<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1999
REGISTRATION NO. 333-86129
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MACDERMID, INCORPORATED
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
CONNECTICUT 2890 06-0435750
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
245 FREIGHT STREET
WATERBURY, CT 06702-0671
(203) 575-5700
(Address, including zip code, and telephone number, including area code of
registrant's principal executive offices)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
DANIEL H. LEEVER MICHAEL E. MOONEY, ESQ.
CHIEF EXECUTIVE OFFICER MICHAEL K. KREBS, ESQ.
MACDERMID, INCORPORATED NUTTER, MCCLENNEN & FISH, LLP
245 FREIGHT STREET ONE INTERNATIONAL PLACE
WATERBURY, CT 06702-0671 BOSTON, MA 02110-2699
(203) 575-5700 (617) 439-2000
</TABLE>
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If the securities being registered on this Form are being offered pursuant
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C> <C>
Common Stock, no par value......................... 7,127,000 $27,244,254.10 $7,573.90
</TABLE>
(1) In accordance with Rule 457(f)(2), the underlying value of the transaction
has been computed using the aggregate book value of the common and preferred
equity securities of the company to be acquired, all of which will be
exchanged for shares of the registrant. Such book value ($27,244,254.10) was
calculated in accordance with generally accepted accounting principles as of
September 30, 1999, the latest practicable date prior to filing this
registration statement.
(2) Fee previously paid pursuant to Exchange Act Rules 14a-6(i)(4) and 0-11 in
connection with Schedule 14A filed on March 22, 1999, an amendment to the
Schedule 14A filed on August 18, 1999 and this Post-Effective Amendment No.
1: $3,344.62, $509.02 and $3,720.26.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MACDERMID, INCORPORATED
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM S-4 LOCATION IN JOINT PROXY STATEMENT PROSPECTUS
---------------------------------------- --------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Facing Page of the Registration Statement;
Outside Front Page of Cover Page of Outside Front Cover Joint Proxy Statement/
Prospectus Prospectus
2. Inside Front and Outside Back Cover Table of Contents; Selected Historical and
Pages of Prospectus Pro Forma Comparative Per Share Data; Where
You Can Find More Information
3. Risk Factors, Ratio of Earnings to Fixed Outside Front Cover Page of Prospectus;
Charges and Other Information Summary; Interests of Related Persons in the
Merger; MacDermid Selected Financial Data;
PTI Selected Financial Data; The Merger;
Merger Transaction; The Companies; Exchange
Ratio Assumptions
4. Terms of the Transaction Outside Front Cover Page of Prospectus;
Summary; The Merger; Merger Transaction;
Merger Agreement; PTI Special Meeting; Legal
Matters
5. Pro Forma Financial Information Unaudited Pro Forma Combined Condensed
Financial Statements; Notes to Unaudited Pro
Forma Condensed Combined Financial
Statements; Selected Historical and Pro
Forma Comparative Per Share Data
6. Material Contacts with the Company Being Summary; The Merger; Merger Transaction;
Acquired Merger Agreement
7. Additional Information Required for *
Reoffering by Persons and Parties Deemed
to be Underwriters
8. Interests of Named Experts and Counsel *
9. Disclosure of Commission Position on *
Indemnification for Securities Act
Liabilities
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Summary; Recent Development; the Merger;
Registrants Merger Transaction; The Companies; Where You
Can Find More Information
11. Incorporation of Certain Information by Description of MacDermid Capital Stock;
Reference Where You Can Find More Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM S-4 LOCATION IN JOINT PROXY STATEMENT PROSPECTUS
---------------------------------------- --------------------------------------------
<C> <S> <C>
12. Information with Respect to S-2 and S-3 *
Registrants
13. Incorporation of Certain Information by *
Reference
14. Information with Respect to Registrants *
Other Than S-3 or S-2 Registrants
C. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
15. Information with Respect to S-3 *
Companies
16. Information with Respect to S-2 or S-3 *
Companies
17. Information with Respect to Companies Summary; Recent Developments; The Merger;
Other Than S-2 or S-3 Companies Merger Transaction; The Companies; Where You
Can Find More Information
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Outside Front Cover Page of Joint Proxy
Authorizations are to be Solicited Statement/Prospectus; Summary; Interests of
Related Persons in the Merger; Merger
Agreement; PTI Special Meeting; Legal
Matters; Where You Can Find More Information
19. Information if Proxies, Consents or *
Authorizations are not to be Solicited
or in an Exchange Offer
</TABLE>
* Omitted because the Item is inapplicable or the answer is negative.
<PAGE>
AMENDED AND RESTATED PROXY STATEMENT
FOR A
SPECIAL MEETING OF SHAREHOLDERS
AND
PROSPECTUS
POLYFIBRON TECH. LOGO
To the Shareholders of PTI:
On September 30, 1999, the shareholders of MacDermid, Incorporated and PTI,
Inc. approved a merger agreement which provides for MacDermid's acquisition of
PTI. On October 29, 1999, MacDermid and PTI agreed to amend the merger agreement
to reduce the number of shares that MacDermid would issue to the holders of PTI
common stock. MacDermid and PTI cannot complete the merger unless the holders of
PTI Class A common stock approve the merger agreement as amended on October 29.
MacDermid shareholder approval of the amended merger agreement is not required.
A special meeting of PTI shareholders will be held on , November , 1999
at PTI's executive offices, 900 Middlesex Turnpike, Billerica, MA 01821-3946,
beginning at 9:00 A.M., EST, to vote on the amended merger agreement.
This amended and restated proxy statement -- prospectus describes the
amended merger agreement, which differs in two material respects from the merger
agreement approved on September 30. If the merger is completed, MacDermid will
still issue shares of its common stock to the holders of PTI equity securities
in exchange for all of the issued and outstanding PTI equity securities, but the
minimum and maximum number of MacDermid shares to be issued in the merger has
decreased by 700,000 shares. Consequently, the number of MacDermid shares to be
issued in the merger will range from a minimum of 6,873,000 shares to a maximum
of 7,127,000 shares. MacDermid common stock is traded on the NYSE under the
symbol "MRD."
The October 29 amendment to the merger agreement also extended the
termination date of the merger agreement to December 15, 1999 from October 29,
1999. As amended, the merger agreement provides that either MacDermid or PTI may
terminate the agreement and not proceed with the merger if the merger has not
been completed on or before December 15, 1999, for any reason other than because
the party seeking to terminate breached the merger agreement.
THE PTI BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF PTI CLASS A COMMON
STOCK VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT, AS AMENDED, BY COMPLETING
AND MAILING THE ENCLOSED PROXY CARD TO US.
HOLDERS OF PTI COMMON STOCK WILL NOT KNOW, AT THE TIME THEY VOTE, THE NUMBER
OR VALUE OF THE MACDERMID SHARES THEY WILL RECEIVE FOR EACH SHARE OF PTI COMMON
STOCK. PTI SHAREHOLDERS MAY MAKE INQUIRIES AS TO THE ESTIMATED EXCHANGE RATIO OF
MACDERMID SHARES FOR SHARES OF PTI COMMON STOCK ON ANY GIVEN DATE PRIOR TO THE
PTI SPECIAL MEETING BY CONTACTING THOMAS C. WEAVER, CORPORATE SECRETARY OF PTI,
INC., AT (978) 439-2110.
<TABLE>
<S> <C>
David R. Beckerman
President and CEO
PTI, Inc.
</TABLE>
Proxy Statement -- Prospectus dated November , 1999, and first mailed to
shareholders on or about November , 1999.
SHAREHOLDERS ARE URGED TO READ THE DETAILED INFORMATION ABOUT THE MERGER
CONTAINED IN THIS JOINT PROXY STATEMENT -- PROSPECTUS INCLUDING THOSE MATTERS
DISCUSSED IN "RISK FACTORS" BEGINNING ON PAGE 18 OF THIS PROXY STATEMENT --
PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE SHARES TO BE ISSUED IN THE MERGER AND
DESCRIBED IN THIS PROXY STATEMENT -- PROSPECTUS OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROXY STATEMENT -- PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
PTI, INC.
900 MIDDLESEX TURNPIKE
BILLERICA, MASSACHUSETTS 01821-3946
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER , 1999
A Special Meeting of Shareholders of PTI, Inc. will be held at 900 Middlesex
Turnpike, Billerica, Massachusetts 01821 on , November , 1999 at
9:00 A.M. EDT.
The special meeting will be held for the following purpose: to consider and
act upon a proposal to approve and adopt the Plan and Agreement of Merger, dated
as of February 18, 1999 and amended as of July 27, 1999, September 13, 1999 and
October 29, 1999, among PTI, MacDermid, Incorporated, Citicorp Venture Capital,
Ltd., which is a PTI shareholder, and MCD Acquisition Corp., a wholly owned
subsidiary of MacDermid. MacDermid proposes to acquire PTI by exchanging shares
of MacDermid common stock for all of the outstanding shares of PTI common stock
and preferred stock, all as more fully described in the attached proxy
statement -- prospectus. A copy of the merger agreement and the first and third
amendments to the merger agreement are included in the proxy statement --
prospectus as Appendices A, B and C (the second amendment to the merger
agreement, which was substantially superseded by the third amendment, has been
intentionally omitted).
Approval of the merger agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of PTI Class A common stock. The
PTI Board of Directors has fixed the close of business on November 3, 1999 as
the record date for the determination of PTI shareholders who will be entitled
to notice of and to vote at the special meeting.
YOUR PROXY VOTE IS VERY IMPORTANT. You are requested to vote, date and sign
the enclosed proxy and promptly return it in the enclosed postage-paid envelope
at your earliest convenience prior to the special meeting.
THE PTI BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
By Order of the Board of Directors,
Thomas C. Weaver
Corporate Secretary
Billerica, Massachusetts
November , 1999
NOTICE OF APPRAISAL RIGHTS. If the merger agreement is approved by the PTI
shareholders at the PTI special meeting and the merger is completed, any PTI
shareholder who (1) files with PTI a written objection to the merger before
the taking of the vote to approve the merger agreement by the PTI
shareholders and who states in that objection that he or she intends to
demand payment for his or her shares if the merger is concluded and
(2) does not vote those shares in favor of the approval of the merger
agreement will be entitled to demand payment for his or her shares and an
appraisal of the value of those shares, in accordance with the provisions of
Section 262 of the Delaware General Corporation Law, a copy of which is
attached as Appendix D to the accompanying proxy statement -- prospectus.
See "Merger Transaction -- Appraisal Rights" in the proxy statement --
prospectus for more information concerning appraisal rights of dissenting
PTI shareholders.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Answers to Frequently Asked Questions
about the Merger..................... i
Summary................................ 1
The Companies........................ 1
Merger Transaction................... 1
What PTI Security Holders Will
Receive............................ 1
Escrowed Shares...................... 3
Indemnification...................... 3
Listing of MacDermid Common Stock and
Restrictions on Transfer........... 3
Material Federal Income Tax
Consequences of the Merger......... 4
Appraisal Rights..................... 4
Ownership of MacDermid After the
Merger............................. 4
Executive Officers and Directors of
MacDermid After the Merger......... 5
Reasons for the Merger............... 5
Recommendations to Shareholders...... 5
Vote Required to Approve the Merger
Agreement.......................... 5
Risk Factors......................... 5
Required Regulatory Approvals........ 5
Interests of Related Persons in the
Merger............................. 6
Accounting Treatment................. 6
Termination of the Merger
Agreement.......................... 6
MacDermid Selected Financial Data.... 7
PTI Selected Financial Data.......... 9
Exchange Ratio Assumptions........... 11
Unaudited Pro Forma Combined
Condensed Selected Financial
Data............................... 12
Selected Historical and Pro Forma
Comparative Per Share Data......... 14
Market Price Information............. 16
Risk Factors........................... 18
Cautionary Statement Regarding Forward-
Looking Information.................. 21
Recent Developments.................... 22
PTI Special Meeting.................... 23
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Date, Time and Place................. 23
Record Date and Voting Rights........ 23
Quorum and Voting of Proxies......... 23
Shareholder Vote Required............ 24
Recommendation of PTI Board.......... 24
Appraisal Rights..................... 24
The Companies.......................... 25
MacDermid............................ 25
PTI.................................. 25
Merger Transaction..................... 26
MacDermid Background and Reasons for
the Merger......................... 26
PTI Background and Reasons for the
Merger............................. 30
The Merger........................... 31
What PTI Security Holders Will
Receive in the Merger.............. 32
Escrowed Shares...................... 34
Indemnification...................... 34
Listing of MacDermid Common Stock and
Restrictions on Transfer........... 35
Ownership of MacDermid After the
Merger............................. 37
Executive Officers and Directors of
MacDermid After the Merger......... 37
Required Regulatory Approvals........ 38
Closing Date......................... 40
Interests of Related Persons in the
Merger............................. 40
Accounting Treatment................. 41
Material Federal Income Tax
Consequences of the Merger to
MacDermid Shareholders............. 41
Material Federal Income Tax
Consequences of the Merger to PTI
Shareholders....................... 42
How to Surrender and Receive
MacDermid Common Stock In Exchange
for PTI Stock...................... 44
Appraisal Rights..................... 45
Merger Agreement....................... 48
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Representations and Warranties....... 48
Conditions to the Merger............. 48
Conduct Pending Merger............... 51
Amendment and Waiver................. 54
Termination of Merger Agreement...... 54
Expenses............................. 55
Unaudited Pro Forma Combined Condensed
Financial Information................ 56
Trading Price of MacDermid Common
Stock................................ 66
Beneficial Ownership of MacDermid...... 67
Description of MacDermid Capital
Stock................................ 71
Comparison of the Rights of Holders of
MacDermid Common Stock and Holders of
PTI Stock............................ 72
Introduction......................... 72
Filing Vacancies on the Board of
Directors.......................... 72
Special Meetings of Shareholders;
Shareholder Action by Written
Consent............................ 73
Amendment of Bylaws.................. 73
Dissenters' Rights................... 73
Business Combinations and
Reorganizations.................... 74
PTI Management's Discussion and
Analysis of Financial Condition and
Results of Operations................ 76
General.............................. 76
Net Sales and Operating Profits...... 76
Sales................................ 76
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Costs and Expenses................... 77
Acquisitions......................... 78
Income Taxes......................... 80
Liquidity and Capital Spending....... 80
Year 2000 Readiness.................. 81
Beneficial Ownership of PTI............ 83
Legal Matters.......................... 86
Experts................................ 86
Other Matters.......................... 86
Where You Can Find More Information.... 86
Index to Financial Statements.......... F-1
APPENDICES
- -- Plan and Agreement of Merger........ A-1
- -- First Amendment to Plan and
Agreement of Merger............... B-1
- -- Third Amendment to Plan and
Agreement of Merger*.............. C-1
- -- DGCL Section262..................... D-1
- -- Form of Escrow Agreement............ E-1
- -- Form of Agency Agreement and Waiver
and Release....................... G-1
- -------------------------------------------------
DOCUMENTS DELIVERED WITH PROXY
STATEMENT-PROSPECTUS
Annex I: MacDermid's Annual Report on
Form 10-K, as amended, for
the year ended March 31,
1999.
Annex II: MacDermid's Quarterly Report
on Form 10-Q, as amended,
for the fiscal quarter ended
June 30, 1999.
</TABLE>
- --------------------
* MacDermid and PTI have intentionally omitted the second amendment to the
merger agreement, as it was substantially superseded by the third amendment
to the merger agreement.
<PAGE>
ANSWERS TO FREQUENTLY ASKED QUESTIONS ABOUT THE MERGER
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your completed and signed proxy card in the enclosed return
envelope as soon as possible, so that your shares may be represented at your
special meeting. To assure that your vote is obtained, please give your
proxy as instructed on your proxy card even if you currently plan to attend
a meeting in person.
Q: WHAT SHOULD I DO TO CHANGE MY VOTE?
A: Just send in a later-dated, signed proxy card to Thomas C. Weaver, Corporate
Secretary before your special meeting or attend the special meeting in
person and vote. Please note, however, that attendance at the special
meeting will not alone constitute a revocation of your proxy. You may revoke
your proxy by sending a notice of revocation to Thomas C. Weaver, Corporate
Secretary at the address designated in the Summary following these Questions
and Answers.
Q: MY SHARES ARE HELD IN MY BROKER'S NAME. WILL MY BROKER VOTE MY SHARES FOR ME?
A: A broker generally can't exercise authority to vote on the merger agreement
on your behalf, unless you have a special arrangement.
If your shares are held in the name of your broker, the broker is the record
holder but you retain voting control of the stock as the beneficial owner.
Therefore, your broker will receive proxy materials with instructions to
transmit those materials to you. Upon receipt, you should mail your
completed and signed proxy card in the enclosed return envelope so that your
shares may be represented at your special meeting.
Q: WHAT WILL HAPPEN IF I DON'T VOTE?
A: The failure to vote has the same effect as a vote against the approval of
the merger agreement.
Q: WILL I NEED TO SEND IN MY STOCK CERTIFICATES AFTER THE MERGER?
A: No. If the merger is completed, we will send PTI shareholders written
instructions for exchanging their share certificates.
i
<PAGE>
IF YOU ARE A PTI SHAREHOLDER,
WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have questions about the merger, you should contact:
PTI, Inc.
900 Middlesex Turnpike
Billerica, Massachusetts 01821-3946
Attention: Thomas C. Weaver, Corporate Secretary
Telephone: (978) 439-2110
ii
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT -- PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT
IS IMPORTANT TO YOU. FOR A MORE COMPLETE UNDERSTANDING OF THE PROPOSED MERGER,
YOU SHOULD READ CAREFULLY THIS ENTIRE PROXY STATEMENT -- PROSPECTUS AS WELL AS
THE OTHER DOCUMENTS TO WHICH WE REFER. SEE "WHERE YOU CAN FIND MORE INFORMATION"
ON PAGE 86.
THE COMPANIES (SEE PAGE 25)
MacDermid, Incorporated
245 Freight Street
Waterbury, Connecticut 06702
(203) 575-5700
MacDermid develops, produces and markets a broad line of specialty chemical
products which are used primarily in the metal and plastic finishing,
electronics and graphic arts industries. MacDermid has manufacturing facilities
and sales offices in North America, Europe and Asia.
MacDermid, founded in 1922, is incorporated in Connecticut.
PTI, Inc.
900 Middlesex Turnpike
Billerica, Massachusetts 01821
(978) 439-2000
PTI is the parent company of Polyfibron Technologies, Inc. Polyfibron
Technologies develops, produces and markets specialty chemicals that are used in
the printing industry. Specifically, Polyfibron sells printing plates and
printing blankets, both of which are used to transfer ink and thus form images
on surfaces such as paper, cardboard or plastic film used for packaging. PTI's
subsidiaries have manufacturing facilities located in the United States, France
and Australia.
PTI is incorporated in Delaware and was founded in 1994 when it acquired
Polyfibron Technologies and other assets and liabilities from W.R. Grace & Co.
MERGER TRANSACTION (SEE PAGE 26)
The merger agreement provides that MacDermid will acquire PTI and all of the
outstanding PTI capital securities consisting of common stock, preferred stock
and a common stock warrant in exchange for shares of MacDermid common stock and
warrants to purchase shares of MacDermid common stock. The acquisition will be
accomplished through the merger of a MacDermid subsidiary into PTI. Upon
completion of that merger, PTI will become a wholly owned subsidiary of
MacDermid and shareholders of PTI will become shareholders of MacDermid.
The merger agreement and the first and third amendments to the merger agreement
are attached to this proxy statement -- prospectus as Appendices A, B and C. We
encourage you to read the merger agreement as it is the legal document that
governs the merger.
The merger agreement also obligates MacDermid to refinance PTI's financial
indebtedness upon completion of the merger. Accordingly, MacDermid has entered
into an amended secured credit facility under which it will borrow the funds
necessary to refinance the PTI debt. As of October 31, 1999, the amount of debt
to be refinanced totaled $157.6 million.
WHAT PTI SECURITY HOLDERS WILL RECEIVE
(SEE PAGE 32)
The merger agreement, as amended by the third amendment provides that MacDermid
will deliver 6,873,000 shares of MacDermid common stock to PTI shareholders upon
the completion of the merger. This represents a decrease of 700,000 shares from
the original terms of the merger. Those shares will be allocated first to the
holders of PTI preferred stock to satisfy the liquidation preference of that
stock, and the balance of the MacDermid common stock will be allocated
proportionately to holders of PTI common stock interests. The aggregate value of
the 6,873,000
1
<PAGE>
MacDermid shares received by PTI shareholders upon completion of the merger will
be approximately $230.68 million, assuming the market value of MacDermid stock
is equal to $33.56, the reported closing price of MacDermid common stock on the
NYSE on November 1, 1999.
WHAT HOLDERS OF PTI PREFERRED STOCK WILL RECEIVE
As a result of the merger, each share of PTI preferred stock will be converted
into a number of shares of MacDermid common stock having a market value equal to
the liquidation preference of that share of PTI preferred stock ($1,000) plus
any owed dividends. The merger agreement specifies that the market value of
MacDermid common stock will be based upon a 30-day trading average referred to
in the merger agreement and this proxy statement -- prospectus as the "Current
Market Price." See "Exchange Ratio Assumptions" on page 11 for a more detailed
definition of Current Market Price. As of November 1, 1999, 9,175 shares of PTI
preferred stock were outstanding.
The holders of PTI preferred stock will receive in the merger shares of
MacDermid common stock having an aggregate value of approximately $11.5 million,
assuming approximately $761,691 of dividends are owed on the preferred stock,
representing 182 days of unpaid dividends since the last dividend payment date
on June 15, 1999. See "Exchange Ratio Assumptions" on page 11. PTI owes more
dividends on some shares of preferred stock than others. Therefore, the number
of shares of common stock that MacDermid will issue for any particular share of
PTI preferred stock will vary ranging from a low of 32.796 shares to a high of
60.009 shares, based upon the assumptions described on page 11.
WHAT HOLDERS OF PTI COMMON STOCK WILL RECEIVE
After the PTI preferred stock liquidation preference is satisfied, the balance
of the 6,873,000 MacDermid shares will be allocated among the holders of PTI
common stock in proportion to their ownership of PTI common stock.
As of November 1, 1999, there were 855,000 outstanding shares of PTI common
stock. In addition, 150,000 shares of PTI common stock are issuable upon the
exercise of a warrant held by Citicorp Mezzanine Partners, L.P. Under the terms
of that PTI warrant, Citicorp Mezzanine Partners may purchase PTI common stock
at an exercise price of approximately $.01 per share.
For purposes of allocating the MacDermid common stock among holders of PTI
common stock, the PTI warrant held by Citicorp Mezzanine Partners will be
treated as if it had been exercised in full. MacDermid will issue a substitute
common stock warrant to Citicorp Mezzanine Partners on equivalent terms. The
description of MacDermid shares exchanged in the merger treats the PTI warrant
as if excercised in full prior to the completion of the merger.
The amount and value of MacDermid stock that any holder of PTI common stock will
receive upon the completion of the merger will depend on the Current Market
Price of MacDermid common stock and the amount of dividends owed on PTI
preferred stock. See "Exchange Ratio Assumptions." ACCORDINGLY, HOLDERS OF PTI
COMMON STOCK WILL NOT KNOW AT THE TIME THAT THEY VOTE THE NUMBER OR VALUE OF THE
MACDERMID SHARES THEY WILL RECEIVE. PTI SHAREHOLDERS MAY MAKE INQUIRIES AS TO
THE ESTIMATED EXCHANGE RATIO OF MACDERMID SHARES FOR SHARES OF PTI COMMON STOCK
BASED UPON THE TRADING PRICE OF MACDERMID STOCK AT THAT TIME BY CALLING
THOMAS C. WEAVER, PTI'S CORPORATE SECRETARY AT (978) 439-2110.
HYPOTHETICAL EXCHANGE RATIOS AND ASSUMPTIONS
The following table illustrates the number of MacDermid shares that would be
exchanged for each share of PTI common stock as of the completion of the merger
at three hypothetical Current Market Prices of $30, $33 and $36 per share.
MacDermid and PTI believe the range of hypothetical Current Market Prices
reasonably reflects the trading prices of MacDermid common stock after the
merger was
2
<PAGE>
announced. The hypothetical exchange ratios also assume in each case $761,691 of
dividends are owed on PTI preferred stock. See "Exchange Ratio Assumptions."
<TABLE>
<CAPTION>
NUMBER OF
ASSUMED MACDERMID SHARES
"CURRENT MARKET EXCHANGED FOR
PRICE" OF EACH SHARE OF PTI
MACDERMID STOCK COMMON STOCK
- ---------------- -----------------
<S> <C>
$30.00 6.457
$33.00 6.491
$36.00 6.520
</TABLE>
ESCROW FUND
Holders of PTI common stock and Citicorp Mezzanine Partners will also receive as
of the completion of the merger an interest in an escrow fund that may entitle
them to receive additional MacDermid shares a year or more after the merger is
completed.
ESCROWED SHARES (SEE PAGE 34)
The escrow fund that will be established as of the completion of the merger will
be used to satisfy any indemnification claim MacDermid is entitled to bring
under the merger agreement. As of the completion of the merger, the escrow fund
will consist of a total of 127,000 shares of MacDermid common stock and common
stock equivalents. Those 127,000 MacDermid shares are sometimes referred to in
this proxy statement -- prospectus as the "escrowed shares." Holders of PTI
common stock and Citicorp Mezzanine Partners will be entitled to sell all or any
portion of the MacDermid stock, or in the case of Citicorp Mezzanine Partners
the MacDermid warrant, held in escrow for that investor's benefit. The proceeds
of any sale, however, would remain in escrow until the termination of the escrow
agreement.
INDEMNIFICATION (SEE PAGE 34)
MacDermid, on the one hand, and the PTI shareholders and Citicorp Mezzanine
Partners, collectively, on the other hand, will be entitled to indemnification
for a breach of the merger agreement. No party will be entitled to
indemnification for a claim brought more than 12 months after the merger is
completed. Further, neither MacDermid, on the one hand, nor the PTI shareholders
and Citicorp Mezzanine Partners, collectively, on the other hand, will be
entitled to indemnification until their damages exceed $2 million and then only
to the extent of the excess.
MacDermid's sole source of recourse for indemnification will be to the escrow
assets. If the PTI shareholders and Citicorp Mezzanine Partners are entitled to
indemnification, MacDermid will pay the damages solely in MacDermid shares and
not in cash. In no event will the maximum indemnification payment by MacDermid
on the one hand or PTI shareholders on the other hand exceed the Current Market
Price of the escrowed shares as of the completion of the merger.
Citicorp Venture Capital will act on behalf of the PTI shareholders and Citicorp
Mezzanine Partners in all matters relating to the indemnification provisions of
the merger agreement. The escrow will terminate and the remaining escrow assets,
if any, will be distributed to the former holders of PTI common stock and
Citicorp Mezzanine Partners upon the later of (a) 12 months after the completion
of the merger or (b) the resolution of all MacDermid indemnification claims.
LISTING OF MACDERMID COMMON STOCK AND RESTRICTIONS ON TRANSFER (SEE PAGE 35)
The shares of MacDermid common stock issued in connection with the merger will
be listed on the NYSE under the ticker symbol "MRD."
Transfer restrictions imposed by the Federal securities laws will apply to
directors, executive officers and principal shareholders of PTI. MacDermid will
provide Citicorp Venture Capital, Citicorp Mezzanine Partners and other PTI
affiliates with registration rights allowing them to publicly resell their
MacDermid shares. MacDermid stock issued to PTI shareholders who are, at the
time the merger is completed, subject to contractual limitations on the resale
of their PTI stock will be subject to those same contractual limitations.
3
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 41)
MacDermid and PTI have received opinions from tax counsel, as of the date of
this proxy statement -- prospectus, that the merger will be treated as a
tax-free reorganization for U.S. federal income tax purposes, assuming the
merger is completed on substantially the terms described in this proxy statement
- --prospectus. The material tax consequences to MacDermid and PTI shareholders of
the merger qualifying as a tax-free reorganization are:
- - MacDermid shareholders will not have a taxable gain as a result of the merger;
- - no gain or loss will be recognized by MacDermid or PTI as a result of the
merger;
- - PTI shareholders will not have taxable gain or loss on the exchange of PTI
stock for MacDermid stock in the merger, except with respect to any cash
received instead of a fractional share of MacDermid stock or as a consequence
of the exercise of appraisal rights;
- - the tax basis of MacDermid stock received by a PTI shareholder in the merger
will be the same as the tax basis of the PTI stock exchanged in the merger,
reduced by any amount allocable to a fractional share interest for which cash
is received; and
- - the holding period of the MacDermid stock that a PTI shareholder receives in
the merger generally will include the holding period of the PTI stock
exchanged for the MacDermid stock.
Neither MacDermid nor PTI will proceed with the merger without resoliciting its
shareholders unless it obtains, as of the date the merger is completed, an
opinion from tax counsel confirming that the merger will be treated as a
tax-free reorganization for U.S. federal income tax purposes. Those legal
opinions will not bind the IRS, which could take a contrary position.
APPRAISAL RIGHTS (SEE PAGE 45)
PTI shareholders, but not MacDermid shareholders, are entitled under law to
appraisal rights in connection with the merger. To exercise appraisal rights, a
PTI shareholder must satisfy the following criteria:
- - vote against approval of the merger agreement or abstain from voting;
- - provide written notice of his or her intention to exercise appraisal rights to
PTI on or before the date of the special meeting, even if the PTI shareholder
is not entitled to vote at the PTI special meeting; and
- - comply with other procedures as are required by Section 262 et seq. of the
Delaware General Corporation Law. A copy of those sections of the Delaware law
are attached to this proxy statement -- prospectus as Appendix D.
OWNERSHIP OF MACDERMID AFTER THE MERGER (SEE PAGE 37)
On a pro forma basis, the shares of MacDermid common stock issued in the merger
will range from 21.5% of the pro forma MacDermid shares outstanding if no
escrowed shares are released to former PTI security holders to 21.8% if all
escrowed shares are released. In each case this assumes that the MacDermid
warrants issued to Citicorp Mezzanine Partners in the merger have been exercised
in full and there is no change in the number of shares of MacDermid stock
outstanding before the merger.
On a pro forma basis, the shares of MacDermid common stock issued in the merger
to Citicorp Venture Capital, one of PTI's principal shareholders, will range
from approximately 11.3% of the pro forma MacDermid shares outstanding if no
escrowed shares are released to former PTI security holders to approximately
11.5% if all escrowed shares are released.
4
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OF MACDERMID AFTER THE MERGER (SEE PAGE 37)
The only change in the executive officers and directors of MacDermid as a
consequence of the merger is that a designee of Citicorp Venture Capital will
become a MacDermid director. The MacDermid Board of Directors has approved an
increase in the size of the Board to seven from six, effective as of the
completion of the merger, and has elected Joseph M. Silvestri, an officer of
Citicorp Venture Capital, to fill that vacancy. See page 38 for biographical
information regarding Mr. Silvestri and information regarding Citicorp Venture
Capital's right to designate a MacDermid director.
REASONS FOR THE MERGER (SEE PAGES 26 AND 30)
We believe that the merger of PTI and MacDermid will:
- - create a combined company that will be a substantial global competitor in the
supply of chemicals and related materials to the graphic arts industry;
- - improve the diversity of the combined company's overall sources of revenue,
both by product line and geography; and
- - allow the combined company to participate in a much broader section of the
graphic arts industry.
Of course, these benefits depend on our ability to integrate the businesses of
MacDermid and PTI successfully after the merger, and on other uncertainties
described in "Risk Factors" beginning on page 18.
RECOMMENDATIONS TO SHAREHOLDERS
The PTI Board believes that the merger agreement is fair to you and is in your
best interests and recommends that you vote FOR the merger agreement.
VOTE REQUIRED TO APPROVE THE MERGER AGREEMENT
Approval of the merger agreement requires the affirmative vote of the holders of
a majority of the outstanding shares of PTI Class A common stock.
RISK FACTORS (SEE PAGE 18)
You are encouraged to consider the risk factors described elsewhere in this
proxy statement -- prospectus in deciding whether to vote in favor of the
proposal to approve the merger agreement. Those risks include the following:
- - The number of MacDermid shares issued in the merger will not increase or
decrease if the market price of MacDermid stock changes before the merger is
completed. Accordingly, the market value of the MacDermid stock that a PTI
shareholder may receive in the merger may be less than or greater than the
market value of MacDermid stock that the shareholder would have received if
the merger had been completed as of the date of this proxy statement --
prospectus.
- - Neither MacDermid nor PTI engaged a financial advisor to evaluate the fairness
to its shareholders, from a financial point of view, of the number of
MacDermid shares to be exchanged in the merger for all of the outstanding PTI
capital securities. Therefore, when deciding whether or not to approve the
merger agreement, you will not have the benefit of a financial advisor's
opinion and analysis that otherwise would be included in this proxy statement
-- prospectus.
REQUIRED REGULATORY APPROVALS (SEE PAGE 38)
The Hart-Scott-Rodino Act prohibits MacDermid and PTI from completing the merger
until certain information is furnished to the Federal Trade Commission and a
required waiting period has expired or been terminated. We provided information
to the Federal Trade Commission on February 26, 1999 and from time to time
thereafter. The Federal Trade
5
<PAGE>
Commission asserted, however, that our submissions did not satisfy all
applicable requirements. Without agreeing with the Federal Trade Commission's
assertion, MacDermid and PTI represented to the Commission that we would not
complete the merger without giving the Commission at least 35 days prior notice
or otherwise obtaining the Commission's approval to close. The Federal Trade
Commission may seek to delay further the completion of the merger, or attempt to
challenge the merger on antitrust grounds or negotiate a settlement that would
likely involve the divestiture of a portion of the combined company's assets.
PTI and MacDermid are discussing with the Federal Trade Commission the specific
terms of a proposed divestiture of a portion of PTI's assets, as well as terms
of a related consent decree that MacDermid would enter into with the FTC. We
cannot guarantee, however, that we will be able to negotiate a divestiture or a
consent decree that would be acceptable to us and the Federal Trade Commission.
INTERESTS OF RELATED PERSONS IN THE MERGER (SEE PAGE 40)
Shareholders should be aware that a number of PTI officers are parties to
severance agreements and other arrangements that provide them with interests in
the merger that are different from, or in addition to, the interests of PTI
shareholders as a whole. More specifically, four executive officers of PTI have
severance and change of control agreements which generally provide these
officers with up to 18 months of salary if they are terminated without cause or
voluntarily leave the employ of PTI within a specified period after the merger
is completed. PTI is also obligated to make cash payments in the aggregate of up
to a maximum of $950,200 to 22 other employees under various severance and
stay-bonus arrangements.
ACCOUNTING TREATMENT (SEE PAGE 41)
We expect the merger to be treated as a pooling of interests, which means that
for accounting and financial reporting purposes, MacDermid will treat MacDermid
and PTI as if they had always been combined. It is a condition to MacDermid's
obligation to complete the merger that MacDermid receive a letter from its
accountants stating that in their opinion the merger will appropriately be
treated as a pooling of interests.
TERMINATION OF MERGER AGREEMENT (SEE PAGE 54)
Either MacDermid or PTI can terminate the merger agreement and not proceed with
the merger if:
- - the other party materially breaches the merger agreement; or
- - the merger is not completed by December 15, 1999, other than because the
terminating party breached the merger agreement.
MacDermid may also terminate the merger agreement and not proceed with the
merger if more than 350,000 MacDermid shares that may potentially be issued in
the merger are not issued because one or more PTI shareholders have reserved
their appraisal rights.
The termination of the merger agreement and the abandonment of the merger may
occur before or after the merger agreement is approved by either or both
MacDermid and PTI shareholders. If MacDermid or PTI terminates the merger
agreement because of the failure of the PTI shareholders to approve the merger
agreement, PTI must pay MacDermid a $5.0 million termination fee.
6
<PAGE>
MACDERMID SELECTED FINANCIAL DATA
You should read this selected financial data with MacDermid's Annual Report
on Form 10-K for the year ended March 31, 1999 and MacDermid's Quarterly Report
on Form 10-Q for the three months ended June 30, 1999. The selected historical
financial data as of and for the five years ended March 31, 1999 are derived
from MacDermid's consolidated financial statements, which have been audited by
independent public accountants. Share and per share data have been restated to
reflect the effects of three-for-one stock splits effective February 6, 1998 and
November 15, 1996.
The selected historical data as of and for the three months ended June 30,
1999 and June 30, 1998 have not been audited but, in the opinion of MacDermid's
management, contain all adjustments, consisting solely of those of a normal
recurring nature, necessary to present fairly the financial position and results
of operations of MacDermid as of these dates and for these periods. The results
of operations for the three months ended June 30, 1999 are not necessarily
indicative of the results of operations that may be expected for the year ending
March 31, 2000, or for any future period.
EBITDA, as used in the table below, means earnings from operations before
interest, taxes, depreciation and amortization. Although EBITDA is not defined
by generally accepted accounting principles, MacDermid believes it to be
beneficial to gaining an understanding of MacDermid's financial performance.
However, EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles and should not be used as an
alternative to net income as an indicator of operating performance or to cash
flows as a measure of liquidity.
You should also be aware that acquisitions MacDermid has completed since
April 1, 1994 may adversely affect your ability to compare the information
reflected in the following table, and consequently, the information may be of
limited use in evaluating MacDermid's historical performance or predicting its
future operating results. See "Risk Factors."
7
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THREE
MONTHS ENDED
JUNE 30, AS OF AND FOR THE YEAR ENDED MARCH 31,
----------------------- --------------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales.............................. 119,067 81,070 $ 382,648 $ 314,058 $ 293,720 $ 235,891 $ 182,100
Income (loss) from continuing
operations........................... 9,999 8,093 36,283 30,797 23,846 13,795 11,142
Net earnings available for common
shareholders (before accounting
change)(1)........................... 9,999 8,093 36,283 30,488 22,010 13,195 11,142
Diluted earnings per common share(1)... 0.39 0.32 1.43 1.20 0.85 0.50 0.39
FINANCIAL POSITION AT YEAR END
Working capital........................ 68,944 50,279 63,248 50,814 46,883 59,714 34,711
Current ratio(2)....................... 1.5 1.6 1.5 1.6 1.7 2.0 1.7
Capital expenditure.................... 1,378 1,394 5,442 8,342 6,914 4,303 3,990
Total assets........................... 529,992 319,541 506,279 300,260 260,978 264,756 123,305
Long-term debt (includes short-term
portion)............................. 260,670 138,350 258,668 116,425 82,981 112,254 22,642
Percent of total capitalization
(excluding preferred stock).......... 62.7 55.5 64.6 52.5 50.9 63.0 29.7
Redeemable preferred stock............. -- -- -- -- 32,436 30,600 --
OTHER DATA
Return on sales available for common
shareholders (%)(1).................. 8.4 10.0 9.5 9.7 7.5 5.6 6.1
Return on average common equity
(%)(3)............................... 24.6 27.1 29.3 32.9 30.2 22.1 18.3
Cash provided by operations............ 2,230 3,098 53,540 35,335 37,437 17,493 19,854
Cash provided by (used in) investing
activities........................... (9,502) (16,558) (171,016) (32,807) (5,406) (107,773) (9,740)
Cash provided by (used in) financing
activities........................... 1,250 15,315 129,851 (5,000) (33,969) 91,568 (9,322)
EBITDA................................. 25,503 17,433 80,157 66,451 55,579 38,758 26,516
SHARE DATA
Common shareholders' equity............ 154,911 110,894 $ 142,039 $ 105,545 $ 80,058 $ 65,817 $ 53,654
Book value per common share............ 6.16 4.41 5.65 4.21 3.26 2.62 2.17
Cash dividends per common share........ 0.02 0.02 0.08 0.07 0.0667 0.0667 0.0667
Common shares outstanding
Diluted average during period........ 25,430,215 25,475,820 25,427,288 25,483,844 25,912,677 26,383,844 28,372,599
Outstanding at period end............ 25,157,299 25,138,068 25,145,343 25,095,906 24,561,459 25,148,079 24,682,797
</TABLE>
- -------------------------
(1) Before cumulative effect of accounting change as a result of implementation
of SFAS No. 112, "Employers Accounting for Postretirement Benefits," which
resulted in one-time after tax charges of $371 ($0.01/common share) in 1995.
(2) Current assets divided by current liabilities.
(3) Return on Average Common Equity for the three months ended June 30, 1999 and
1998 is annualized so as to be comparative to the years ended March 31. This
calculation is not necessarily indicative of the result which will occur at
year end.
8
<PAGE>
PTI SELECTED FINANCIAL DATA
You should read this selected financial data with PTI's audited consolidated
financial statements for the year ended December 31, 1998 and PTI's unaudited
consolidated financial statements as of and for the six months ended June 30,
1999, all of which are included elsewhere in this proxy statement -- prospectus.
PTI began business on December 29, 1994. The selected historical financial data
as of and for the four years ended December 31, 1998 are derived from PTI's
consolidated financial statements, which have been audited by independent public
accountants.
The selected historical financial data for the period January 1, 1994 to
December 28, 1994, and as of December 28, 1994, were obtained from PTI's
"predecessor company" consisting of parts of former W.R. Grace & Co. divisions
that PTI acquired on December 29, 1994. The amounts have not been audited and
contain no pro forma adjustment to give effect to PTI's acquisition of the Grace
assets, including related financing. In connection with that acquisition, PTI
elected to sell the non-printing product businesses whose operations were
previously combined with those Grace assets. The net assets of those businesses
were valued in the opening balance sheet at their actual net sales proceeds,
less an allocation of interest expense on the incremental debt used to finance
the businesses, plus the cash flows generated from the businesses during the
holding period. In October 1995 and December 1995, respectively, the businesses
were sold resulting in no change to the allocation of the original purchase
price. For the period December 29, 1994 through the respective dates of
disposal, the businesses generated profits of approximately $844,000 which have
been excluded from PTI's consolidated statement of operations. Imputed interest
expense during the period December 29, 1994 through the respective disposal
dates of approximately $978,000 was allocated to the carrying value of the
assets held for sale at the acquisition date and has not been included in the
consolidated statement of operations for the period.
