities of long-term debt over the next five years are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 $350,000
1997 365,000
1998 380,000
1999 395,000
2000 415,000
</TABLE>
(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> 337
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:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
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
</TABLE>
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 Inc. ("Wood + Wyant"), pursuant to which the Company would be paid by
Wood +
F-6
<PAGE> 338
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:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
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
</TABLE>
The actual tax expense differed from the "expected" amounts by
applying the U.S. federal income tax rate of 34% as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
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
from the date of grant. Other participants also must exercise the options within
five years of the date of grant.
F-7
<PAGE> 339
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
--------- ---------
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Year:
<S> <C> <C>
1996 $ 448,480
1997 448,480
---------
$ 896,960
</TABLE>
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
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,
F-8
<PAGE> 340
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> 341
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> <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
</TABLE>
(1) Represents amounts written off, net of recoveries
F-10
<PAGE> 342
APPENDIX F
FORM 10-Q FOR QUARTERLY PERIOD ENDED MARCH 31, 1996
<PAGE> 343
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:
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
1
<PAGE> 344
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.
<TABLE>
<CAPTION>
<S> <C>
Consolidated balance sheets 3-4
Consolidated statements of operations 5
Consolidated statements of cash flows 6-7
Note to consolidated financial statements 8
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
2
<PAGE> 345
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(unaudited) (see note
below)
<S> <C> <C>
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
----------- -----------
Acquisition escrow fund 351,509 347,346
----------- -----------
Other assets 301,636 263,888
----------- -----------
Total assets $23,436,517 $23,531,434
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1995 has been taken from the audited
financial statements at that date.
See accompanying note.
3
<PAGE> 346
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 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 4,128,220 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
============ ============
</TABLE>
Note: The balance sheet at December 31, 1995 has been taken from the audited
financial statements at that date.
See accompanying note.
4
<PAGE> 347
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
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
============ ===========
</TABLE>
See accompanying note.
5
<PAGE> 348
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
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)
--------- ---------
</TABLE>
6
<PAGE> 349
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED MARCH 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
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
=========== =========
</TABLE>
See accompanying note.
7
<PAGE> 350
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.
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.
8
<PAGE> 351
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.
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).
9
<PAGE> 352
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: 5/10/96 SIGNATURE: /c/ Joseph H. Weinkam, Jr.
---------------- ----------------------------------
Joseph H. Weinkam, Jr.
President and
Chief Operating Officer
10
<PAGE> 353
APPENDIX G
FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1996
<PAGE> 354
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> 355
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> 356
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
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
----------- -----------
</TABLE>
3
<PAGE> 357
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.
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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
============ ============
</TABLE>
Note: The balance sheet at December 31, 1995 has been taken from the audited
financial statements at that date.
See accompanying note.
4
<PAGE> 358
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
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
============ ============
</TABLE>
5
<PAGE> 359
See accompanying note.
6
<PAGE> 360
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
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
============ ============
</TABLE>
7
<PAGE> 361
See accompanying note.
8
<PAGE> 362
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
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)
----------- -----------
</TABLE>
See accompanying note.
9
<PAGE> 363
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
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
=========== =========
</TABLE>
See accompanying note.
10
<PAGE> 364
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
11
<PAGE> 365
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.
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.
12
<PAGE> 366
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.
13
<PAGE> 367
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
14
<PAGE> 368
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
15
<PAGE> 369
APPENDIX H
FORM 10-Q FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
<PAGE> 370
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> 371
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> 372
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
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
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1995 has been taken from the audited
financial statements at that date.
See accompanying note.
3
<PAGE> 373
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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
============ ============
</TABLE>
Note: The balance sheet at December 31, 1995 has been taken from the audited
financial statements at that date.
See accompanying note.
4
<PAGE> 374
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
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
============ ============
</TABLE>
See accompanying note.
5
<PAGE> 375
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
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
============ ============
</TABLE>
See accompanying note.
6
<PAGE> 376
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
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)
----------- -----------
</TABLE>
See accompanying note.
7
<PAGE> 377
HOSPOSABLE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
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
=========== =========
</TABLE>
See accompanying note.
8
<PAGE> 378
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.
9
<PAGE> 379
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 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> 380
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> 381
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> 382
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> 383
APPENDIX H
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
AMENDMENT NO. 1
(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
<PAGE> 384
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
-2-
<PAGE> 385
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 4.3%. 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, Inc.
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 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.
-3-
<PAGE> 386
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.
-4-
<PAGE> 387
LIQUIDITY AND CAPITAL RESOURCES
Trade accounts receivable increased from $5,396,185 at December 31, 1995 to
$6,744,513 at September 30, 1996, a change of $1,348,328 or 25.0%. This change
is primarily due to a concentration of sales in the latter part of the third
quarter of 1996 and some general seasonal related slowness in collections.
Management believes that accounts receivable collections will improve during the
fourth quarter of 1996.
Marketable securities decreased from $1,362,233 at December 31, 1995 to $41,312
at September 30, 1996. This change was due to the sale of marketable securities
to support the working capital needs of the company.
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.
-5-
<PAGE> 388
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: January 14, 1997 SIGNATURE: /c/ Joseph H. Weinkam, Jr.
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Joseph H. Weinkam, Jr.
President and
Chief Operating Officer
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<PAGE> 389
APPENDIX J
FORM 8-K - CURRENT REPORT
<PAGE> 390
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
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Registrant, State of I.R.S.
Commission File Incorporation, Address and Employer
Number Telephone Number Identificati
on No.
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<S> <C> <C>
0-8410 HOSPOSABLE PRODUCTS, INC. 11-2236837
(a New York corporation)
100 Readington Road
Somerville, New Jersey 08876
Telephone (908) 707-1800
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<PAGE> 391
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> 392
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> 393
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> 394
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.
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Name: Joseph H. Weinkam, Jr.
Title: President and Chief
Operating Officer
Dated: November 13, 1996
<PAGE> 395
EXHIBIT 2.1
See Appendix A
<PAGE> 396
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HOSPOSABLE PRODUCTS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS, MARCH 17, 1997
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 March 17, 1997, 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.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Approval of the amendment to the Certificate of Incorporation
of Hosposable Products, Inc. which increases the number of
authorized shares of common stock from 3,000,000 to 6,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) Approval of the 1997 Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) Approval of any proposal to adjourn or postpone the Special
Meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(6) 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 on the reverse
side, abstentions will not be counted in connection with the
approval of the matter. With respect to the votes represented
in Items 2, 3, 4 and 5 on the reverse side, abstentions will
have the effect of a vote against the matter.
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, 3, 4 and 5 on the reverse side.
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: , 1997
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Signature of Shareholder(s)
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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.