The selected historical data as of and for the six months ended June 30,
1999 and June 30, 1998 have not been audited but, in the opinion of PTI's
management, contain all adjustments, consisting solely of those of a normal
recurring nature, necessary to present fairly the financial position and results
of operations of PTI as of these dates and for these periods. The results of
operations for the six months ended June 30, 1999 are not necessarily indicative
of the results of operations that may be expected for the year ending
December 31, 1999, or for any future period.
EBITDA, as used in the table below, means earnings from operations before
interest, taxes, depreciation and amortization. Although EBITDA is not defined
by generally accepted accounting principles, PTI believes it to be beneficial to
gaining an understanding of PTI's financial performance. However, EBITDA is not
intended to represent cash flow from operations as defined by generally accepted
accounting principles and should not be used as an alternative to net income as
an indicator of operating performance or to cash flows as a measure of
liquidity.
9
<PAGE>
<TABLE>
<CAPTION>
W.R. GRACE
PRINTING
PRODUCTS
(PREDECESSOR CO.)
AS OF AND FOR AS OF
SIX MONTHS ENDED 28-DEC-94 AND
JUNE 30, AS OF AND FOR THE YEAR ENDED DECEMBER 31, FOR THE PERIOD
--------------------- --------------------------------------------- 1-JAN-94 TO
1999 1998 1998 1997 1996 1995 28-DEC-94(3)
--------- --------- --------- --------- --------- --------- ------------------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND RATIOS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales............................ $ 120,177 $ 113,494 $ 227,956 $ 214,509 $ 146,577 $ 147,439 $149,508(4)
Income (loss) from continuing
operations(2)...................... 7,519 8,880 19,343 592 4,752 (1,412) 9,584(4)
Net earnings available for common
shareholders(2).................... 6,773 8,193 17,912 (780) 3,302 (2,984) 9,584
Diluted earnings per common
share(2)........................... 6.74 8.15 17.82 (0.93) 3.30 (3.51) --
FINANCIAL POSITION AT YEAR END
Working capital...................... 62,584 53,955 54,395 48,285 25,078 27,994 20,678
Current ratio (1).................... 2.0 2.2 1.9 2.1 1.7 1.7 1.5
Capital expenditure.................. 6,158 3,814 14,594 5,816 4,755 3,670 5,800
Total assets......................... 245,327 205,880 231,011 197,935 139,145 151,862 148,998(5)
Long-term debt (includes short-term
portion)........................... 160,659 146,715 147,714 147,142 102,395 101,998 23,893
Percent of total capitalization
(excluding preferred stock)........ 91.8 99.6 92.3 105.9 100.9 99.0 18.6
Redeemable preferred stock........... 9,751 9,167 8,944 8,406 7,964 12,781 --
OTHER DATA
Return on sales available for common
shareholders(%)(2)................. 5.6 7.2 7.9 (0.4) 2.3 (2.0) 6.4
Return on average common
equity(%)(2)(6).................... 101.7 430.2 854.2 (17.1) 5,413.1 (283.7) 9.2
Cash provided by (used in)
operations......................... (406) 3,511 26,916 20,275 11,650 19,231 15,061
Cash provided by (used in) investing
activities......................... (15,594) (3,984) (24,681) (61,474) (4,755) (7,930) (5,800)
Cash provided by (used in) financing
activities......................... 15,077 (347) 117 44,255 (7,393) (28,548) --
EBITDA............................... 25,908 27,899 55,801 37,986 29,113 21,763 24,824
SHARE DATA
Common shareholders' equity.......... $ 14,265 $ 556 $ 12,367 $ (8,173) $ (930) $ 1,052 $104,378
Book value per common share.......... 16.68 0.65 14.46 (9.56) (1.09) 1.24 --
Cash dividends per common share...... -- -- -- -- -- --
Common shares outstanding
Diluted average during period...... 1,005,000 1,005,000 1,005,000 1,001,250 1,000,000 1,000,000 --
Outstanding at period end.......... 855,000 855,000 855,000 855,000 850,000 850,000 --
</TABLE>
- -------------------------
(1) Current assets divided by current liabilities.
(2) Earnings available to common shareholders and diluted earnings per share are
before extraordinary loss of $1,322 ($1.55 per share) in 1997.
(3) Operating results for the period January 1, 1994 to December 28, 1994 and as
of December 28, 1994 were obtained from the predecessor company consisting
of portions of various divisions of W.R. Grace & Co. that PTI acquired on
December 29, 1994.
(4) 1994 results include sales of approximately $11.2 million and a net loss of
approximately $1.3 million for non-printing products businesses which were
sold by PTI in 1995.
(5) Total assets include assets related to non-printing products businesses
valued by PTI at $11.6 million on December 29, 1994 and sold in 1995.
(6) Return on Average Common Equity for the six months ended June 30, 1999 and
1998 is annualized so as to be comparative to the years ended December 31.
This calculation is not necessarily indicative of the result which will
occur at year end.
10
<PAGE>
EXCHANGE RATIO ASSUMPTIONS
This proxy statement -- prospectus presents pro forma share and per share
data in various sections, including those titled "Unaudited Pro Forma Combined
Condensed Selected Financial Data," "Selected Historical and Pro Forma
Comparative Per Share Data" and "Beneficial Ownership of PTI." Unless otherwise
stated, all pro forma share and per share data presented in this joint proxy
statement -- prospectus assume the ratio of the number of shares of MacDermid
common stock exchanged for each share of PTI common stock in the merger (the
"exchange ratio") is equal to 6.488, which would have been the exchange ratio
under the following assumptions:
- the merger had been completed on November 1, 1999, the latest practicable
date prior to the printing of this joint proxy statement -- prospectus,
- only 6,873,000 shares of MacDermid common stock are issued in the merger,
with none of the 127,000 escrowed shares being released to former holders
of PTI common stock and the PTI warrant, and
- a total of approximately $761,691 of dividends is owed on PTI preferred
stock as of the completion of the merger, representing 182 days of unpaid
dividends on the preferred stock, which dividends are paid semi-annually
on June 15 and December 15.
THE ACTUAL EXCHANGE RATIO WILL LIKELY BE DIFFERENT. As described in more
detail elsewhere in this joint proxy statement -- prospectus, there is neither a
minimum nor maximum exchange ratio. Instead, the merger agreement fixes the
minimum and maximum number of shares of MacDermid common stock that will be
issued in the merger. The minimum number of shares is fixed at 6,873,000, which
would be the number of shares issued in the merger assuming no escrowed shares
are released. The maximum number of shares is fixed at 7,127,000, which would be
the number of shares issued in the merger assuming all of the escrowed shares
are released and assuming MacDermid is liable to indemnify the PTI shareholders
to the maximum extent provided in the merger agreement by issuing an additional
127,000 shares of MacDermid common stock. See "Merger Transaction."
The actual exchange ratio will depend both on the "Current Market Price" of
MacDermid common stock as of the completion of the merger and on the amount of
dividends owed on the PTI preferred stock at that time. "Current Market Price"
means the average of the daily closing price for MacDermid common stock on the
NYSE for the 30 consecutive trading days preceding the completion of the merger,
ignoring the highest and lowest closing prices during that period. The Current
Market Price would have been $32.65 if the merger was completed on November 1,
1999. If the Current Market Price as of the completion of the merger is greater
than the Current Market Price as of November 1, 1999, the exchange ratio would
be greater than the assumed exchange ratio as of November 1, 1999. Conversely,
if the Current Market Price as of the completion of the merger is less than the
Current Market Price as of November 1, 1999, the exchange ratio would be less
than the assumed exchange ratio as of November 1, 1999. See "Merger Transaction"
for a table showing the exchange ratio at hypothetical Current Market Prices of
$30, $33 and $36.
The pro forma share and per share also assume the full exercise of the
MacDermid warrant issued to Citicorp Mezzanine Partners upon completion of the
Merger. The MacDermid warrant will have a nominal exercise price per share. See
"Merger Transaction."
11
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
SELECTED FINANCIAL DATA
The following table is a summary of selected unaudited combined financial
information from the section of this proxy statement -- prospectus titled
"Unaudited Pro Forma Combined Condensed Financial Information." The combined
financial information of MacDermid and PTI gives effect to the merger as a
pooling of interests, as if the merger had been completed as of April 1, 1996,
and MacDermid's acquisition of W. Canning plc as of April 1, 1998 that MacDermid
accounted for using the purchase method of accounting. The pro forma combined
condensed financial information for the year ended March 31 adds the fiscal year
ended March 31 for MacDermid to the previous fiscal year ended December 31 for
PTI. The proforma combined condensed financial information for the three months
ended June 30, 1999 and 1998 adds three months ended June 30, for each of
MacDermid and PTI. Share and per share data have been restated to reflect the
effects of MacDermid's three-for-one stock split effective February 6, 1998.
You should read the following summary with the "Unaudited Pro Forma Combined
Condensed Financial Information" and the related notes and the financial
information of MacDermid and PTI that are incorporated by reference or presented
in this proxy statement -- prospectus. The Unaudited Pro Forma Combined Summary
Financial Data is presented for illustrative purposes only. This information is
not necessarily indicative of the operating results or financial position that
would have occurred if the merger had been completed on the dates indicated.
Further, this information is not necessarily indicative of MacDermid's future
operating results or financial condition.
<TABLE>
<CAPTION>
AS OF AND FOR
THREE MONTHS ENDED AS OF AND FOR THE YEAR ENDED
JUNE 30, MARCH 31,
----------------------- ------------------------------------
1999 1998 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales................................................... $ 182,066 $ 138,308 $ 702,507 $ 528,064 $ 440,297
Income (loss) from continuing operations.................... 14,260 12,141 56,035 31,389 28,598
Net earnings available for common shareholders.............. 14,260 12,141 56,035 31,080 26,762
Diluted earnings per common share (1)....................... 0.44 0.38 1.73 0.96 0.82
FINANCIAL POSITION AT YEAR END
Working capital............................................. 131,528 104,234 117,643 99,099 71,961
Current ratio (2)........................................... 1.7 1.8 1.6 1.8 1.7
Capital expenditures........................................ 4,441 5,208 20,036 14,158 11,669
Total assets................................................ 775,319 525,421 737,290 498,195 400,123
Long-term debt (includes short-term portion)................ 425,982 285,065 406,382 263,567 185,376
Percent of total capitalization (excluding MacDermid
preferred stock).......................................... 70.4 70.3 71.3 71.4 68.0
Redeemable preferred stock.................................. -- -- -- -- 32,436
OTHER DATA
Return on sales available for common shareholders (%)....... 7.8 8.8 8.0 5.9 6.1
Return on average common equity (%) (3)(4).................. 29.7 37.2 41.6 32.2 32.1
Cash provided by operations................................. 5,816 9,282 80,456 55,610 49,087
Cash provided by (used in) investing activities............. (11,993) (18,936) (195,697) (94,281) (10,161)
Cash provided by (used in) financing activities............. 162 10,610 129,968 39,255 (41,362)
EBITDA...................................................... 39,548 31,384 135,958 104,437 84,692
</TABLE>
(SEE FOOTNOTES ON FOLLOWING PAGE)
12
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THREE
MONTHS ENDED JUNE 30, AS OF AND FOR THE YEAR ENDED MARCH 31,
----------------------- ---------------------------------------
1999 1998 1999 1998 1997
---------- ---------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
SHARE DATA
Common shareholders' equity (3)....................... $ 178,927 $ 120,617 $ 163,350 $ 105,778 $ 87,092
Book value per common share (1)....................... 5.76 3.89 5.26 3.41 2.86
Cash dividends per common share (1)................... 0.0162 0.0162 0.0648 0.0566 0.0539
Common shares outstanding (1)
Diluted average during period....................... 32,303,215 32,348,820 32,300,288 32,356,844 32,785,677
Outstanding at period end........................... 31,057,155 31,037,924 31,045,199 30,995,762 30,461,315
</TABLE>
- ----------------------
(1) The pro forma per share net income, cash dividends and book value are based
upon an assumption that the ratio of shares of MacDermid common stock
exchanged for each share of PTI common stock in the merger is equal to
6.488. THE ACTUAL EXCHANGE RATIO WILL LIKELY BE DIFFERENT. See "Exchange
Ratio Assumptions" and "Merger Transaction -- What PTI Security Holders Will
Receive in the Merger." As described in more detail elsewhere in this proxy
statement -- prospectus, a total of 127,000 shares of MacDermid common stock
will be released from escrow to PTI security holders if MacDermid makes no
claim against the escrowed shares. In that scenario, MacDermid's pro forma
diluted shares outstanding would increase by approximately 0.4%, which would
decrease pro forma diluted earnings per common shares by less than $.01 per
share in each of the periods presented. A total of 254,000 additional shares
of MacDermid common stock may be issued to PTI security holders if all of
the 127,000 escrow shares are released to PTI security holders and if
MacDermid is liable to indemnify PTI security holders to the maximum extent
provided in the merger agreement by issuing an additional 127,000
outstanding shares of MacDermid common stock. In that scenario MacDermid's
pro forma diluted shares outstanding would increase by approximately 0.8%,
which would decrease pro forma diluted earnings per common share by less
than $.01 per share in each of the periods presented. See "Exchange Ratio
Assumptions" and "Merger Transaction -- Escrowed Shares and
Indemnification."
(2) Current assets divided by current liabilities.
(3) Includes preferred share amounts for PTI as these would be redeemed in the
merger in exchange for shares of MacDermid common stock.
(4) Return on Average Common Equity for the three months ended June 30, 1999 and
1998 is annualized so as to be comparative to the years ended March 31. This
calculation is not necessarily indicative of the result which will occur at
year end.
13
<PAGE>
SELECTED HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
The following table shows unaudited comparative per share data for MacDermid
and PTI, using the pooling of interests method of accounting. The information
should be read in conjunction with the consolidated historical financial
statements and related notes of MacDermid and PTI that are incorporated by
reference or presented in this proxy statement -- prospectus, and the unaudited
pro forma combined condensed financial information, including related notes,
which appear elsewhere in this proxy statement -- prospectus. See "Unaudited Pro
Forma Combined Condensed Financial Information."
The pro forma data is presented for comparative purposes only and is not
necessarily indicative of the combined financial position or results of
operations which would have been realized had the merger been completed during
the periods or as of the dates for which the pro forma data is presented.
The pro forma per share net income, cash dividends and book value shown in
the following table are based upon an assumption that the ratio of shares of
MacDermid common stock exchanged for each share of PTI common stock in the
merger is equal to 6.488. THE ACTUAL EXCHANGE RATIO WILL LIKELY BE DIFFERENT.
See "Exchange Ratio Assumptions." The pro forma data per basic share of McDermid
common stock will increase if the exchange ratio is less than 6.488 and decrease
if the exchange ratio is greater than 6.488, reflecting a decrease or increase
in the number of shares allocated to the warrant to be issued to Citicorp
Mezzanine Partners. The pro forma data per diluted share of MacDermid common
stock will not change, however, if the actual exchange ratio is greater or less
than 6.488. Conversely, the pro forma data per share of PTI common stock, both
basic and diluted, will increase if the actual exchange ratio is greater than
6.488 and will decrease if the actual exchange ratio is less. See "Merger
Transaction -- What PTI Security Holders Will Receive in the Merger" for a table
illustrating the exchange ratios at hypothetical Current Market Prices of $30,
$33 and $36.
<TABLE>
<CAPTION>
AS OF AND FOR
THREE MONTHS ENDED AS OF AND FOR YEARS ENDED
JUNE 30, MARCH 31,
----------------------- ------------------------------------
1999 1998 1999 1998 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OF MACDERMID COMMON STOCK(1):
Income from continuing operations:
Historical:
Basic net income per share.............................. $ 0.40 $ 0.32 $ 1.44 $ 1.22 $ 0.89
Diluted net income (loss) per share..................... 0.39 0.32 1.43 1.20 0.85
Pro forma:
Basic net income per share.............................. 0.46 0.39 1.81 1.01 0.87
Diluted net income per share............................ 0.44 0.38 1.73 0.96 0.82
Shares used for earnings calculation:
Historical (basic)........................................ 25,145,343 25,149,149 25,136,712 24,976,931 24,735,191
Historical (diluted)...................................... 25,430,215 25,475,820 25,427,288 25,483,844 25,912,677
Pro forma (basic)......................................... 31,045,199 31,049,005 31,036,568 30,876,787 30,635,047
Pro forma (diluted)....................................... 32,303,215 32,348,820 32,300,288 32,356,844 32,785,677
Cash dividends declared per share:
Historical.............................................. .02 .02 .08 .07 .0667
MacDermid/PTI pro forma................................. .0162 .0162 .0648 .0566 .0539
Book value (as of period end):
Historical................................................ 6.16 4.41 5.65 4.21 3.26
Pro forma................................................. 5.76 3.89 5.26 3.41 2.86
(SEE FOOTNOTES ON FOLLOWING PAGE.)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR
THREE MONTHS
ENDED AS OF AND FOR YEARS ENDED
JUNE 30, DECEMBER 31,
------------------- ------------------------------
1999 1998 1999 1998 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OF PTI COMMON STOCK(2):
Income (loss) from continuing operations:
Historical:
Basic net income (loss) per share(3).................... $4.55 $4.73 $20.95 $ (0.92) $ 3.88
Diluted net income (loss) per share(3).................. 3.87 4.03 17.82 (0.92) 3.30
Equivalent pro forma:
Basic net income per share.............................. 2.98 2.53 11.74 6.55 5.64
Diluted net income per share............................ 2.85 2.47 11.22 6.22 5.32
Cash dividends declared per share:
Historical.............................................. -- -- -- -- --
MacDermid/PTI pro forma................................. .1051 .1051 .4204 .3672 .3497
Book value (as of period end):
Historical................................................ 16.68 0.65 14.46 (9.56) (1.09)
Equivalent pro forma...................................... 37.37 25.24 34.13 22.12 18.56
</TABLE>
- --------------------
(1) The pro forma data per share of MacDermid common stock shown in the table
will decrease for each escrowed share released to former holders of PTI
common stock and the PTI warrant. See "Merger Transaction -- Escrowed Shares
and Indemnification."
(2) The pro forma data per share of PTI common stock shown in the table will
increase for each escrowed share released to former holders of PTI common
stock and the PTI warrant. See "Merger Transaction -- Escrowed Shares and
Indemnification."
(3) Earnings per share are before extraordinary loss of $1,322 ($1.55 per share)
in 1997.
15
<PAGE>
MARKET PRICE INFORMATION
MacDermid common stock is listed and traded principally on the New York
Stock Exchange under the symbol "MRD." There is no established trading market
for PTI common stock.
The following table provides, for the periods indicated, the high and low
sale prices per share for MacDermid common stock as reported on the NYSE.
<TABLE>
<CAPTION>
YEAR LOW HIGH
- ---- -------- --------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1999:
First quarter............................................. $28.25 $42.38
Second quarter............................................ 23.38 40.50
Third quarter............................................. 29.88 39.13
Fourth quarter............................................ 32.75 41.94
FISCAL YEAR ENDING MARCH 31, 2000
First quarter............................................. 32.25 46.06
Second quarter............................................ 30.19 46.25
Third quarter (through November 1, 1999).................. 30.88 34.81
</TABLE>
MacDermid common stock traded at the following highs and lows during the
past several months, as reported by the NYSE.
<TABLE>
<CAPTION>
NOVEMBER
JULY AUGUST SEPTEMBER OCTOBER (THROUGH NOVEMBER 1, 1999)
-------- -------- --------- -------- --------------------------
<S> <C> <C> <C> <C> <C>
High.......................... $46.25 $38.00 $34.44 $34.81 $33.56
Low........................... $35.63 $33.13 $30.19 $30.88 $33.56
</TABLE>
All shareholders are advised to obtain current market quotations for
MacDermid common stock. We cannot predict what the market price of MacDermid
common stock will be at or after the completion of the merger. The market price
of MacDermid common stock will fluctuate between the date of this proxy
statement -- prospectus, the date of the MacDermid and PTI special meetings and
the date on which the merger is completed and afterwards. We cannot guarantee
when or if the various closing conditions, including the receipt of the approval
of the Federal Trade Commission, will be satisfied. See "Merger Agreement --
Termination of Merger Agreement" for a discussion of the right MacDermid and PTI
each will have to terminate the merger agreement at any time after December 15,
1999, even if the shareholders approve the merger.
AS DESCRIBED IN MORE DETAIL ELSEWHERE IN THIS PROXY STATEMENT -- PROSPECTUS,
THE NUMBER OF SHARES OF MACDERMID COMMON STOCK TO BE EXCHANGED FOR EACH SHARE OF
PTI COMMON STOCK WILL DEPEND BOTH ON THE "CURRENT MARKET PRICE" OF MACDERMID
COMMON STOCK AS OF THE COMPLETION OF THE MERGER AND ON THE AMOUNT OF DIVIDENDS
OWED ON THE PTI PREFERRED STOCK AT THAT TIME. "Current Market Price" means the
average of the daily closing price for MacDermid common stock on the New York
Stock Exchange for the 30 consecutive trading days preceding the completion of
the merger, ignoring the highest and lowest closing prices during that period.
See "Exchange Ratio Assumption" and "Merger Transaction."
16
<PAGE>
The following table provides the closing sales price of MacDermid common
stock as reported on the NYSE and the equivalent per share price of PTI common
stock giving effect to the merger on February 18, 1999, which was the last
business day preceding the announcement of the merger, and on November 1, 1999,
which was the last practicable date prior to the mailing of this proxy statement
- -- prospectus.
<TABLE>
<CAPTION>
CLOSING PRO FORMA
MARKET VALUE PER SHARE: SALES PRICE EQUIVALENT PER SHARE
- ----------------------- ----------- --------------------
<S> <C> <C>
February 18, 1999........................................... $38.88 $281.80
November 1, 1999............................................ $33.56 $217.74
</TABLE>
The pro forma equivalent market values of PTI common stock shown in the
preceding table have been calculated assuming an exchange ratio of 7.248 as of
February 18, 1999 and an exchange ratio of 6.488 as of November 1, 1999. Those
exchange ratios were determined using a Current Market Price of $38.73 as of
February 18, 1999 and a Current Market Price of $32.65 as of November 1, 1999,
which would have been the Current Market Prices had the merger been completed as
of those dates, together with the other assumptions described in this proxy
statement -- prospectus. See "Exchange Ratio Assumptions."
THE ACTUAL EQUIVALENT MARKET VALUE OF PTI COMMON STOCK IN THE MERGER WILL
LIKELY BE DIFFERENT. If the actual Current Market Price as of the completion of
the merger is greater than the Current Market Price as of November 1, 1999, the
exchange ratio and the pro forma equivalent value of the PTI common stock would
be greater than the assumed exchange ratio and pro forma equivalent value shown
in the preceding table. Conversely, if the actual Current Market Price as of the
completion of the merger is less than the Current Market Price as of
November 1, 1999, the exchange ratio and the pro forma equivalent value of the
PTI common stock would be less than the assumed exchange ratio and pro forma
equivalent value shown in the preceding table.
17
<PAGE>
RISK FACTORS
THE FOLLOWING RISKS SHOULD BE CONSIDERED BY THE MACDERMID AND PTI
SHAREHOLDERS IN DECIDING WHETHER TO VOTE IN FAVOR OF APPROVAL OF THE MERGER
AGREEMENT. IN ADDITION, WE STRONGLY URGE YOU TO CONSIDER THE ITEMS DISCLOSED
ELSEWHERE IN THIS PROXY STATEMENT -- PROSPECTUS, INCLUDING UNDER THE CAPTION
"CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS" AND IN THE
DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT -- PROSPECTUS.
THERE IS NO GUARANTEE THAT THE HOLDERS OF PTI COMMON STOCK WILL RECEIVE ANY
PARTICULAR VALUE FOR THEIR SHARES OF PTI COMMON STOCK.
Holders of PTI common stock will not know, at the time they vote, the ratio
of the number of shares of MacDermid common stock to be exchanged for each share
of PTI common stock. That ratio will depend on the market value of MacDermid
stock during the 30 trading days prior to the completion of the merger and on
the amount of dividends owed on the PTI preferred stock. There is no minimum or
maximum exchange ratio. See "Exchange Ratio Assumptions."
IN ASSESSING THE FINANCIAL TERMS OF THE MERGER PRIOR TO APPROVING THE MERGER
AGREEMENT, NEITHER THE MANAGEMENT NOR THE BOARDS OF DIRECTORS OF MACDERMID AND
PTI HAD THE BENEFIT OF AN OPINION FROM A FINANCIAL ADVISOR REGARDING THE
FAIRNESS OF THOSE TERMS TO THE MACDERMID AND PTI SHAREHOLDERS.
Neither MacDermid nor PTI engaged a financial advisor to evaluate the
fairness, from a financial point of view, of the amount of MacDermid stock to be
exchanged in the merger for all of the outstanding shares of PTI common stock
and preferred stock and the PTI warrant.
Instead, MacDermid and PTI relied on the experience of their management and
directors in evaluating the transaction. Other members of the investment
community, including analysts who periodically assess MacDermid's performance,
may conclude that MacDermid has materially over-valued or under-valued PTI. Such
a determination could materially affect the price at which shares of MacDermid
common stock trade before and after the merger is completed.
MACDERMID AND PTI SHAREHOLDERS WILL HAVE LIMITED INDEMNIFICATION FOR DAMAGES FOR
ANY MISREPRESENTATION OR OTHER BREACH OF THE MERGER AGREEMENT.
MacDermid and the PTI shareholders as a group will not be indemnified by the
other under the merger agreement if damages are $2.0 million or less. In
addition, the amount of damages for which MacDermid and the PTI shareholders may
be indemnified will not exceed the Current Market Price of the 127,000 escrowed
shares as of the completion of the merger. Therefore, neither MacDermid nor the
PTI shareholders will be indemnified for the first $2.0 million of damages and
any damages exceeding the value of the escrowed shares.
Further, any claim for indemnification must be asserted within 12 months
after the merger is completed. It is possible, therefore, that the party
entitled to indemnification may not become aware of a breach of the merger
agreement until after the deadline for asserting an indemnification claim.
ANTITRUST REVIEW MAY PREVENT OR DELAY THE MERGER OR REQUIRE THE DIVESTITURE OF A
PORTION OF THE COMBINED COMPANY'S ASSETS.
MacDermid and PTI have made several submissions to the Federal Trade
Commission under the Hart-Scott-Rodino Act beginning on February 26, 1999. The
Commission has asserted, however, that those submissions did not satisfy all
applicable requirements. Without agreeing with the Federal Trade Commission's
assertion, MacDermid and PTI have represented to the Commission that they will
not complete the merger without giving the Commission at least 35 days prior
notice.
18
<PAGE>
The Federal Trade Commission may take one or more of several actions
including the following:
- - seek to prevent the merger by initiating a lawsuit alleging the merger will
violate federal antitrust laws;
- - allow the merger to proceed; or
- - seek to negotiate a settlement which would likely involve a divestiture of a
portion of the combined company's assets.
In particular, you should note that if the Federal Trade Commission
commences a lawsuit to challenge the merger on antitrust grounds, we would not
be able to proceed with the merger unless the court specifically rules against
the Federal Trade Commission's request to delay the merger. We also cannot
guarantee that we will be able to negotiate a divestiture that would be
acceptable to us and the Federal Trade Commission. See "Merger Transaction --
Required Regulatory Approvals."
MACDERMID'S PROFITABILITY COULD BE ADVERSELY AFFECTED IF IT IS UNABLE TO
INTEGRATE PTI'S OPERATIONS EFFECTIVELY.
The merger involves the integration of two companies that have previously
operated independently. MacDermid may not be able to integrate the operations of
PTI without encountering difficulties. These difficulties could include
interruptions and dislocations associated with the integration of different
business strategies and disparate business backgrounds and operating cultures of
the two companies. In addition, after the merger, the combined resources of the
two companies may not be adequate to handle the needs of the combined companies.
MacDermid's inability to integrate PTI's business efficiently could adversely
affect MacDermid's profitability in a variety of ways. Examples include the
following:
- - difficulty integrating PTI could adversely affect MacDermid's revenue from
existing operations by diverting management's attention;
- - integration problems could adversely affect MacDermid's ability to retain or
expand PTI's customer base; and
- - delays in integration could increase MacDermid's expenses by requiring
MacDermid to incur greater personnel and consulting expenses and could defer
or preclude MacDermid's ability to realize cost reductions for the combined
company.
MACDERMID'S INCREASED FINANCIAL LEVERAGE AS A RESULT OF THE MERGER COULD
ADVERSELY AFFECT ITS LIQUIDITY AND FINANCIAL CONDITION.
MacDermid's increased leverage could adversely affect its liquidity, as a
substantial portion of available cash from operations will have to be applied to
meet debt service requirements. In the event of a cash shortfall, MacDermid
could be forced to reduce other expenditures and forego potential acquisitions
to be able to meet its debt service obligations. MacDermid's increased leverage
could also adversely affect its ability to obtain additional financing for
working capital, acquisitions or other purposes and could make MacDermid more
vulnerable to economic downturns and competitive pressures.
MacDermid expects to incur between $150 million and $160 million of
additional senior debt in connection with the merger in order to refinance PTI's
outstanding financial indebtedness. In addition, PTI's ratio of shareholders'
equity to assets of 5.8% as of June 30, 1999 is relatively low compared to
MacDermid's ratio of 29.2% as of that date. As a consequence of both those
factors, MacDermid's pro forma ratio of long-term debt as a percentage of total
capitalization will increase materially upon completion of the merger. Moreover,
the increase in MacDermid's long-term debt as a percentage of its capitalization
as a consequence of the merger will follow the increase in its leverage that
resulted from MacDermid's December 1998 acquisition of W. Canning plc. The
following table illustrates the pro forma impact of the merger and the Canning
acquisition on
19
<PAGE>
MacDermid's ratio of long-term debt to capitalization.
<TABLE>
<CAPTION>
ACTUAL AT ACTUAL AT JUNE 30, 1999
JUNE 30, JUNE 30, PRO FORMA
1998 1999 FOR PTI MERGER
--------- --------- --------------
<S> <C> <C> <C>
MacDermid ratio of
long-term debt to
equity capital..... 55.5% 62.7% 71.4%
</TABLE>
Similarly, MacDermid's debt in relation to its cash flow and EBITDA
increased materially as a result of the Canning acquisition and will further
increase as a result of the merger, as illustrated by the following table:
<TABLE>
<CAPTION>
ACTUAL ACTUAL PRO FORMA
AS OF AND AS OF AND FOR PTI MERGER
FOR YEAR ENDED FOR YEAR ENDED AS OF AND
MARCH 31, MARCH 31, FOR YEAR ENDED
1998 1999 MARCH 31, 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
MacDermid ratio of
long-term debt to
cash provided by
operations......... 3.3x 4.8x 5.1x
MacDermid ratio of
long-term debt to
EBITDA............. 1.8x 3.2x 3.0x
</TABLE>
See "MacDermid Selected Financial Data" and "Unaudited Pro Forma Combined
Condensed Selected Financial Data."
MACDERMID'S HISTORICAL OPERATING RESULTS MAY BE OF LIMITED USE IN EVALUATING ITS
HISTORICAL PERFORMANCE AND PREDICTING ITS FUTURE RESULTS BECAUSE OF THE
ACCOUNTING FOR RECENT ACQUISITIONS.
Since March 31, 1995, MacDermid has acquired a number of businesses with a
total of approximately $337.6 million in assets, including the December 1998
acquisition of W. Canning plc. for approximately $148.2 million and the December
1995 acquisition of the electronics and printing division of Hercules
Incorporated for approximately $139.0 million.
MacDermid used the purchase method of accounting for each of its previous
acquisitions, and therefore, the operating results of each acquired company are
included in MacDermid's financial statements only from the date of its
acquisition. Because of MacDermid's recent acquisitions and its use of the
purchase method of accounting, MacDermid's historical operating results may be
of limited relevance in evaluating the historical financial performance of the
combined company and predicting its future operating results.
MACDERMID'S FAILURE TO MANAGE ITS GROWTH STRATEGY EFFECTIVELY MAY HAVE A
MATERIAL ADVERSE EFFECT ON MACDERMID'S RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.
An important element of MacDermid's business strategy continues to involve
active and substantial efforts to acquire or combine with other companies that
would complement MacDermid's existing businesses. No assurance can be given,
however, that MacDermid will be able to identify additional suitable acquisition
targets or consummate any other acquisitions.
If MacDermid is able to identify and complete future acquisitions, its
ability to manage future growth will depend primarily upon its ability to do the
following:
- - monitor operations;
- - control costs;
- - maintain positive customer relations;
- - maintain regulatory compliance; and
- - attract, assimilate and retain additional qualified personnel.
MacDermid's failure to achieve any of those objectives in an efficient and
timely manner may cause interruptions and dislocations in its business. These
problems may have a negative effect on MacDermid's existing operations, as well
as its ability to retain the customers of the acquired businesses, operate the
businesses profitably or otherwise implement its growth strategy.
Also, the presence of one or more material liabilities of an acquired
company that are unknown to MacDermid at the time of acquisition may have a
material adverse effect on MacDermid.
VOTING CONTROL OF MACDERMID HELD BY ITS DIRECTORS, EXECUTIVE OFFICERS AND
PRINCIPAL SHAREHOLDERS MAY PERMIT THESE SHAREHOLDERS
20
<PAGE>
TO EXERCISE EFFECTIVE CONTROL OVER THE OUTCOME OF CORPORATE ACTIONS REQUIRING
SHAREHOLDER APPROVAL.
MacDermid's directors and executive officers and the MacDermid Employees
Profit Sharing and Employees Stock Ownership Plan and pension plan will
beneficially own, in the aggregate, approximately 29.9% of the MacDermid stock
outstanding immediately after the merger.
Citicorp Venture Capital will beneficially own, in the aggregate,
approximately 11.3% of the MacDermid stock outstanding immediately after the
merger.
As a result, if these shareholders take a common position, they could
exercise effective control over the outcome of corporate actions requiring
shareholder approval, including the election of directors and the approval of
significant corporate transactions, such as a merger or sale of all or
substantially all of MacDermid's assets. The investment objectives of these
shareholders may not be the same as yours or as those of MacDermid's other
shareholders.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
THIS PROXY STATEMENT -- PROSPECTUS, AS WELL AS THE OTHER DOCUMENTS TO
WHICH WE REFER IN THIS PROXY STATEMENT -- PROSPECTUS, DESCRIBE MANY OF
THE POSITIVE FACTORS AFFECTING MACDERMID'S FUTURE BUSINESS PROSPECTS.
SHAREHOLDERS SHOULD ALSO BE AWARE OF FACTORS THAT COULD HAVE A NEGATIVE
IMPACT ON THOSE PROSPECTS. THOSE FACTORS INCLUDE POLITICAL, ECONOMIC OR
OTHER CONDITIONS SUCH AS CURRENCY EXCHANGE RATES, INFLATION RATES,
RECESSIONARY OR EXPANSIONARY TRENDS, TAXES AND REGULATIONS AND LAWS
AFFECTING MACDERMID'S BUSINESS; COMPETITIVE PRODUCTS, ADVERTISING,
PROMOTIONAL AND PRICING ACTIVITY; THE DEGREE OF ACCEPTANCE OF NEW
PRODUCT INTRODUCTIONS IN THE MARKETPLACE; TECHNICAL DIFFICULTIES THAT
MAY ARISE WITH NEW PRODUCT INTRODUCTIONS; AND THE DIFFICULTY OF
FORECASTING SALES AT VARIOUS TIMES IN VARIOUS MARKETS.
21
<PAGE>
RECENT DEVELOPMENTS
MacDermid's sales for its second fiscal quarter ended September 30, 1999
were $121.6 million, a 42% increase from the comparable period last year. For
the six months ended September 30, 1999, MacDermid's sales were $240.7 million,
a 44% increase from the comparable prior period last year. The increase in
MacDermid's sales was primarily attributable to a strengthening of its
proprietary revenues, especially in Asia. Excluding acquisitions, proprietary
revenues increased 7% during the quarter ended September 30, 1999 as compared to
the comparable prior period last year. In Asia, where acquisitions were not a
factor, proprietary revenues increased 8% as compared to the comparable 1998
quarter.
MacDermid's net earnings for the quarter ended September 30, 1999 were
$9.2 million and its diluted earnings per share were $0.36, both representing a
6% increase from $8.7 million and $0.34 in the comparable 1998 quarter. For the
six months ended September 30, 1999, MacDermid's net earnings were
$19.2 million, a 15% increase from $16.8 million in the comparable period of
last year, and its diluted earnings per share were $0.75, a 14% increase
compared to $0.66 in the comparable period last year. MacDermid's earnings per
share did not increase at the same rate as its revenue primarily because of the
following: (1) planned expenses that included the ongoing costs for the
production start-up of Viatek, a process MacDermid announced in 1988 for
producing double sided circuit boards, (2) costs associated with the integration
of the W. Canning factories in the US and UK, (3) the impact of European summer
shutdowns, (4) the unplanned effects of the Taiwan earthquake and (5) a weaker
dollar.
PTI's worldwide sales for the three months ended September 30, 1999 were
$61.0 million, an 11% increase from the comparable 1998 period. Excluding the
divested EEC business as well as businesses acquired since September 30, 1998
(see "PTI Management's Discussion and Analysis of Financial Condition and
Results of Operations"), PTI's worldwide sales increased 4% in the third quarter
of 1999 as compared to the third quarter of 1998. PTI's increase in sales for
the third quarter primarily reflected a recovery in end-user demand for image
transfer products which more than offset continued reduced sales to advertising
printers. For the nine months ended September 30, 1999, PTI's worldwide sales
were $181.1 million, an 8% increase from the same period in 1998. Excluding the
divested EEC business as well as businesses acquired since September 30, 1998,
PTI's worldwide sales decreased 1% in the nine months ended September 30, 1999
as compared to the comparable period of 1998.
After giving effect to preferred stock dividend requirements of $373,000,
PTI's net earnings for the three months ended September 30, 1999 were
$2.4 million or $2.37 per common share, a decrease of approximately 22% from
$3.1 million or $3.05 per common share recorded in the same period last year.
Similarly, after giving effect to preferred stock dividend requirements of
$1.1 million, PTI's net earnings for the nine months ended September 30, 1999
were $9.2 million or $9.11 per common share, a decrease of approximately 19%
from $11.3 million or $11.20 per common share recorded in the same period last
year. PTI's decrease in net income for the nine-month period ended
September 30, 1999 was primarily attributable to the following: (1) unusually
low sales volume, particularly in the first half of the year, due to distributor
inventory reductions, (2) a decline in sales to advertising publishing
customers, (3) start-up costs associated with a new printing plate manufacturing
plant in the United States, and (4) pre-tax merger costs of $1.2 million
recorded in 1999.
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PTI SPECIAL MEETING
On September 30, 1999 the shareholders of PTI approved a merger agreement
which provides for MacDermid's acquisition of PTI. On October 29, 1999,
MacDermid and PTI agreed to amend the merger agreement to reduce the number of
shares that MacDermid would issue to the holders of PTI common stock.
Consequently, this proxy statement -- prospectus is being furnished to
shareholders of PTI in connection with the resolicitation of proxies by the
Board of Directors of PTI for use at the PTI special meeting. At the PTI special
meeting, shareholders of PTI will be asked to consider and vote upon a proposal
to approve the merger agreement, as amended, under which a minimum of 6,873,000
(reduced from 7,573,000 shares) shares of MacDermid common stock will be
exchanged for all of the outstanding shares of PTI common stock and preferred
stock, all as summarized in this proxy statement -- prospectus and as more fully
described in the merger agreement. Attached as Appendices A, B and C to this
proxy statement -- prospectus are the merger agreement the first amendment and
third amendment to the merger agreement.
DATE, TIME AND PLACE
The PTI special meeting will be held at 900 Middlesex Turnpike, Billerica,
Massachusetts 01821, on , November , 1999, at 9:00 A.M. EDT.
RECORD DATE AND VOTING RIGHTS
The PTI Board fixed November 3, 1999 as the record date for the
determination of shareholders entitled to notice of and to vote at the PTI
special meeting. Only the holders of PTI Class A common stock are entitled to
vote at the PTI special meeting. As of the record date, there were 100.002
shares of PTI Class A common stock outstanding, held by approximately 19 holders
of record. Each holder of record of shares of PTI Class A common stock on the
record date is entitled to cast one vote per share, in person or by proxy, at
the PTI special meeting.
As of November 3, 1999, PTI directors and executive officers and their
affiliates had the right to vote 51.518 shares of PTI Class A common stock or
approximately 51.518% of the shares of PTI Class A common stock outstanding as
of that date. See "Beneficial Ownership of PTI."
QUORUM AND VOTING OF PROXIES
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of PTI Class A common stock entitled to vote is necessary to
constitute a quorum at the PTI special meeting. Shareholders voting or
abstaining from voting on any issue will be counted as present for purposes of
constituting a quorum. Shares not voted on the proposal and abstentions will
have the same effect as votes against the proposal.
All shares which are entitled to vote and are represented at the PTI special
meeting by properly executed proxies received before or at the PTI special
meeting, and not revoked, will be voted at the PTI special meeting in accordance
with the instructions indicated on the proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT, AS
AMENDED.
The PTI Board knows of no matter to be presented at the PTI special meeting
other than the proposal to vote on the approval of the merger agreement. If any
other matter is properly presented at the PTI special meeting for consideration,
such as consideration of a motion to adjourn the PTI special meeting to another
time and/or place, including for the purpose of soliciting additional proxies,
the persons appointed as proxy will have discretion to vote on these matters in
accordance with their best judgment. Shares represented by proxies which have
been voted "AGAINST" approval of the merger agreement, as amended will not be
voted in respect of any motion made for adjournment of the PTI special meeting
for purposes of soliciting additional votes to approve the merger agreement, as
amended.
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Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked or superseded
by any of the following actions:
- filing a written notice of revocation bearing a later date than the proxy
with the Corporate Secretary of PTI (Thomas C. Weaver) at or before the
taking of the vote at the PTI special meeting;
- duly executing a later dated proxy relating to the same shares and
delivering it to the Corporate Secretary of PTI (Thomas C. Weaver) before
the taking of the vote at the PTI special meeting; or
- attending the PTI special meeting and voting in person. PTI shareholders
should note, however, that merely attending the PTI special meeting in
person without casting a vote at the meeting will not alone constitute a
revocation of a proxy.
PTI will pay all expenses of this solicitation, including the cost of
mailing this proxy statement -- prospectus to PTI shareholders. Directors,
officers and employees of PTI will also solicit proxies in person or by
telephone, telegram, facsimile transmission or other means of communication. PTI
will not pay these individuals for their solicitation activity but will
reimburse them for their reasonable out-of-pocket expenses.
SHAREHOLDER VOTE REQUIRED
Under PTI's Certificate of Incorporation and the Delaware General
Corporation Law, the approval of the merger agreement requires the affirmative
vote of the holders of a majority of the shares of PTI Class A common stock, the
only class of PTI stock entitled to vote at the PTI special meeting.
RECOMMENDATION OF PTI BOARD
The PTI Board believes that the merger agreement is in the best interests of
PTI's shareholders and has unanimously approved the merger agreement. THE BOARD
OF DIRECTORS OF PTI UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF PTI VOTE
"FOR" THE PROPOSAL TO APPROVE THE MERGER AGREEMENT, AS AMENDED. SEE "MERGER
TRANSACTION -- INTERESTS OF RELATED PERSONS IN THE MERGER."
APPRAISAL RIGHTS
If the merger is completed, holders of PTI common stock who previously
elected to dissent from the approval of the merger agreement, as amended and
holders of non-voting PTI common stock and PTI preferred stock may be entitled
to have their shares appraised and purchased in accordance with Section 262 of
the Delaware General Corporation Law.
IN ORDER FOR A PTI SHAREHOLDER TO EXERCISE APPRAISAL RIGHTS, A NOTICE OF
THAT SHAREHOLDER'S INTENTION TO EXERCISE HIS OR HER APPRAISAL RIGHTS AS PROVIDED
UNDER DELAWARE LAW MUST BE SENT BY THAT SHAREHOLDER AND RECEIVED BY PTI BEFORE
THE PTI SPECIAL MEETING, AND THAT SHAREHOLDER MUST VOTE, IF ENTITLED TO DO SO,
AGAINST THE APPROVAL OF THE MERGER AGREEMENT, OR ABSTAIN FROM VOTING, AND COMPLY
WITH THOSE PROCEDURES REQUIRED BY DELAWARE LAW, AS MORE FULLY DESCRIBED IN
"MERGER TRANSACTION -- RIGHTS OF APPRAISAL." FAILURE TO SEND NOTICE, TO VOTE
AGAINST THE APPROVAL OF THE MERGER AGREEMENT OR TO FOLLOW THE OTHER PROCEDURES
WILL CONSTITUTE A WAIVER OF THE SHAREHOLDER'S APPRAISAL RIGHTS. SEE APPENDIX D
TO THIS PROXY STATEMENT -- PROSPECTUS FOR A DISCUSSION OF APPRAISAL RIGHTS AND A
DESCRIPTION OF THE PROCEDURES THAT MUST BE FOLLOWED TO PERFECT APPRAISAL RIGHTS.
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THE COMPANIES
MACDERMID
MacDermid is a leading global manufacturer of speciality chemicals and
processes. MacDermid's main product offerings encompass three broad businesses
and processes: (a) electronics/printed circuits, (b) industrial finishing of
metals and plastics and (c) graphic arts. MacDermid has manufacturing facilities
and sales offices located in 19 countries in North America, Europe and Asia.
MacDermid's graphic arts products generally consist of liquid photopolymers
for use in the manufacture of printing plates. Photopolymers used in the graphic
arts industry generally harden when exposed to light. In making printing plates,
the photopolymer sheet is selectively contacted with light so that hardened
raised areas, corresponding to the image to be printed, are created when the
unexposed (i.e., soft) photopolymer is removed.
MacDermid is a Connecticut corporation that was founded in 1922. MacDermid's
principal executive office is located at 245 Freight Street, Waterbury,
Connecticut 06702. MacDermid's telephone number is (203) 575-5700.
In December 1998, MacDermid acquired W. Canning plc. for approximately
$148.2 million. The acquisition, which was financed primarily through borrowings
under a senior credit facility, was accounted for using the purchase method of
accounting for business transactions. Canning, an international specialty
chemical organization based in Birmingham, England, has operations predominantly
in Europe and North America and, to a lessor extent, in Asia. Canning operates
in four principal product groupings: surface finishing with emphasis in plating
technologies, synthetic lubricants and fluids for the offshore oil industry,
sealants and adhesives used by component manufacturers and additives for fuel,
water and waste treatment facilities.
See "Where You Can Find More Information" for a description of various
documents incorporated by reference into this proxy statement -- prospectus that
contain more information on MacDermid.
PTI
PTI is the parent company of Polyfibron Technologies, Inc, NAPP Systems,
Inc. and Rollin S.A. Through its subsidiaries, PTI develops, produces and
markets specialty chemicals and related materials, including printing plates,
used primarily in the printing industry to transfer images to surfaces such as
paper, cardboard or film. PTI's subsidiaries have manufacturing facilities
located in the United States, France and Australia.
PTI's principal product lines include solid sheet photopolymer printing
plates for use by the flexographic printing industry. In solid sheet
flexographic printing, a flexible substance (such as rubber or photopolymers) is
used to create printing plates in order to selectively transfer ink onto a
surface, thereby creating an image.
PTI, a Delaware corporation, was founded in 1994, when it acquired
Polyfibron Technologies, Rollin and other assets and liabilities from W.R. Grace
& Co. PTI's principal executive office is located at 900 Middlesex Turnpike,
Billerica, Massachusetts 01821. PTI's telephone number is (978) 439-2000.
PTI has completed several acquisitions since 1994, the largest of which
occurred in January 1997 when it acquired NAPP Systems for approximately $56.8
million in a transaction that was accounted for using the purchase method of
accounting. NAPP Systems develops, manufactures and markets proprietary
expendable products and processing equipment for imaging systems primarily for
use in the newspaper industry. In addition, NAPP Systems distributes expendable
products and processing equipment to the commercial printing industry.
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MERGER TRANSACTION
We believe that this summary together with the section of this proxy
statement -- prospectus entitled "Merger Agreement" describes all material terms
of the merger and the merger agreement. However, we recommend that you read
carefully the complete text of the merger agreement and other information that
may be important to you. The merger agreement and the first and third amendments
to the merger agreement are attached to this proxy statement -- prospectus as
Appendices A, B and C and are incorporated by reference into this proxy
statement -- prospectus.
MACDERMID BACKGROUND AND REASONS FOR THE MERGER
Since MacDermid's acquisition of its existing graphic arts business from
Hercules Incorporated in December 1995, MacDermid has investigated a number of
strategies for expanding its product offerings to the graphic arts industry and
for expanding the geographic scope of this business line. MacDermid's existing
graphic arts business, located primarily in North America, consists of the sale
of liquid photopolymers and related materials for use in the manufacture of
flexographic printing plates. Liquid photopolymers, while economical to use,
present technological limitations in that they can be used only with water-based
inks, thus limiting their market potential. Solid sheet photopolymers, on the
other hand, are capable of use with both water-based and solvent-based inks, and
are thus suitable for a wider variety of uses. MacDermid believes that
increasing its graphic arts product line to include solid sheet photopolymer
printing plates and related products will enable MacDermid to utilize more
completely the marketing and manufacturing expertise it has developed in the
graphic arts sector. In addition, MacDermid believes the diversification will be
important if, as MacDermid expects, customer demand for solid sheet photopolymer
products increases as compared to demand for liquid photopolymer products.
Similarly, MacDermid expects that by penetrating the graphic arts industry
outside of North America, which represents a much larger potential market,
MacDermid will be able to increase its revenue and net income from the graphic
arts industry more quickly than it could if it continued to compete solely in
North America. MacDermid also believes a more geographically diverse revenue
base will mitigate, at least in part, the adverse impact on MacDermid of a
deterioration in business conditions in any particular region.
Following the 1995 Hercules acquisition, MacDermid was involved in
discussions with five other companies, including PTI, in an effort to expand
MacDermid's printing business and to enable MacDermid to supply solid sheet
photopolymer printing plates and related printing products to the graphic arts
industry. MacDermid's discussions with those companies were extensive and
included consideration of acquisitions, joint ventures, licensing arrangements
and distribution arrangements.
Between the completion of the Hercules acquisition and the fall of 1997,
MacDermid discussed a licensing and distribution arrangement for solid sheet
photopolymers with a large multi-national chemical company based in Asia. Those
discussions were inconclusive, and MacDermid's evaluation of that business
opportunity led it to believe that MacDermid could achieve its strategic
objectives in the graphic arts industry more effectively by acquiring an
existing business rather than beginning a new distribution program for solid
sheet photopolymer products.
MacDermid began to examine the possibility of acquiring PTI in the fall of
1997. After a thorough investigation was made, MacDermid concluded that the
acquisition of PTI would provide the most desirable opportunity for MacDermid to
increase its participation in the printing market, to further the geographic
diversification of its business, and to add a significant business to MacDermid
that could be expected to be accretive to MacDermid's earnings on a per share
basis. MacDermid's negotiations with PTI at that time were unsuccessful,
primarily because the parties
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were unable to agree upon the valuation of PTI. MacDermid valued PTI's capital
stock at approximately $240 million to $260 million while PTI sought a value of
approximately $280 million to $300 million. In addition, PTI wanted the merger
agreement to provide for a floating exchange ratio that would increase or
decrease within a specified range if the market price of MacDermid common stock
decreased or increased between the date of the merger agreement and the
completion of the merger; however, a floating exchange ratio was unacceptable to
MacDermid. MacDermid and PTI terminated negotiations in January 1998.
MacDermid thereafter resumed its examination of other ways to achieve its
strategic objectives in the graphic arts sector. In one case, MacDermid
unsuccessfully explored a joint venture with a large multi-national chemical
company based primarily in Europe. MacDermid also considered the acquisition of
a subsidiary or division of two other companies. In each of those cases,
preliminary due diligence revealed that the product lines and customer bases
that MacDermid would acquire were not broad enough to satisfy MacDermid's
objectives. MacDermid was successful, however, in negotiating a licensing and
distribution arrangement for solid sheet photopolymers with the multi-national
chemical company based in Asia with which it had previous discussions. MacDermid
continued to believe, however, that it could better achieve its strategic
objectives by acquiring an existing business such as PTI rather than beginning a
new distribution program for solid sheet photopolymer products.
In December 1998, negotiations for the acquisition of PTI started anew when
PTI indicated to MacDermid that PTI was willing to accept a fixed exchange ratio
and a valuation of PTI that was generally consistent with the value PTI sought
in late 1997 and early 1998. In response to PTI's overture, MacDermid initially
offered to issue 7,000,000 shares of MacDermid common stock. Based upon the
average trading price for MacDermid common stock in the fourth quarter of
calendar 1998 of $35.64, MacDermid's proposal valued PTI's capital stock at
approximately $265 million. PTI countered by seeking a total of 9,000,000
million shares of MacDermid common stock for PTI shareholders, valuing PTI at
approximately $321 million. After further negotiations, MacDermid and PTI
ultimately agreed in January 1999 that MacDermid would issue a minimum of
7,573,000 shares of MacDermid common stock as of the completion of the merger
and would place 127,000 shares of MacDermid common stock in escrow to satisfy
any indemnification payment MacDermid would be entitled to receive under the
merger agreement. Based upon the average trading price for MacDermid common
stock in January 1999 of $38.72, the minimum value for PTI's capital stock was
approximately $293 million, assuming no escrowed shares are released to PTI
shareholders.
After reaching an agreement in principle on those basic terms, MacDermid and
PTI then evaluated the other party's financial condition and recent operating
results, developed its own internal assessment of the other party's future
financial prospects, and negotiated the terms of the merger agreement. MacDermid
and PTI entered into the merger agreement on February 18, 1999.
MacDermid and PTI entered into the first amendment to the merger agreement
on July 27, 1999 and the second amendment to the merger agreement on
September 13, 1999. The primary purpose of the first two amendments was to
extend the termination date of the merger agreement from July 31, 1999 to
September 30, 1999, in the case of the first amendment, and from September 30,
1999 to October 29, 1999, in the case of the second amendment. These amendments
provided more time for MacDermid and PTI to prepare this proxy statement --
prospectus and to seek the Federal Trade Commission's approval to proceed with
the merger. The first amendment also sets forth the parameters within which
MacDermid and PTI would be willing to negotiate a settlement with the Federal
Trade Commission if necessary to obtain the Commission's approval. See "--
Required Regulatory Approvals" below. In addition, in order to permit PTI to
negotiate and complete any sale of assets that might be required as part of a
settlement with the Federal Trade Commission, the first amendment modified the
restrictions under the merger agreement on PTI's sale of assets during the term
of that agreement. See "Merger Agreement -- Conduct Pending the Merger."
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The purpose of the third amendment to the merger agreement was to decrease
by 700,000 the minimum and maximum number of MacDermid shares to be issued in
the merger. The third amendment also extended the termination date of the merger
agreement to December 15, 1999 from October 29, 1999, to allow more time for
MacDermid and PTI to prepare this proxy statement -- prospectus and to seek
Federal Trade Commission approval to proceed with the merger. The merger
agreement provides that either MacDermid or PTI may terminate the agreement and
not proceed with the merger if the merger has not been completed on or before
the termination date, other than because the party seeking to terminate breached
the merger agreement.
It had become apparent to MacDermid in October 1999 that the Federal Trade
Commission would not approve the merger on or before October 29 and, therefore,
that MacDermid would have the right to terminate the merger agreement after that
date. MacDermid subsequently notified PTI that MacDermid would not proceed with
the merger after October 29 unless PTI agreed to a reduction in the number of
MacDermid shares to be issued in the merger. MacDermid's initial position was
that PTI would have to agree to amend the merger agreement to decrease by
1,000,000 shares, or 13.0%, the minimum and maximum number of MacDermid shares
to be issued in the merger. Conversely, PTI initially took the position that any
decrease in the number of MacDermid shares to be issued in the merger would be
unacceptable to them. In late October, representatives of MacDermid and PTI met
by telephone several times to discuss their views regarding the relative
valuation of MacDermid and PTI in the merger.
In those discussions, MacDermid and PTI focused primarily on the adverse
effect on PTI's sales that would result from the divestiture of PTI assets and
the related commitments that MacDermid and PTI believed would be necessary for
the Federal Trade Commission to approve the merger. MacDermid assumed that the
PTI divestiture and other commitments that it believed would be necessary to
obtain Federal Trade Commission approval of the merger would reduce PTI's sales
by approximately $17.3 million (based upon 1998 sales) during the 2000 calendar
year and annually thereafter by a minimum of approximately $5.2 million (based
upon 1998 sales), representing 7.6% and 2.3% of PTI's 1998 sales. See " --
Required Regulatory Approvals," below. MacDermid and PTI also considered in
their discussions the respective financial condition and operating results of
MacDermid and PTI as of and for the period ended September 30, 1999, as well as
the recent trading price of MacDermid stock. See "Recent Developments" and
"Trading Price of MacDermid Common Stock." MacDermid did not assign a specific
value or weight to any factor, however, in considering the amount by which
MacDermid should seek to decrease the number of shares to be issued in the
merger.
On October 29, MacDermid and PTI agreed to amend the merger agreement to
decrease by 700,000 shares, or 9.1%, the number of MacDermid shares to be issued
in the merger, resulting in a minimum of 6,873,000 shares and a maximum of
7,127,000 shares, as compared to a minimum of 7,573,000 shares and a maximum of
7,827,000 shares specified in the original merger agreement. Overall, MacDermid
viewed the change in those merger agreement terms as reflecting a 6% decrease in
the purchase price for PTI, assuming a market value of MacDermid stock of $33.50
per share and approximately $160 million in PTI indebtedness to be assumed by
MacDermid in the merger.
MacDermid believes that PTI is among one of the top three competitors
worldwide in each of its two principal product lines based upon 1998 sales data.
In one product line, PTI had 18% of worldwide sales compared to approximately
30% achieved by E.I. DuPont de Nemours. In the second product line, PTI had 14%
of worldwide sales compared to approximately 30% achieved by Day International.
E.I. DuPont de Nemours & Co. and Day International were the leading competitors
in those product lines in 1998. Thus, MacDermid believes that the acquisition of
PTI will immediately establish MacDermid as one of the leading global suppliers
of specialty chemicals and
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related materials to the graphic arts industry, as well as provide MacDermid
with a fully integrated array of product offerings to this industry.
As a result of MacDermid's diligence efforts, MacDermid has become familiar
with PTI's operations and the potential that those operations represent for
MacDermid. MacDermid's management believes that the PTI acquisition is
strategically desirable primarily for the following reasons:
- The PTI acquisition will improve significantly MacDermid's position as a
supplier to the graphic arts industry. MacDermid estimates that it
currently has the fifth greatest market share among suppliers of specialty
chemicals and related materials to the graphic arts industry. MacDermid
hopes that the acquisition of PTI and its solid sheet photopolymer
business will improve MacDermid's status as a global competitor in the
supply of specialty chemicals and related materials to the graphic arts
industry.
- The PTI acquisition will increase the diversity of MacDermid's overall
sources of revenue, both by product line and geography. MacDermid hopes
that this further diversification will increase the stability of
MacDermid's cash flow by providing MacDermid with three essentially
equivalent businesses in electronics, industrial finishing of metals and
plastics and graphic arts. In addition, MacDermid expects that the PTI
acquisition will further balance MacDermid's overall geographic
diversification.
- The PTI acquisition will allow MacDermid to participate in a much broader
section of the graphic arts industry by providing MacDermid the ability to
offer solid sheet photopolymers, newspaper plates, printing blankets,
printing rollers and printing sleeves. In addition, the acquisition will
provide MacDermid with the ability to expand its graphic arts business
beyond North America.
- The PTI acquisition will add an additional business base to MacDermid
which is expected to be accretive to MacDermid's per share earnings in the
first full fiscal year and to be further accretive in subsequent years.
- The PTI acquisition will add a management team and employee base with
significant experience in the specialty chemical/graphic arts industry.
PTI's management team has, on average, 15 years of experience in the
specialty chemicals and/or graphic arts business. Although none of PTI's
officers will become executive officers of MacDermid upon the completion
of the merger, MacDermid and PTI expect that several of PTI's senior
officers, including David R. Beckerman who has 40 years of experience in
the speciality chemical/graphic arts industry, will have substantial
responsibility in the combined company's graphic arts business.
MacDermid also considered the following challenges or potential
disadvantages of the proposed acquisition:
- PTI's business will represent a significant portion of the combined
company's operations, and therefore MacDermid's future net income per
share and its market capitalization will depend significantly on PTI's
operating results;
- the sale by both MacDermid and PTI of liquid flexographic photopolymer
products could cause the Federal Trade Commission to scrutinize whether
the proposed merger would have an impermissible anticompetitive effect,
which scrutiny likely would increase the cost and uncertainty of the
proposed transaction (see " -- Required Regulatory Approvals," below); and
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- The challenges of and risks associated with integrating PTI's operations
with those of MacDermid would be greater than any prior acquisition
MacDermid had undertaken because of PTI's size and the geographic scope of
its operations.
Although MacDermid has acquired and integrated four significant business
lines during the past five years without any material disruption in the acquired
businesses, there can be no assurance that the strategic goals of the PTI merger
will be achieved. See "Risk Factors" and "Cautionary Statement Regarding
Forward-Looking Information."
PTI BACKGROUND AND REASONS FOR THE MERGER
Polyfibron Technologies' historic predecessor, Dewey & Almy, began to
produce specialty chemicals and related materials used to transfer images to
surfaces such as paper or cardboard in 1946 in Adams, Massachusetts. Dewey &
Almy was acquired by W.R. Grace & Co. in 1954. Since then, their presence in the
graphic arts industry was expanded by (a) implementing new product lines,
(b) geographical growth, and (c) acquisitions. When this portion of W.R.
Grace & Co.'s specialty chemicals division was bought out by its management and
PTI was formed, this growth continued.
PTI continually explores opportunities to expand its participation in the
graphic arts industry, both domestically and around the world, although none of
those strategic transactions was considered an alternative to the merger with
MacDermid. Several opportunities have come to fruition, including the
acquisitions of NAPP Systems in 1997, Jager Jeune SA and Axcyl SA in 1998 and
Supratech and International Composites in 1999.
PTI began to examine the possibility of merging with MacDermid in the fall
of 1997. During late 1996 and early 1997, PTI's board of directors was contacted
by several investment banks with the suggestion that a business combination of
some sort with MacDermid could provide significant strategic benefits to both
companies. MacDermid had recently acquired the Hercules business and was
believed to be very interested in growing its graphic arts segment. There were
no valuation discussions with any of these investment banks regarding a possible
combination with MacDermid. However, PTI was also discussing a potential initial
public offering of its common stock with several major investment banking firms.
The indications of PTI's value provided by those firms in connection with the
offering came in a very broad range. Moreover, there was significant uncertainty
as to whether a public offering could be completed in then prevailing market
conditions and how the market ultimately would value PTI in an offering. The
initial MacDermid proposal described above valued PTI within the range which
might be achievable in a public offering. Accordingly, it was the opinion of
PTI's management and board of directors that the MacDermid offer represented a
good opportunity for PTI shareholders and that they were unlikely to achieve
greater value in a public equity offering.
After MacDermid approached PTI in late 1997 regarding a possible business
combination, PTI undertook a thorough investigation of MacDermid and commenced
negotiations regarding the terms of a possible transaction. The negotiations
terminated, however, in January 1998 for the reasons described above.
After PTI and MacDermid terminated discussions in early 1998, a third party
contacted PTI's chief executive officer regarding the possible acquisition of
PTI. Preliminary discussions were held between PTI's chief executive officer and
executives of the third party during the spring of 1998. Those discussions did
not lead to the third party making an offer to acquire PTI, for reasons which
PTI believes were primarily related to the third party's interest in acquiring
only PTI's printing plate business and not its printing blanket business. Since
the third party declined to make an offer, the possible transaction never became
of sufficient substance to be considered by PTI's board of directors as an
alternative to the proposed merger with MacDermid.
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In December 1998, negotiations for the merger with MacDermid started anew
for the reasons described above and led to the execution of a merger agreement
on February 18, 1999. Also for the reasons described above, PTI and MacDermid
entered into the first, second and third amendments to the merger agreement
dated as July 27, 1999, September 13, 1999 and October 29, 1999, respectively.
See " -- MacDermid's Background and Reasons for the Merger," above.
As a result of PTI's discussions with MacDermid, PTI has become familiar
with MacDermid's operations and the potential that those operations represent
for PTI. PTI's management believes that the combination with MacDermid is
strategically desirable for the following reasons:
- PTI will be provided with an opportunity to combine its company with
MacDermid, a company that has achieved significant growth and
profitability in recent years.
- The PTI shareholders will be provided with MacDermid common stock, which
has outperformed broad stock market indices for each of the last five
years.
- PTI's management believes that the combination of PTI and MacDermid will
create a more substantial global competitor in the supply of chemicals and
related materials to the graphic arts industry.
- PTI's management believes that the combination of PTI and MacDermid will
improve the diversity of the combined company's overall sources of
revenue, both by product line and geography.
There can be no assurance that these goals will be achieved, however. In
particular, the past performance of MacDermid common stock is not necessarily
indicative of future performance. See "Risk Factors," "Cautionary Statement
Regarding Forward-Looking Information," and "Trading Price of MacDermid Common
Stock."
The PTI board of directors considered the following negative factors
associated with the terms and potential consequences of the proposed merger:
- the terms of the merger subjected the PTI shareholders to some uncertainty
as to the value of the consideration they would be receiving upon
completion of the merger, because the merger agreement provided no
protection against volatility in the MacDermid stock price;
- PTI management was concerned that PTI would suffer a significant loss of
independence and autonomy as a consequence of the merger by becoming a
division of the combined, MacDermid controlled, entity; and
- PTI management was also concerned as to what opportunities there would be
for PTI employees within the new group and how PTI employees would be
treated generally within that group.
THE MERGER
The merger agreement provides that MacDermid will acquire PTI and all of the
outstanding PTI capital securities consisting of common stock, preferred stock
and a common stock warrant in exchange for shares of MacDermid common stock and
warrants to purchase shares of MacDermid common stock. The acquisition will be
accomplished through the merger of MCD Acquisition Corp., a wholly owned
MacDermid subsidiary, into PTI. The merger agreement also obligates MacDermid to
refinance PTI's financial indebtedness upon completion of the merger.
Accordingly, MacDermid has entered into an amended secured credit facility under
which it will borrow the funds necessary to refinance the PTI debt. As of
October 31, 1999, the amount of debt to be refinanced totaled $157.6 million.
Expenses related to the merger are anticipated to aggregate
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approximately $11.7 million. This amount consists primarily of charges resulting
from anticipated debt refinancing, and professional fees.
The merger agreement and the first and the third amendments to the merger
agreement are attached to this proxy statement -- prospectus as Appendices A, B
and C and are described in more detail in the section of this proxy statement --
prospectus titled "Merger Agreement." We encourage you to read the merger
agreement as it is the legal document that governs the merger. We also encourage
you to review the section of this proxy statement -- prospectus titled
"Comparison of the Rights of Holders of MacDermid Common Stock and Holders of
PTI Stock." After the merger, the rights of former PTI shareholders will be
governed by Connecticut law and MacDermid's charter and bylaws rather than
Delaware law and PTI's charter and bylaws.
WHAT PTI SECURITY HOLDERS WILL RECEIVE IN THE MERGER
If the merger is completed, each PTI shareholder will receive a portion of
6,873,000 shares of MacDermid common stock. As described in more detail below
and elsewhere in this proxy statement -- prospectus, the number of MacDermid
shares received by any PTI shareholder will depend primarily on the following:
- the market value of MacDermid common stock during the 30 trading days
preceding the completion of the merger; and
- the number of shares of PTI common stock and preferred stock owned by the
shareholder.
In addition, holders of PTI common stock and the holder of a warrant to purchase
PTI common stock will also receive upon the completion of the merger an interest
in an escrow fund that may entitle them to receive additional MacDermid shares a
year or more after the merger is completed.
As of November 3, 1999, there were 9,175 outstanding shares of PTI preferred
stock and 855,000 outstanding shares of PTI common stock. In addition, 150,000
shares of PTI common stock are issuable upon the exercise of a warrant held by
Citicorp Mezzanine Partners, L.P. Under the terms of the PTI warrant, Citicorp
Mezzanine Partners may purchase PTI common stock at an exercise price of
approximately $.01 per share.
The 6,873,000 shares of MacDermid common stock delivered upon the completion
of the merger will be allocated first to the holders of PTI preferred stock to
satisfy the liquidation preference of that stock. As a result of the merger,
each share of PTI preferred stock will be converted into a number of shares of
MacDermid common stock having a value equal to the liquidation preference of
that share of preferred stock ($1,000) plus any owed dividends. For purposes of
that allocation, the MacDermid stock will be valued at the "Current Market
Price."
After the PTI preferred stock liquidation preference is satisfied, the
balance of the 6,873,000 MacDermid shares will be allocated among the holders of
PTI common stock in proportion to their ownership of PTI common stock. For
purposes of that allocation, the PTI warrant held by Citicorp Mezzanine Partners
will be treated as if it had been exercised in full. MacDermid will issue a
substitute common stock warrant to Citicorp Mezzanine Partners on equivalent
terms. Except as otherwise specified in this proxy statement -- prospectus, the
description of MacDermid shares exchanged in the merger treats the PTI warrant
as if exercised in full prior to the completion of the merger.
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The amount and value of MacDermid stock that any holder of PTI common stock
will receive upon the completion of the merger will depend on the then Current
Market Price of MacDermid common stock and the amount of dividends owed on PTI
preferred stock. See "Exchange Ratio Assumptions" on page 11. ACCORDINGLY,
HOLDERS OF PTI COMMON STOCK WILL NOT KNOW AT THE TIME THAT THEY VOTE THE NUMBER
OR VALUE OF THE MACDERMID SHARES THEY WILL RECEIVE. PTI SHAREHOLDERS MAY MAKE
INQUIRIES AS TO THE ESTIMATED EXCHANGE RATIO OF MACDERMID SHARES FOR SHARES OF
PTI COMMON STOCK BASED UPON THE TRADING PRICE OF MACDERMID STOCK AT THAT TIME BY
CALLING THOMAS C. WEAVER, PTI'S CORPORATE SECRETARY AT (978) 439-2110.
The following table illustrates the number of MacDermid shares that would be
exchanged for each share of PTI common stock upon the completion of the merger
at three hypothetical Current Market Prices of $30, $33 and $36 per share.
MacDermid and PTI believe the range of hypothetical Current Market Prices shown
in the table reasonably reflects the trading prices of MacDermid common stock
after the merger was announced. The hypothetical exchange ratios also assume in
each case approximately $761,691 of dividends are owed on the preferred stock,
representing 182 days of unpaid dividends since the last dividend payment date
on June 15, 1999. See "Exchange Ratio Assumptions."
<TABLE>
<CAPTION>
NUMBER OF MACDERMID
SHARES EXCHANGED FOR
ASSUMED "CURRENT MARKET" EACH SHARE OF PTI
PRICE OF MACDERMID STOCK COMMON STOCK
------------------------ --------------------
<S> <C>
$30.00................................... 6.457
$33.00................................... 6.491
$36.00................................... 6.520
</TABLE>
The following table provides the last reported sales prices per share of
MacDermid stock traded on the NYSE on February 18, 1999, the last trading day
before announcement of the merger agreement, and on November 1, 1999, the latest
practicable date before the printing of the proxy statement -- prospectus:
<TABLE>
<S> <C>
February 18, 1999................................... $38.88
November 1, 1999.................................... $33.56
</TABLE>
If only 6,873,000 MacDermid shares are issued in the merger, the aggregate
value of the consideration received by PTI shareholders will be approximately
$230.68 million, assuming the value of MacDermid stock is equal to its closing
price on the NYSE on November 1, 1999. No assurance can be given as to the
market price of MacDermid stock upon the completion of the merger. Shareholders
are advised to obtain current market quotations of the MacDermid common stock.
See "Trading Price of MacDermid Common Stock" for the high and low prices at
which MacDermid common stock traded during the past several months, as reported
by the NYSE.
The holders of PTI preferred stock will receive in the merger shares of
MacDermid common stock having an aggregate value of approximately $11.5 million,
based upon the assumptions used elsewhere in this joint proxy statement --
prospectus. PTI owes more dividends on some shares of preferred stock than
others. Therefore, the number of shares of common stock that MacDermid will
issue for any particular share of PTI preferred stock will vary ranging from a
low of 32.796 shares to a high of 60.009 shares. In general, based upon the
assumptions described on page 11 of this proxy statement -- prospectus, the
distribution of shares of MacDermid common stock among the holders of the three
series of PTI preferred stock will be as follows:
- a majority of the holders of PTI Series 2 preferred stock will receive
32.796 shares of MacDermid common stock for each share of Series 2
preferred stock;
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- a majority of the holders of PTI Series 3 preferred stock will receive
60.009 shares of MacDermid common stock for each share of Series 3
preferred stock;
- a majority of the holders of PTI Series 4 preferred stock will receive
41.545 shares of MacDermid common stock for each share of Series 4
preferred stock.
ESCROWED SHARES
The holders of PTI common stock and Citicorp Mezzanine Partners will also
receive an interest in an escrow fund that will be established upon the
completion of the merger. The escrow fund will be used to satisfy any
indemnification claim MacDermid is entitled to bring under the merger agreement.
Upon the completion of the merger, the escrow fund will consist of shares of
MacDermid common stock and a MacDermid warrant issued for Citicorp Mezzanine
Partners. Assuming the warrant held by Citicorp Mezzanine Partners to purchase
shares of PTI common stock has not been exercised in whole or part prior to the
completion of the merger, the escrow fund will consist of 108,045 shares of
MacDermid common stock and the MacDermid warrant entitling the holder to
purchase 18,955 shares of MacDermid common stock at a nominal exercise price of
approximately $.01 per share. The issued and outstanding shares of MacDermid
common stock in escrow and the shares of MacDermid common stock purchasable upon
exercise of the warrant are sometimes collectively referred to in this proxy
statement -- prospectus as the "escrowed shares."
The escrow agent will maintain a separate subaccount for each former holder
of PTI common stock and Citicorp Mezzanine Partners. Subject to complying with
any applicable legal or contractual transfer restrictions, each of those
investors will be entitled to sell all or any portion of the MacDermid stock, or
the MacDermid warrant in the case of Citicorp Mezzanine Partners, held in escrow
for that investor's benefit. The proceeds of any sale would remain in escrow
until the termination of the escrow agreement, however, and would be required to
be invested in cash or cash equivalent investments, including short-term U.S.
treasury securities. Holders of PTI common stock, other than Citicorp Mezzanine
Partners and its transferees, will not be entitled to a distribution of all or
any portion of the shares of MacDermid common stock underlying the warrant. The
material terms of the escrow and related indemnification provisions are
described below. We also recommend that you read carefully the complete text of
the escrow agreement for the precise legal terms of the escrow. The form of
escrow agreement is attached to this proxy statement -- prospectus as Appendix D
and is incorporated by reference into this proxy statement -- prospectus.
INDEMNIFICATION
Subject to several limitations, summarized below, MacDermid, on the one
hand, and the PTI shareholders and Citicorp Mezzanine Partners, collectively, on
the other hand, are entitled under the merger agreement to indemnification for
damages, as defined in the merger agreement, arising out of the inaccuracy of
any representation in the merger agreement or the breach of any warranty,
covenant or other obligation in the merger agreement. No party will be entitled
to indemnification for a claim brought more than 12 months after the merger is
completed. Further, neither MacDermid, on the one hand, nor the PTI shareholders
and Citicorp Mezzanine Partners, collectively, on the other hand, will be
entitled to indemnification until their damages exceed $2 million and then only
to the extent of the excess.
If MacDermid is entitled to indemnification under the merger agreement,
MacDermid's sole source of recourse will be to the assets contained in the
escrow. MacDermid's claims against the escrow will be allocated proportionately
against each subaccount based on the number of escrowed shares held in that
subaccount immediately after the closing of the merger and will be payable
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from each subaccount first in escrowed shares and second in other assets, if
any, held in escrow. In the case of Citicorp Mezzanine Partners, if shares of
MacDermid common stock are not then held in the Citicorp Mezzanine Partners'
subaccount, the portion of any indemnification claim allocable to its subaccount
will be paid by reducing the number of shares purchasable under the MacDermid
warrant. In no event will the PTI shareholders or Citicorp Mezzanine Partners be
liable for damages in excess of the value of the escrowed shares held in their
escrow subaccount immediately after the completion of the merger. The value of
the escrowed shares will be the "Current Market Price" of MacDermid stock at the
time the merger is completed.
If the PTI shareholders and Citicorp Mezzanine Partners are entitled to
indemnification, MacDermid will pay the damages solely in MacDermid shares and
not in cash. MacDermid will not be required to issue more than 127,000 shares of
MacDermid common stock in the aggregate to PTI security holders in payment of
all indemnification claims under the merger agreement. The value of the escrowed
shares will be the "Current Market Price" of MacDermid stock at the time the
merger is completed. Further, as a condition to MacDermid's obligation to
complete the merger each PTI shareholder and Citicorp Mezzanine Partners must
sign an agency agreement, which, among other things, waives, to the fullest
extent permitted by law, its, his or her rights and remedies for damages arising
from the merger except for the rights to indemnification specifically provided
in the merger agreement. We recommend that you read carefully the complete text
of the agency agreement for the precise legal terms of the waiver of damages.
The form of agency agreement is attached to this proxy statement -- prospectus
as Appendix E and is incorporated by reference into this proxy statement --
prospectus.
The agency agreement also provides for the appointment of Citicorp Venture
Capital as attorney-in-fact to act on behalf of the PTI shareholders and
Citicorp Mezzanine Partners in all matters relating to the indemnification
provisions of the merger agreement, including when to bring and pay an
indemnification claim. This appointment does not grant Citicorp Venture Capital
any beneficial rights in the escrowed shares. Any disputes between MacDermid, on
the one hand, and Citicorp Venture Capital, on the other hand, regarding a claim
for indemnification will be resolved by arbitration. We recommend that you read
carefully the complete text of the agency agreement for the precise legal terms
of Citicorp Venture Capital's authority.
The escrow will terminate and the remaining escrow assets, if any, will be
distributed to the former holders of PTI common stock and Citicorp Mezzanine
Partners upon the later of (a) 12 months after the completion of the merger or
(b) the resolution of all MacDermid indemnification claims.
LISTING OF MACDERMID COMMON STOCK AND RESTRICTIONS ON TRANSFER
The shares of MacDermid common stock issued in connection with the merger
will be listed on the NYSE under the ticker symbol "MRD." See "Merger Agreement
- -- Conditions to Merger."
After the completion of the merger, the sale or other transfer of MacDermid
common stock by any PTI affiliate will be subject to several restrictions, some
of which will also apply to MacDermid affiliates. Under the Securities Act of
1933, an affiliate is defined generally as a person -- considered to include,
but not necessarily be limited to, executive officers, directors and holders of
10% or more of the company's stock -- who controls, is controlled by, or is
under common control with a constituent corporation at the time a business
combination has been authorized or, after the completion of the business
combination, the surviving corporation.
SEC guidelines with respect to the qualification of the merger for pooling
of interests accounting treatment limit sales of shares of the acquiring and
acquired companies by affiliates of either company in a business combination.
SEC guidelines indicate further that the pooling of
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<PAGE>
interests method of accounting generally will not be challenged on the basis of
sales by affiliates of the acquiring or acquired company if they do not dispose
of any of the shares of either the acquiring or acquired company, including
shares they receive in connection with a merger, during the period beginning 30
days before the merger and ending when financial results covering at least 30
days of post-merger operations of the combined entity have been published. It is
a condition to MacDermid's obligation to complete the merger that it receive
from each PTI affiliate an agreement not to sell, transfer or otherwise dispose
of, or reduce the risk of ownership with respect to, any shares of PTI stock or
any shares of MacDermid common stock held by that affiliate in violation of
these guidelines. See "Accounting Treatment."
SEC Rule 145 restricts the sale of MacDermid common stock received in the
merger by former PTI affiliates and their family members and related interests.
Generally speaking, during the first year following the completion of the
merger, PTI affiliates may publicly resell the MacDermid common stock received
by them in the merger, provided that those sales comply with Rule 145
limitations as to the amount of MacDermid common stock sold in any three-month
period and as to the manner of sale. The applicable volume limitations provide
that each former PTI affiliate will not be able to sell, during any three-month
period, more than the greater of the following:
- one percent of the shares of MacDermid common stock outstanding, as most
recently reported by MacDermid; or
- the average weekly reported volume of trading in MacDermid common stock
during a four-calendar week period before the sale, as reported by the
NYSE. After the one-year period, former PTI affiliates who are not then,
and during the preceding three month period have not been, MacDermid
affiliates may resell their shares without any restriction.
Former PTI affiliates who are MacDermid affiliates after the completion of
the merger generally will remain subject to limitations and restrictions under
SEC Rule 144 with respect to shares they received in connection with the merger,
so long as they continue to be MacDermid affiliates.
In addition, PTI affiliates will be permitted to resell MacDermid common
stock received in the merger without any restrictions if the sale is covered by
an effective registration statement filed with the SEC under the Securities Act
or is exempt from the Securities Act registration requirements. This proxy
statement -- prospectus may not be used, however, to effect any resale of
MacDermid common stock received by any person who may be deemed to be an
affiliate of MacDermid or PTI.
It is a condition to PTI's obligations to complete the merger that MacDermid
enter into a registration rights agreement with Citicorp Venture Capital, on
behalf of itself and as agent for Citicorp Mezzanine Partners, and other PTI
affiliates. The registration rights agreement will entitle Citicorp Venture
Capital to cause MacDermid to register under the Securities Act the resale of
shares of MacDermid common stock issued in the merger to Citicorp Venture
Capital, Citicorp Mezzanine Partners and other PTI affiliates. The registration
rights agreement generally will entitle Citicorp Venture Capital to require
MacDermid to effect up to three registrations under the Securities Act or to
permit Citicorp Venture Capital, Citicorp Mezzanine Partners and the PTI
affiliates to include in registrations initiated by MacDermid any or all of
their shares of MacDermid common stock received in the merger. MacDermid will
also agree in the registration rights agreement not to effect a public sale or
distribution of MacDermid common stock during the seven days prior to and the
sixty days following the effective date of a registration required by Citicorp
Venture Capital. Similarly, each of Citicorp Venture Capital and Citicorp
Mezzanine Partners will agree not to effect a public sale or distribution of
MacDermid common stock
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<PAGE>
received in the merger during the comparable 67-day period whenever MacDermid
effects a registration on its own initiative, other than Citicorp Venture
Capital and Citicorp Mezzanine Partners shares permitted to be included in that
registration.
MacDermid will generally be obligated to bear all fees and expenses incurred
by it in connection with any registration effected at Citicorp Venture Capital's
request but will not be obligated to pay any fees or expenses of any
participating shareholder. MacDermid will also agreed to indemnify the
participating shareholders against liabilities, designated in the registration
rights agreement, in connection with any registration of MacDermid common stock,
including liabilities under the Securities Act.
Despite the availability of registration rights, to the extent a PTI
shareholder holds PTI stock that is subject to contractual limitations on
resale, the shares of MacDermid common stock received in the merger in exchange
for those restricted shares will be subject to those same contractual
limitations.
OWNERSHIP OF MACDERMID AFTER THE MERGER
On a pro forma basis, the shares of MacDermid common stock issued in the
merger will range from 21.5% of the pro forma MacDermid shares outstanding if no
escrowed shares are released to former PTI security holders to 21.8% if all
escrowed shares are released.
On a pro forma basis, the shares of MacDermid common stock issued in the
merger to Citicorp Venture Capital will range from 3,718,137 shares of MacDermid
common stock outstanding, or 11.3%, if no escrowed shares are released to former
PTI security holders to 3,785,833 shares, or 11.5%, if all escrowed shares are
released. Citicorp Venture Capital will not beneficially own any of the escrow
shares other than those escrow shares held in the subaccount maintained for its
benefit. The allocation of shares of MacDermid common stock to Citicorp Venture
Capital under the merger agreement will be calculated in the same manner as for
any other holder of a PTI equity security. Citicorp Venture Capital will receive
approximately 93.6% of its ownership interest in MacDermid as a result of its
ownership of PTI non-voting common stock and approximately 6.4% as a result of
its ownership of PTI preferred stock. See "Beneficial Ownership of PTI" for
information regarding the amount and percentage of each class or series of PTI
capital stock held by Citicorp Venture Capital.
In calculating the percentages in this section, the following assumptions
were made: (a) the MacDermid warrants issued to Citicorp Mezzanine Partners in
the merger have been exercised in full; and (b) there is no change in the number
of shares of MacDermid common stock outstanding before the merger.
For more information on MacDermid common stock and existing and pro forma
ownership of MacDermid common stock see "MacDermid Capital Stock" and
"Beneficial Ownership of MacDermid."
EXECUTIVE OFFICERS AND DIRECTORS OF MACDERMID AFTER THE MERGER
The only change in the executive officers and directors of MacDermid as a
consequence of the merger is that a designee of Citicorp Venture Capital will
become a MacDermid director. The merger agreement provides that Citicorp Venture
Capital may continue to designate a director of MacDermid, so long as each of
the following conditions is satisfied:
- Citicorp Venture Capital owns shares of MacDermid stock constituting 40.0%
or more of the total number of shares of MacDermid common stock issued to
Citicorp Venture Capital in the merger; and
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- Citicorp Venture Capital owns shares of MacDermid common stock
constituting 2.0% or more of the shares of MacDermid common stock
outstanding from time to time.
The MacDermid Board of Directors has approved an increase in the size of the
Board to seven from six, effective upon the completion of the merger, and has
elected Joseph M. Silvestri, an officer of Citicorp Venture Capital, to fill
that vacancy. Mr. Silvestri, age 37, has been Vice President of Citicorp Venture
Capital for the last five years. Mr. Silvestri is a limited partner in CCT
Partners I, L.P., a PTI shareholder, and is a director of Triumph Group, Inc.,
Euramax, ISG Resources, Inc., Glenoit Corporation and The GNI Group, Inc.
On a pro forma basis, the shares of MacDermid stock issued in the merger to
Mr. Silvestri, a PTI shareholder, will range from 39,876 shares of MacDermid
common stock if no escrowed shares are released to former PTI security holders
to 40,602 if all of the escrowed shares are released. In each case,
Mr. Silvestri will own beneficially less than 1.0% of the shares of the
MacDermid common stock outstanding immediately after the merger. As of
November 1, 1999, Mr. Silvestri holds .414 shares (.4%) of PTI voting common
stock and 5,746.469 shares (.57%) of PTI non-voting common stock.
REQUIRED REGULATORY APPROVALS
The Hart-Scott Rodino Act prohibits MacDermid and PTI from completing the
merger until certain information has been furnished to the Federal Trade
Commission and a required waiting period has expired or been terminated without
further action by the Federal Trade Commission. In general, the Federal Trade
Commission will examine the impact of the merger on competition in various
product and geographic markets in which MacDermid and PTI have sales. Under the
merger agreement, MacDermid and PTI have agreed to use all commercially
reasonable efforts to make the required filings with the Federal Trade
Commission and to seek an early termination of the applicable waiting period.
On February 26, 1999, MacDermid and PTI made our initial filings with the
Federal Trade Commission, and on March 26, 1999, the Commission requested that
we provide additional information. As a result of that request for additional
information, the merger may not be completed until each of us complies with the
request and a 20-day waiting period has expired without further action by the
Federal Trade Commission. We submitted information in response to that request
on May 28, 1999 and from time to time thereafter. The Federal Trade Commission
has asserted, however, that our initial and subsequent submissions have not
satisfied all applicable requirements. Without agreeing with the Federal Trade
Commission assertion, MacDermid and PTI have represented to the Commission that
we will not complete the merger without giving the Commission at least 35 days
prior notice or otherwise obtaining Commission approval to close. As of the date
of this proxy statement -- prospectus, we have not given that notice to the
Federal Trade Commission.
The Federal Trade Commission may:
- seek to delay further the completion of the merger by agreement or by
requesting additional information,
- seek to prevent the merger by initiating a lawsuit alleging the merger
will violate federal antitrust laws,
- terminate the waiting period or allow the waiting period to expire, either
of which would allow the merger to proceed, or
- seek to negotiate a settlement with MacDermid, which settlements typically
involve a divestiture of a portion of the combined company's assets and
liabilities.
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In particular, you should note that if the Federal Trade Commission
commences a lawsuit to challenge the merger on antitrust grounds, we would not
be able to proceed with the merger unless the court specifically rules against
the Federal Trade Commission's request to delay the merger.
Based upon discussions that MacDermid and PTI have had with the staff of the
Federal Trade Commission, we currently believe that the Federal Trade Commission
will require PTI to divest its U.S. and Canada liquid flexographic photopolymer
business for commercial packaging as well as terminate an agreement between
NAAP, Inc., a PTI subsidiary, and BASF for the distribution, in the U.S., of
certain BASF printing products by NAAP. The BASF distribution agreement would
otherwise expire by its own terms on December 31, 2000, but it is believed that
the Federal Trade Commission will require termination essentially
contemporaneously with the merger. The Federal Trade Commission will also
require notice from MacDermid of the termination of arrangements it had made to
distribute solid sheet photopolymer products in the United States under license
from Asahi. PTI has substantially completed negotiations with the Federal Trade
Commission and a buyer regarding a divestiture of PTI's U.S. and Canada liquid
flexographic photopolymer business. Sales of the liquid flexographic
photopolymer product line in the U.S. and Canada for commercial packaging
applications were approximately $5.2 million in 1998, or approximately 2.3% of
PTI's total 1998 sales. In addition, PTI has successfully negotiated an early
termination to the BASF distribution agreement, which termination would be
effective within 90 days after the merger. Sales of BASF printing products by
PTI were approximately $12.1 million in 1998, or approximately 5.3% of PTI's
total 1998 sales. Although all negotiations are substantially complete, there
can be no assurance that PTI will be able to negotiate a divestiture and a
consent decree with the Federal Trade Commission that will be acceptable to PTI,
MacDermid and the Federal Trade Commission.
There can be no assurance of when or if the requisite regulatory approvals
will be obtained or that, if obtained, such approvals would not include
conditions that would be of a type that would relieve MacDermid of its
obligation to complete the merger. Specifically, the merger agreement provides
that MacDermid may choose not to complete the merger if the Federal Trade
Commission's approval of the merger imposes a condition or requirement, such as
a mandatory divestiture, that in the reasonable opinion of MacDermid would so
materially adversely affect the economic or business benefits to MacDermid of
the merger as to render the completion of the merger inadvisable. MacDermid has
agreed with PTI, however, that MacDermid would not abandon the merger solely
because Federal Trade Commission approval of the merger is conditioned upon
PTI's prior divestiture of its U.S. liquid flexographic photopolymer business
for commercial packaging applications. The merger agreement also provides that
if the merger has not been completed by December 15, 1999 either MacDermid or
PTI may terminate the merger agreement subject to the conditions described
below. See "-- Closing Date" below and "Merger Agreement."
Each of MacDermid and PTI intends to resolicit shareholder approval of the
merger as a consequence of a divestiture required by the Federal Trade
Commission only if its board of directors is unable to conclude that the
divestiture could not reasonably be expected to have a material adverse effect
on the pro forma revenue or net income of the combined company. If the Federal
Trade Commission requires MacDermid and PTI to divest only PTI's liquid
flexographic photopolymer business for commercial packaging applications,
MacDermid and PTI will not resolicit shareholder approval because MacDermid and
PTI believe that such a divestiture could not reasonably be expected to have a
material adverse effect on the pro forma financial information presented in this
proxy statement -- prospectus. If the board of directors of either MacDermid or
PTI decides to resolicit shareholder approval of the merger as a consequence of
a material divestiture, MacDermid and PTI will provide shareholders with a
supplement to this proxy statement -- prospectus describing the proposed
divestiture.
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CLOSING DATE
Unless MacDermid and PTI mutually select another date, the closing of the
merger will take place on the date that is two business days following the
satisfaction or waiver of all conditions to the obligations of the parties to
complete the merger.
Either party may have the right to terminate the merger agreement at any
time after December 15, 1999, even if the shareholders approve the merger
agreement, as amended. A party seeking to terminate the merger agreement because
the closing has not occurred by December 15, 1999 must have observed all of its
covenants and agreements contained in the merger agreement. See "Merger
Agreement -- Termination of Merger Agreement."
INTERESTS OF RELATED PERSONS IN THE MERGER
When considering the PTI Board's recommendations that the PTI shareholders
vote in favor of the merger agreement, PTI shareholders should be aware that a
number of PTI employees have severance agreements and other arrangements that
provide them with interests in the merger that are different from, or in
addition to, the interests of PTI shareholders as a whole.
SEVERANCE AND CHANGE IN CONTROL AGREEMENTS. Print Tech International, Inc.,
the predecessor of PTI, has severance and change in control agreements with the
following executives: David R. Beckerman, Edward T. Murphy and Thomas C. Weaver.
The agreements provide, among other things, that if PTI terminates an
executive's employment other than for cause, or if the executive voluntarily
resigns from PTI with good reason within six months of a change in control as
defined in the agreement, PTI will be obligated to pay the executive one and
one-half year's salary, provided that no bonus payments or other related
payments will be due to the executive. At present, under the terms of their
agreements, Mr. Beckerman would be entitled to a payment of $405,000,
Mr. Murphy would be entitled to a payment of $234,000 and Mr. Weaver would be
entitled to a payment of $247,500. PTI has a similar severance and change in
control agreement with John R. Rastetter, except that, pursuant to his
agreement, Mr. Rastetter is entitled to severance for only one year's salary
which is presently equal to $125,000. The merger will constitute a change in
control within the meaning of these agreements. As of August 6, 1999,
Mr. Beckerman holds 51.0% of PTI's voting common stock and 3.0% of PTI's
non-voting common stock, and Mr. Weaver owns 1.6% of PTI's non-voting common
stock. Mr. Murphy and Mr. Rastetter each hold 1.0% of PTI's non-voting common
stock as of that date. As of the date of this proxy statement -- prospectus,
MacDermid has no reason to believe that Messrs. Beckerman, Weaver, Murphy and
Rastetter will not remain employed by the company after the merger is completed.
SEVERANCE AND STAY BONUS AGREEMENTS. PTI has stay bonus agreements with six
employees with technical training and expertise in the area of SAP systems. None
of these employees is a director or executive officer of PTI. The agreements
provide for cash payments in the aggregate of no more than $240,000. If the
employee stays with PTI at least through January 1, 2002, the minimum payment to
any one employee will be $30,000 and the maximum to any one employee will be
$50,000. In addition, PTI has stay bonus agreements with thirteen key employees
of which one is an officer of PTI. None of these employees is a director or
executive officer of PTI. The agreements provide for cash payments in the
aggregate of no more than $185,500. The minimum payment to any one employee will
be $8,500 and the maximum to any one employee will be $19,000. The payments will
be made if the employee stays with PTI for at least one year from the date of
the merger or if the employee is severed for any reason.
SEVERANCE AGREEMENTS. PTI has a severance agreement with Kai Wenk-Wolff. A
severance payment would be paid should NAPP Systems, Inc. (a wholly owned
subsidiary of PTI) or PTI
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elect to terminate Mr. Wenk-Wolff's employment, other than for cause. In this
event, Mr. Wenk-Wolff is entitled to severance for eighteen months of salary
(which is equal to $288,000).
PTI has severance agreements with two NAPP Systems executives. These
agreements provide for severance payments in the aggregate of no more than
$236,700.
DISCRETIONARY SEVERANCE PAYMENTS. PTI may become obligated to pay to twelve
employees with special technical knowledge (none of whom owns PTI stock) up to
twelve weeks of severance payment (in addition to any general severance
payment), to be determined at the time of termination, if the employee is
severed for any reason within the one-year period starting at the date of the
merger.
ACCOUNTING TREATMENT
The obligations of MacDermid and PTI to complete the merger are conditioned
upon the receipt of the following accountants' letters. PTI must have received a
letter in form and substance acceptable to it from its accountants,
PricewaterhouseCoopers LLP, dated the date of the merger, substantially to the
effect that in that firm's unqualified opinion, PTI is eligible to participate
in a transaction accounted for as a pooling of interests under generally
accepted accounting principles. MacDermid must have received a letter, in form
and substance acceptable to it, from its accountants, KPMG LLP, dated the date
of the merger, substantially to the effect that, on the basis of the
PricewaterhouseCoopers LLP letter and a review of the merger agreement and the
merger contemplated thereby, in KPMG's unqualified opinion, the merger will be
accounted for as a pooling of interests under generally accepted accounting
principles. MacDermid and PTI do not intend to request these letters until
immediately prior to the completion of the merger.
Under the pooling of interests method of accounting, the recorded amounts of
the assets and liabilities of MacDermid and PTI will be carried forward at their
previously recorded amounts and no goodwill will be created. Revenues and
expenses will be retroactively presented as if MacDermid and PTI were combined
for the entire fiscal period in which the merger occurs and for all periods
prior to the merger at previously recorded amounts. MacDermid and PTI have
agreed to use their best efforts to cause the merger to qualify for pooling of
interests accounting treatment. See "Merger Agreement -- Conditions to Merger."
To assure the applicability of pooling of interests accounting treatment,
there are certain conditions relating to the exchange of PTI stock for MacDermid
common stock by affiliates of PTI. In addition, the transferability of the
MacDermid common stock to be received by the affiliates will be restricted. See
"Listing of MacDermid Common Stock and Restrictions on Transfer."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO MACDERMID SHAREHOLDERS
The following discussion summarizes the opinion of MacDermid's tax counsel,
Nutter, McClennen & Fish, LLP, as of the date of this proxy statement --
prospectus, regarding the material U.S. Federal income tax consequences of the
merger described in this proxy statement -- prospectus to MacDermid and existing
MacDermid shareholders. We have filed that opinion with the SEC as an exhibit to
the registration statement related to this proxy statement -- prospectus. See
"Where You Can Find More Information" on page 91. The merger will qualify as a
tax-free reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, assuming the merger is completed on substantially the
terms described in this proxy statement -- prospectus, and therefore:
- no gain or loss will be recognized by MacDermid or PTI as a result of the
merger; and
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- there will be no Federal income tax consequences arising from the merger
due solely to status as a MacDermid shareholder prior to the merger.
This summary is based on the continued accuracy of the representations made
by PTI, Citicorp Venture Capital and MacDermid with respect to the merger,
including representations regarding the intended actions of PTI, MacDermid and
the PTI shareholders following the merger. If any of those representations is
inaccurate, the tax consequences of the merger could differ from those described
in this summary.
It is a condition to MacDermid's obligation to complete the merger that
MacDermid receive an opinion from its tax counsel, Nutter, McClennen & Fish,
LLP, or other counsel acceptable to MacDermid, concluding that the merger
qualifies as a tax-free reorganization within the meaning of Section 368(a) of
the Internal Revenue Code. MacDermid shareholders should be aware that the
opinions of tax counsel represent the best judgment of each counsel, but are not
binding on the IRS or the courts. If MacDermid is unable to obtain an opinion,
dated as of the closing of the merger, from Nutter, McClennen & Fish, LLP or
another nationally recognized tax counsel to the effect that the merger
qualifies as a tax-free reorganization within the meaning of Section 368(a) of
the Internal Revenue Code, MacDermid will not complete the merger without first
resoliciting MacDermid shareholders.
Subject to the assumptions discussed above, there will be no Federal income
tax consequences of the merger due solely to ownership of MacDermid stock prior
to the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO PTI SHAREHOLDERS
TAX-FREE REORGANIZATION. The following discussion summarizes the opinion of
PTI's tax counsel, Kirkland & Ellis, as of the date of this proxy statement --
prospectus, regarding the material U.S. Federal income tax consequences of the
merger described in this proxy statement -- prospectus to PTI shareholders. We
have filed that opinion with the SEC as an exhibit to the registration statement
related to this proxy statement -- prospectus. This discussion is intended to
provide a summary only. This discussion does not address all aspects of Federal
income taxation that may be important to a shareholder in light of the
shareholder's particular circumstances. It also does not apply to those
shareholders subject to special rules, such as shareholders who are not citizens
or residents of the United States, financial institutions, tax-exempt
organizations, insurance companies, dealers in securities, shareholders who
acquired their common stock pursuant to the exercise of options or similar
derivative securities or otherwise as compensation or shareholders who hold
their shares as part of a straddle or conversion transaction. This discussion
does not address any aspect of state, local or foreign tax laws or any federal
tax laws other than those pertaining to income tax. PTI shareholders who are
individuals should be aware that the Federal income tax rate on long-term
capital gains of individuals is significantly lower than the tax rate that may
apply to ordinary income or short-term capital gains of individuals, and that
the amount of long-term capital gain, short-term capital gain or ordinary income
that may be realized by a particular PTI shareholder as a result of the merger
may vary depending on the shareholder's particular circumstances. Each PTI
shareholder is advised to consult a tax advisor concerning the specific tax
consequences of the merger to that shareholder.
For U.S. Federal income tax purposes, the merger will qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, assuming the merger is completed on substantially the terms described in
this proxy statement -- prospectus, and therefore:
- no gain or loss will be recognized by MacDermid or PTI as a result of the
merger;
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- PTI shareholders will not have taxable gain or loss on the exchange of PTI
stock for MacDermid common stock in the merger, except with respect to any
cash received instead of a fractional share of MacDermid common stock or
as a consequence of the exercise of appraisal rights;
- the tax basis of MacDermid common stock received by a PTI shareholder in
the merger will be the same as the tax basis of the PTI stock exchanged in
the merger reduced by an amount allocable to a fractional share interest
for which cash is received; and
- the holding period of the MacDermid common stock that a PTI shareholder
receives in the merger generally will include the holding period of PTI
stock exchanged therefor.
This summary is based on the continued accuracy of the representations made
by PTI, Citicorp Venture Capital and MacDermid with respect to the merger,
including representations regarding the intended actions of PTI, MacDermid and
the PTI shareholders following the merger and including representations and
covenants contained in certificates of officers of PTI and MacDermid. If any of
those representations is inaccurate, the tax consequences of the merger could
differ from those described in this summary.
It is a condition to PTI's obligation to complete the merger that PTI
receive an opinion from Kirkland & Ellis, or other tax counsel acceptable to
PTI, concluding that the merger qualifies as a tax-free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code. PTI shareholders
should be aware that the opinions of tax counsel represent the best judgment of
each counsel, but are not binding on the IRS or the courts. If PTI is unable to
obtain an opinion, dated as of the closing of the merger, from Kirkland & Ellis
or another nationally recognized tax counsel to the effect that the merger
qualifies as a tax-free reorganization within the meaning of Section 368(a) of
the Internal Revenue Code, PTI will not complete the merger without first
resoliciting PTI shareholders.
Subject to the assumptions discussed above, the Federal income tax
consequences of the merger to a PTI shareholder are as follows:
RECEIPT OF MACDERMID COMMON STOCK IN EXCHANGE FOR PTI STOCK. A PTI
shareholder who receives shares of MacDermid common stock in exchange for all
that shareholder's shares of PTI stock will recognize no gain or loss as a
result of the merger. A shareholder may recognize gain or loss, however, to the
extent cash is received instead of a fractional share of MacDermid common stock,
as discussed below. The basis of the shares of MacDermid common stock received
by that shareholder will be the same as the basis of the shares of PTI stock
exchanged therefor, and the holding period of the shares of MacDermid common
stock will include the holding period of the shares of PTI stock surrendered in
the exchange, provided the PTI stock was held by the shareholder as a capital
asset at the completion of the merger.
CASH RECEIVED INSTEAD OF A FRACTIONAL SHARE OF MACDERMID COMMON STOCK. Cash
received instead of a fractional share of MacDermid common stock will generally
be treated as received in redemption of a fractional share. Accordingly, a PTI
shareholder who receives cash instead of a fractional share will recognize gain
or loss equal to the difference between the amount of cash received and the
portion of the basis of the shares allocable to the fractional share. If the
shares of PTI are held as capital assets, any gain (or loss) generally will
constitute capital gain (or loss), and will generally be either long-term or
short-term capital gain (or loss) depending on the holding period for the
shares.
FEDERAL INCOME TAX TREATMENT OF SHAREHOLDERS EXERCISING APPRAISAL
RIGHTS. The receipt of a cash payment in respect of dissenting shares by a
dissenting PTI shareholder will be a taxable event for Federal income tax
purposes, and any dissenting shareholder should consult with that
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shareholder's tax advisor with respect to the impact of a cash payment in that
shareholder's individual situation. Based on the current ruling position of the
IRS, any PTI shareholder who effectively exercises appraisal rights and who
receives cash for that shareholder's shares will be treated as receiving a
distribution in redemption of that shareholder's PTI stock. In general, a
distribution in redemption of stock will be treated as a payment in exchange for
the shares. Each PTI shareholder who receives cash upon exercise of the
shareholder's appraisal rights will recognize gain (or loss) for Federal income
tax purposes equal to the difference between the cash received for the
shareholder's shares and the shareholder's tax basis for the shares. The amount
of that gain (or loss), if any, will be treated as ordinary income (or loss) or
long-term or short-term capital gain (or loss) depending on the length of time
the shares were held by the dissenter and whether the shares were held as a
capital asset. See " -- Appraisal Rights," below.
INFORMATION REPORTING AND BACK-UP WITHHOLDING. Shareholders of PTI will be
required to provide their social security numbers or their taxpayer
identification numbers or, in some circumstances, other information in order to
avoid the "backup withholding" requirements that might otherwise apply under the
Internal Revenue Code. If a PTI shareholder is subject to backup withholding,
tax will be withheld at the rate of 31% on any cash consideration received by
that shareholder in the merger (e.g., payment instead of fractional shares or
payment upon exercise of appraisal rights). Provided the required information is
furnished to the IRS, any amount paid as backup withholding will be credited
against the shareholder's Federal income tax liability. PTI shareholders who
receive MacDermid common stock must also comply with the information reporting
requirements of the Treasury Regulations under Section 368 of the Internal
Revenue Code.
The foregoing discussion of the expected U.S. Federal income tax
consequences of the merger is based on the Internal Revenue Code, the
regulations thereunder, and the related judicial and administrative
interpretations, all as in effect on the date of this proxy statement --
prospectus. There can be no assurance that subsequent legislative, regulatory,
administrative or judicial decisions may not be forthcoming that would
significantly change these expected consequences. Any changes may or may not be
retroactive with respect to transactions prior to the date of those changes.
AS NOTED ABOVE, ANY PTI SHAREHOLDER THAT IS SUBJECT TO SPECIAL RULES --
INCLUDING THOSE SHAREHOLDERS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES, FINANCIAL INSTITUTIONS, TAX-EXEMPT ORGANIZATIONS, INSURANCE COMPANIES,
DEALERS IN SECURITIES, SHAREHOLDERS WHO ACQUIRED THEIR COMMON STOCK PURSUANT TO
THE EXERCISE OF OPTIONS OR SIMILAR DERIVATIVE SECURITIES OR OTHERWISE AS
COMPENSATION OR SHAREHOLDERS WHO HOLD THEIR SHARES AS PART OF A STRADDLE OR
CONVERSION TRANSACTION -- SHOULD CONSULT WITH A TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER APPLICABLE TO THAT SHAREHOLDER, INCLUDING THE
APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
HOW TO SURRENDER AND RECEIVE MACDERMID COMMON STOCK IN EXCHANGE FOR PTI STOCK
At or before the completion of the merger, MacDermid and PTI will provide
for a mechanism for exchanging certificates representing PTI stock for one or
more certificates representing shares of MacDermid common stock. Upon the proper
surrender of a stock certificate(s), together with a properly completed and duly
executed letter of transmittal, the holder of that stock certificate(s) will be
entitled to receive, in exchange, a certificate representing that number of
shares of MacDermid common stock determined as of the completion of the merger
as well as consideration in the form of a check for any fractional share
interest which the holder possesses. Any PTI stock certificate(s) so surrendered
will be canceled. No interest will be paid or accrued on the cash delivered in
the place of any fractional share.
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PTI SHAREHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR STOCK CERTIFICATE(S)
FOR EXCHANGE UNTIL THEY HAVE RECEIVED INSTRUCTIONS AND A LETTER OF TRANSMITTAL
AND HAVE COMPLETED THAT LETTER OF TRANSMITTAL.
In the event of a transfer of ownership of any shares of PTI stock that has
not been registered in the transfer records of PTI prior to the completion of
the merger, a certificate for MacDermid common stock may be issued to the
transferee if the stock certificate(s) representing shares of PTI stock is
presented accompanied by documents sufficient, in the reasonable discretion of
MacDermid, to evidence and effect the transfer and to evidence that all
applicable stock transfer taxes have been paid.
From and after the completion of the merger, there will be no transfers on
the stock transfer records of PTI of any shares of PTI stock that were
outstanding immediately prior to the completion of the merger. If, after the
completion of the merger, any stock certificate(s) representing shares is
presented, the stock certificate(s) will be canceled and exchanged for the
MacDermid common stock deliverable in respect thereof in accordance with the
procedures described in the merger agreement.
None of MacDermid, PTI or any other person will be liable to any former
holder of PTI stock for any amount delivered to a public official pursuant to
applicable abandoned property laws.
If a certificate representing shares of PTI stock has been lost, stolen or
destroyed, the holder of that certificate must make an affidavit of that fact
and, if required by MacDermid, an indemnity against any claim that may be made
against MacDermid with respect to that certificate(s). The holder will then be
issued a certificate representing the number of shares of MacDermid common stock
determined as of the completion of the merger and consideration in the form of a
check for any fractional share interest.
APPRAISAL RIGHTS
No MacDermid shareholders will be entitled to have their shares appraised
and purchased in accordance with the Connecticut Business Corporation Act, if
the merger agreement is approved by the MacDermid shareholders.
If the merger is completed, dissenting holders of PTI stock, including
holders of PTI Class B common stock and PTI preferred stock, will be entitled to
have the "fair value" of their shares at the time the merger is completed
judicially determined and paid to them by complying with the provisions of
Section 262 of the Delaware General Corporation Law. The fair market value of
the dissenting shares will be exclusive of any element of value arising from the
accomplishment or expectation of the merger. MacDermid has the right to
terminate the merger agreement and not proceed with the merger if more than
350,000 shares of MacDermid common stock that may potentially be issued in the
merger are not issued because one or more PTI shareholders have reserved the
right to seek appraisal rights.
The following is a summary of Section 262, which sets forth the procedures
for dissenting from the merger and demanding statutory appraisal rights, the
full text of which is attached as Appendix D. Failure to follow the provisions
of Section 262 exactly could result in the loss of appraisal rights. See
"Material Income Tax Consequences of the Merger to PTI Shareholders" for a
discussion of the tax consequences of exercising appraisal rights.
PTI shareholders who desire to exercise their appraisal rights must satisfy
each of the conditions of Section 262. A written demand for appraisal must be
filed with PTI before the taking of the vote on the proposal relating to the
merger agreement. This written demand for appraisal must be in addition to and
separate from any proxy vote abstaining from or voting against the
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merger agreement. Voting against, abstaining from voting or failing to vote with
respect to the merger agreement will not constitute a demand for appraisal for
purposes of Section 262.
PTI shareholders electing to exercise their appraisal rights under Section
262 must not vote, if entitled to do so, for approval of the proposal relating
to the merger agreement. If a shareholder returns a signed proxy but does not
specify a vote against approval of the merger agreement or a direction to
abstain, the proxy will be voted FOR the merger agreement, which will have the
effect of waiving that shareholder's appraisal rights.
A demand for appraisal must reasonably inform PTI of the identity of the PTI
shareholder and that the PTI shareholder intends to demand the appraisal of his,
her or its shares. Accordingly, a demand for appraisal must be executed by or
for the PTI shareholder of record, fully and correctly, as that shareholder's
name appears on the certificate evidencing the dissenting shares. If the
dissenting shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, the demand must be executed by or for the
fiduciary. If the dissenting shares are owned of record by or for more than one
person, as in a joint tenancy or tenancy in common, the demand must be executed
by or for all joint owners. An authorizing agent, including an agent for two or
more joint owners, may execute the demand for appraisal for a shareholder of
record; however, the agent must identify the record owner and expressly disclose
the fact that, in exercising the demand, he or she is acting as agent for the
record owner.
A PTI shareholder who elects to exercise appraisal rights should deliver
his, her or its written demand to Thomas C. Weaver, Corporate Secretary, PTI,
Inc., 900 Middlesex Turnpike, Billerica, Massachusetts 01821 no later than one
business day before PTI's special meeting. The written demand for appraisal
should specify the shareholder's name and mailing address, and that the PTI
shareholder is demanding appraisal of his, her or its shares of PTI stock.
Within ten days after the completion of the merger, PTI must provide notice of
the completion of the merger to all PTI shareholders who have complied with
Section 262 and have not voted for the merger agreement.
Within 120 days after the completion of the merger, any PTI shareholder who
has satisfied the requirements of Section 262 may deliver to PTI a written
demand for a statement listing the aggregate number of dissenting shares not
voted in favor of the merger agreement and with respect to which demands for
appraisal have been received and the aggregate number of holders of those
dissenting shares.
Within 120 days after the completion of the merger, either PTI or any PTI
shareholder who has complied with the required conditions of Section 262 may
file a petition in the Delaware Chancery Court demanding a determination of the
fair value of the dissenting shares. PTI has no present intention to file this
petition if demand for appraisal is made.
Upon the filing of an appraisal petition by a PTI shareholder, service of a
copy thereof must be made upon PTI. Within 20 days after service, PTI must file
in the office of the Register of Chancery in which the petition was filed a duly
verified list containing the names and addresses of all PTI shareholders who
have demanded payment for their dissenting shares and with whom agreements as to
the value of their dissenting shares have not been reached. The Register of
Chancery, if so ordered by the Chancery Court, will give notice of the time and
place fixed for the hearing of the petition by registered or certified mail to
PTI and to the PTI shareholders shown upon the list at the address therein
stated, and notice will also be given by publishing a notice at least one week
before the day of the hearing in a newspaper of general circulation published in
the City of Wilmington, Delaware or such publication as the Chancery Court deems
advisable.
If a petition for an appraisal is filed in a timely fashion, after a hearing
on the petition, the Chancery Court will determine which PTI shareholders are
entitled to appraisal rights and will appraise the dissenting shares owned by
those PTI shareholders, determining the fair value of
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those dissenting shares, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest to be paid, if any, upon the amount determined to be the fair value. In
determining fair value, the Chancery Court is to take into account all relevant
factors.
In WEINBERGER V. UOP, INC., the Delaware Supreme Court stated that "proof of
value by any techniques or methods which are generally considered acceptable in
the financial community and otherwise admissible in court" should be considered,
and that "[f]air value price obviously requires consideration of all relevant
factors involving the value of a company." The Delaware Supreme Court stated
that in making this determination of fair value the Chancery Court must consider
"market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts which could be ascertained as of the date of the
merger which throw any light on future prospects of the merged corporation."
Section 262 provides that fair value is to be determined "exclusive of any
element of value arising from the accomplishment or expectation of the merger."
In Weinberger, the Delaware Supreme Court held that the "elements of future
value, including the nature of the enterprise, which are known or susceptible of
proof as of the date of the merger and not the product of speculation, may be
considered."
PTI shareholders considering seeking appraisal of their shares of PTI stock
should note that the fair value of their shares determined under Section 262
could be more, the same as, or less than the value of MacDermid common stock
that they would receive in the merger if they did not seek appraisal of their
shares. The costs of the appraisal proceeding may be determined by the Chancery
Court and assessed against the parties as the Chancery Court deems equitable in
the circumstances. Upon application of a dissenting shareholder, the Chancery
Court may order that all or a portion of the expenses incurred by any dissenting
shareholder in connection with the appraisal proceeding including, reasonable
attorneys' fees and the fees and expenses of experts, be charged pro rata
against the value of all shares entitled to appraisal. In the absence of a
determination or assessment, each party bears his, her or its own expenses.
Any PTI shareholder who has duly demanded appraisal in compliance with
Section 262 will not be entitled after the completion of the merger to vote for
any purpose the dissenting shares subject to demand or to receive payment or
dividends or other distributions on dissenting shares, except for dividends or
distributions payable to PTI shareholders of record at a date prior to the
completion of the merger. Dissenting shares will have only the rights afforded
by Section 262, including the right to receive the MacDermid common stock upon
withdrawal of the demand for appraisal as described below.
At any time within 60 days after the completion of the merger, any PTI
shareholder will have the right to withdraw that shareholder's demand for
appraisal and to accept the terms offered in the merger agreement. After this
period, the PTI shareholder may withdraw a demand for appraisal and receive
payment for his, her or its shares as provided in the merger agreement only with
the consent of PTI. If no petition for appraisal is filed with the Chancery
Court within 120 days after the completion of the merger, the shareholders'
rights to appraisal will cease and holders of dissenting shares will be entitled
to receive the shares of MacDermid common stock, as provided for in the merger
agreement. Inasmuch as PTI has no obligation to file a petition, any shareholder
who desires a petition to be filed is advised to file it on a timely basis. No
petition timely filed in the Chancery Court demanding appraisal will be
dismissed as to any shareholder without the approval of the Court, and that
approval may be conditional upon terms the Chancery Court deems just.
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MERGER AGREEMENT
We believe that this summary together with the section of this proxy
statement -- prospectus titled "Merger Transaction" describes all material terms
of the merger agreement and the merger. However, we recommend that you read
carefully the complete text of the merger agreement for the precise legal terms
of the merger agreement and other information that may be important to you. The
merger agreement and the first and third amendments to the merger agreement are
attached to this proxy statement -- prospectus as Appendices A, B and C and are
incorporated by reference into this proxy statement -- prospectus.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains substantially reciprocal representations and
warranties made by MacDermid, on the one hand, and PTI and Citicorp Venture
Capital, on the other hand, to each other. The most significant of these relate
to:
- corporate authorization to enter into the contemplated transaction;
- the shareholder votes required to approve the contemplated transaction;
- governmental approvals required in connection with the contemplated
transaction;
- absence of any breach of organizational documents, law or material
agreements as a result of the contemplated transaction;
- capitalization;
- ownership of subsidiaries;
- filings with the SEC;
- information provided by it for inclusion in this joint proxy statement --
prospectus;
- financial statements;
- absence of material changes since a specified balance sheet date;
- absence of undisclosed material liabilities;
- litigation;
- tax matters;
- employee benefits matters;
- compliance with laws;
- environmental matters;
- absence of circumstances inconsistent with the intended accounting
treatment of the merger; and
- receipt of accountants' letters regarding accounting treatment of the
merger.
CONDITIONS TO THE MERGER
The obligations of MacDermid and PTI to complete the merger are subject to
the satisfaction of various conditions. Several of those conditions, such as
stockholder and regulatory approval, may not be waived by MacDermid, PTI or
Citicorp Venture Capital. Other conditions may be waived jointly by MacDermid,
PTI and Citicorp Venture Capital or separately by MacDermid or
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by PTI and Citicorp Venture Capital. Summarized below are the material terms of
those conditions. See the copy of the merger agreement and the first and third
amendments to the merger agreement attached to this proxy statement --
prospectus as Appendices A, B and C for a complete listing of all closing
conditions.
JOINT CONDITIONS TO OBLIGATIONS OF MACDERMID, PTI AND CITICORP VENTURE
CAPITAL. The obligations of MacDermid, PTI and Citicorp Venture Capital to
complete the merger are subject to various conditions including the following:
- the approval of the merger agreement by the holders of a majority of the
outstanding shares of MacDermid common stock;
- the approval of the merger agreement by the holders of a majority of the
outstanding shares of PTI Class A common stock;
- all necessary regulatory and governmental approvals must have been
obtained and must remain in full force and effect; all statutory or other
required waiting periods in respect thereof must have expired; and no
approval of any governmental entity will have imposed any condition or
requirement which, in the reasonable opinion of MacDermid, would
materially adversely affect the economic or business benefits to MacDermid
of the merger so as to render the merger inadvisable;
- the MacDermid common stock that will be issued to the PTI shareholders
upon the completion of the merger, and the MacDermid common stock that
will be issued upon the exercise of the MacDermid warrants, will have been
authorized for listing on the NYSE subject to official notice of listing;
and
- there is no claim, action, suit, investigation or other proceeding pending
or overtly threatened before any court or other governmental entity
wherein an unfavorable judgment, order, decree, ruling, charge or
injunction has been issued, or reasonably could be expected to be issued,
which would (a) prevent the completion of any of the transactions
contemplated by the merger agreement to be rescinded following the
completion of the merger, or (b) present a substantial risk that PTI or
MacDermid or their respective officers or directors will be liable for
material damages.
CONDITIONS TO THE OBLIGATIONS OF MACDERMID. The obligations of MacDermid to
complete the merger are subject to additional conditions, including the
following:
- the representations and warranties of PTI and Citicorp Venture Capital set
forth in the merger agreement must be true and correct in all material
respects as of the completion of the merger;
- PTI must have performed and complied with all of its obligations as set
forth in the merger agreement through the completion of the merger;
- no event has occurred since the date of the merger agreement that has had
or could reasonably be expected to have a material adverse effect on PTI;
- MacDermid must have obtained the proceeds from debt financing in an amount
not less than the amount required to refinance the financial indebtedness
of PTI and its subsidiaries, consisting of a senior credit facility, which
totaled $85.7 million as of October 31, 1999, $41.9 million of
subordinated debt obligations and PIK promissory notes issued to W.R.
Grace & Co., which totaled $30.0 million as of October 31, 1999, and to
provide for the ordinary working capital requirements of PTI and its
subsidiaries;
- the total number of shares of MacDermid common stock that potentially may
not be issued in the merger as a consequence of one or more PTI
shareholders having the right, on the
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<PAGE>
completion of the merger, to exercise appraisal rights under Delaware law
must not exceed 350,000;
- MacDermid must have received a letter from PricewaterhouseCoopers LLP,
dated the date the merger is completed, substantially to the effect that
in its unqualified opinion PTI is eligible to participate in a transaction
to be accounted for as a pooling of interests under generally accepted
accounting principles (see "Merger Transaction -- Accounting Treatment");
- MacDermid must have received a letter from KPMG LLP, dated the date the
merger is completed, substantially to the effect that, on the basis of a
review of the merger agreement and the proposed merger and relying in part
on the opinion of PricewaterhouseCoopers LLP referred to in the
immediately preceding paragraph, in KPMG's unqualified opinion the merger
may be accounted for as a pooling of interests under generally accepted
accounting principles (see "Merger Transaction -- Accounting Treatment");
- MacDermid must have received an opinion, dated the date the merger is
completed, from its counsel substantially to the effect that, on the basis
of the facts and representations in the merger agreement and on the basis
of representations and covenants contained in certificates of officers of
PTI and MacDermid for Federal income tax purposes the merger constitutes a
tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code (see "Merger Transaction -- Material Federal Income
Tax Consequences of the Merger to MacDermid Shareholders" and "Merger
Transaction -- Material Federal Income Tax Consequences of the Merger to
PTI Shareholders.");
- Citicorp Venture Capital, all other PTI shareholders, other than PTI
shareholders who have perfected their appraisal rights, and Citicorp
Mezzanine Partners must have entered into the agency agreement and
Citicorp Venture Capital and David R. Beckerman, in their individual
capacities and as agents for the holders of PTI stock and Citicorp
Mezzanine Partners, must have entered into the escrow agreement with
MacDermid and the escrow agent (see "Merger Transaction --
Indemnification");
- each PTI affiliate must have executed and delivered to MacDermid a seller
affiliate agreement with reference to the limitations in SEC Rule 145 (see
"Merger Transaction -- Listing of MacDermid Common Stock and Restrictions
on Transfer"); and
- there must not be, as of the completion of the merger, any contract of any
character to which PTI or any of its subsidiaries is a party or subject
representing an option, warrant, right, call or similar right to receive
or acquire any capital stock of PTI or any of its subsidiaries, other than
the PTI warrant held by Citicorp Mezzanine Partners, and there must not
be, upon the completion of the merger, any pending or threatened claim or
demand for, a direct or indirect equity interest in PTI or any subsidiary,
including, without limitation, any option, warrant, right or call or any
stock appreciation, phantom stock, profit participation or similar rights.
CONDITIONS TO OBLIGATIONS OF PTI AND CITICORP VENTURE CAPITAL. The
obligations of PTI and Citicorp Venture Capital to complete the merger are
subject to additional conditions, including:
- the representations and warranties of MacDermid in the merger agreement
must be true and correct in all material respects as of the date the
merger is completed;
- MacDermid must have performed and complied with all its obligations under
the merger agreement through the completion of the merger;
- PTI must have received a letter from PricewaterhouseCoopers LLP, dated the
date the merger is completed, substantially to the effect that in its
unqualified opinion PTI is eligible
50
<PAGE>
to participate in a transaction to be accounted for as a pooling of
interests under generally accepted accounting principles (see "Merger
Transaction -- Accounting Treatment");
- PTI must have received an opinion, dated the date the merger is completed,
from its counsel, substantially to the effect that, on the basis of facts
and representations in the merger agreement and on the basis of
representations and covenants contained in certificates of officers of PTI
and MacDermid for Federal income tax purposes the merger constitutes a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code (see "Merger Transaction -- Material Federal Income Tax
Consequences of the Merger to the MacDermid Shareholders" and "Merger
Transaction -- Material Federal Income Tax Consequences of the Merger to
the PTI Shareholders");
- MacDermid must have taken all steps necessary to cause to be elected to
its Board of Directors, effective not later than the date the merger is
completed, the person designated by Citicorp Venture Capital under the
merger agreement (see "Merger Transaction -- Executive Officers and
Directors of MacDermid After the Merger");
- MacDermid must have obtained the proceeds from debt financing in an amount
not less than the amount required to refinance the financial indebtedness
of PTI and its subsidiaries, consisting of a senior credit facility, which
totaled $85.7 million as of October 31, 1999, $41.9 million of
subordinated debt obligations and PIK promissory notes issued to W.R.
Grace & Co., which totaled $30.0 million as of October 31, 1999, and to
provide for the ordinary working capital requirements of PTI and its
subsidiaries;
- MacDermid must have executed and delivered to Citicorp Venture Capital and
Citicorp Mezzanine Partners the registration rights agreement (see "Merger
Transaction -- Listing of MacDermid Common Stock and Restriction on
Transfer").
CONDUCT PENDING MERGER
The merger agreement obligates PTI and, to a lesser extent, MacDermid and
Citicorp Venture Capital to take various actions, and to refrain from taking
other actions, prior to the completion of the merger. Summarized below are the
material terms of those provisions. See the copy of the merger agreement and the
first and third amendments to that agreement attached to this proxy
statement -- prospectus as Appendices A, B and C for a complete listing of all
these undertakings. MacDermid and PTI have agreed, however, that none of those
provisions will be deemed to prevent PTI from negotiating and entering into an
agreement for the sale of PTI's U.S. liquid flexographic photopolymer business
for commercial packaging applications, if PTI is required to divest that
business in order to obtain Federal Trade Commission approval of the merger. See
"Merger Transaction -- Required Regulatory Approvals."
CONDUCT OF PTI. Between the date of the merger agreement and the date the
merger is completed, PTI has, among other things, agreed to:
- not enter into or permit any of its subsidiaries to enter into any
contract or take any other action which, if entered into or taken prior to
the date of the merger agreement, would cause any representation or
warranty of PTI to be untrue in any respect or be required to be disclosed
on any schedule to the merger agreement; or take any action that is
intended or may reasonably be expected to result in any of the conditions
to the merger specified in the merger agreement not being satisfied or in
a violation of the merger agreement; or take or omit to take any action
which reasonably could be expected to have a material adverse effect on
PTI;
- except as contemplated by the merger agreement, operate its business only
in the ordinary course;
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- use all commercially reasonable efforts to keep in full force and effect
its corporate existence and all material rights, franchises, proprietary
rights and goodwill relating to its business;
- use reasonable efforts to retain its employees and preserve its present
relationships with customers, suppliers, contractors, distributors and
employees;
- perform in all material respects all of its obligations under all
contracts to which it is a party or by which it or its properties or
assets may be bound and not enter into, assume, create, renew, amend or
terminate, or give notice of a proposed renewal, amendment or termination
of any contract, with limited exceptions;
- not make any single capital or series of capital expenditures outside the
ordinary course of its business without MacDermid's prior written consent,
which consent may not be unreasonably withheld, conditioned or delayed;
- not enter into any new line of business without MacDermid's consent, which
consent may not be unreasonably withheld, conditioned or delayed and will
be deemed to be given if MacDermid does not respond to PTI within 10
business days after receiving a written request from PTI;
- not enter into, renew or amend any agreement relating to the provision of
or payment for personal services; not agree to any payment that would be
payable by MacDermid or its affiliates, including PTI, after the
completion of the merger; not make any pension or retirement payment not
required by plans or agreements existing at the date of the merger
agreement, with certain limited exceptions; not pay any bonus or increase
any direct or indirect benefits to any officer, director or employee;
- deliver to MacDermid, within 15 business days of each month end from the
date of the merger agreement through the date of the completion of the
merger, PTI's consolidated unaudited balance sheets, income statements and
cash flow statements as of and for the immediately preceding month, all
consistent with the applicable requirements of the merger agreement;
- not declare, set aside or pay any dividends on, or make any other
distributions, whether in cash, stock or property, in respect of, any of
its outstanding capital stock, except for cash dividends in the ordinary
course of business on the PTI preferred stock in accordance with the terms
of PTI's Certificate of Incorporation;
- not issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any shares, voting
securities or convertible securities, or take any action that would make
the representations and warranties specified in the merger agreement as
applicable not true and correct in all material respects;
- not amend its Certificate of Incorporation or By-laws or other comparable
charter or organizational documents;
- not acquire by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, joint venture, association or other
business organization or division thereof, or any interest therein, or
form any subsidiary or solicit or negotiate any proposal to acquire PTI
with respect to any other person;
- not change its accounting policies in any material respect, except as
required by generally accepted accounting principles; and
- not authorize or enter into any agreement or commitment to take any action
inconsistent with any of the foregoing.
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CONDUCT OF CITICORP VENTURE CAPITAL. Between the date of the merger
agreement and the date the merger is completed, Citicorp Venture Capital has,
among other things, agreed to:
- not to enter into and not permit any of its affiliates to enter into any
contract or take any other action which, if entered into or taken prior to
the date of the merger agreement, would have caused any representation or
warranty of PTI or Citicorp Venture Capital in the merger agreement to be
untrue; or take any action that is intended or may reasonably be expected
to result in any of the conditions to the merger not being satisfied or in
a violation of the merger agreement; or take or omit to take any action
which reasonably could be expected to have a material adverse effect on
PTI;
- use its best efforts to cause PTI to obtain the approval of the PTI
shareholders and to cause the waiver of appraisal rights; vote or cause to
be voted all of its shares of PTI Class A common stock for the approval of
the merger agreement; and vote, or cause to be voted, all its shares of
PTI Class A common stock against the approval of any merger, acquisition,
consolidation, sale of a material amount of assets or other business
combination of PTI or any of its subsidiaries with any person other than
MacDermid;
- not sell, assign, transfer or otherwise dispose of, including by the
creation of a security interest, or permit to be sold, assigned,
transferred or otherwise disposed of, any of its shares of PTI stock,
whether the shares are held on the date of the merger agreement or are
subsequently acquired, whether pursuant to the exercise of stock options
or otherwise, except (a) transfers by operation of law and (b) as
MacDermid may otherwise agree in its sole discretion; and
- cease and refrain from, and instruct each of its representatives and
affiliates to cease and refrain from, any and all activities, discussions,
negotiations, providing any information with respect to, or other actions
with any person other than MacDermid or any of their respective
representatives with respect to any acquisition proposal other than the
merger.
CONDUCT OF MACDERMID. Between the date of the merger agreement and the date
the merger is completed, MacDermid has, among other things, agreed to:
- not to enter into, or permit any of its subsidiaries to enter into, any
contract or take any other action which, if entered into or taken prior to
the date of the merger agreement, would have caused any representation or
warranty of MacDermid to be untrue in any respect or be required to be
disclosed on any schedule to the merger agreement, or take any action that
is intended or may reasonably be expected to result in any of the
conditions to the merger not being satisfied or in a violation of the
merger agreement;
- not take any action that is intended or may reasonably be expected to
result in any of its representations and warranties specified in the
merger agreement being or becoming untrue in any material respect, or in
any of the conditions to the merger specified in the merger agreement not
being satisfied or in a violation of any provision of the merger
agreement, except, in every case, as may be required by applicable law;
- not take any other action that would materially impede the ability of
MacDermid to obtain the requisite regulatory approvals or otherwise
materially adversely affect MacDermid's ability to complete the
transactions contemplated by the merger agreement;
- not declare or pay any dividend on, or make any other distributions in
respect of MacDermid common stock, except for cash dividends in the
ordinary course and dividends or distributions in MacDermid common stock;
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- not issue any shares of MacDermid common stock in connection with
MacDermid acquiring directly or indirectly the stock or assets of any
other person, except with the prior consent of PTI, which consent may not
be unreasonably withheld, conditioned or delayed;
- not consolidate with or merge into any other person or convey, transfer or
lease its properties and assets substantially as an entirety to any person
unless that person shall expressly assume the obligations of MacDermid
hereunder; and
- not authorize or enter into any agreement or commitment to take any action
inconsistent with any of the foregoing.
AMENDMENT AND WAIVER
Either MacDermid or PTI may waive compliance with any provision of the
merger agreement at any time prior to the completion of the merger. In addition,
MacDermid and PTI may mutually amend any provision of the merger agreement at
any time prior to the completion of the merger with the prior authorization of
their boards of directors, except that under Delaware law PTI may not amend the
merger agreement subsequent to the adoption of the agreement by the PTI
shareholders if the amendment would alter or change the amount or kind of shares
of MacDermid common stock to be received by a PTI shareholder in exchange for
shares of PTI capital stock.
Except with respect to the failure to obtain an opinion of tax counsel
discussed above (see "Merger Transaction -- Material Federal Income Tax
Consequences of the Merger"), neither MacDermid nor PTI intends to resolicit
shareholder approval of the merger as a consequence of a waiver or amendment of
any provision of the merger agreement if its board of directors (a) receives an
opinion of counsel that shareholder approval of the waiver or amendment is not
specifically required by the Connecticut Business Corporation Act or by the
Delaware General Corporation Law, as applicable, and (b) determines that the
waiver or amendment could not reasonably be expected to have a material adverse
effect on the combined company or the shareholders of either MacDermid or PTI or
to otherwise require resolicitation of shareholder approval under applicable
law.
TERMINATION OF THE MERGER AGREEMENT
MacDermid and PTI may terminate the merger agreement by mutual written
consent at any time prior to the date the merger is completed.
Either MacDermid or PTI may terminate the merger agreement by giving written
notice to the other party prior to the date the merger is completed:
- if the merger has not occurred on or before December 15, 1999 by reason of
the failure of any condition to the completion of the merger unless the
failure to complete the merger by December 15, 1999 is due to the failure
of the party seeking to terminate the merger agreement to perform its
obligations under the merger agreement;
- if any other party has breached any material representation, warranty or
covenant contained in the merger agreement and has not cured the breach,
if capable of cure, within ten business days of receiving notice thereof
from the other party, provided that the party seeking to terminate the
merger agreement on this basis is not then in breach of any material
representation, warranty or covenant contained in the merger agreement.
Upon a termination of the merger agreement, all prospective obligations of
the parties will terminate without any liability of any party to any other
party, except with respect to a breach of the covenant regarding confidential
information, and for PTI's liability to pay a termination fee, as defined in the
following paragraph.
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If MacDermid terminates the merger agreement because of PTI's failure to
obtain the requisite shareholder approval, PTI must, within three business days
after notice of the termination is given, pay to MacDermid a termination fee of
$5.0 million.
If PTI terminates the merger agreement because of its failure to obtain the
requisite shareholder approval, PTI must, prior to and as a precondition of the
effectiveness of the termination, pay to MacDermid a termination fee of $5.0
million.
EXPENSES
Each of MacDermid and PTI is responsible for its own costs and expenses
incurred in connection with the merger, and PTI is responsible for Citicorp
Venture Capital's costs and expenses incurred in connection with the merger.
Through September 30, 1999, merger related expenses totaled approximately
$1,321,000 for MacDermid and approximately $1,200,000 for PTI.
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MACDERMID, INCORPORATED
W. CANNING PLC
PTI, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
On December 2, 1998, MacDermid closed a cash tender offer whereby it
acquired approximately 95% of the outstanding stock of W. Canning plc. MacDermid
acquired the remaining shares through a statutory compulsory procedure completed
on February 5, 1999. The total purchase price, including related costs, was
$164.4 million. The Canning acquisition has been accounted for using the
purchase method of accounting for business combinations.
As of February 18, 1999, MacDermid, PTI, Citicorp Venture Capital and MCD
Acquisition Corp. entered into the merger agreement summarized below and
described in more detail in this proxy statement -- prospectus. MacDermid will
account for the transaction using the pooling of interests method of accounting
for business combinations.
The following Unaudited Pro Forma Combined Condensed Financial Information
combines the historical Consolidated Condensed Financial Statements of
MacDermid, Canning and PTI giving effect to the Canning acquisition and the
merger as if each had been effective as of June 30, 1999 with respect to the Pro
Forma Condensed Combined Balance Sheet. The Unaudited Pro Forma Condensed
Combined Statements of Earnings for the years ended March 31, 1999, 1998 and
1997, and the three months ended June 30, 1999, combine the historical Condensed
Consolidated Statements of Earnings for MacDermid and PTI as if the merger had
been completed on April 1, 1996 and MacDermid's acquisition of Canning had been
completed as of April 1, 1998. Canning historical financial statements are
stated on the basis of accounting principles generally accepted in the UK (UK
GAAP). Pro forma adjustments have been included to adjust these statements to
U.S. GAAP. The Canning historical column represents eight months of activity for
Canning prior to its acquisition by MacDermid. Activity of Canning is included
in the MacDermid historical statement of earnings since the date of acquisition.
This information should be read in conjunction with the historical Consolidated
Financial Statements of MacDermid, Canning and PTI, including their applicable
notes, and in conjunction with the condensed historical selected financial data
of MacDermid and PTI and other pro forma combined condensed financial
information, including the applicable notes, appearing elsewhere or incorporated
by reference in this proxy statement -- prospectus. The historical Consolidated
Financial Statements of MacDermid and Canning are incorporated by reference in
this proxy statement -- prospectus. See "Where You Can Find More Information."
Expenses related to the merger are anticipated to aggregate approximately
$11.7 million, of which $600,000 is included for expected stay bonuses and the
remaining $11.1 million consists primarily of anticipated debt refinancing costs
and professional fees. Since merger and reorganization costs are nonrecurring,
they have not been reflected in the Unaudited Pro Forma Combined Condensed
Statement of Earnings. The Unaudited Pro Forma Combined Condensed Financial
Information does not give effect to any anticipated operating efficiencies of
the Canning acquisition or the merger. The Unaudited Pro Forma Combined
Condensed Statements of Earnings are not necessarily indicative of the results
that would have occurred had the Canning acquisition or the merger been
completed as of the assumed dates or that may be achieved in the future. Future
results of operations will differ, perhaps significantly, from the pro forma
amounts reflected herein because of a variety of factors. For information
regarding the uncertainty of assumptions, estimates and expectations reflected
herein, see "Summary -- Cautionary Statement Regarding Forward-looking
Information" and "Risk Factors."
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The merger agreement between MacDermid and PTI provides that MacDermid will
acquire PTI and all of the outstanding PTI capital securities consisting of
common stock, preferred stock and a common stock warrant in exchange for shares
of MacDermid common stock and warrants to purchase shares of MacDermid common
stock. If the merger is completed, each holder of those PTI securities will
receive at a minimum a portion of 6,873,000 shares of MacDermid common stock.
The 6,873,000 shares of MacDermid common stock delivered upon the completion
of the merger will be allocated first to the holders of PTI preferred stock to
satisfy the liquidation preference of that stock. Each share of PTI preferred
stock will be exchanged for a number of MacDermid shares having an aggregate
value equal to the liquidation preference of that PTI share ($1,000) plus
dividends owed on that share. For purposes of that allocation, the MacDermid
stock will be valued at the "Current Market Price" which is defined in the
merger agreement to mean the average of the daily closing price for MacDermid
stock on the NYSE for the 30 consecutive trading days preceding the completion
of the merger, ignoring the highest and lowest closing prices during that
period. After the PTI preferred stock liquidation preference is satisfied, the
balance of the 6,873,000 MacDermid shares will be allocated among the holders of
PTI common stock in proportion to their ownership of PTI common stock. For the
purposes of that allocation, the PTI warrant held by Citicorp Mezzanine
Partners, which has an exercise price of $.01 per share, will be treated as if
it had been exercised in full. MacDermid will issue a substitute common stock
warrant to Citicorp Mezzanine Partners on equivalent terms. The accompanying pro
forma financial statements, however, treat the PTI warrant as if exercised in
full for purposes of presenting diluted earnings per share and unexercised for
purposes of presenting basic earnings per share and shares outstanding as of the
end of each period presented. THE ALLOCATION OF SHARES AMONG THE HOLDERS OF PTI
PREFERRED STOCK, ON THE ONE HAND, AND THE HOLDERS OF PTI COMMON STOCK AND THE
PTI WARRANT, ON THE OTHER HAND, WILL NOT HAVE ANY EFFECT ON MACDERMID'S PRO
FORMA DILUTED PER SHARE FINANCIAL DATA.
The holders of PTI common stock and the PTI warrant will also receive in the
merger an ownership interest in an escrow fund that will be established as of
the completion of the merger. The escrow fund will be used to satisfy any
indemnification claim MacDermid is entitled to bring under the merger agreement.
Upon completion of the merger, the escrow fund will consist of shares of
MacDermid common stock and a MacDermid warrant for Citicorp Mezzanine Partners.
If that warrant were exercised in full immediately after the merger, a total of
127,000 shares of MacDermid common stock would comprise the escrow fund at that
time. If MacDermid is entitled to indemnification, MacDermid's sole source of
recourse will be to the assets contained in the escrow. MacDermid's claims
against the escrow will be payable first in MacDermid shares and second in other
assets, if any, held in escrow. In no event will the former holders of PTI
common stock or the PTI warrant be liable for damages in excess of the value of
the escrowed shares. The value of the escrowed shares will be the "Current
Market Price" of MacDermid stock at the time the merger is completed. Claims
against the escrow must be asserted within 12 months after the merger is
completed. MacDermid will be entitled to indemnification only if its damages
exceed $2 million and then only to the extent of the excess. The escrow will
terminate and the remaining escrow assets, if any, will be distributed to the
former holders of PTI common stock and Citicorp Mezzanine Partners upon the
later of (a) 12 months after the completion of the merger or (b) the resolution
of all MacDermid indemnification claims.
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MACDERMID, INCORPORATED
PTI, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL
-------------------- PRO FORMA PRO FORMA
MACDERMID PTI ADJUSTMENTS(E) COMBINED
--------- -------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 9,153 $ 2,148 $ -- $ 11,301
Available for sale securities............... 1,122 -- -- 1,122
Accounts and notes Receivable (net of
allowance for doubtful receivables of
$5,996, $3,690 and $9,686)................ 121,672 54,046 -- 175,718
Inventories..................................... 59,628 56,935 -- 116,563
Prepaid expenses and other current assets....... 4,645 6,724 -- 11,369
Deferred income tax............................. 6,038 2,613 -- 8,651
-------- -------- ------- --------
Total current assets............................ 202,258 122,466 -- 324,724
Property, plant and equipment (net of
accumulated depreciation and amortization of
$51,576, $45,965 and $97,541)................. 62,229 90,126 -- 152,355
Goodwill (net of accumulated amortization of
$16,646, $1,577 and $18,223).................. 179,038 16,906 -- 195,944
Patents, trademarks and other intangibles, net
of accumulated amortization of $7,041, $15,535
and $22,576................................... 52,648 6,796 -- 59,444
Other assets, net............................... 33,819 9,033 -- 42,852
-------- -------- ------- --------
Total assets.................................... $529,992 $245,327 $ -- $775,319
======== ======== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable and current installments of
long-term obligations......................... $ 28,724 $ 11,834 $ -- $ 40,558
Accounts and dividends payable.................. 48,606 21,053 -- 69,659
Accrued expenses................................ 40,545 17,306 -- 57,851
Income taxes.................................... 15,439 9,689 -- 25,128
-------- -------- ------- --------
Total current liabilities....................... 133,314 59,882 -- 193,196
Long-term obligations........................... 236,599 148,825 -- 385,424
Accrued postretirement and postemployment
benefits...................................... 4,453 2,493 -- 6,946
Deferred income taxes........................... 614 10,111 -- 10,725
Minority interest in subsidiaries............... 101 -- -- 101
Preferred stock................................. -- 9,751 (9,751) --
Shareholders' equity
Common stock stated $1 per share................ 39,413 9 5,891 45,313
Additional paid-in capital...................... 5,483 879 3,860 10,222
Retained earnings............................... 167,811 20,137 -- 187,948
Accumulated other comprehensive income
Cumulative foreign currency translation....... 393 (6,760) -- (6,367)
Available for sale securities holding loss...... (78) -- -- (78)
Less cost of 14,267,816 common shares in
treasury...................................... (58,111) -- -- (58,111)
-------- -------- ------- --------
Total shareholders' equity...................... 154,911 14,265 9,751 178,927
-------- -------- ------- --------
Total liabilities and shareholders' equity...... $529,992 $245,327 $ -- $775,319
======== ======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
58
<PAGE>
MACDERMID, INCORPORATED
PTI, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL AGGREGATE
--------------------------- PRO FORMA PRO FORMA
MACDERMID PTI ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................... $ 119,067 $ 63,091 (92)(D) $ 182,066
Cost of sales, ST&A expenses and
amortization...................... 98,911 52,889 (92)(D) 151,708
Interest expense.................... 5,497 3,664 -- 9,161
Other (income) expenses (net)....... (606) (340) -- (946)
---------- ---------- --------- ----------
Earnings before income taxes........ 15,265 6,878 -- 22,143
Income taxes........................ 5,266 2,617 7,883
---------- ---------- --------- ----------
Net earnings before extraordinary
item.............................. 9,999 4,261 -- 14,260
Preferred dividends................. -- (373) 373(E) --
---------- ---------- --------- ----------
Net earnings -- available for common
shareholders...................... 9,999 3,888 373 14,260
========== ========== ========= ==========
Average common shares outstanding:
Basic............................. 25,145,343 855,000 5,899,856(F) 31,045,199
Diluted........................... 25,430,215 1,005,000 6,873,000(F) 32,303,215
Net Earnings per common share:
Basic............................. 0.40 4.55 0.46
Diluted........................... 0.39 3.87 0.44
Cash dividends per common share..... 0.02 -- .0162
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
59
<PAGE>
MACDERMID, INCORPORATED
W. CANNING PLC
PTI, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED MARCH 31, 1999 FOR MACDERMID
(INCLUDES 4 MONTHS CANNING SINCE ACQUISITION IN DECEMBER 1998)
FOR THE EIGHT MONTHS ENDED NOVEMBER 30, 1998 FOR CANNING
FOR THE YEAR ENDED DECEMBER 31, 1998 FOR PTI
<TABLE>
<CAPTION>
HISTORICAL AGGREGATE
----------------------- PRO FORMA HISTORICAL PRO FORMA PRO FORMA
MACDERMID CANNING(5) ADJUSTMENT SUBTOTAL PTI ADJUSTMENT COMBINED
---------- ---------- ---------- -------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $ 382,648 $92,332 -- $474,980 $ 227,956 (429)(D) $ 702,507
Cost of sales, ST&A
expenses and
amortization....... 318,697 82,868 2,706 (A) 404,271 185,489 (429)(D) 589,331
Interest expense..... 13,721 43 6,500 (B) 20,264 14,139 -- 34,403
Other expenses
(net).............. (3,833) (404) -- (4,237) (1,076) -- (5,313)
---------- ------- ------- -------- --------- --------- ----------
Earnings before
income taxes....... 54,063 9,825 (9,206) 54,682 29,404 -- 84,086
Income taxes......... 17,780 3,077 (2,867)(C) 17,990 10,061 -- 28,051
---------- ------- ------- -------- --------- --------- ----------
Net earnings......... 36,283 6,748 (6,339) 36,692 19,343 -- 56,035
Preferred
dividends.......... -- -- -- 1,431 (1,431)(E) --
---------- ------- ------- -------- --------- --------- ----------
Net earnings --
available for
common
shareholders....... 36,283 6,748 (6,339) 36,692 17,912 1,431 56,035
========== ======= ======= ======== ========= ========= ==========
Average common shares
outstanding:
Basic.............. 25,136,712 855,000 5,899,856(F) 31,036,568
Diluted............ 25,427,288 1,005,000 6,873,000(F) 32,300,288
Net earnings per
common share:
Basic.............. 1.44 20.95 1.81
Diluted............ 1.43 17.82 1.73
Cash dividends per
common share....... .08 -- .0648
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
60
<PAGE>
MACDERMID, INCORPORATED
W. CANNING PLC
PTI, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED MARCH 31, 1998 FOR MACDERMID
FOR THE YEAR ENDED DECEMBER 31, 1997 FOR PTI
<TABLE>
<CAPTION>
HISTORICAL AGGREGATE
---------------------- PRO FORMA PRO FORMA
MACDERMID PTI ADJUSTMENTS COMBINED
---------- --------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.................................... $ 314,058 $ 214,509 (503)(D) $ 528,064
Cost of sales, ST&A expenses and
amortization............................... 258,453 187,829 (503)(D) 445,779
Interest expense............................. 7,758 15,134 -- 22,892
Other (income) expenses (net)................ (259) 343 -- 84
---------- --------- --------- ----------
Earnings before income taxes................. 48,106 11,203 -- 59,309
Income taxes................................. 17,309 10,611 -- 27,920
---------- --------- --------- ----------
Net earnings before extraordinary item....... 30,797 592 -- 31,389
Preferred dividends.......................... (309) (1,372) 1,372 (E) (309)
---------- --------- --------- ----------
Net earnings--available for common
shareholders............................... 30,488 (780) 1,372 31,080
========== ========= ========= ==========
Average common shares outstanding:
Basic...................................... 24,976,931 851,250 5,899,856(F) 30,876,787
Diluted.................................... 25,483,844 1,001,250 6,873,000(F) 32,356,844
Net Earnings per common share:
Basic...................................... 1.22 (.92) 1.01
Diluted.................................... 1.20 (.92) 0.96
Cash dividends per common share.............. 0.07 -- .0566
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
61
<PAGE>
MACDERMID, INCORPORATED
PTI, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED MARCH 31, 1997 FOR MACDERMID
FOR THE YEAR ENDED DECEMBER 31, 1996 FOR PTI
<TABLE>
<CAPTION>
HISTORICAL AGGREGATE
------------------------ PRO FORMA PRO FORMA
MACDERMID PTI ADJUSTMENTS COMBINED
----------- ---------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales................................ $ 293,720 $ 146,577 -- $ 440,297
Cost of sales, ST&A expenses and
amortization........................... 247,009 128,060 -- 375,069
Interest expense......................... 7,277 11,425 -- 18,702
Other expenses (net)..................... 717 (1,108) -- (391)
----------- ---------- ------------- -----------
Earnings before income taxes............. 38,717 8,200 -- 46,917
Income taxes............................. 14,871 3,448 -- 18,319
----------- ---------- ------------- -----------
Net earnings............................. 23,846 4,752 -- 28,598
Preferred dividends...................... (1,836) (1,450) 1,450(E) (1,836)
----------- ---------- ------------- -----------
Net earnings -- available for common
shareholders........................... 22,010 3,302 1,450 26,762
=========== ========== ============= ===========
Average common shares outstanding:
Basic.................................... 24,735,191 850,000 5,899,856(F) 30,635,047
Diluted.................................. 25,912,677 1,000,000 6,873,000(F) 32,785,677
Net Earnings per common share:
Basic.................................... .89 3.88 0.87
Diluted.................................. .85 3.30 0.82
Cash dividends per common share.......... .0667 -- .0539
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
62
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION
(1) The Canning acquisition has been accounted for in accordance with the
purchase method of accounting for business combinations. Under the purchase
method of accounting, the purchase cost is allocated to acquired assets and
liabilities based on their relative fair values as of the closing date with
the excess of the purchase cost over fair value allocated to goodwill. The
actual results of Canning's business has been consolidated with MacDermid's
operations since the date of acquisition (December 2, 1998).
(2) The PTI merger will be accounted for using the pooling of interests method
of accounting for business combinations. Under generally accepted accounting
principles, the assets and liabilities of PTI will be combined with those of
MacDermid at book value. In addition, PTI's statements of earnings will be
combined with MacDermid's statements of earnings as of the earliest period
presented.
(3) In the ordinary course of business, MacDermid has not sold products to or
purchased products from Canning or PTI. Amounts that have been eliminated
from the pro forma combined condensed financial information are a result of
a temporary toll manufacturing agreement between PTI and MacDermid.
(4) Canning is organized under the laws of the United Kingdom. For purposes of
combining Canning's historical Condensed Consolidated Financial Statements
with those of MacDermid, the foreign currency rate of exchange of Pounds
1.6713 : $1.00 was applied to effect the pro formas.
(5) The accounts of Canning have historically been kept on the basis of UK GAAP.
The reconciliation of UK GAAP to US GAAP is as follows:
<TABLE>
<CAPTION>
CANNING
UK US GAAP CANNING
GAAP ADJUSTMENT HISTORICAL
-------- ---------- ----------
<S> <C> <C> <C>
Net sales...................................... $92,332 $92,332
Cost of sales, ST&A expenses and
amortization................................. 83,233 (20)(a) 82,868
Interest expense............................... 43 (345)(b) 43
Other expenses (net)........................... (404) (404)
------- ------- -------
Earnings before income taxes................... 9,460 365 9,825
Income taxes................................... 3,077 3,077
------- ------- -------
Net earnings................................... 6,383 365 6,748
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1999
--------------
(IN THOUSANDS)
<S> <C>
(a) Depreciation Expense.................................... $(20)
</TABLE>
To reverse the periodic revaluation of certain property allowed for UK GAAP
and to reflect the historical cost depreciation of fixed assets under US GAAP.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1999
--------------
(IN THOUSANDS)
<S> <C>
(b) Pension Expense......................................... $(345)
</TABLE>
To adjust Canning pension expense to U.S. GAAP.
63
<PAGE>
(6) MacDermid operates on a March 31 fiscal year. Canning had historically
operated on a December 31 fiscal year. The unaudited pro forma combined
condensed statements of earnings for the year ended March 31, 1999 assume
MacDermid completed the Canning acquisition as of April 1, 1998 and the
merger as of April 1, 1996. The pro forma adjustments to the historical
financial statements for the Canning acquisition (Notes(A) through (C)) and
for the merger (Notes (D) through (F)) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1999
--------------
(IN THOUSANDS)
<S> <C>
(A) Amortization Expense.................................... $2,706
</TABLE>
To record the amortization of goodwill allocated from the purchase price
over 40 years.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1999
--------------
(IN THOUSANDS)
<S> <C>
(B) Interest Expense........................................ $6,500
</TABLE>
To record additional interest expense at the present interest rate of 6.59%
for the term loan borrowings. The long-term debt repayment schedule under the
credit facility was applied as if the borrowings began on April 1, 1998.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1999
--------------
(IN THOUSANDS)
<S> <C>
(C) Income Tax Provision.................................... $(2,867)
</TABLE>
To provide for Federal and state income taxes on the above adjustments and
adjust at MacDermid's prevailing effective tax rate arising from the combination
of the operating results in each of the periods.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
THREE MONTHS ENDED -------------------
JUNE 30, 1999 1999 1998
------------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
(D) Sales................................... $ 92 $ 429 $ 503
Cost of Sales............................ (92) (429) (503)
</TABLE>
To eliminate activity related to the toll manufacturing agreement between
MacDermid and PTI.
(E) To eliminate effect of dividends on PTI preferred stock and to
reclassify as common stock the shares of PTI preferred stock redeemed to effect
the merger.
64
<PAGE>
(F) To adjust the historical average common shares outstanding for 5,899,856
shares of MacDermid capital stock (6,873,000 shares for diluted) which will be
issued to effect the merger. Net earnings per common share is calculated based
on the resulting pro forma total amount for all columns presented. A total of
254,000 additional shares of MacDermid common stock may be issued to PTI
security holders if all of the 127,000 escrow shares are released to PTI
security holders and if MacDermid is liable to indemnify PTI security holders to
the maximum extent provided in the merger agreement by issuing an additional
127,000 shares of MacDermid common stock. If only 127,000 additional shares are
issued, those shares would represent 0.4% of the diluted shares presented. If
all 254,000 additional shares are issued those shares would represent 0.8% of
the diluted shares presented. The effect to EPS, in either instance, is
immaterial as the same EPS figure as presented would result from the calculation
using these additional shares.
65
<PAGE>
TRADING PRICE OF MACDERMID COMMON STOCK
Shares of MacDermid common stock are currently traded on the NYSE under the
Symbol "MRD". As of November 1, 1999, there were approximately 1,420 MacDermid
shareholders. PTI common stock has never been listed on any exchange or traded
on the Nasdaq Market System or the OTC Market. There are 40 holders of record of
PTI Class A and Class B common stock. PTI has never paid a dividend on its
common stock.
The following table provides the last reported sales prices per share of
MacDermid common stock traded on the NYSE on February 18, 1999, the last trading
day before announcement of the merger agreement, and on November 1, 1999, the
latest practicable date before the printing of this joint proxy statement --
prospectus:
<TABLE>
<S> <C>
February 18, 1999........................................... $38.88
November 1, 1999............................................ $33.56
</TABLE>
The following table provides the high and low sales prices for MacDermid
common stock as quoted by NYSE and dividends declared for the periods indicated,
as adjusted for a three-for-one stock split on February 6, 1998.
<TABLE>
<CAPTION>
DIVIDEND
YEAR LOW HIGH DECLARED
- ---- -------- -------- --------
<S> <C> <C> <C>
Fiscal year ended March 31, 1998:
First quarter............................................. $11.58 $14.83 $0.017
Second quarter............................................ 15.33 34.00 0.017
Third quarter............................................. 20.67 29.21 0.017
Fourth quarter............................................ 23.33 37.00 0.02
Fiscal year ended March 31, 1999:
First quarter............................................. $28.25 $42.38 $ 0.02
Second quarter............................................ 23.38 40.50 0.02
Third quarter............................................. 29.88 39.13 0.02
Fourth quarter............................................ 32.75 41.94 0.02
Fiscal year ending March 31, 2000:
First quarter............................................. $32.25 $46.06 $ 0.02
Second quarter............................................ 30.19 46.25 0.02
Third quarter (through November 1, 1999).................. 30.88 34.81
</TABLE>
Shareholders are advised to obtain current market quotations of MacDermid
common stock. We cannot predict what the market price of MacDermid common stock
will be at or after the completion of the merger. The market price of MacDermid
common stock will fluctuate between the date of this proxy statement --
prospectus, the date of the MacDermid and PTI special meetings and the date in
which the merger is completed and afterwards. MacDermid common stock traded at
the following highs and lows during the past several months, as reported by the
NYSE.
<TABLE>
<CAPTION>
NOVEMBER
JULY AUGUST SEPTEMBER OCTOBER (THROUGH NOVEMBER 1, 1999)
-------- -------- --------- -------- ---------------------------
<S> <C> <C> <C> <C> <C>
High............................... $46.25 $38.00 $34.44 $34.81 $33.56
Low................................ $35.63 $33.13 $30.19 $30.88 $33.56
</TABLE>
66
<PAGE>
BENEFICIAL OWNERSHIP OF MACDERMID
The following table shows information as of November 1, 1999 (except as
otherwise noted), with respect to ownership of common stock by (a) any person
known to MacDermid to be a beneficial owner of more than 5% of its common stock,
(b) MacDermid's directors, (c) MacDermid's CEO and four other most highly
compensated executive officers, and (d) all MacDermid directors and executive
officers as a group. Unless otherwise noted, each person has sole voting and
disposition power with respect to that person's shares. The total of shares of
common stock beneficially owned by the officers includes the right to acquire
ownership through exercise of stock options that are exercisable within 60 days.
The pro forma presentation assumes only 6,873,000 shares of MacDermid common
stock are issued in the merger, with none of the 127,000 escrowed shares being
released to former holders of PTI common stock and the PTI warrant. The pro
forma percentages also assume the full exercise of the MacDermid warrant issued
to Citicorp Mezzanine Partners upon completion of the merger. The MacDermid
warrant will have a nominal exercise price per share. See "Merger Transaction."
<TABLE>
<CAPTION>
PERCENT OF CLASS
-------------------------
COMMON STOCK AS OF PRO FORMA
BENEFICIALLY NOVEMBER 1, FOR
OWNED 1999 THE MERGER
------------ ------------ ----------
<S> <C> <C> <C>
PRINCIPAL SHAREHOLDERS
MacDermid, Incorporated Employees Profit Sharing and
Employee Stock Ownership Plan and MacDermid,
Incorporated Employees' Pension Plan................ 3,549,302 14.1% 11.1%
245 Freight Street
Waterbury, CT 06702(1)
Daniel H. Leever...................................... 2,578,541 9.9% 7.8%
133 Railtree Hill Road
Woodbury, CT 06798(2)
BankBoston Corporation................................ 2,112,426 8.4% 6.6%
100 Federal Street
Boston, Massachusetts 02110(3)
Thomas W. Smith and Prescott Investors................ 1,655,980 6.6% 5.2%
323 Railroad Avenue
Greenwich, Connecticut 06830(4)
Harold Leever......................................... 1,687,836 6.7% 5.3%
366 Guilds Hollow Road
Bethlehem, Connecticut(5)
Vanguard/PRIMECAP Fund, Inc........................... 1,701,000 6.8% 5.3%
P.O. Box 2600
Valley Forge, PA 19482(6)
FMR Corp.............................................. 1,608,700 6.4% 5.0%
82 Devonshire Street
Boston, MA 02109-3614(7)
Thomas M. Leever...................................... 1,329,325 5.3% 4.2%
R.R. Box 230
Perkinsville, VT 05151(8)
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF CLASS
-------------------------
COMMON STOCK AS OF PRO FORMA
BENEFICIALLY NOVEMBER 1, FOR
OWNED 1999 THE MERGER
------------ ------------ ----------
<S> <C> <C> <C>
DIRECTORS
R. Nelson Griebel(9).................................. 122,060 * *
Daniel H. Leever(2)................................... 2,578,541 9.9% 7.8%
Harold Leever(5)...................................... 1,687,836 6.7% 5.3%
Donald G. Ogilvie..................................... 8,767 * *
James C. Smith........................................ 11,395 * *
Thomas W. Smith(4).................................... 1,655,980 6.6% 5.2%
NAMED EXECUTIVE OFFICERS
Daniel H. Leever, Chairman and Chief Executive
Officer(2).......................................... 2,578,541 9.9% 7.8%
R. Nelson Griebel, President and Chief Operating
Officer(9).......................................... 122,060 * *
Stephen Largan, Vice President Finance(10)............ 41,430 * *
Gregory M. Bolingbroke, Controller(11)................ 38,598 * *
John L. Cordani, Corporate Secretary and General
Counsel(12)......................................... 35,018 * *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (9
PERSONS). (2), (4), (5), (9)-(12)................... 6,179,625 24.6% 19.3%
</TABLE>
- --------------------
* Less than 1% of shares outstanding
(1) 3,156,047 shares in the MacDermid Profit Sharing and Employee Stock
Ownership Plan (the "Defined Contribution Plan") are beneficially owned by
the Trustee of the Defined Contribution Plan, Prudential Securities, Inc.,
City Place II, 185 Asylum Street, Hartford, CT, and 393,255 shares in the
MacDermid, Incorporated Employee Pension Plan (the "Pension Plan") are
beneficially owned by the Trustee of the Pension Plan, Investors Bank &
Trust Company, 24 Federal Street, Boston, MA 02110. Under the terms of the
Defined Contribution Plan, participants have the right to vote the shares
credited to their accounts; however, the Trustee may, in its discretion,
vote any shares, including unallocated shares, not voted by the
participants. The trustee of the Pension Plan may vote all the shares
beneficially owned thereunder.
(2) Includes 90,813 shares held by the Defined Contribution Plan (as of March
31, 1999), 90,000 shares which are subject to restrictions on transfer until
June 14, 2000 and 67,000 shares which are subject to restrictions on
transfer until April 19, 2002, under the terms of the MacDermid Special
Stock Purchase Plan and 462,065 shares which may be acquired upon exercise
of options granted under the Special Stock Purchase Plan. Includes an option
to purchase 500,000 shares of MacDermid common stock that was granted to
Mr. Leever on July 6, 1998 in accordance with the terms of the MacDermid,
Incorporated Stock Option Plan, dated July 6, 1998. Also includes 29,583,
40,488 and 10,202 shares which are subject to restrictions on transfer until
May 14, 2000, May 14, 2001 and May 14, 2002, respectively, under the terms
of the MacDermid 1995 Equity Incentive Plan. Includes 74,703 shares held in
trust by Mr. Leever for his sons and 3,390 shares owned by his spouse, as to
all of which Mr. Leever disclaims beneficial interest. Also includes
1,114,401 shares held by trusts established by Mr. Harold Leever, of which
Mr. Daniel Leever is co-trustee.
(3) The information for BankBoston Corporation N.A. is derived from its Schedule
13G dated February 14, 1997. Through its subsidiary, BankBoston, N.A.,
BankBoston has sole voting power with respect to 826,290 shares, shared
voting power with respect to 1,286,136 shares
68
<PAGE>
and sole dispositive power with respect to 1,488,417. Amounts have been
revised to reflect for the three-for-one split which occurred on February 6,
1998.
(4) Includes 1,574,108 shares held by partnerships of which Mr. Smith is a
general partner and 30,000 shares held by Prescott Investors' Employee
Profit Sharing Plan, as to all of which Mr. Smith shares voting and
investment power and 51,872 shares held by Mr. Smith personally. A portion
of the information for Prescott Investors is taken from its amended Schedule
13G dated February 12, 1999.
(5) Includes 265,089 shares owned by his wife, Ruth Ann Leever, as to all of
which shares Mr. Leever disclaims any beneficial interest, and 44,286 shares
held by the Defined Contribution Plan as of March 31, 1999. BankBoston,
N.A., Mr. Daniel Leever and Mr. Thomas Leever, as co-trustees of various
trusts, may have or succeed to the rights to vote 1,114,401 shares. A
portion of the information for Mr. Leever was obtained from his amended
Schedule 13G dated January 12, 1998. MacDermid has entered into an agreement
with Mr. Leever that up to the greater of $522,988 or the then face amount
of a life insurance policy held by MacDermid on Mr. Leever's life will be
used to purchase a portion of his MacDermid shares upon his death. The total
purchases to be made are not to exceed the total of the state and Federal
estate taxes and funeral and administration expenses of Mr. Leever's estate.
The price per share of this purchase is to be the market price at the time
of death.
(6) The information for Vanguard PRIMECAP Fund, Inc. is taken solely from its
Schedule 13G dated February 10, 1999.
(7) The information for FMR Corp. is taken solely from its Schedule 13G dated
February 10, 1999. Fidelity Management & Research Company, a wholly owned
subsidiary of FMR and a registered investment adviser, is the beneficial
owner of 1,298,400 shares or approximately 5.2% of MacDermid common stock.
FMR, through control of Fidelity, has sole power to dispose of those
1,298,400 shares of MacDermid common stock. Neither FMR nor Edward C.
Johnson 3rd, the Chairman of FMR, has the sole power to vote or direct the
voting of the shares owned directly by the Fidelity funds, which power
resides with the funds' Board of Trustees. Fidelity carries out the voting
of the shares under written guidelines established by the funds' Boards of
Trustees. Fidelity Management Trust Company, a wholly owned subsidiary of
FMR and a bank as defined under the Securities Exchange Act of 1934 is the
beneficial owner of 308,400 shares of MacDermid common stock or
approximately 1.3% of the MacDermid common stock outstanding as a result of
its serving as investment manager of the institutional account(s). Each of
Mr. Johnson and FMR, through control of Fidelity Management Trust, has sole
dispositive power over those 308,400 shares and sole power to vote or to
direct the voting of 302,100 shares and no power to vote or to direct the
voting of 6,300 shares of MacDermid common stock owned by institutional
account(s). The Johnson family, through their ownership of voting stock and
a stockholders agreement, are a control group with respect to FMR. Fidelity
International Limited is the beneficial owner of 1,900 shares of MacDermid
common stock or less than 1.0% of the MacDermid common stock outstanding.
Fidelity International has sole power to vote and the sole power to dispose
of 1,900 shares of MacDermid common stock. A partnership controlled by
Mr. Johnson and members of his family control 39.89% of the total votes
which may be cast by all holders of Fidelity International voting stock. FMR
and Fidelity International are of the view that they are not acting as a
"group" for the purposes of Section 13(d) under the Securities Exchange Act.
(8) Includes 1,114,401 shares held by trusts established by Mr. Harold Leever,
of which Mr. Thomas Leever is co-trustee.
69
<PAGE>
(9) Includes 60 shares held in the Defined Contribution Plan (as of March 31,
1999), as well as 15,000 shares which are subject to restrictions under the
terms of the MacDermid, Incorporated 1995 Equity Incentive Plan. Includes an
option to purchase 100,000 shares of MacDermid common stock that was granted
to Mr. Griebel on February 1, 1999 in accordance with the terms of the
MacDermid, Incorporated Stock Option Plan, dated July 6, 1998.
(10) Includes 230 shares held in the Defined Contribution Plan (as of March 31,
1999). Includes an option to purchase 40,000 shares of MacDermid common
stock that was granted to Mr. Largan on February 1, 1999 in accordance with
the terms of the MacDermid, Incorporated Stock Option Plan, dated July 6,
1998.
(11) Includes 9,950 shares held in the Defined Contribution Plan (as of March
31, 1999), as well as 7,868 shares which are subject to restrictions under
the terms of the MacDermid, Incorporated 1995 Equity Incentive Plan.
Includes options to purchase 17,200 shares of MacDermid common stock that
was granted to Mr. Bolingbroke on February 1, 1999 and May 15, 1999 in
accordance with the terms of the MacDermid, Incorporated Stock Option Plan,
dated July 6, 1998.
(12) Includes 9,281 shares held in the Defined Contribution Plan (as of March
31, 1999), as well as 5,029 shares which are subject to restrictions under
the terms of the MacDermid, Incorporated 1995 Equity Incentive Plan.
Includes options to purchase 17,200 shares of MacDermid common stock that
was granted to Mr. Cordani on February 1, 1999 and May 15, 1999 in
accordance with the terms of the MacDermid, Incorporated Stock Option Plan,
dated July 6, 1998.
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DESCRIPTION OF MACDERMID CAPITAL STOCK
MacDermid has authorized 75,000,000 shares of common stock, no par value,
and 2,000,000 shares of preferred stock, no par value per share. As of
November 1, 1999, 25,157,299 shares of MacDermid common stock were issued and
outstanding and no shares of MacDermid preferred stock were issued and
outstanding.
The MacDermid Board of Directors has the authority, without further action
by MacDermid shareholders, to determine the principal rights, preferences and
privileges of the unissued MacDermid preferred stock.
Subject to the preferential rights of any series of MacDermid preferred
stock that may be outstanding, all shares of MacDermid common stock participate
equally in any dividends declared by the Board of Directors and in the net
assets of MacDermid on liquidation. Holders of shares of MacDermid common stock
are entitled to one vote for each share held of record and have no conversion,
exchange, preemptive or cumulative voting rights. All outstanding shares of
MacDermid common stock are fully paid and nonassessable.
In connection with the merger, MacDermid will issue MacDermid warrants to
Citicorp Mezzanine Partners with an exercise price of approximately $.01 per
share. The common stock warrants will expire December 29, 2004. The exercise
price and the number of shares obtainable under the warrant agreement will be
subject to adjustment in the event MacDermid sells, or is deemed to have sold,
additional shares of MacDermid common stock in the future, other than in
connection with a permitted issuance, as defined in the warrant instrument.
The transfer agent and registrar for the MacDermid common stock is Harris
Trust Company of New York.
See "Merger Transaction" for further description of securities issued in
connection with the merger.
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COMPARISON OF THE RIGHTS OF HOLDERS OF MACDERMID
COMMON STOCK AND HOLDERS OF PTI STOCK
INTRODUCTION
MacDermid is a business corporation incorporated under the laws of the State
of Connecticut in accordance with the provisions of the Connecticut Business
Corporation Act. PTI is a business corporation organized under Delaware General
Corporation Law. Upon completion of the merger, those PTI shareholders receiving
MacDermid common stock will become shareholders of an issuer (MacDermid)
organized under Connecticut law.
Differences between Connecticut law and Delaware law, and between the
charters and bylaws of PTI and MacDermid, will result in several changes in the
rights of the PTI shareholders if the merger is completed. The following summary
describes all the material differences between the rights of shareholders under
Connecticut law and MacDermid's charter and bylaws as compared with the rights
of the shareholders of PTI under Delaware law and PTI's charter and bylaws. The
summary is qualified in its entirety by reference to Delaware law and
Connecticut law and the governing corporate instruments of MacDermid and PTI, to
which PTI and MacDermid shareholders are referred. Copies of the charter and
bylaws of PTI and MacDermid may be obtained from PTI and MacDermid upon request.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under Connecticut law, unless otherwise provided in the charter, vacancies
on the board of directors may be filled by approval of the shareholders or the
Board. The MacDermid charter contains no provision to the contrary. In addition,
if the directors remaining in office constitute fewer than a quorum of the
Board, they may fill the vacancy by the affirmative vote of a majority of the
directors remaining in office.
Under Delaware law, vacancies and newly-created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office. PTI's bylaws provide that vacancies and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by a majority vote of the holders of the outstanding
stock entitled to vote. In addition, the bylaws provide that in the event any of
the PTI shareholders have entered into an agreement which provides for the
manner in which directors are elected, a director so elected may be removed from
the Board only in accordance with that agreement.
PTI has entered into a stockholders agreement with Citicorp Venture Capital,
Citicorp Mezzanine Partners, the executives and directors of PTI who hold shares
of PTI stock and other individual shareholders which provides that they will
vote their shares so as to maintain the structure of the PTI Board as of
December 29, 1994. The shares must be voted so that:
- the authorized number of directors remains at seven;
- two members of the Board are Citicorp Venture Capital delegates;
- one member is a Citicorp Mezzanine Partners delegate;
- one member is PTI's president; and
- three members are designated by the holders of a majority of the shares of
PTI Class A voting common stock.
The merger agreement provides that the stockholders agreement will be
terminated prior to the merger.
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SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION BY WRITTEN CONSENT
Under Connecticut law, a special meeting of shareholders may be called by
the Board, the persons authorized to do so by the charter or the bylaws or the
holders of shares entitled to cast not less than 10% of the votes at the
meeting. MacDermid's bylaws permit its president to call a special meeting.
Under Delaware law, a special meeting may be called by the Board or any
other persons as may be authorized by the charter or bylaws. The PTI bylaws
provide that a special meeting may also be called by two or more members of the
Board, the president, or the holders of shares entitled to cast a majority of
the votes at the special meeting or the holders of 50% or more of the
outstanding shares of any series or class of PTI's capital stock entitled to
vote.
Under Connecticut law, any action which may be taken at a meeting of
shareholders may also be taken by unanimous written consent or, if the charter
so provides, the written consent of the holders of at least the same proportion
of outstanding shares as would be necessary to take that action at a meeting at
which all shares entitled to vote were present and voted, except that the
election of directors by written consent requires the unanimous consent of all
shares entitled to vote. MacDermid's charter provides that any action may be
taken with the written consent of the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take that action at a meeting, if the minimum number of votes also constitutes a
majority of the shares.
Under Delaware law, unless otherwise provided in the charter, any action
which is required to be taken or may be taken at a meeting of shareholders,
including the election of directors, may be taken by a written consent signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to take that action at a meeting. PTI's charter
contains no provision to the contrary.
AMENDMENT OF BYLAWS
Under Connecticut law, the bylaws may be amended or repealed by the Board,
unless the charter reserves the power exclusively to shareholders, or the
shareholders in amending a bylaw provide expressly that the Board may not amend
or repeal that bylaw. Neither MacDermid's charter nor bylaws reserves these
powers for the shareholders.
Under Delaware law, the power to adopt, amend or repeal bylaws is vested in
the shareholders unless the charter confers the power to adopt, amend or repeal
bylaws upon the Board as well. PTI's charter and bylaws confer these powers on
the Board.
DISSENTERS' RIGHTS
Under Connecticut law, a shareholder is entitled to dissent from, and obtain
payment of the fair value of that shareholder's shares, in the event of any of
the following corporate actions:
- completion of a plan of merger to which the corporation is a party if
shareholder approval is required for the merger under Connecticut law or
the certificate of incorporation and the shareholder is entitled to vote
on the merger or if the corporation is a subsidiary that is merged with
its parent;
- completion of a plan of share exchange to which the corporation is a party
as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
- completion of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange;
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- amendment to the certificate of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it
(a) alters or abolishes a preferential right of the shares, (b) creates,
alters or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of
the shares, (c) alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities, (d) excludes or limits
the right of the shares to vote on any matter, or to cumulate votes, other
than a limitation by dilution through issuance of shares or other
securities with similar voting rights, or (e) reduces the number of shares
owned by the shareholder to a fraction of a share if the fractional share
so created is to be acquired for cash; or
- any corporate action taken pursuant to a shareholder vote to the extent
the certificate of incorporation, bylaws or a resolution of the Board
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares (as of the date of this proxy statement --
prospectus, neither MacDermid's charter nor bylaws contained any
provisions of this nature).
Under Delaware law, appraisal rights are generally available for the shares
of any class or series of stock of a corporation in a merger or consolidation,
except that no appraisal rights are available for the shares of any class or
series of stock which, at the record date for the meeting held to approve those
transactions, were either:
- listed on a national securities exchange; or
- held of record by more than 2,000 shareholders.
Furthermore, no appraisal rights are available to shareholders of the
surviving corporation or, in limited circumstances, to shareholders of the
non-surviving corporation if the merger is between a parent and its subsidiary
if the merger did not require shareholder approval. Notwithstanding the
foregoing, appraisal rights are available, for any class or series if the
holders thereof receive in the merger or consolidation anything except:
- shares of stock of the corporation surviving or resulting from a merger or
consolidation;
- shares of stock of any other corporation which at the effective date of
the merger or consolidation is either listed on a national securities
exchange or held of record by more than 2,000 shareholders;
- cash in lieu of fractional shares; or
- any combination of the foregoing.
BUSINESS COMBINATIONS AND REORGANIZATIONS
Under Connecticut law, a corporation may not engage in any business
combination, as defined under Connecticut law, with any interested shareholder
(defined below) for a period of five years following that interested
shareholder's stock acquisition date unless the business combination or the
purchase of stock made by the interested shareholder or the interested
shareholder's stock acquisition date is approved by the Board and by a majority
of the nonemployee directors of which there must be at least two, prior to that
interested shareholder's stock acquisition date. An interested shareholder is
defined as a person beneficially owning 10% or more of the voting power of the
outstanding shares of voting stock, or an affiliate who, within a two-year
period immediately prior to the date in question, owned 10% or more of the
voting power of the outstanding shares of voting stock.
MacDermid's charter requires, for the approval of any merger or
consolidation or other business reorganization or combination of MacDermid with
or into a person who is a significant
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stockholder (as defined below), an affirmative vote of at least 80% of the
number of votes at the time entitled to be cast by shareholders of MacDermid
generally in the election of directors, including at least 66 2/3% of the number
of votes at the time so entitled to be cast by shareholders of MacDermid other
than by a significant stockholder to or with whom the business transaction is
proposed to be effected. The voting requirements set forth above do not apply to
any business transaction with a significant stockholder if that transaction is
approved by a majority of the Board of Directors, but only if a majority of the
members of the Board of Directors acting on the matter were directors prior to
the date on which that person became a significant stockholder. A "significant
stockholder" means any person owning beneficially, directly or indirectly, 15%
or more of the shares of capital stock of MacDermid entitled to be cast
generally in the election of directors by all of the outstanding shares of all
classes of capital stock, voting as one class.
PTI's charter provides that PTI will not be governed by the provisions of
Delaware law which would prevent an interested stockholder (as defined below)
from engaging in a business combination, as defined under Delaware law, with a
corporation for three years following the date that person became an interested
stockholder unless:
- before that person became an interested stockholder, the Board of the
corporation approved the transaction in which the interested stockholder
became an interested stockholder;
- upon completion of the transaction which resulted in the interested
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced excluding stock held by directors who
are also officers and employee stock ownership plans that do not provide
for confidential voting by plan participants; or
- following the transaction in which the person became an interested
stockholder, the business combination is both approved by the board of
directors of that corporation and authorized at a meeting of shareholders
by the affirmative vote of the holders of at least two-thirds of the
outstanding voting stock of that corporation not owned by the interested
stockholder.
For the purpose of these provisions an interested stockholder is defined as
a person beneficially owning 15% or more of a corporation's common stock.
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PTI MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis of PTI's consolidated financial
condition and consolidated results of operations should be read in conjunction
with "PTI Selected Financial Data," "PTI's Audited Consolidated Financial
Statements" and related notes for the year ended December 31, 1998 and PTI's
Unaudited Consolidated Financial Statements for the six months ended June 30,
1999, each included elsewhere in this proxy statement--prospectus. This
discussion contains forward-looking statements which involve risks and
uncertainties. PTI's actual results could differ materially from the results
expressed in, or implied by, these financial statements. See
"Summary--Cautionary Statement Concerning Forward-looking Information."
NET SALES AND OPERATING PROFITS
For the six months ended June 30, 1999, PTI's worldwide sales increased to
$120.2 million, a 6% increase over the same period in 1998. Excluding businesses
acquired since June 30, 1998, PTI's worldwide sales declined 4% in the first
half of 1999 versus 1998. This decline reflects weakness in end-user demand for
printing plates as well as reduced sales to advertising printers.
After giving effect to preferred stock dividend requirements of $746,000,
net earnings for the six-month period ended June 30, 1999 of $6.8 million or
$6.74 per common share were down from the $8.2 million or $8.15 per common share
recorded in the same period last year. Excluding an after-tax gain on sale of
assets of $0.9 million, net earnings for the six months ended June 30, 1999 were
$5.9 million. This decline reflects: (1) unusually low sales volume due to
distributor inventory reductions; (2) a decline in sales to advertising
publishing customers; and (3) higher than normal expenses in Europe.
The year ended December 31, 1998 was the third consecutive record year for
net sales. PTI worldwide net sales in 1998 were $228 million, a 6% increase
compared to 1997. This continued growth is reflective of new business in all
geographic regions except Asia/ Pacific, where the recent economic turmoil and a
stronger U.S. dollar led to an 8% decline in sales. Sales increased by 1% for
the year in Asia/Pacific excluding the negative of the stronger U.S. dollar on
translated sales.
After giving effect to preferred stock dividend requirements, fiscal year
1998 net earnings were $17.9 million, or $17.82 per common share, as compared to
a loss recorded in fiscal year 1997. The loss in 1997 is attributable to
purchase accounting associated with the acquisition of NAPP Systems in January
1997. See "Acquisitions."
SALES
SIX MONTHS ENDED JUNE 30, 1999 VERSUS SIX MONTHS ENDED JUNE 30, 1998
In North America, net sales decreased 7% in the six months ended June 30,
1999 versus the same period in 1998. This decline reflects a decrease in sales
to advertising printers as well as the consequences of PTI's two largest
distributors building inventory during the first half of 1998 and conversely
reducing inventory during the first half of 1999. In Europe, excluding companies
acquired in 1998, net sales increased 1%. Foreign currency translation changes
had virtually no impact on Europe's first half 1999 sales versus the same period
in 1998. In the rest of the world, net sales increased 12% in the first half of
1999, reflecting continued gains in Latin America and a somewhat improved
business climate in Asia.
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1998 VERSUS 1997
In North America, net sales increased 4% in fiscal year 1998 compared to
fiscal year 1997 and in Latin America net sales increased 34% due to increased
business resulting from a stronger economic climate. Additionally, some of PTI's
newer image transfer products experienced growing market acceptance. In Europe,
sales increased 14%, reflecting the strong economic climate and the continued
success of several new image transfer products.
1997 VERSUS 1996
Worldwide sales increased $67.9 million or 46% in fiscal year 1997 compared
to fiscal year 1996, principally as a result of the NAPP Systems acquisition in
January 1997. Excluding the effect of the NAPP Systems acquisition, net sales
increased 5% worldwide. Foreign currencies devalued versus the U.S. dollar,
which caused an $8.3 million unfavorable variance in fiscal year 1997 versus
fiscal year 1996. On a constant U.S. dollar basis, worldwide net sales,
excluding NAPP Systems, increased by 10% in 1997 compared to 1996.
In North America, net sales increased $67.6 million, principally as a result
of the NAPP Systems acquisition. Excluding NAPP Systems, North America sales
increased 9%. In Europe, sales declined 4%, including a $7.0 million unfavorable
exchange variance. On a constant U.S. dollar basis, Europe net sales increased
9% in fiscal 1997 versus 1996.
COSTS AND EXPENSES
SIX MONTHS ENDED JUNE 30, 1999 VERSUS SIX MONTHS ENDED JUNE 30, 1998
Cost of sales increased as a percentage of sales in the first half of 1999
versus the same period in 1998 primarily due to increased factory expenses as
well as expenses associated with acquired companies without a commensurate
increase in sales. Similarly, selling, technical and administrative expenses
increased as a percentage of sales. In percentage terms, the overall sales
increase of 6% was not sufficient to offset the addition of acquired companies'
expenses, even though operating expenses declined 2% excluding the impact of
acquisitions. The pretax gain on the sale of assets in 1999 reflects two items:
(1) a pretax gain on the sale of EEC assets in the first quarter of $854,000;
and (2) a pretax gain on the sale of textile equipment in the second quarter of
$572,000.
1998 VERSUS 1997
Cost of sales decreased as a percentage of sales for the third consecutive
year in fiscal year 1998. PTI's capital investments continued to improve
manufacturing efficiencies. Selling, technical and administrative expenses
declined as a percentage of sales for the third consecutive year. Excluding the
one-time write-off of $10.5 million, actual costs increased 3%, primarily
reflecting PTI's ongoing cost awareness philosophy, which allows for additional
costs only as necessary to support sales growth and for research programs which
increased 5%.
1997 VERSUS 1996
Cost of sales, excluding the effect of the flow-through of a non-recurring
purchased inventory write-up associated with the NAPP Systems acquisition of
$1.7 million, decreased as a percentage of sales, reflecting worldwide cost
savings in factory expenses, particularly evident in Europe where a cost
reduction effort was implemented. During 1996, PTI streamlined many of its
overhead functions in Europe and consequently reduced its fixed overhead by
approximately $1.0 million annually. This streamlining involved reducing
personnel by approximately 20 persons with termination benefit costs totaling
approximately $633,000 which were paid as incurred. Excluding a one-
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time write-off of $10.5 million associated with the NAPP Systems acquisition,
selling, technical and administrative expenses decreased from 28% of sales in
fiscal year 1996 to 25% of sales in fiscal year 1997. This decrease is
principally a reflection of the acquisition of NAPP Systems in fiscal year 1997
which carries historically lower selling, technical and administration expenses
as a percent of sales and the reorganization in Europe which reduced expenses.
Interest expense increased significantly in fiscal year 1997 versus fiscal
year 1996 as a result of borrowing to finance the NAPP Systems acquisition in
January 1997.
ACQUISITIONS
PTI actively pursues acquisitions to complement its existing graphic arts
business. The following table summarizes PTI's acquisitions, all of which were
stock acquisitions for cash accounted for under the purchase method of
accounting:
<TABLE>
<CAPTION>
DATE ACQUISITION CASH PAID
---- ----------- ---------
<S> <C> <C>
January 1997 NAPP Systems (California) $56,777,000
April 1998 Axcyl S.A. (France) $ 1,000,000
December 1998 Jager Jeune S.A. (France) $11,258,000
February 1999 Supratech, Inc. (North Carolina) $ 5,600,000
March 1999 International Composites Corporation (Washington) $ 6,000,000
</TABLE>
In March 1999, PTI acquired all of the outstanding stock of International
Composites Corporation, Inc., located in Vancouver, Washington. International
Composites Corporation has been renamed Axcyl, Inc. Axcyl manufactures sleeve
systems which are complementary to the products manufactured by Axcyl S.A. in
France.
In February 1999, PTI acquired all of the outstanding stock of Supratech,
Inc., a Delaware corporation, from Nippon Paint (USA) Inc. and Nippon Paint Co.,
Ltd for $5.6 million. Supratech, Inc. produces and markets waterwash,
flexographic plate material.
In January 1999, PTI sold EEC, a business owned by its French subsidiary.
PTI received $1.6 million for a portion of the net assets of EEC and recorded an
after-tax gain on the sale of $0.5 million. In June 1999, PTI sold textile
blanket splicing equipment and recorded an after-tax gain on the sale of $0.3
million. Neither the sale of the EEC business nor the textile equipment is
expected to have a material impact on PTI's future operations.
In April 1998, PTI acquired all of the outstanding stock of Axcyl Composite,
S.A., a French company, which manufactures sleeve systems made of advanced
composite materials for use in flexographic printing applications. In December
1998, PTI acquired all of the outstanding stock of Jager Jeune, S.A., a French
company, engaged in the conversion and distribution of offset printing blankets.
On a combined basis, the acquisitions were less than 10% of PTI's consolidated
total assets and pretax earnings in 1998.
In January 1997, PTI acquired all of the outstanding stock of NAPP Systems,
a leading supplier of relief printing plates to the advertising printing
industry. Total assets acquired of $75.5 million were allocated to: accounts
receivable $9.6 million; inventories $12.9 million; other current assets $2.7
million; net fixed assets $22.7 million; goodwill $12.4 million; in-process
research and development $10.5 million; and other long term assets $4.7 million.
Total liabilities assumed of $18.8 million were allocated to: accounts payable
and other current liabilities $8.3 million; deferred income taxes $9.0 million;
and other long term liabilities $1.5 million. The acquisition,
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which was accounted for using the purchase method of accounting, resulted in the
following one time charges in 1997:
<TABLE>
<CAPTION>
DOLLARS IN
THOUSANDS
- ----------
<C> <S>
$ 2,128 write-off deferred financing fees
10,495 write-off in process R&D Expenses
-------
$12,623 Total
=======
</TABLE>
To accomplish the acquisition, PTI negotiated a new credit agreement and
paid off amounts due under the original 1994 agreement. Consequently, the
remainder of deferred financing fees of $2,128,000 pretax ($1,322,000 after tax)
associated with the original credit agreement were written off as an after tax
extraordinary item. The fees associated with the new credit agreement were
capitalized. The $10,495,000 in-process research and development expense
write-off represents the following three purchased projects:
<TABLE>
<CAPTION>
$ IN THOUSANDS
---------------------------------------------------------------------
ESTIMATE OF
FAIR VALUE
ON 17-JAN-97 PROJECTED SIGNIFICANT
USING % OF ESTIMATED R & D $ MANAGEMENT TOTAL REVENUE
COMPLETION COMPLETION SPENT THRU ESTIMATE DEVELOPMENT % COMPLETE COMMENCEMENT
METHOD DATE 17-JAN-97 TO COMPLETE COST ON 17-JAN-97 DATE
------------ ----------- ---------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Laser Direct.......... 9,261 Jun-99 900 518 1,418 63% Late 1999
High-Speed Plate...... 958 Jun-97 60 86 146 41% Mid 1998
Water-based Polymer... 276 Jun-99 380 932 1,362 28% Late 1999
------- ------ ------ ------
Total................. $10,495 $1,340 $1,536 $2,926
======= ====== ====== ======
<CAPTION>
ASSUMED
DISCOUNT
RATE
--------
<S> <C>
Laser Direct.......... 20%
High-Speed Plate...... 25%
Water-based Polymer... 30%
Total.................
</TABLE>
- The development of Laser Direct technology, used to etch images
directly on the printing plate was started in November 1993 and was 63%
complete with costs incurred to the date of acquisition of $900,000.
The $9,261,000 valuation of this technology is based on the Income
Forecast Method by analyzing the discounted present values of the
estimated cash flow to be generated and adjusting for the specific
stage of completion of the project. The estimated cost to complete the
development of a commercially acceptable product between January 17,
1997 and June 1999 is $518,000.
The $9.3 million valuation of the laser direct technology was based on
a forecast of net cash inflows starting in late 1998 and continuing
through 2005. Since the laser direct project envisions an entirely new
plate processor and printing plate system, there is no historical data
on which to base a revenue and cost of sales forecast. Consequently,
management estimated sales volume, selling prices and margins based on
its knowledge of the market and potential customers. Management
estimated selling and general and administrative operating expenses for
the laser direct products at approximately 13% of sales, which is
slightly lower than NAPP's existing expense structure of approximately
14% of sales. Management anticipates that, as a percentage of sales,
selling expenses associated with laser direct products will be somewhat
lower than NAPP's existing business. On average, laser direct plate
customers will be the larger, higher volume users. Compared to NAPP's
existing business, the laser direct business is expected to generate
higher revenues per customer. Thus, the same selling effort will result
in larger average order sizes and a slightly lower selling cost as a
percentage of revenues.
- The development of a High Speed Printing Plate that will expose faster,
provide better print quality, and be more durable than the existing
NAPPflex technology, started in June, 1996, was 41% complete with costs
incurred to the date of acquisition of $60,000.
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The $958,000 valuation of this technology is based on the Income
Forecast Method by analyzing the discounted present values of the
estimated cash flow to be generated and adjusting for the specific
stage of completion of the project. The estimated costs to complete
this development between January 17, 1997 and June 1997 was $86,000.
- The development of the Water Based Polymer technology, targeted at
reducing NAPP System's cost of raw materials, was 28% complete with
costs incurred to the date of acquisition of $380,000. The $276,000
valuation of this technology is based on the Income Forecast Method by
analyzing the estimated discounted present values of the cash flow to
be generated from cost savings and adjusting for the specific stage of
completion of the project. The estimated costs to complete this
development between January 17, 1997 and June 1999 is $982,000.
An adjustment to the valuation of the projects listed has been applied based
on the stage of completion method. The stage of completion percentage was
calculated using the costs incurred to date at the time of the acquisition as a
percent of total estimated costs of completion at the time of the valuation. In
addition, a core technology charge of 33% of cash flows was allocated to
capitalized technology thus reducing the purchased research and development
charge. Management is primarily responsible for estimating the fair value of
purchased in-process research and development.
The estimated completion dates for both the laser direct and water based
polymer projects have been delayed by approximately three months. These delays
are expected to cause an increase in total development costs of no more than
$100,000. The high-speed plate project was completed in June 1997 and
significant progress has been made in completing both the laser direct and water
based polymer technology; however, no assurance can be given that the remaining
two projects can be completed successfully. If not successful, the ongoing
charges to income associated with these projects will not have any future
benefit to profitability.
In connection with the NAPP acquisition, PTI wrote-up acquired inventory by
$1.7 million in accordance with generally accepted accounting principles. PTI
then charged this amount to the Statement of Income through cost of goods sold
as the inventory was sold to customers during the remainder of 1997.
Excluding the $10.5 million write off of in-process research and development
expense, pretax income in fiscal year 1997 would have been $21.7 million.
INCOME TAXES
For the year ended December 31, 1998, PTI's effective tax rate was 34.2%
This reflects a determination that tax benefits including research and
experimental and foreign tax credits of $1.4 million are available to PTI. Until
the fourth quarter of 1998, the value of these tax benefits had not been
confirmed and therefore, PTI had accrued taxes based on historical rates. The
increase in the effective tax rate in 1997 is primarily attributable to
permanent items deducted in the financial statements in 1997 including
in-process research and development costs, non-creditable foreign taxes, an
increase in tax reserves, and the amortization of goodwill. These items were not
deductible for tax purposes and, therefore, caused an increase in the effective
tax rate.
LIQUIDITY AND CAPITAL SPENDING
Cash flows from operations are used to fund preferred stock dividends, which
were $1 million cash dividends in each of fiscal years 1998, 1997 and 1996,
other working capital requirements and capital projects. PTI has never paid a
cash dividend on common stock. From time to time, PTI utilizes its existing
revolving credit facility to fund overall needs.
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<PAGE>
For the year ended December 31, 1998, cash flows provided by operations were
$26.9 million an increase of $6.6 million over 1997 primarily reflecting an
increase in net income after adjusting for non-cash purchase accounting entries.
New capital spending during 1998 of approximately $14.6 million as compared
to $5.8 million in fiscal year 1997 included a significant expansion of PTI's
printing plate manufacturing facilities in Morristown, Tennessee.
Other than satisfaction of existing debt obligations, all of which will be
refinanced upon completion of the merger, PTI has no long-range commitments
which would have a significant impact upon results of operations, financial
condition or liquidity. At December 31, 1998, PTI had a committed revolving
credit line of $35 million against which $13.5 million was borrowed. PTI is in
compliance with all covenants related to its bank financing, Senior Subordinated
Debt Agreement and all classes of preferred stock.
YEAR 2000 READINESS
INTRODUCTION: Computer programs which recognize only two digits, rather
than four digits, to define the applicable year will be at risk for possible
miscalculations, classifications, errors or system failures. This risk is often
referred to as the "Year 2000" issue.
PTI considers the Year 2000 issue a critical business issue. PTI has
implemented a worldwide plan for evaluating and minimizing the risks associated
with the Year 2000 issue. The program includes investigation, remediation and
follow-up under the direction of the Director of Administration working through
plant management, engineering and information technology personnel. The
objective is to identify specific issues and implement corrective action in each
specific case while instituting a series of management processes that coordinate
and manage this overall process across business boundaries. The process includes
corporate oversight with periodic reports to our directors.
The program involves investigation and remediation when necessary in three
distinct areas: (1) business computer systems and software; (2) manufacturing
and operational systems that utilize micro processors, including manufacturing
and testing equipment, utilities and communication systems; and (3) suppliers
and customers. The objective is to become Year 2000 compliant, but more
importantly, to use the resources applied to this project to achieve better
service and value to our customers through improved communications and
information.
Business Computer Systems and Software: PTI has completed the installation
of a leading Year 2000 compliant integrated business software system and related
hardware in most major worldwide locations. The effort to convert information
systems for Year 2000 compliance was started in October 1997 and, with the
exceptions discussed below, completed as planned in December 1998. It is our
intention that all locations will be Year 2000 compliance prior to the end of
1999.
The principal U.S. manufacturing and office locations in Morristown,
Tennessee, Atlanta, Georgia, and Adams, Massachusetts, and the corporate office
in Billerica, Massachusetts are fully operational on the new system. The NAPP
Systems business in San Marcos, California is now converting to the new system,
which conversion is expected to be completed in November 1999.
Internationally, Rollin, SA, PTI's principal European subsidiary performing
manufacturing and administrative functions for Europe is also operational on the
same Year 2000 compliant business software system as the U.S. The PTI operations
in Japan, Hong Kong and Australia are using recently acquired Year 2000
compliant PC based systems for light manufacturing and sale/marketing
activities.
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<PAGE>
Three recently acquired businesses are operating on a combination of manual,
spreadsheet and self developed/purchased software. Corporate information
technology personnel along with local management are currently addressing
corrections. The cost of bringing all currently noncomplying locations into
compliance during 1999 is estimated at $250,000.
MANUFACTURING AND FACILITIES: Engineering departments and location
management worldwide are reviewing machinery and equipment, including production
equipment, phone systems and utility equipment at all PTI manufacturing
locations for Year 2000 compliance. Investigation efforts include making calls
to manufacturers of equipment and reviewing operating documentation. In some
cases, outside technical consultants have been engaged. This portion of the
project is nearing completion and all reports so far indicate most equipment
does not use date dependent information that would expose PTI to a significant
Year 2000 risk. In the few cases where equipment is not Year 2000 complaint,
replacement equipment is on order or the existing equipment will be modified.
SUPPLIERS AND CUSTOMERS: Starting in August 1998, suppliers and vendors
were contacted to determine their Year 2000 compliance status and their ability
to continue to supply PTI operations without disruption. Third parties who
responded to requests for information took the requests seriously and in most
cases had programs in place to address their internal business critical systems
as well as their external suppliers. PTI is working to qualify alternative
suppliers for materials for the less than 10% of suppliers whose responses
revealed that a potential for supply disruption exists.
Seventy-three percent of third parties contacted have responded to our
inquiry. Those who have yet to respond represent less than 10% of our suppliers
by value. Those not responding to our Y2K inquiry have been sent second requests
and if no answer is received personal calls will be made. PTI hopes to complete
the confirmation process by September 1999.
REASONABLY LIKELY WORST-CASE YEAR 2000 SCENARIO: The most reasonably likely
worst-case Year 2000 scenario would involve a failure of PTI's mission critical
computer systems together with the contemporaneous failure of one or more of
PTI's suppliers. With respect to a PTI systems failure, PTI is in the process of
formulating a contingency plan with the input of operating managers. The plan
includes PTI's ISO 9002 certification as the outline for manufacturing controls
and will be completed by October 1999. PTI is conducting ongoing planning and
testing in order to reduce the need for, and the incremental cost of,
contingency arrangements. With respect to supplier failure, PTI is single
sourced as to very few materials. As a result, alternate suppliers are generally
available.
While PTI believes its actions for Year 2000 modification and remediation
will allow it to continue normal operations, there can be no guarantee or
assurance that PTI will not be adversely affected by Year 2000 problems.
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<PAGE>
BENEFICIAL OWNERSHIP OF PTI
The following table provides information as of November 1, 1999, regarding
the ownership of PTI Class A voting common stock by (a) each person known by PTI
to be a beneficial owner of more than 5% of its voting stock, (b) PTI's
directors, (c) its CEO and four other most highly compensated executive officers
and (d) its directors and executive officers as a group. PTI Class A common
stock is PTI's only class of voting securities. The footnotes to the table
provide information regarding the number and percentage of shares of PTI
non-voting common stock and preferred stock owned by the named shareholders.
Unless otherwise noted, each person has sole voting and disposition power with
respect to that person's shares.
The table also presents the pro forma shares of MacDermid common stock that
the named shareholders will receive in the merger assuming the exchange ratio is
equal to 6.488. THE ACTUAL EXCHANGE RATIO AND, THEREFORE, THE PERCENTAGE OF
MACDERMID COMMON STOCK RECEIVED BY THE NAMED SHAREHOLDERS WILL LIKELY BE
DIFFERENT. See "Exchange Ratio Assumptions." The pro forma percentages also
assume that the warrant to purchase shares of MacDermid common stock that will
be issued to Citicorp Mezzanine Partners upon the completion of the merger has
been exercised in full. The MacDermid warrant will have a nominal exercise price
per share. See "Merger Transaction."
<TABLE>
<CAPTION>
PRO FORMA
PTI VOTING OWNERSHIP OF
COMMON STOCK MID STOCK(1)
------------------- --------------------
SHARES % SHARES %
-------- -------- --------- --------
<S> <C> <C> <C> <C>
PRINCIPAL SHAREHOLDERS
David R. Beckerman(1)(2).................................... 51.000 51.0 203,576 *
Citicorp Venture Capital, Ltd.(3)(4)........................ 39.180 39.2 3,718,137 11.3
DIRECTORS
David R. Beckerman(1)....................................... 51.000 51.0 203,576 *
David L. Kolb(5)............................................ -- * 21,510 *
Richard E. Mayberry, Jr.(6)................................. .104 * 9,982 *
Robert N. Pokelwaldt(7)..................................... -- * 2,047 *
Joseph M. Silvestri(8)...................................... .414 * 39,876 *
James W. Stevens(9)......................................... -- * 21,510 *
NAMED EXECUTIVE OFFICERS
David R. Beckerman, President and CEO(1).................... 51.000 51.0 203,576 *
Gerald Loeb(10)............................................. -- * 136,053 *
Thomas C. Weaver, Secretary(11)............................. -- * 106,448 *
Thomas O. Gavin(12)......................................... -- * 67,129 *
Kai Wenk-Wolff(13).......................................... -- * 32,437 *
All Directors and Officers as a Group(10 persons)(14)....... 51.518 51.5 640,568 1.9
</TABLE>
- --------------------
* Less than 1%.
(1) Pro forma presentation also includes shares of MacDermid common stock
received in exchange for (a) 149.101 shares of Series 3 preferred stock,
which represent 19.7% of the shares of Series 3 preferred stock outstanding
and (b) 29,949 shares of non-voting PTI Class B common stock, which
represent 3.0% of the shares of Class B common stock outstanding.
(2) Mr. Beckerman's business address is 900 Middlesex Turnpike, Billerica, MA
01821-3946.
(3) Pro forma presentation also includes shares of MacDermid common stock
received in exchange for (a) 3,875.554 shares of Series 2 preferred stock,
which represent 78.8% of the
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<PAGE>
shares of Series 2 preferred stock outstanding, (b) 17.831 shares of
Series 3 preferred stock, which represent 2.4% of the shares of Series 3
preferred stock outstanding, (c) 2,757.279 shares of Series 4 preferred
stock, which represent 78.8% of the shares of Series 4 preferred stock
outstanding and (d) 535,659.920 shares of non-voting PTI Class B common
stock, which represent 53.3% of the shares of Class B common stock
outstanding.
(4) Citicorp Venture Capital's address is 399 Park Avenue, New York, NY 10022.
(5) Pro forma presentation also includes shares of MacDermid common stock
received in exchange for (a) 21.700 shares of Series 2 preferred stock,
which represent less than 1% of the shares of Series 2 preferred stock
outstanding, (b) 15.440 shares of Series 4 preferred stock, which represent
less than 1% of the shares of Series 4 preferred stock outstanding and (c)
3,000.000 of non-voting PTI Class B common stock, which represent less than
1% of the shares of Class B common stock outstanding.
(6) Pro forma presentation also includes shares of MacDermid common stock
received in exchange for (a) 10.409 shares of Series 2 preferred stock,
which represent less than 1% of the shares of Series 2 preferred stock
outstanding, (b) 7.405 shares of Series 4 preferred stock, which represent
less than 1% of the shares of Series 4 preferred stock outstanding and (c)
1,438.629 of non-voting PTI Class B common stock, which represent less than
1% of the shares of Class B common stock outstanding.
(7) Pro forma presentation also includes shares of MacDermid common stock
received in exchange for (a) 21.700 shares of Series 2 preferred stock,
which represent less than 1% of the shares of Series 2 preferred stock
outstanding and (b) 15.440 shares of Series 4 preferred stock, which
represent less than 1% of the shares of Series 4 preferred stock
outstanding.
(8) Pro forma presentation also includes shares of MacDermid common stock
received in exchange for (a) 41.576 shares of Series 2 preferred stock,
which represent less than 1% of the shares of Series 2 preferred stock
outstanding, (b) 29.580 shares of Series 4 preferred stock, which represent
less than 1% of the shares of Series 4 preferred stock outstanding and (c)
5,746.469 of non-voting PTI Class B common stock, which represent less than
1% of the shares of Class B common stock outstanding.
(9) Pro forma presentation also includes shares of MacDermid common stock
received in exchange for (a) 21.7000 shares of Series 2 preferred stock,
which represent less than 1% of the shares of Series 2 preferred stock
outstanding, (b) 15.440 shares of Series 4 preferred stock, which represent
less than 1% of the shares of Series 4 preferred stock outstanding and (c)
3,000.000 shares of non-voting PTI Class B common stock, which represent
less than 1% of the shares of Class B common stock outstanding.
(10) Pro forma presentation also includes shares of MacDermid common stock
received in exchange for (a) 105.000 shares of Series 3 preferred stock,
which represent 13.9% of the shares of Series 3 preferred stock
outstanding and (b) 20,000.000 of non-voting PTI Class B common stock,
which represent 2.0% of the shares of Class B common stock outstanding.
(11) Pro forma presentation also includes shares of MacDermid common stock
received in exchange for (a) 44.101 shares of Series 3 preferred stock,
which represent 5.8% of the shares of Series 3 preferred stock outstanding
and (b) 16,000.000 of non-voting PTI Class B common stock, which represent
1.6% of the shares of Class B common stock outstanding.
(12) Pro forma presentation also includes shares of MacDermid common stock
received in exchange for (a) 52.500 shares of Series 3 preferred stock,
which represent 6.9% of the shares of Series 3 preferred stock outstanding
and (b) 10,000.000 of non-voting PTI Class B common stock, which represent
1.0% of the shares of Class B common stock outstanding.
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<PAGE>
(13) Pro forma presentation also includes shares of MacDermid common stock
received in exchange for 5,000 shares of non-voting PTI Class B common
stock, which represent less than 1% of the shares of Class B common stock
outstanding.
(14) Pro forma presentation also includes shares of MacDermid common stock
received in exchange of (a) 117.085 shares of Series 2 preferred stock,
which represent 2.4% of the shares of Series 2 preferred stock
outstanding, (b) 350.702 shares of Series 3 preferred stock, which
represent 46.4% of the shares of Series 3 preferred stock outstanding,
(c) 83.305 shares of Series 4 preferred stock, which represent 2.4% of the
shares of Series 4 preferred stock outstanding and (d) 94,134.098 shares
of non-voting PTI Class B common stock, which represent 9.4% of the shares
of Class B common stock outstanding.
85
<PAGE>
LEGAL MATTERS
The validity of the shares of MacDermid common stock to be issued in
connection with the merger has been passed upon by Nutter, McClennen & Fish,
LLP, of Boston, Massachusetts. Tax matters have been passed on for MacDermid by
Nutter, McClennen & Fish, LLP and for PTI by Kirkland & Ellis of New York, New
York.
EXPERTS
The Consolidated Financial Statements of MacDermid, incorporated by
reference in this proxy statement -- prospectus, have been audited by KPMG LLP,
independent auditors, for the periods indicated in their report included
therein.
The Consolidated Financial Statements of W. Canning plc, incorporated by
reference in this proxy statement -- prospectus, have been audited by
PricewaterhouseCoopers, independent auditors, for the periods indicated in their
reports included therein.
The Consolidated Financial Statements of PTI included in this proxy
statement -- prospectus have been audited by PricewaterhouseCoopers LLP,
independent auditors, for the periods indicated in their report included in this
proxy statement -- prospectus. A representative of PricewaterhouseCoopers will
be at the PTI special meeting to answer questions from PTI shareholders and will
be given an opportunity to make a statement, if so desired.
OTHER MATTERS
The PTI Board is not aware of any other matters to be presented at the PTI
Special Meeting. If any additional matters are properly presented, the persons
named in the proxy will have discretion to vote in accordance with their own
judgment on these matters.
WHERE YOU CAN FIND MORE INFORMATION
MacDermid files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at "http://www.sec.gov." In
addition, MacDermid common stock is listed on the NYSE and similar information
concerning MacDermid can be inspected and copied at the offices of the New York
Stock Exchange, Inc., 20 Broad Street, New York, NY 10005.
Of the filings MacDermid has made with the SEC, the following reports have
been delivered with this proxy statement -- prospectus as Annexes I and II.
Annex I: MacDermid's Annual Report on Form 10-K, as amended, for the
fiscal year ended March 31, 1999.
Annex II: MacDermid's Quarterly Report on Form 10-Q, as amended, for the
fiscal quarter ended June 30, 1999.
There have been no material changes in MacDermid's affairs since June 30, 1999,
the period covered by MacDermid's latest Quarterly Report on Form 10-Q.
MacDermid has filed a registration statement on Form S-4 to register with
the SEC the MacDermid common stock to be issued to the PTI shareholders in the
merger. This proxy statement -- prospectus is a part of that registration
statement and constitutes a prospectus of
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<PAGE>
MacDermid in addition to being a proxy statement of PTI for the shareholder
meeting. As allowed by SEC rules, this proxy statement -- prospectus does not
contain all the information you can find in the registration statement or the
exhibits to the registration statement.
The SEC allows MacDermid to "incorporate by reference" information into this
proxy statement -- prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
proxy statement -- prospectus, except for any information superseded by
information in this proxy statement -- prospectus. This proxy statement --
prospectus incorporates by reference the documents named below that MacDermid
has previously filed with the SEC. These documents contain important information
about MacDermid's business, financial condition and operating results.
<TABLE>
<CAPTION>
MACDERMID SEC FILINGS PERIOD
- --------------------- ------------------------------------------
<S> <C>
Annual Report on Form 10-K....................... Filed on June 22, 1999, as amended by Form
10-K/A filed on August 12, 1999
Quarterly Report on Form 10-Q.................... Filed on August 16, 1999, as amended by
Form 10-Q/A filed on August 30, 1999
Proxy Statement.................................. Filed on June 21, 1999
Current Report on Form 8-K....................... Filed on December 18, 1998, as amended by
Form 8-K/A filed on February 16, 1999, by
Form 8-K/A filed on March 19, 1999 and by
Form 8-K/A filed on June 9, 1999
Current Report on Form 8-K....................... Filed on February 24, 1999
Current Report on Form 8-K....................... Filed on September 27, 1999
Registration Statement on Form S-3............... Filed on December 8, 1998
</TABLE>
MacDermid is also incorporating by reference additional documents that it
will file with the SEC between the date of this proxy statement -- prospectus
and the date of the meeting of the PTI shareholders.
MacDermid has supplied all information contained or incorporated by
reference in this proxy statement -- prospectus relating to MacDermid, and PTI
has supplied all information contained in this proxy statement -- prospectus
relating to PTI.
Documents incorporated by reference are available from MacDermid without
charge, excluding all exhibits unless MacDermid has specifically incorporated by
reference an exhibit in this proxy statement -- prospectus. Shareholders may
obtain documents incorporated by reference in this proxy statement -- prospectus
by requesting them in writing or by telephone from MacDermid as follows:
MacDermid, Incorporated
245 Freight Street
Waterbury, CT 06702-0671
Attention: John L. Cordani, Corporate Secretary
Telephone: (203) 575-5646
If you would like to request documents from MacDermid, please do so by
November , 1999 to receive them before the shareholder meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT -- PROSPECTUS TO VOTE ON THE PROPOSAL TO
APPROVE THE MERGER AGREEMENT. WE HAVE NOT
87
<PAGE>
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS PROXY STATEMENT -- PROSPECTUS. THIS PROXY STATEMENT --
PROSPECTUS IS DATED NOVEMBER , 1999. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT -- PROSPECTUS IS ACCURATE AS OF
ANY DATE OTHER THAN THIS DATE, AND NEITHER THE MAILING OF THIS PROXY
STATEMENT -- PROSPECTUS TO SHAREHOLDERS NOR THE ISSUANCE OF MACDERMID COMMON
STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
88
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PTI INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-3
Consolidated Statements of Income and Comprehensive Income
for the Years Ended December 31, 1998, 1997 and 1996...... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996.............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-6
Notes to Financial Statements............................... F-7 - F-25
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998......................................... F-26
Consolidated Statements of Income and Comprehensive Income
for the Six Months Ended June 30, 1999 and 1998........... F-27
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998.............................. F-28
Notes to Unaudited Financial Statements..................... F-29 - F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
PTI, Inc.:
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of income and comprehensive income, stockholders' equity
and cash flows present fairly, in all material respects, the financial position
of PTI, Inc. and its subsidiaries (the "Company") at December 31, 1998 and 1997,
and the results of their operations, changes in stockholders' equity and their
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. 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 of the financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Boston, MA
March 19, 1999
F-2
<PAGE>
PTI, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 3,950 $ 1,244
Accounts receivable, net of allowance for doubtful accounts
of $3,806 and $3,158 at December 31, 1998 and 1997
respectively.............................................. 51,379 42,409
Inventories................................................. 48,403 39,751
Deferred income taxes....................................... 2,734 2,891
Other current assets........................................ 7,378 4,339
-------- --------
Total current assets.................................... 113,844 90,634
Property, plant and equipment, net.......................... 87,234 75,046
Intangible assets, net...................................... 21,586 23,658
Other assets................................................ 8,347 8,597
-------- --------
Total assets............................................ $231,011 $197,935
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt........................... 10,620 5,417
Accounts payable............................................ 23,774 15,446
Salaries and related benefits............................... 7,578 7,205
Income taxes payable........................................ 8,641 4,807
Accrued liabilities......................................... 8,836 9,474
-------- --------
Total current liabilities............................... 59,449 42,349
Long-term debt.............................................. 137,094 141,725
Deferred income taxes....................................... 10,523 12,171
Other liabilities........................................... 2,634 1,457
-------- --------
Total liabilities....................................... 209,700 197,702
-------- --------
Commitments and contingencies (see Note 9)
Redeemable preferred stock at liquidation value:
14% Series 2 junior exchangeable preferred stock.......... 4,986 4,973
14% Series 3 junior exchangeable preferred stock.......... 1,264 1,104
14% Series 4 junior exchangeable preferred stock, net of
unamortized discount of $1,642 and $1,750 at
December 31, 1998 and 1997, respectively................ 2,694 2,329
-------- --------
Total redeemable preferred stock........................ 8,944 8,406
-------- --------
Stockholders' equity:
Class A common stock, $.01 par value, 1,005,000 shares
authorized, 100 shares issued and outstanding Class B
common stock, $.01 par value, 1,004,900 shares
authorized, 854,900 shares issued and outstanding....... 9 9
Capital in excess of par value............................ 879 879
Retained earnings (deficit)................................. 13,425 (4,379)
Accumulated other comprehensive income:
Cumulative translation adjustment......................... (1,946) (4,682)
-------- --------
Total stockholders' equity.............................. 12,367 (8,173)
-------- --------
Total liabilities and stockholders' equity.............. $231,011 $197,935
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
PTI, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $227,956 $214,509 $146,577
Less:
Cost of goods sold (Note 1)............................... 124,707 118,417 83,069
-------- -------- --------
Gross profit................................................ 103,249 96,092 63,508
Selling expenses............................................ 25,953 25,505 19,882
General and administrative expenses......................... 17,346 17,139 12,172
Research and development expenses........................... 8,977 8,590 5,887
Purchased research and development (see Note 1)............. -- 10,495 --
Amortization expense........................................ 4,825 4,589 3,990
Customer support and technical services expenses............ 3,681 3,094 3,060
-------- -------- --------
Total operating expenses............................ 60,782 69,412 44,991
-------- -------- --------
Income from operations...................................... 42,467 26,680 18,517
-------- -------- --------
Other (income) expenses:
Interest expense.......................................... 14,139 15,134 11,425
Other (income) expenses, net.............................. (1,076) 343 (1,108)
-------- -------- --------
Total other expenses................................ 13,063 15,477 10,317
-------- -------- --------
Income before income taxes and extraordinary item........... 29,404 11,203 8,200
Provision for income taxes.................................. 10,061 10,611 3,448
-------- -------- --------
Net income before extraordinary item........................ 19,343 592 4,752
Extraordinary charge for early retirement of debt, net of
tax benefit of $806....................................... -- (1,322) --
-------- -------- --------
Net income (loss)........................................... 19,343 (730) 4,752
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax....... 1,834 (3,323) (1,979)
-------- -------- --------
Comprehensive income (loss)................................. $ 21,177 $ (4,053) $ 2,773
======== ======== ========
Earnings per share:
Basic:
Earnings (loss) per share before extraordinary item....... $ 20.95 $ (.92) $ 3.88
Extraordinary item per share.............................. -- (1.55) --
Basic earnings (loss) per share........................... $ 20.95 $ (2.47) $ 3.88
Diluted:
Earnings (loss) per share before extraordinary item....... $ 17.82 $ (.92) $ 3.30
Extraordinary item per share.............................. -- (1.55) --
Diluted earnings (loss) per share......................... $ 17.82 $ (2.47) $ 3.30
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
PTI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN RETAINED CUMULATIVE TOTAL
----------------------- EXCESS OF EARNINGS TRANSLATION STOCKHOLDERS'
SHARES PAR VALUE PAR VALUE (DEFICIT) ADJUSTMENT EQUITY
-------- ------------ ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995........... 850,000 $ 9 $815 $(3,246) $ 3,474 $ 1,052
Other comprehensive income, net........ (3,044) (3,044)
Conversion of Series 1 senior
exchangeable preferred stock to a 10%
PIK subordinated note................ (1,931) (1,931)
Redeemable preferred stock dividends
paid................................. (1,000) (1,000)
Redeemable preferred stock dividends
accrued but not paid and other
(Note 7)............................. (759) (759)
Net income............................. 4,752 4,752
------- --- ---- ------- ------- -------
Balance at December 31, 1996........... 850,000 9 815 (2,184) 430 (930)
Other comprehensive income, net........ (5,112) (5,112)
Issuance of common stock............... 5,000 64 64
Redeemable preferred stock dividends
paid................................. (1,023) (1,023)
Redeemable preferred stock dividends
accrued but not paid and other
(Note 7)............................. (442) (442)
Net loss............................... (730) (730)
------- --- ---- ------- ------- -------
Balance at December 31, 1997........... 855,000 9 879 (4,379) (4,682) (8,173)
Other comprehensive income, net........ 2,736 2,736
Redeemable preferred stock dividends
paid................................. (1,000) (1,000)
Redeemable preferred stock dividends
accrued but not paid and other
(Note 7)............................. (539) (539)
Net income............................. 19,343 19,343
------- --- ---- ------- ------- -------
Balance at December 31, 1998........... 855,000 $ 9 $879 $13,425 $(1,946) $12,367
======= === ==== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
PTI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 19,343 $ (730) $ 4,752
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 12,258 11,649 9,488
Deferred income taxes................................... 470 (1,350) (115)
Write-off of purchased research and development......... -- 10,495 --
Write-off of inventory step-up.......................... -- 1,707 --
Write-off of deferred financing fees.................... -- 2,138 --
Provision for doubtful accounts receivable.............. 124 148 598
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............ (3,716) (5,291) 919
(Increase) decrease in inventories.................... (3,074) (6,055) 1,735
(Increase) in other current assets.................... (4,414) (1,347) (224)
(Increase) decrease in other long-term assets......... (282) 754 (868)
(Decrease) increase in other long-term liabilities.... 125 1,940 (1,754)
(Decrease) increase in accounts payable and other
current liabilities................................. 6,082 6,217 (2,881)
-------- -------- ---------
Net cash provided by operating activities................... 26,916 20,275 11,650
-------- -------- ---------
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired.......... (10,087) (55,658) --
Investments in long-term assets........................... (14,594) (5,816) (4,755)
-------- -------- ---------
Net cash used in investing activities....................... (24,681) (61,474) (4,755)
-------- -------- ---------
Cash flows from financing activities:
Repayments of debt........................................ (96,011) (55,348) (45,083)
Borrowings from line of credit............................ 93,024 96,777 36,403
Bank overdraft and other.................................. 3,104 2,826 1,287
-------- -------- ---------
Net cash (used in) provided by financing activities......... 117 44,255 (7,393)
-------- -------- ---------
Net effect of exchange rate changes on cash and cash
equivalents............................................... 354 (3,059) (1,041)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents........ 2,706 (3) (1,539)
Cash and cash equivalents, beginning of year................ 1,244 1,247 2,786
-------- -------- ---------
Cash and cash equivalents, end of year...................... $ 3,950 $ 1,244 $ 1,247
======== ======== =========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 11,251 $ 12,524 $ 11,425
Income taxes paid......................................... $ 8,771 $ 9,337 $ 4,103
See Note 7 for disclosure of noncash transactions
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS, FORMATION AND ACQUISITIONS:
NATURE OF BUSINESS
The Company is a designer, manufacturer and supplier of offset blankets,
printing plates, textile blankets and rubber-based covers for industrial rollers
used in the printing industry. The Company has manufacturing facilities in
Morristown, Tennessee; Atlanta, Georgia; Adams, Massachusetts; Cernay, France
and Steinbach, France. The Company also maintains other operations, primarily
sales offices, in the Asia/Pacific, European, and Latin America regions. The
Company's corporate headquarters and certain research and development facilities
are located in Billerica, Massachusetts. The Cernay and Steinbach manufacturing
facilities comprise Rollin S.A.
NAPP Systems, Inc. and subsidiaries ("NAPP") was acquired by Polyfibron
Technologies, Inc. ("Polyfibron"), a wholly-owned subsidiary of the Company, on
January 17, 1997 (see "NAPP Acquisition"). NAPP is engaged in the development,
manufacture, and marketing of proprietary expendable products and processing
equipment for imaging systems primarily for use in the newspaper industry and
distributes expendable products and processing equipment to the commercial
printing industry. NAPP's manufacturing facility is located in San Marcos,
California. NAPP also maintains a warehouse in Davenport, Iowa, and a sales
office in Oberursel, Germany.
FORMATION
On October 14, 1994, the Company and Polyfibron entered into a Worldwide
Purchase and Sale Agreement with W.R. Grace & Co. ("WRG"); W.R. Grace &
Co.-Conn. ("Grace"), a wholly-owned subsidiary of WRG; Grace S.A. ("Grace
France"), a subsidiary of Grace, and certain other subsidiaries of Grace
pursuant to which, on December 29, 1994, Polyfibron agreed to purchase certain
assets and liabilities (the "Grace Acquisition") related to Grace's Printing
Products Business and the capital stock of Rollin S.A. ("Rollin"), a subsidiary
of Grace France.
NAPP ACQUISITION
On January 17, 1997, Polyfibron acquired all of the outstanding common stock
(the "NAPP Acquisition") of NAPP for $56,777,000. The acquisition has been
accounted for using the purchase method of accounting, and accordingly, the
purchase price has been allocated to the assets purchased and the liabilities
assumed based on the fair values at the date of acquisition. Total assets
acquired of $75.5 million were allocated to: accounts receivable $9.6 million;
inventories $12.9 million; other current assets $2.7 million; net fixed assets
$22.7 million; goodwill $12.4 million; in-process research and development
$10.5 million; and other long term assets $4.7 million. Total liabilities
assumed of $18.8 million were allocated to: accounts payable and other current
liabilities $8.3 million; deferred income taxes $9.0 million; and other long
term liabilities $1.5 million.
In connection with the NAPP acquisition, PTI wrote-up acquired inventory by
$1,707,000 in accordance with the requirements of APB No. 16. PTI then charged
this amount to the Statement of Income through cost of goods sold as the
inventory was sold to customers during the remainder of 1997.
The purchase price exceeded the fair value of the identifiable net assets
acquired by $12,449,000 and was recorded as goodwill. The goodwill is being
amortized over 20 years.
Included in the assets acquired was $10,495,000 of purchased research and
development costs which were charged to operations during the year ended
December 31, 1997. Management is
F-7
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
primarily responsible for estimating the fair value of purchased in-process
research and development.
An adjustment to the valuation of the projects listed has been applied based
on the stage of completion method. The stage of completion percentage was
calculated using the costs incurred to date at the time of the acquisition as a
percent of total estimated costs of completion at the time of the valuation.
In addition, a core technology charge of 33% ($5,169,000) of cash flows was
allocated to capitalized technology thus reducing the purchased research and
development charge. This amount is included in goodwill and is being amortized
over 20 years.
The $10,495,000 represents three purchased projects.
1. The development of Laser Direct technology, started in November 1993,
used to etch images directly on the printing plate was sixty-three
percent complete with costs incurred to the date of acquisition of
$900,000. The $9,261,000 valuation of this technology is based on the
Income Forecast Method by analyzing the discounted present values of the
cash flow generated. The estimated cost to complete the development of a
commercially acceptable product between January 17, 1997 and June 1999 is
$518,000.
The $9.3 million valuation of the laser direct technology was based on a
forecast of net cash inflows starting in late 1998 and continuing through
2005. Since the laser direct project envisions an entirely new plate
processor and printing plate system, there is no historical data on which
to base a revenue and cost of sales forecast. Consequently, management
estimated sales volume, selling prices and margins based on its knowledge
of the market and potential customers. Management estimated selling and
general and administrative operating expenses for the laser direct
products at approximately 13% of sales, which is slightly lower than
NAPP's existing expense structure of approximately 14% of sales.
Management anticipates that, as a percentage of sales, selling expenses
associated with laser direct products will be somewhat lower than NAPP's
existing business. On average, laser direct plate customers will be the
larger, higher volume users. Compared to NAPP's existing business, the
laser direct business is expected to generate higher revenues per
customer. Thus, the same selling effort will result in larger average
order sizes and a slightly lower selling cost as a percentage of
revenues.
2. The development of a High Speed Printing Plate that will expose faster,
provide better print quality, and be more durable than the existing
NAPPflex technology, started in June, 1996, was forty-one percent
complete with costs incurred to the date of acquisition of $60,000. The
$958,000 valuation of this technology is based on the Income Forecast
Method by analyzing the discounted present values of the cash flow
generated. The estimated costs to complete this development between
January 17, 1997 and June 1997 was $86,000.
3. The development of the Water Based Polymer technology, targeted at
reducing NAPP's cost of raw materials, was twenty-eight percent complete
with costs incurred to the date of acquisition of $380,000. The $276,000
valuation of this technology is based on the Income Forecast Method by
analyzing the discounted present values of the cash flow generated from
cost savings. The estimated costs to complete this development between
January 17, 1997 and June 1999 is $982,000.
F-8
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The period in which material net cash inflows from significant projects were
expected to commence varied from 1998 to late 1999. With regard to the
high-speed plate and waterbased polymer projects, there are no material changes
from historical pricing, margins and incremental expense levels as they directly
relate to the future profitability of each project. For the laser direct
project, which envisions an entirely new plate processor and printing plate
system, there is no historical data. Therefore, for laser direct, management
estimated selling prices and margins based on its knowledge of the market and
potential customers as well as NAPP's existing expense structure as a basis for
estimating incremental operating expenses.
The discount rate applied to the various projects was based upon the
relative risks of the product lines that incorporate the acquired technologies.
Based on analysis, the weighted average cost of capital for Polyfibron and NAPP
was estimated to be approximately 15%. In estimating the appropriate discount
rate for the in-process research and development projects, it is assumed that
their cash flows are more risky than the company's overall cost of capital.
Accordingly, a risk premium was added to the weighted average cost capital to
estimate the appropriate discount rate for the in-process research and
development based upon the relative stage of completion for each project. The
application of a discount rate involved considerations such as stage of
completion, remaining development milestones, technological uncertainties, and
projected costs to complete.
AXCYL ACQUISITION
During 1998, Polyfibron acquired all of the outstanding common stock of
Axcyl Composite for $1,000,000. The acquisition has been accounted for using the
purchase method of accounting, based on the fair values at the date of
acquisition. Goodwill of $697,000 has been recognized from this transaction, and
will be amortized over 20 years. Axcyl, based in Mirambeau, France, manufactures
sleeve systems made of advanced composite materials for use in flexographic
printing applications.
JAGER JEUNE ACQUISITION
On December 24, 1998, Polyfibron acquired all of the outstanding common
stock of Jager Jeune S.A. for $11,258,000. The acquisition has been accounted
for using the purchase method of accounting, based on the fair values at the
date of acquisition. Goodwill of $1,470,000 has been recognized from this
transaction, and will be amortized over 20 years. Polyfibron may have to pay
certain contingent amounts to the previous owner based on future results of
operations. The maximum amount may be $1,800,000 ultimately due in August 2000.
These amounts will be recorded as goodwill in the year known.
F-9
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The operating results of the 1998 acquisitions have been included in the
consolidated statements of operations from the date of acquisition. The
following unaudited proforma information has been prepared assuming the
acquisition occurred at the beginning of the respective periods:
<TABLE>
<CAPTION>
(UNAUDITED) 1998 1997
- ----------- -------- --------
<S> <C> <C>
Net sales............................... $246,871 $231,999
Cost of goods sold...................... 138,856 130,746
Net income before extraordinary item.... 19,393 1,799
Net income.............................. 19,393 477
Earnings per share:
Basic................................. $ 21.00 $ (1.05)
Diluted............................... $ 17.87 $ (1.05)
</TABLE>
The pro forma information is not necessarily indicative of the operating
results that would have occurred had the 1998 acquisitions been consummated as
of the above dates, nor are they necessarily indicative of future operating
results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries.
All material intercompany transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of cash and investments in
highly liquid debt instruments with maturities at acquisition of three months or
less.
Under the Company's cash management system, checks issued but not presented
to banks occasionally result in overdraft balances for accounting purposes and
are included in accounts payable. The overdraft balance amounted to $2,481,011
and $1,261,000 at December 31, 1998 and 1997, respectively.
FINANCIAL INSTRUMENTS
At December 31, 1998 and 1997, the carrying value of financial instruments,
such as cash, trade accounts receivable and accounts payable approximate fair
value, based on the short-term maturities of those instruments. The fair value
of the Company's debt, which approximates its carrying value, is based upon
interest rates that are currently available to the Company for debt with similar
terms and remaining maturities.
REVENUE RECOGNITION
Sales and the related cost of sales are recognized upon shipment of
products.
F-10
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of trade accounts receivable. To minimize this
risk, ongoing credit evaluations of customers' financial condition are
performed, although collateral is not required. In addition, the Company
maintains allowances for potential credit losses.
INVENTORIES
Inventories are stated at the lower of cost or market, using the first-in,
first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment acquired in the normal course of business is
stated at cost. Betterments and major renewals which extend the useful lives of
the respective assets are capitalized. Maintenance, repairs and renewals which
do not extend the useful lives of the respective assets are charged to expense
in the period incurred.
Fully depreciated assets are retained in property, plant and equipment and
the related accumulated depreciation accounts until they are removed from
service.
Depreciation is computed using the straight-line method based on the
following estimated useful lives:
<TABLE>
<CAPTION>
USEFUL LIVES
CATEGORY (YEARS)
- -------- ------------
<S> <C>
Buildings................................................... 30
Machinery and equipment..................................... 3-10
</TABLE>
In accordance with Statement of Position 98-1, "Accounting for Costs of
Computer Software Developed or Obtained for Internal Use," costs associated with
the application development stage are capitalized, such as, direct external
costs, directly related internal payroll and payroll related costs and interest
costs.
Interest costs for the construction of certain long-term assets are
capitalized and amortized over the related assets' estimated useful lives. The
Company did not capitalize any interest costs in 1998, 1997 or 1996.
INTANGIBLE ASSETS
In accordance with APB No. 16, intangible assets acquired as part of
acquisitions are recorded at fair market value. Intangible assets acquired in
the normal course of business are stated at cost. Intangible assets consist
primarily of goodwill, deferred financing costs, trademarks, licenses and
proprietary technology. Amortization of intangible assets is computed using the
straight-line method based on their estimated useful lives, which range from 3
to 20 years.
The Company continually monitors the useful lives of its long-lived assets
to ensure that no change is warranted. The Company reviews its intangible and
other long-lived assets whenever adverse events occur or circumstances indicate
that the carrying amount of an asset may be impaired. The Company performs this
review on an asset by asset basis whenever prudent. In
F-11
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
performing the review, the Company estimates the future net cash flows
(undiscounted and without interest) expected to result from the use of the asset
and its eventual disposition. If the sum of the expected future cash flows is
less than the carrying amount of the asset, an impairment is recognized. The
amount of the impairment is determined based on the extent to which the sum of
estimated future undiscounted cash flows of the long-lived asset is not
sufficient to recover the carrying value of that asset, so that the carrying
value of that long-lived asset is adjusted to its then fair value.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign operations were translated
into U.S. dollars using year-end exchange rates, and the related statements of
operations were translated at average exchange rates for the year. The Company
recorded approximately $(424,000), $(525,000), and $107,000 of net pretax
foreign currency transaction gains/(losses) for the years ended December 31,
1998, 1997 and 1996, respectively.
The three most significant exchange rates are as follows as of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997 1996
-------- ---------- --------
<S> <C> <C> <C>
French franc.................................. 5.598 6.014 5.190
Japanese yen.................................. 113.450 130.570 115.850
Australian dollar............................. 1.633 1.538 1.258
</TABLE>
INCOME TAXES
The Company uses the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). SFAS 109 is an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for differences
in the bases of assets and liabilities recognized in the Company's financial
statements compared to tax returns. In estimating future tax consequences,
SFAS 109 generally considers all expected future events other than future
enactments of changes in the tax law or rates. Deferred tax assets are
recognized, net of any valuation allowance, for deductible temporary differences
and operating loss and credit carryforwards. Tax credits are deducted from the
provision using the flow-through method. Deferred tax expense represents the
change in the deferred tax assets and liabilities.
NET INCOME PER COMMON SHARE
Net Income per basic common share is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Net income per diluted common shares is computed
based on the weighted-average number of common and dilutive common equivalent
shares outstanding during each period. Common equivalent shares consist of stock
options calculated in accordance with SFAS No. 128, "Earnings per Share."
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported
F-12
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been
reclassified to conform to current year presentation.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," in 1998. This Statement establishes standards
for reporting and displaying comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. This Statement requires the classification of items of comprehensive
income by their nature in a financial statement and the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet.
In June, 1997, the Financial Accounting Standards Board issued Statement No.
131 ("SFAS" 131), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131, which supersedes Statement No. 14, "Financial Reporting
for Segments of a Business Enterprise," changes the way public companies report
information about segments. SFAS 131, which is based on the management approach
to segment reporting, includes requirements to report segment information
quarterly and entity-wide disclosures about products and services, major
customers, and the material countries in which the entity holds assets and
reports revenues. SFAS 131 is effective for fiscal years beginning after
December 15, 1997. Restatement for earlier years is required for comparative
purposes unless impracticable. In addition, SFAS 131 need not be applied to
interim periods in the initial year; however, in subsequent years, interim
period information must be presented on a comparative basis. The Company adopted
SFAS 131 for fiscal year ended December 31, 1998.
3. INVENTORIES:
Inventories by major classification consisted of the following at:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Raw and packaging materials................................. $16,317 $12,472
Work in process............................................. 7,014 5,081
Finished goods.............................................. 25,072 22,198
------- -------
$48,403 $39,751
======= =======
</TABLE>
F-13
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following at:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Land........................................................ $ 5,705 $ 4,378
Buildings................................................... 39,731 34,709
Machinery and equipment..................................... 76,433 67,989
Construction in progress.................................... 12,756 4,224
-------- --------
134,625 111,300
Accumulated depreciation.................................... 47,391 36,254
-------- --------
$ 87,234 $ 75,046
======== ========
</TABLE>
Included in machinery and equipment are capitalized software costs of
$767,660 and $566,088 for the years ended December 31, 1998 and 1997,
respectively. Related accumulated depreciation amounted to $305,100 and $66,000,
respectively.
Amounts included in construction in progress that relate to software were
$1,373,000 and $261,000 as of December 31, 1998 and 1997, respectively.
Depreciation expense for the years ended December 31, 1998, 1997 and 1996
was $7,433,000, $7,060,000, $5,498,000 respectively.
Depreciation expense for capitalized software costs, included in these
amounts for the respective period was $239,100, $66,000 and $0.
5. INTANGIBLE ASSETS:
Intangible assets consisted of the following at:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Trademarks.................................................. $ 9,337 $ 9,337
Licenses.................................................... 1,436 1,436
Goodwill.................................................... 14,616 12,449
Other....................................................... 11,068 11,426
-------- --------
36,457 34,648
Accumulated amortization.................................... (14,871) (10,990)
-------- --------
$ 21,586 $ 23,658
======== ========
</TABLE>
Amortization expense for the years ended December 31, 1998, 1997 and 1996
was $4,825,000, $4,589,000 and $3,990,000 respectively, not including
$1,000,000, $719,000 and $439,000 for the same periods, related to depreciable
machines included as a component of other assets in the consolidated financial
statements. Depreciable machines are amortized over their useful lives of three
to five years.
F-14
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT:
Long-term debt consisted of the following at:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Credit agreement:
Tranche A Term Loan....................................... $ 23,143 $ 25,952
French Franc Term Loan.................................... 7,410 7,748
Yen Term Loan............................................. 3,719 3,630
-------- --------
34,272 37,330
Tranche B Term Loan....................................... 34,591 38,191
Revolving Credit Note..................................... 13,469 9,123
Capitalized Lease Obligation................................ 1,367 1,280
Senior Subordinated Credit Note............................. 40,000 40,000
10% PIK Subordinated Notes (net of unamortized discounts of
$4,714 and $5,027 at December 31,1998 and 1997
respectively)............................................. 22,981 20,095
Accrued interest............................................ 1,034 1,123
-------- --------
Total................................................. 147,714 147,142
Less: current portion....................................... 10,620 5,417
-------- --------
$137,094 $141,725
======== ========
</TABLE>
CREDIT AGREEMENT
In connection with the Grace Acquisition, the Company entered into an
agreement (the "Credit Agreement") with Banque Paribas and several other lenders
on December 29, 1994 which provided for revolving credit advances of up to
$25,000,000 at any one time and term loans of $70,000,000. The term loans
consist of a Tranche A term loan, a Tranche B term loan, a French Franc term
loan, and a Yen term loan. On January 17, 1997, in connection with the NAPP
Acquisition, the Company amended and restated the Credit Agreement and provided
for revolving credit advances of up to $35,000,000 at any one time and term
loans of $90,000,000. On December 31, 1997, the Company amended and restated the
Credit Agreement to provide for lower interest rates in future periods. The
Credit Agreement extends through December 28, 2003. In connection with the new
credit agreement the Company capitalized the fees paid in 1997 and wrote off
$2,128,000 related to the old agreement. The financial statements have been
reclassified to disclose this amount as an extraordinary item. This amount was
previously disclosed as other expense.
The interest rates under the Credit Agreement are determined, at the
election of the Company, at either (a) a base rate (the higher of (i) the rate
of interest announced publicly by the Chase Manhattan Bank as its prime
commercial lending rate or (ii) the federal funds rate plus 0.5%) plus a
variable margin based on the Company's debt to EBITDA ratio which ranges from
.25% to 1.25% in the case of the Tranche A term loan, the French Franc term
loan, the Yen term loan, and the Revolving Credit Note, and 1% to 1.75% in the
case of the Tranche B term loan or (b) LIBOR, as adjusted by the terms of the
Credit Agreement, plus a variable margin based on the Company's debt to EBITDA
ratio which ranges from 1.25% to 2.25% in the case of the
F-15
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Tranche A term loan, the French Franc term loan, and the Yen term loan, and 2%
to 2.75% in the case of the Tranche B term loan. At December 31, 1998 the
weighted-average interest rates on the Tranche A term loan, Tranche B term loan,
French Franc term loan, Yen term loan, and the Revolving Credit Note were 7.0%,
7.5%, 5.1%, 2.2%, and 8.8%, respectively.
Borrowings under the Credit Agreement are guaranteed by the Company and each
of its direct and indirect wholly-owned subsidiaries, and such borrowings are
collateralized by security interests in (a) all the common stock of the Company
and each of its U.S. subsidiaries and 65% of the common stock of each foreign
subsidiary and (b) all assets (subject to certain limitations) owned by the
Company and its subsidiaries.
The Credit Agreement contains certain covenants which limit the Company with
respect to certain matters including, among other things, the ability to incur
additional debt, pay dividends, make acquisitions, merge, grant or incur liens,
guarantee obligations, make investments or loans, make capital expenditures,
create subsidiaries or change its line of business. The Company is also required
to satisfy certain financial covenants which require the Company to maintain
specified financial ratios and comply with certain financial tests including a
maximum leverage ratio; a minimum fixed charge coverage ratio; a minimum
interest coverage ratio; and minimum levels of earnings before interest, taxes,
depreciation and amortization. Prepayments of debt under the Credit Agreement
may be made by the Company at any time provided certain conditions are met with
respect to proper notice to the Lenders and minimum prepayment amounts.
On January 17, 1997, in connection with the NAPP Acquisition, the Company
borrowed $31,800,000 under the Tranche A term loan, $42,500,000 under the
Tranche B term loan, $10,700,000 under the French Franc term loan, and
$5,000,000 under the Yen term loan. The Tranche A term loan, the French Franc
term loan and the Yen term loan are payable in quarterly installments commencing
March 31, 1997 with the last installment payable on December 29, 2001. The
Tranche B term loan is payable in quarterly installments commencing March 31,
1997 with the last installment payable on December 28, 2003. All principal
payments under each of the term loans are accompanied by the accrued interest on
the principal being repaid to the date of payment.
The Company is required to prepay the term loan obligations (a) in the event
the Company receives asset sale proceeds, as defined, in excess of levels set
forth in the Credit Agreement, (b) within 100 days after the end of the fiscal
year in an amount equal to 50% of excess cash flow, as defined, for the
preceding fiscal year, and (c) in the event the Company receives proceeds from
the termination of any defined benefit plan.
Under the Revolving Credit Note, the Company has a borrowing limit equal to
the lesser of $35,000,000 or the Borrowing Base (the sum of 85% of eligible
receivables plus 50% of eligible inventory, as defined in the Credit Agreement),
which amounted to $35,000,000 at December 31, 1998. The Company pays a
commitment fee on the average daily unused portion of the Revolving Credit Note
at the rate of 0.5% per annum.
SENIOR SUBORDINATED CREDIT NOTE
In connection with the Grace Acquisition, the Company, through its
wholly-owned subsidiary, Polyfibron, entered into a Senior Subordinated Credit
Agreement (the "Subordinated Credit Agreement") with Citicorp Mezzanine
Partners, L.P. ("CMP") whereby the Company issued to CMP a $40,000,000 note
bearing interest at a rate of 13%, payable semiannually. The entire
F-16
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
outstanding note amount is due in full on December 31, 2004. The Company may
prepay the note in whole or in part any time after the first anniversary date,
subject to minimum prepayment amounts at premiums which range from 105% of
principal through December 31, 1996 to 101% of principal through December 31,
2000. No prepayments may be made against the note, however, unless (i) there are
no amounts outstanding under the Credit Agreement discussed above and all
commitments under the Credit Agreement have been terminated or (ii) the Credit
Agreement expressly permits such payments or the required Banks thereunder have
consented to such payment. Mandatory prepayments are required to be made, to the
extent not used to prepay amounts under the Credit Agreement, in the event (a)
the Company receives asset sale proceeds, as defined, in excess of levels set
forth in the Subordinated Credit Agreement; (b) of a public offering of the
Company's stock; or (c) the Company receives proceeds from the termination of
any defined benefit pension plan. The payment of the principal and interest on
the Senior Subordinate Note are subordinate and subject in right of payment to
the prior payment in full of all obligations under the Credit Agreement.
Borrowings under the Senior Subordinated Credit Note are guaranteed by the
Company and each of its direct and indirect wholly-owned subsidiaries, and such
borrowings are collateralized by security interests in (a) all common stock of
the Company and each of its U.S. subsidiaries and 65% of the common stock of
each foreign subsidiary and (b) all assets (subject to certain limitations)
owned by the Company and its subsidiaries, after satisfaction of the Credit
Agreement discussed above.
The Subordinated Credit Agreement contains certain covenants which limit the
Company with respect to certain matters including, among other things, the
ability to incur additional debt, pay dividends, make acquisitions, merge, grant
or incur liens, guarantee obligations, make investments or loans, make capital
expenditures, create subsidiaries or change its line of business. The Company is
also required to satisfy certain financial covenants which require the Company
to maintain specified financial ratios and comply with certain financial tests
including a minimum fixed charge coverage ratio and minimum levels of earnings
before interest, taxes, depreciation and amortization.
On December 29, 1994, the Company also entered into a Stock Purchase Warrant
Agreement (the "Warrant Agreement") with CMP which grants to CMP, or its
transferees or assigns, the right to purchase from the Company up to 150,000
shares of its Class B common stock at a price of $.01 per share. These warrants
are exercisable from the date of the Warrant Agreement through December 29,
2004. The exercise price and the number of shares obtainable under the Warrant
Agreement are subject to adjustment in the event the Company sells, or is deemed
to have sold, additional shares of its common stock in the future, other than in
connection with a permitted issuance, as defined in the Warrant Agreement.
10% PIK SUBORDINATED NOTES
In connection with the Grace Acquisition, the Company issued to Grace a
$9,500,000 PIK Subordinated Note bearing interest at a rate of 10%, payable
semiannually. The Note may be prepaid at any time at the option of the Company
(subject to the subordination provisions contained in the Note Agreement)
through its maturity date on December 29, 2006, at which time the entire
principal becomes due.
F-17
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On March 15, 1996, the Company elected to exchange all of its 7.5% Series 1
Senior Preferred Stock held by Grace for a 10% PIK Subordinated Note in the
aggregate principal amount of $10,390,400.
Both PIK Notes are uncollateralized, subordinated obligations of the Company
and rank (a) junior in right of payment to all existing and future Senior Debt
(as defined for purposes of the Note), including obligations of the Company
under the Credit Agreement and (b) senior in right of payment to or equal in
right of payment with all existing and future subordinated indebtedness.
Beginning June 15, 2000, these PIK notes require cash payment of interest.
CAPITALIZED LEASE OBLIGATION
The capitalized lease obligation represents the present value due in future
years for a warehouse under a noncancelable lease agreement. The Company has
discontinued the use of the warehouse and the related asset was written off. The
liability is payable in quarterly installments through December 2009. The net
present value of future lease payments was $1,367,000 at December 31, 1998, of
which $159,000 will be due within the next twelve months.
LONG-TERM DEBT
Aggregate principal payments of long-term debt for the next five years and
thereafter subsequent to December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 10,620
2000........................................................ 11,548
2001........................................................ 12,931
2002........................................................ 13,341
2003........................................................ 21,250
Thereafter.................................................. 78,024
--------
147,714
Less amounts representing accrued interest.................. 1,034
--------
$146,680
========
</TABLE>
7. CAPITAL TRANSACTIONS:
COMMON STOCK
The holder or holders of a majority of the outstanding shares of Class B
common stock shall be entitled at any time to convert any or all of the Class B
to Class A common stock. The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Class A common stock,
solely for the purpose of issuance upon the conversion of the Class B common
stock, such number of shares of Class A common stock issuable upon conversion of
all outstanding shares of Class B common stock.
The Company has authorized the issue and sale of up to 150,000 warrants with
an exercise price of $.01 per share, each of which may be exercised immediately
for one share of Class B common stock at a purchase price of $.01 per share. The
warrants expire December 29, 2004. The Company shall at all times reserve and
keep available out of its authorized but unissued shares,
F-18
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
solely for the purpose of issuance upon exercise of these warrants, the maximum
number of shares issuable upon the exercise of these warrants.
In addition, on December 29, 1994, the Company entered into a Registration
Rights Agreement with a majority of its Class A and Class B shareholders whereby
at any time the holders of a majority of the Investor Registrable Securities, as
defined in the Registration Rights Agreement, and at any time after the fifth
anniversary of the Registration Rights Agreement, the holders of the majority of
the CMP Registrable Securities, as defined, may request registration, under the
Securities Act of 1933 (the "Securities Act"), of all or part of their
Registrable Securities, subject to certain conditions. The Registration Rights
Agreement also grants to the parties certain rights in the event the Company
proposes to register any of its stock under the Securities Act.
REDEEMABLE PREFERRED STOCK
Also pursuant to the above-mentioned agreements, the Company authorized the
issue and sale of up to 9,500 shares of its 7.5% Series 1 Senior Exchangeable
Preferred Stock ("Senior Preferred Stock"), $1.00 par value, for a purchase
price of $1,000 per share; up to 4,920 shares of its 14% Series 2 Junior
Exchangeable Preferred Stock ("Series 2 Junior Preferred Stock"), $1.00 par
value, for a purchase price of $1,000 per share; up to 756 shares of its 14%
Series 3 Junior Exchangeable Preferred Stock ("Series 3 Junior Preferred
Stock"), $1.00 par value, for a purchase price of $1,000 per share; and up to
3,500 shares of its 14% Series 4 Junior Exchangeable Preferred Stock ("Series 4
Junior Preferred Stock"), $1.00 par value, for a purchase price of $428.57 per
share.
Each share of the Senior Preferred Stock entitles its holder to receive an
annual dividend of 7.5% of the liquidation value ($1,000 per share plus any and
all accumulated and unpaid dividends), compounded semiannually. Each share of
the Series 2, Series 3, and Series 4 Junior Preferred Stock entitles the holder
to receive an annual dividend of 14% of the liquidation value, compounded
semiannually. Such dividends accrue whether or not they have been declared and
whether or not there are profits, surpluses, or other funds of the Company
legally available for the payment of dividends. At the time the Company elects
to pay dividends in cash, the payments will be distributed first among the
holders of the Senior Preferred Stock based on the aggregate accrued but unpaid
dividends on the shares, except that the Company may pay cash dividends of up to
$1,000,000 per year on the Series 2 and Series 4 Junior Preferred Stock before
paying cash dividends on any other stock. If the Company pays the full amount of
dividends accrued with the respect to the Senior Preferred Stock, then the
Company may elect to pay all or any portion of the dividends accrued with
respect to the Series 2 Junior Preferred Stock. If the Company pays the full
amount of dividends accrued with respect to the Series 2 Junior Preferred Stock,
then the Company may elect to pay all or any portion of the dividends accrued
with respect to the Series 3 Junior Preferred Stock. If the Company pays the
full amount o dividends accrued with respect to the Series 3 Junior Preferred
Stock then the Company may elect to pay all or any portion of the dividends
accrued with respect to Series 4 Junior Preferred Stock.
Upon any liquidation, dissolution, or winding up of the Company, the order
of payments in cash equal to the aggregate liquidation value of each series of
preferred stock is as follows: Series 1 Senior Preferred Stock, then Series 2
Junior Preferred Stock, then Series 3 Junior Preferred Stock, then Series 4
Junior Preferred Stock, and then the Company's other equity securities.
F-19
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On December 29, 2006, the Company must redeem all issued and outstanding
shares of its Preferred Stock, if any, at a price per share equal to the
liquidation value. Also, subject to certain conditions contained within the debt
agreements entered into in connection with the Acquisition, the Company may at
any time redeem (i) first, all or any portion of the Senior Preferred Stock
outstanding, (ii) second, all or any portion of the Series 2 Junior Preferred
Stock outstanding, (iii) third, all or any portion of the Series 3 Junior
Preferred Stock outstanding, and (iv) fourth, all or any portion of the
Series 4 Junior Preferred Stock outstanding, each at a price per share equal to
the liquidation value thereof. Also, if a Change of Control has occurred at the
Company, the holders of a majority of each Series of Preferred Stock may require
the Company to redeem all or any portion of such series of Preferred Stock at a
price per share equal to the liquidation value thereof.
On March 15, 1996, the Company elected to exchange all of its 7.5% Series 1
Senior Preferred Stock held by Grace for a 10% PIK Subordinated Note in the
aggregate principal amount of $10,390,400. At any time after the exchange of all
Senior Preferred Stock into PIK Subordinated Notes, the Series 2 Junior
Preferred Stock, the Series 3 Junior Preferred Stock, and the Series 4 Junior
Preferred Stock are exchangeable, respectively, into Series 2 Junior Notes,
Series 3 Junior Notes, and Series 4 Junior Notes, at the option of the Company.
Also, at any time after December 29, 1999, each holder of the Senior Preferred
Stock, Series 2 Junior Preferred Stock, Series 3 Junior Preferred Stock, or
Series 4 Junior Preferred Stock may elect to exchange all such holder's
Preferred Stock for a PIK Subordinated Note of the same value.
Net proceeds from the sales of preferred stock under the above-mentioned
agreements yielded $16,675,500, in exchange for the issuance of 9,500 shares of
Senior Preferred Stock, 4,919.5 shares of Series 2 Junior Preferred Stock, 756
shares of Series 3 Junior Preferred Stock, and 3,500 shares of Series 4 Junior
Preferred Stock. In 1998, dividends of $1,431,000 accumulated on the Preferred
Stock, of which $1,000,000 were paid in 1998.
Components of Preferred Stock are as follows:
<TABLE>
<CAPTION>
SERIES 1 SERIES 2 SERIES 3 SERIES 4 TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
12/31/95 balance........................ $ 5,430 $4,978 $ 866 $1,507 $12,781
Accrue Dividends........................ 160 663 126 501 1,450
Cash Dividends Paid..................... -- (680) -- (320) (1,000)
Amortize Discount....................... -- -- -- 323 323
Convert to PIK Note..................... (5,590)(a) -- -- -- (5,590)
------- ------ ------ ------ -------
12/31/96 balance........................ -- 4,961 992 2,011 7,964
Accrue Dividends........................ -- 692 136 544 1,372
Cash Dividends Paid..................... -- (680) (24) (319) (1,023)
Amortize Discount....................... -- -- -- 93 93
------- ------ ------ ------ -------
12/31/97 balance........................ -- 4,973 1,104 2,329 8,406
Accrue Dividends........................ -- 693 160 578 1,431
Cash Dividends Paid..................... -- (680) -- (320) (1,000)
Amortize Discount....................... -- -- -- 107 107
------- ------ ------ ------ -------
12/31/98 balance........................ $ -- $4,986 $1,264 $2,694 $ 8,944
======= ====== ====== ====== =======
</TABLE>
- --------------------
(a) Series 1 converted to PIK note on March 31, 1996.
F-20
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NET INCOME PER COMMON SHARE
In accordance with SFAS No. 128, "Earnings per Share," the Company presents
basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. A reconciliation of basic
EPS to diluted EPS and dual presentation on the face of the statement of income
are also required.
Calculation of per share earnings is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ---------- ------------
(IN THOUSANDS EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C>
BASIC:
Net income (loss).................................. $ 19,343 $ (730) $ 4,752
Less: preferred stock dividends.................... 1,431 1,372 1,450
---------- -------- ----------
Income (loss) available to common shareholders..... 17,912 (2,102) 3,302
Weighted average common shares outstanding......... 855,000 851,250 850,000
Net income (loss) per share before extraordinary
item, basic...................................... $ 20.95 $ (.92) $ 3.88
Extraordinary item................................. -- (1.55) --
Net income (loss) per share, basic................. 20.95 (2.47) 3.88
DILUTED:
Net income (loss).................................. $ 19,343 $ (730) $ (4,752)
Less: preferred stock dividends.................... 1,431 1,372 1,450
---------- -------- ----------
Income (loss) available to common shareholders..... 17,912 (2,102) 3,302
Weighted average common shares outstanding......... 855,000 851,250 850,000
Common stock equivalents........................... 150,000 150,000
---------- -------- ----------
Total weighted average shares...................... 1,005,000 851,250 1,000,000
Net income (loss) per share before extraordinary
item, diluted.................................... $ 17.82 $ (.92) $ 3.30
---------- -------- ----------
Extraordinary item................................. -- (1.55) --
Net income (loss) per share, diluted............... $ 17.82 $ (2.47) $ 3.30
</TABLE>
In 1997, common share equivalents are not included in the calculation of
diluted earnings per share as they are anti-dilutive.
F-21
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES:
The income tax provision for the years ended December 31, 1998, 1997 and
1996 consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current income taxes:
Federal................................................. $ 7,800 $10,031 $2,380
State................................................... 1,628 1,174 420
Foreign................................................. 2,211 1,039 850
------- ------- ------
11,639 12,244 3,650
------- ------- ------
Deferred income taxes:
Federal................................................. (2,313) (1,587) 187
State................................................... (415) (181) 5
Foreign................................................. 1,150 135 (394)
------- ------- ------
(1,578) (1,633) (202)
------- ------- ------
$10,061 $10,611 $3,448
======= ======= ======
</TABLE>
The domestic and foreign components of income before income tax expense are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Domestic.................................................. $23,764 $ 7,830 $6,585
Foreign................................................... 5,640 3,373 1,615
------- ------- ------
Total..................................................... 29,404 11,203 8,200
======= ======= ======
</TABLE>
F-22
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred taxes included in the balance sheet as of
December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts receivable....................................... $ 447 $ 310
Accrued pension and other benefits........................ 824 716
Miscellaneous accruals.................................... 1,509 2,210
Assets held for sale reserve.............................. 696 783
Intercompany and inventory-related transactions........... 2,634 1,266
Intangible assets......................................... 4,413 3,322
Net operating loss and credit carryforwards............... -- 261
Foreign tax credit........................................ -- 853
-------- --------
10,523 9,721
-------- --------
Valuation allowance....................................... -- (853)
-------- --------
Tax assets................................................ 10,523 8,868
-------- --------
Deferred tax liabilities:
Fixed assets.............................................. $ (8,573) (7,642)
Other..................................................... (2,052) (1,248)
Discount on notes......................................... (1,746) (1,922)
Purchase accounting reserves and tax basis differences.... (5,941) (7,336)
-------- --------
(18,312) (18,148)
-------- --------
Net deferred tax liabilities.............................. $ (7,789) $ (9,280)
======== ========
</TABLE>
The United States federal corporate tax rate reconciles to the effective tax
rate as follows for the years ended December 31, 1998, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Federal tax at statutory rate............................. $10,193 $ 4,061 $2,692
State taxes, net of federal benefit....................... 788 791 281
Foreign taxes............................................. 769 (120) 257
Research and development write-off........................ -- 3,976 --
Reduction of valuation allowance and increased tax
credits................................................. (1,107) -- --
Research and experimental tax credits..................... (259) -- --
Other..................................................... (323) 1,903 218
------- ------- ------
$10,061 $10,611 $3,448
======= ======= ======
</TABLE>
F-23
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES:
The Company leases a variety of assets for use in its operations, including
its corporate offices. Minimum rental payments under operating leases that have
noncancelable lease terms in excess of twelve months are as follows (in
thousands):
<TABLE>
<S> <C>
1999........................................................ $1,521
2000........................................................ 924
2001........................................................ 789
2002........................................................ 601
2003........................................................ 601
------
Minimum lease payments...................................... $4,436
======
</TABLE>
Rental expense under operating leases was $1,962,000, $1,101,000, and
$1,080,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
The Company is subjected to lawsuits and claims arising out of the conduct
of its business. Management and its counsel believe that these matters are
without merit or will not have a material impact on the financial position or
results of operations of the Company.
10. RETIREMENT BENEFIT PLANS:
The Company maintains three retirement benefit plans covering substantially
all United States employees as follows:
CONTRIBUTORY BENEFIT PLAN
The Company sponsors a qualified defined contribution plan covering
substantially all full-time employees. The Company matches 50% of a
participant's voluntary contributions up to a maximum of 3% of a participant's
annual compensation. The Company can also make an additional contribution to the
plan at the discretion of the Board of Directors. The Company's contribution
expense for the years ended December 31, 1998, 1997 and 1996 was $722,600,
$649,020, and $760,900, respectively.
NONCONTRIBUTORY BENEFIT PLAN
Retirement benefits for all nonunion employees are also provided through a
noncontributory defined contribution plan. Under the terms of the Plan, the
Company contributes 5% of each covered employee's salary. For the years ended
December 31, 1997, 1996 and 1995 the cost of the plan charged to operations was
$1,567,860, $1,041,720, and $803,070, respectively.
DEFINED BENEFIT PLAN
The Company maintains a pension plan designed to provide guaranteed minimum
retirement benefits to all union employees at the Adams plant. It is the
Company's policy to fund retirement costs to meet the minimum funding
requirements as outlined by ERISA. Plan benefits are calculated using a
combination of years of service, final average earnings and age. The minimum
funding requirement for the year ended December 31, 1998 was $93,972. Due to the
immaterial
F-24
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
nature of this plan and the few number of employees covered, disclosures
required by SFAS No. 132 have been omitted.
In addition, at December 31, 1998 unfunded indemnity obligations of
$1,040,600 have been recorded to accrue the present value of future indemnity
obligations for eligible, active Rollin employees.
SEGMENT REPORTING
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards
for reporting information regarding operating segments and related disclosures
about products and services, geographic areas and major customers.
The Company is active in one business segment: designing, manufacturing and
marketing products for the printing industry. The Company maintains sales and
marketing operations in North America, Europe, Asia/Pacific and Latin America.
GEOGRAPHIC SEGMENT DATA
Geographic information as of and for the years ended December 31, 1998, 1997
and 1996 is presented as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net Sales:
North America.......................................... 142,784 137,820 70,197
Europe................................................. 56,911 49,951 52,139
Asia/Pacific........................................... 16,858 18,242 17,915
Latin America.......................................... 11,403 8,496 6,326
------- ------- -------
227,956 214,509 146,577
======= ======= =======
Net Income (Loss):
North America.......................................... 14,428 (4,074) 2,686
Europe................................................. 3,189 1,711 397
Asia/Pacific........................................... (456) (6) 405
Latin America.......................................... 2,182 1,639 1,264
------- ------- -------
19,343 (730) 4,752
======= ======= =======
Total Assets:
North America.......................................... 130,870 124,774 62,090
Europe................................................. 81,635 59,864 64,958
Asia/Pacific........................................... 14,713 11,227 10,370
Latin America.......................................... 3,793 2,070 1,727
------- ------- -------
231,011 197,935 139,145
======= ======= =======
</TABLE>
F-25
<PAGE>
PTI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENTS (UNAUDITED):
The Company announced on January 22, 1999 that it signed a Definitive
Agreement with Nippon Paint (USA), Inc. to acquire the stock of Supratech
Systems, Inc. (SSI), a producer and marketer of waterwash flexographic plate
material, located in Charlotte, North Carolina.
On January 27, 1999, Polyfibron sold EEC, a business owned by the Company's
French subsidiary. The Company received $1,569,000 for a portion of the net
assets of EEC.
The Company announced on February 19, 1999 that it signed a definitive
agreement to be acquired by MacDermid Incorporated, headquartered in Waterbury,
Connecticut. MacDermid is a company that supplies specialty chemicals and
systems for the chemical treatment, surface preparation and electroplating of
metal, plastic and other materials. This transaction is expected to be accounted
for by a pooling of interests. The agreement, as amended provides for MacDermid
to issue a minimum of 6,873,000 and a maximum of 7,127,000 shares of common
stock.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
PTI, INC.
SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1998 BY QUARTERS ($ IN THOUSANDS EXCEPT PER SHARE DATA)
---------------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $56,258 $57,236 $54,692 $59,770 $227,956
Gross profit................................. 25,572 26,696 24,172 26,809 103,249
Net earnings available to common
shareholders............................... 4,145 4,048 3,065 6,654 17,912
Diluted earnings per share................... 4.12 4.03 3.05 6.62 17.82
</TABLE>
<TABLE>
<CAPTION>
1997 BY QUARTERS ($ IN THOUSANDS EXCEPT PER SHARE DATA)
---------------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $49,732 $55,330 $51,933 $57,514 $214,509
Gross profit................................. 21,058 23,809 23,480 27,745 96,092
Net income/(loss) before extraordinary
item....................................... (7,900) 1,585 2,847 4,060 592
Net earnings/(loss) available to common
shareholders............................... (9,560) 1,246 2,500 3,712 (2,102)
Earnings/(loss) per share before
extraordinary item......................... (9.69) 1.25 2.50 3.69 (.92)
Diluted earnings/(loss) per share............ (11.25) 1.25 2.50 3.69 (2.47)
</TABLE>
F-26
<PAGE>
PTI, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
JUNE 30, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
1999 1998
-------- --------
<S> <C> <C>
Cash and cash equivalents................................... $ 2,148 $ 3,950
Accounts receivable, net of allowance for doubtful accounts
of $3,690 and $3,806 at June 30, 1999 and December 31,
1998, respectively........................................ 54,046 51,379
Inventories (Note 2)........................................ 56,935 48,403
Deferred income taxes....................................... 2,613 2,734
Other current assets........................................ 6,724 7,378
-------- --------
Total current assets.................................... 122,466 113,844
Property, plant and equipment, net (Note 2)................. 90,126 87,234
Goodwill (net of accumulated amortization of $1,577 and
$1,192 at June 30, 1999 and December 31, 1998,
respectively)............................................. 16,906 13,424
Intangible assets (net of accumulated amortization of
$15,690 and $13,679 at June 30, 1999 and December 31,
1998, respectively)....................................... 6,796 8,162
Other assets................................................ 9,033 8,347
-------- --------
Total assets............................................ $245,327 $231,011
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt........................... $ 11,834 $ 10,620
Accounts payable............................................ 21,053 23,774
Salaries and related benefits............................... 6,419 7,578
Income taxes payable........................................ 9,689 8,641
Accrued liabilities......................................... 10,887 8,836
-------- --------
Total current liabilities............................... 59,882 59,449
Long-term debt.............................................. 148,825 137,094
Deferred income taxes....................................... 10,111 10,523
Other liabilities........................................... 2,493 2,634
-------- --------
Total liabilities....................................... 221,311 209,700
Commitments and Contingencies (Note 5)
Redeemable preferred stock at liquidation value:
14% Series 2 junior exchangeable preferred stock.......... 5,333 4,986
14% Series 3 junior exchangeable preferred stock.......... 1,355 1,264
14% Series 4 junior exchangeable preferred stock, net of
unamortized discount of $1,581 and $1,642 at June 30,
1999 and December 31, 1998, respectively................ 3,063 2,694
-------- --------
Total redeemable preferred stock........................ 9,751 8,944
Stockholders' equity:
Class A common stock, $.01 par value, 1,005,000 shares
authorized, 100 shares issued and outstanding........... -- --
Class B common stock, $.01 par value, 1,004,900 shares
authorized, 854,900 shares issued and outstanding....... 9 9
Capital in excess of par value............................ 879 879
Retained earnings/(deficit)............................... 20,137 13,425
Accumulated other comprehensive income:
Cumulative translation adjustment....................... (6,760) (1,946)
-------- --------
Total stockholders' equity.............................. 14,265 12,367
-------- --------
Total liabilities and stockholders' equity.............. $245,327 $231,011
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
PTI, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net sales................................................... $ 120,177 $ 113,494
Cost of goods sold.......................................... 68,953 61,226
--------- ---------
Gross profit................................................ 51,224 52,268
Selling and customer technical support expenses............. 17,537 14,681
General and administrative expenses......................... 9,311 9,336
Research and development expenses........................... 3,807 4,500
Amortization expense........................................ 2,498 2,410
--------- ---------
Total operating expenses................................ 33,153 30,927
Income from operations...................................... 18,071 21,341
Other (income)/expense, net:
Interest expense.......................................... 6,955 6,997
(Gain) on sale of assets (Note 4)......................... (1,426) --
Other (income)/expense, net............................... 414 (397)
--------- ---------
Total other (income)/expense............................ 5,943 6,600
Income before taxes......................................... 12,128 14,741
Provision for income taxes.................................. 4,609 5,861
--------- ---------
Net income.................................................. 7,519 8,880
Other comprehensive income/(loss):
Foreign currency translation, net of tax.................. (3,130) 424
--------- ---------
Comprehensive income........................................ 4,389 9,304
Preferred stock dividends................................... 746 687
--------- ---------
Net income available to common shareholders................. 6,773 8,193
========= =========
Weighted average outstanding common shares:
Basic..................................................... 855,000 855,000
Diluted................................................... 1,005,000 1,005,000
Net earnings per common share:
Basic..................................................... 7.92 9.58
Diluted................................................... $ 6.74 $ 8.15
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE>
PTI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 7,519 $ 8,880
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 6,825 6,161
(Gain) on sale of assets................................ (855) --
Deferred income taxes................................... (196) (401)
Provision for doubtful accounts receivable.............. 128 17
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............ (4,492) (3,405)
(Increase) decrease in inventories.................... (9,716) (3,248)
(Increase) decrease in other current assets........... 665 (2,355)
(Increase) decrease in other long-term assets......... (253) (1,709)
Increase (decrease) in other long-term liabilities.... (55) (468)
Increase (decrease) in accounts payable and other
current liabilities................................. 24 39
-------- --------
Net cash provided by (used in) operating activities......... (406) 3,511
Cash flows from investing activities:
Net investment in acquisitions............................ (11,667) --
Proceeds from sale of assets.............................. 2,141 --
Investment in long-term assets............................ (6,068) (3,984)
-------- --------
Net cash used in investing activities....................... (15,594) (3,984)
Cash flows from financing activities:
Repayments of debt........................................ (28,368) (33,667)
Borrowings from line of credit............................ 44,920 33,563
Bank overdraft and other.................................. (1,475) (243)
-------- --------
Net cash provided by (used in) financing activities......... 15,077 (347)
Net effect of exchange rate changes on cash and cash
equivalents............................................... (879) 936
-------- --------
Net increase (decrease) in cash and cash equivalents........ (1,802) 116
Cash and cash equivalents, beginning of year................ 3,950 1,244
-------- --------
Cash and cash equivalents, end of year...................... $ 2,148 $ 1,360
======== ========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 5,357 $ 5,553
Income taxes paid......................................... $ 3,985 $ 6,741
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE>
PTI, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. The information furnished has been prepared from the accounts without
audit. In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments necessary, consisting only of those of a
normal recurring nature, to present fairly its consolidated financial position
as of June 30, 1999 and the consolidated results of its operations and cash
flows for the six months ended June 30, 1999 and 1998.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, these statements should be read in
conjunction with the consolidated financial statements and the related notes
included in the Company's financial statements, included elsewhere herein, for
the year ended December 31, 1998.
The results of operations for the six-month period ended June 30, 1999 are
not necessarily indicative of the results expected for the full year.
2. Details of certain balance sheet captions are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
1999 1998
-------- --------
<S> <C> <C>
Inventories:
Raw and packaging materials........................... 15,707 16,317
Work in process....................................... 8,072 7,014
Finished goods........................................ 33,156 25,072
-------- --------
$56,935 $ 48,403
======== ========
Property and equipment:
Land.................................................. 5,756 5,705
Buildings............................................. 41,237 39,731
Machinery and equipment............................... 80,731 76,433
Construction in progress.............................. 9,411 12,756
-------- --------
137,135 134,625
Accumulated depreciation.............................. (46,455) (47,391)
-------- --------
$ 90,680 $ 87,234
======== ========
</TABLE>
F-30
<PAGE>
PTI, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
3. The calculation of per share earnings is as follows (amounts in
thousands except per share):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, JUNE 30, JUNE 30,
--------------------- --------------------- ---------------------
1999 1998 1999 1998 1999 1998
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC:
Net income................... $ 3,258 $ 4,488 $ 4,261 $ 4,392 $ 7,519 $ 8,880
Less: preferred stock
dividends.................. 373 343 373 344 746 687
--------- --------- --------- --------- --------- ---------
Net income available to
common shareholders........ 2,885 4,145 3,888 4,048 6,773 8,193
Weighted average common
shares outstanding......... 855,000 855,000 855,000 855,000 855,000 855,000
Net income per share,
basic...................... $ 3.37 $ 4.85 $ 4.55 $ 4.73 $ 7.92 $ 9.58
========= ========= ========= ========= ========= =========
DILUTED:
Net income................... $ 3,258 $ 4,488 $ 4,261 $ 4,392 $ 7,519 $ 8,880
Less: preferred stock
dividends.................. 373 343 373 344 746 687
--------- --------- --------- --------- --------- ---------
Net income available to
common shareholders........ 2,885 4,145 3,888 4,048 6,773 8,193
Weighted average common
shares outstanding......... 855,000 855,000 855,000 855,000 855,000 855,000
Common stock equivalents..... 150,000 150,000 150,000 150,000 150,000 150,000
--------- --------- --------- --------- --------- ---------
Total weighted average
shares..................... 1,005,000 1,005,000 1,005,000 1,005,000 1,005,000 1,005,000
Net income per share,
diluted.................... $ 2.87 $ 4.12 $ 3.87 $ 4.03 $ 6.74 $ 8.15
========= ========= ========= ========= ========= =========
</TABLE>
4. Acquisitions and Dispositions:
In March 1999, PTI acquired all of the outstanding stock of International
Composites Corporation, Inc., located in Vancouver, Washington for $6.0 million.
This transaction is being accounted for as a purchase business combination. The
excess of the purchase price over the fair value of identifiable net assets
amounted to $3.6 million. PTI will amortize this goodwill using the straight
line method over its estimated useful life of twenty years. International
Composites Corporation has been renamed Axcyl, Inc. Axcyl manufactures sleeve
systems which are complementary to the products manufactured by Axcyl S.A. in
France.
In February 1999, PTI acquired all of the outstanding stock of Supratech,
Inc., a Delaware corporation, from Nippon Paint (USA) Inc. and Nippon Paint Co.,
Ltd. for $5.6 million. The transaction is being accounted for as a purchase
business combination. The excess of the purchase price over the fair value of
identifiable assets amounted to $0.4 million. PTI will amortize this goodwill
using the straight line method over its estimated useful life of twenty years.
Supratech produces and markets waterwash, flexographic plate material.
In January 1999, PTI sold EEC, a business owned by its French subsidiary.
PTI received $1.6 million for a portion of the net assets of EEC and recorded an
after-tax gain of $0.5 million. In June 1999, PTI sold textile blanket splicing
equipment and recorded an after tax gain on the sale of $0.3 million. Neither
the sale of the EEC business nor the textile equipment is not expected to have a
material impact on PTI's future operations.
F-31
<PAGE>
PTI, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1998, PTI acquired all of the outstanding stock of Jager Jeune,
S.A., a French company, primarily engaged in the conversion and distribution of
offset printing blankets.
In April 1998, PTI acquired all of the outstanding stock of Axcyl Composite,
S.A., a French company, which manufactures sleeve systems made of advanced
composite materials for use in flexographic printing applications.
The operating results of the above acquisitions, all of which were accounted
for under the purchase method of accounting, have been included in the
consolidated statements of operations from the date of acquisition. The
following unaudited pro forma information has been prepared assuming all
acquisitions occurred at the beginning of the respective periods (dollars in
thousands except per share):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Net sales............................................... $121,894 $126,636
Cost of goods sold...................................... 69,963 70,354
Net income.............................................. 7,532 8,954
Earnings per share:
Basic................................................. 7.94 9.67
Diluted............................................... 6.75 8.23
</TABLE>
5. Selected Quarterly Financial Data ($ in thousands except per share):
<TABLE>
<CAPTION>
1999 BY QUARTERS
------------------------------
MARCH JUNE JUNE YTD
-------- -------- --------
<S> <C> <C> <C>
Net sales....................................... $57,086 $63,091 $120,177
Gross profit.................................... 24,020 27,204 51,224
Net income...................................... 3,258 4,261 7,519
Net earnings available to common shareholders... 2,885 3,888 6,773
Diluted earnings per share...................... 2.87 3.87 6.74
</TABLE>
<TABLE>
<CAPTION>
1998 BY QUARTERS
------------------------------
MARCH JUNE TOTAL
-------- -------- --------
<S> <C> <C> <C>
Net sales....................................... $56,258 $57,236 $113,494
Gross profit.................................... 25,572 26,696 52,268
Net income...................................... 4,488 4,392 8,880
Net earnings available to common shareholders... 4,145 4,048 8,193
Diluted earnings per share...................... 4.12 4.03 8.15
</TABLE>
F-32
<PAGE>
PTI, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
6. Commitments and Contingencies:
The Company leases a variety of assets for use in its operations, including
its corporate offices. Minimum rental payments under operating leases that have
noncancelable lease terms in excess of twelve months are as follows (in
thousands):
<TABLE>
<S> <C>
1999........................................................ $1,521
2000........................................................ 924
2001........................................................ 789
2002........................................................ 601
2003........................................................ 601
------
Minimum lease payments...................................... $4,436
======
</TABLE>
The Company is subjected to lawsuits and claims arising out of the conduct
of its business. Management believes that these matters are without merit or
will not have a material impact on the financial position or results of
operations of the Company.
F-33
<PAGE>
APPENDIX A
PLAN AND AGREEMENT OF MERGER
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<C> <S> <C>
SECTION 1. DEFINITIONS................................................. A-6
SECTION 2. MERGER...................................................... A-12
2.1 General..................................................... A-12
2.2 Closing..................................................... A-12
2.3 Actions at Closing.......................................... A-12
2.4 Effect of Merger............................................ A-12
2.5 Buyer Warrants.............................................. A-14
2.6 Anti-Dilution............................................... A-14
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER.................... A-15
3.1 Organization, Qualification, and Corporate Power............ A-15
3.2 Authorization of Merger..................................... A-15
3.3 Noncontravention............................................ A-15
3.4 Capitalization of Seller and its Subsidiaries............... A-15
3.5 Subsidiaries................................................ A-16
3.6 Financial Statements........................................ A-16
3.7 Litigation.................................................. A-16
3.8 Absence of Certain Developments............................. A-16
3.9 Taxes....................................................... A-18
3.10 Environmental, Health, and Safety Matters................... A-19
3.11 Employee Benefit Plans...................................... A-19
3.12 Proprietary Rights.......................................... A-21
3.13 Year 2000................................................... A-22
3.14 Inventories................................................. A-23
3.15 Accounts Receivable......................................... A-23
3.16 Tangible Property........................................... A-23
3.17 Books and Records........................................... A-23
3.18 Brokers' Fees............................................... A-24
3.19 Tax-Free Reorganization Representations..................... A-24
3.20 Pooling of Interest Treatment............................... A-24
3.21 Certain Contracts........................................... A-25
3.22 Absence of Improper Payments................................ A-25
3.23 Insurance................................................... A-25
3.24 Employees................................................... A-26
3.25 Disclosure.................................................. A-26
SECTION 4. CVC REPRESENTATIONS AND WARRANTIES.......................... A-26
4.1 Organization and Corporate Power............................ A-26
4.2 Authorization of Merger..................................... A-26
4.3 Noncontravention............................................ A-26
4.4 Agency Agreement............................................ A-26
4.5 CVC Shares.................................................. A-26
4.6 Securities Law Issues....................................... A-26
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<C> <S> <C>
4.7 Tax-Free Reorganization..................................... A-27
4.8 Pooling of Interest Treatment............................... A-27
4.9 Disclosure.................................................. A-27
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB...... A-27
5.1 Organization, Qualification, and Corporate Power............ A-27
5.2 Authorization of Merger..................................... A-27
5.3 Noncontravention............................................ A-28
5.4 Capitalization.............................................. A-28
5.5 SEC Filings................................................. A-28
5.6 Financial Statements........................................ A-28
5.7 Litigation.................................................. A-29
5.8 Absence of Certain Developments............................. A-29
5.9 Taxes....................................................... A-29
5.10 Environmental, Health, and Safety Matters................... A-29
5.11 Employee Benefit Plans...................................... A-30
5.12 Broker's Fee................................................ A-31
5.13 Tax-Free Reorganization Representations..................... A-31
5.14 Pooling of Interest Treatment............................... A-32
5.15 Disclosure.................................................. A-32
SECTION 6. COVENANTS................................................... A-32
6.1 General..................................................... A-32
6.2 Joint Proxy Statement -- Prospectus and S-4 Registration
Statement; Stockholder Approval; NYSE Listing............. A-32
6.3 Other Regulatory Matters and Approvals...................... A-34
6.4 Seller's Interim Operation of Business...................... A-35
6.5 Covenants of Buyer.......................................... A-36
6.6 Access...................................................... A-37
6.7 Notice of Developments...................................... A-38
6.8 Acquisition Proposals....................................... A-38
6.9 Board of Directors.......................................... A-38
6.10 Financing................................................... A-38
6.11 Press Releases and Public Announcements..................... A-39
6.12 Covenants of CVC............................................ A-39
SECTION 7. CONDITIONS TO CLOSING....................................... A-40
7.1 Joint Conditions to Obligations of Buyer, Merger Sub and
Seller.................................................... A-40
7.2 Conditions to Obligations of Buyer and Merger Sub........... A-40
7.3 Conditions to Obligations of Seller......................... A-42
SECTION 8. INDEMNIFICATION............................................. A-42
8.1 Agreements to Indemnify..................................... A-42
8.2 Limitations on Indemnification.............................. A-43
8.3 Method of Asserting and Resolving Claims.................... A-44
SECTION 9. TERMINATION AND ITS CONSEQUENCES............................ A-46
9.1 Termination of Agreement.................................... A-46
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<C> <S> <C>
9.2 Effect of Termination....................................... A-46
9.3 Termination Fee............................................. A-46
SECTION 10. MISCELLANEOUS............................................... A-47
10.1 Representations and Survival................................ A-47
10.2 No Third Party Beneficiaries................................ A-47
10.3 Entire Agreement............................................ A-47
10.4 Succession and Assignment................................... A-47
10.5 Counterparts and Delivery................................... A-47
10.6 Notices..................................................... A-47
10.7 Governing Law............................................... A-48
10.8 Consent to Jurisdiction..................................... A-48
10.9 Waiver of Jury Trial........................................ A-48
10.10 Amendments and Waivers...................................... A-48
10.11 Construction................................................ A-48
10.12 Time is of the Essence; Computation of Time................. A-49
10.13 Specific Performance........................................ A-49
</TABLE>
A-4
<PAGE>
SCHEDULES
<TABLE>
<S> <C>
Seller Schedules
2.4(e) Distribution of Buyer Shares Among Seller Stockholders
3.1 Organization, Qualification and Corporate Power
3.3 Seller Noncontravention
3.4 Capitalization of Seller and Subsidiaries
3.5 Subsidiaries
3.6 Financial Statements
3.7 Litigation
3.8 Absence of Certain Developments
3.9(a) Tax Returns of Seller Subject to IRS Audit
3.9(b) Tax Indemnification, Tax Allocation and Tax Sharing
Agreements
3.10(a) Non-Compliance with Environmental, Health and Safety Matters
3.10(b) Environmental Investigations, Studies, Reviews, Audits,
Tests and Other Analyses
3.11 Employee Benefit Plans
3.12 Proprietary Rights
3.14 Inventories
3.16 Real Property
3.17 Books and Records
3.20 Seller Affiliates
3.21(a) Contracts
3.23 Insurance
3.24 Employees
Buyer's Schedules
5.3 Buyer Noncontravention
5.4 Capitalization
5.6 Financial Statements
5.8 Absence of Certain Developments
5.9(a) Tax Returns of Buyer Subject to IRS Audit Tax
Indemnification, Tax Allocation and Tax Sharing
5.9(b) Agreements
5.10 Environmental, Health and Safety Matters
Other Schedules
1 Seller Stockholders
6.4(g) Increases in Compensation or Fringe Benefits; Bonuses
EXHIBITS
EXHIBIT A Form of Agency Agreement
EXHIBIT B Form of Escrow Agreement
EXHIBIT C Form of Registration Rights Agreement
EXHIBIT D Form of Seller Affiliate Agreement
</TABLE>
A-5
<PAGE>
PLAN AND AGREEMENT OF MERGER
This Plan and Agreement of Merger is entered into as of February 18, 1999,
by and among MacDermid, Incorporated, a Connecticut corporation ("BUYER"), MCD
Acquisition Corp., a Delaware corporation ("MERGER SUB") and wholly owned
subsidiary of Buyer, PTI, Inc., a Delaware corporation ("SELLER"), and Citicorp
Venture Capital, Ltd., a New York corporation ("CVC"). Buyer, Merger Sub,
Seller, and CVC are referred to collectively herein as the "PARTIES."
RECITALS
The respective boards of directors of Buyer and Seller have approved this
agreement and declared its advisability, having determined that it would be
consistent with and in furtherance of the long-term business strategy of Buyer
and Seller, as applicable, and that it would be fair to and in the best
interests of Buyer, Seller and their respective stockholders, to engage in a
transaction whereby Seller and the Merger Sub will merge on the terms described
herein (the "MERGER").
For federal income tax purposes, it is intended that the Merger qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE"), and that as a consequence each Seller Stockholder will not
recognize income or loss for federal income tax purposes except to the extent
they receive cash in lieu of fractional shares or as a holder of Dissenting
Shares (as defined herein).
Therefore, in consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties, and covenants
herein contained, the Parties agree as follows.
SECTION 1. DEFINITIONS.
In this Agreement:
"AAA RULES" has the meaning given to that term in Section 8.3.
"AGENCY AGREEMENT" means that certain agreement, to be dated as of the
Closing Date, among CVC, the Management Representative, all other Seller
Stockholders (other than Seller Stockholders who have perfected dissenters
rights) and CMP, which agreement shall be in substantially the form of
EXHIBIT A hereto.
"ACQUISITION PROPOSAL" means, with respect to any Person, any proposal
(other than any proposal with respect to the Merger) regarding (i) any merger,
consolidation, share exchange, business combination or other similar transaction
or series of related transactions involving that Person or any Subsidiary of
that Person; (ii) any sale, lease, exchange, transfer or other disposition of
the assets of that Person or any of its Subsidiaries; and (iii) any offer to
purchase, tender offer, exchange offer or any similar transaction or series of
related transactions made by any other Person involving the outstanding shares
of any class of capital stock of that Person or the filing of any Statement on
Schedule 14D-1 with the SEC in connection therewith.
"AFFILIATE" means, with respect to any Person, any other Person controlling,
controlled by or under common control with such Person. As used in this
definition, "CONTROL" (including, with its correlative meanings, "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH") means the possession, directly or indirectly,
of power to direct or cause the direction of the management and policies of a
Person whether through the ownership of voting securities, by contract or
otherwise.
"ARBITRATION NOTICE" has the meaning given to that term in Section 8.3.
"BENEFIT PLAN" has the meaning given to that term in Section 3.11.
A-6
<PAGE>
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday or Friday
that banks located in New York, New York are not required or permitted by law to
be closed.
"BUYER AFFILIATE" has the meaning given to that term in Section 6.2(i).
"BUYER BOARD OF DIRECTORS" means the board of directors of Buyer as
constituted from time to time.
"BUYER COMMON STOCK" means Buyer Common Stock, no par value per share.
"BUYER SHARE" means a share of Buyer Common Stock issued in the Merger.
"BUYER SPECIAL MEETING" means a meeting of holders of Buyer Common Stock at
which such holders will vote on a proposal to approve this Agreement.
"BUYER STOCKHOLDER APPROVAL" means the affirmative vote of the holders of a
majority of the outstanding shares of Buyer Common Stock in favor of the
approval of the Merger Agreement in accordance with the certificate of
incorporation and bylaws of Buyer and the NYSE Rule.
"BUYER WARRANTS" means the Escrow Warrant and the Closing Warrant to
purchase Buyer Shares issued pursuant to Section 2.5 in substitution for the CMP
Warrant.
"CERTIFICATE OF MERGER" has the meaning given to that term in Section 2.3.
"CLAIM NOTICE" has the meaning given to that term in Section 8.3.
"CLOSING" and "CLOSING DATE" have the meanings given to those terms in
Section 2.2.
"CLOSING WARRANT" means the warrant to purchase Buyer Shares as defined in
Section 2.5(c).
"CMP" means Citicorp Mezzanine Partners, L.P.
"CMP WARRANT" means the warrant to purchase 150,000 shares of Seller
Class B Common Stock at an exercise price of $.01 per share issued to CMP as of
December 29, 1994.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPUTER SYSTEMS" means computer software, computer firmware, computer
hardware (whether general or special purpose), and other similar or related
items of automated, computerized, and/or software system(s), including but not
limited to microprocessors that control telecommunication systems, elevators,
diagnostic equipment, HVAC systems, automated assembly lines or other operating
systems of Seller or any of its Subsidiaries.
"CONFIDENTIAL INFORMATION" has the meaning given to that term in
Section 6.6.
"CONTRACT" means any loan or credit agreement, note, bond, indenture,
mortgage, deed of trust, lease, franchise, permit, authorization, license,
contract, instrument, benefit plan or practice or other agreement, arrangement,
obligation, instrument or commitment of any nature, whether written or oral.
"CREDIT AGREEMENT" means (i) a certain Amended and Restated Credit Agreement
dated January 17, 1997 with Banque Paribas as Agent and (ii) a certain Senior
Subordinated Credit Agreement, as amended, dated December 29, 1994 with CMP.
"CURRENT MARKET PRICE" means the price per share of Buyer Common Stock, with
respect to any specific date, as determined by taking the average of the daily
closing prices per share of Buyer Common Stock as traded on the NYSE for the
thirty (30) consecutive trading days ending immediately prior to such date,
rounded to the nearest cent, and ignoring the highest and lowest daily closing
prices during such period.
"CVC SHARES" has the meaning given to that term in Section 4.5.
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"DGCL" means the General Corporation Law of the State of Delaware, as
amended from time to time.
"DOJ" has the meaning given to that term in Section 6.3.
"DAMAGES" has the meaning given to that term in Section 8.1.
"DISSENTING SHARES" means all Seller Shares whose holders have perfected
dissenters' rights under Section 262 of the DGCL.
"EFFECTIVE TIME" has the meaning given to that term in Section 2.4(a).
"ESCROW AGENT" means State Street Bank and Trust Company, a Massachusetts
trust company, or a successor Escrow Agent under the terms of the Escrow
Agreement.
"ESCROW AGREEMENT" means the agreement by and among the Escrow Agent, Buyer,
CVC and the Management Representative and substantially in the form of
EXHIBIT B attached hereto, with such changes as the Escrow Agent may reasonably
request.
"ESCROW RATIO" has the meaning given to that term in Section 2.4(h).
"ESCROW SHARES" means the Buyer Shares deposited with the Escrow Agent as of
the Closing in accordance with the terms of Section 2.4(h) and the Escrow
Agreement.
"ESCROW WARRANT" means the warrant to purchase Buyer Shares as defined in
Section 2.5(b).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" means all federal, state,
local and foreign statutes, regulations ordinances and other provisions having
the force or effect of law, each as amended, all judicial and administrative
orders and determinations, and all common law concerning public health and
safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any Hazardous Materials or noise.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and the regulations and formal interpretations issued thereunder.
"ERISA AFFILIATE" means any Person who, together with Seller, could be
treated as a single employer under Sections 414(b), 414(c), 414(m) or 414(o) of
the Code.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FINANCIAL STATEMENTS" has the meaning given to that term in Section 3.6.
"FTC" has the meaning given to that term in Section 6.3.
"GAAP" means, at any time, the United States generally accepted accounting
principles as in effect at that time.
"GRACE AGREEMENT" means that certain Grace Printing Products Restated
Worldwide Purchase and Sale Agreement, dated as of October 14, 1994, among
Seller, Print Tech International, Inc., W. R. Grace & Co., W. R. Grace & Co. --
Conn., Grace S. A. and the other parties named therein.
"GOVERNMENTAL ENTITY" means any administrative agency, commission, court or
other governmental authority or instrumentality, domestic or foreign, including
any government-sponsored corporation having regulatory authority under law.
"HAZARDOUS MATERIAL" means any pollutant, contaminant, hazardous material,
hazardous waste, toxic substance or hazardous substance as defined under the
Comprehensive Environmental
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Response, Compensation, and Liability Act, 42 U.S.C. Sections 9601 ET SEQ., or
the Resource Conversation and Recovery Act., 42 U.S.C. Sections 6901 ET SEQ.,
the Clean Water Act, 33 U.S.C. Section 1251, ET SEQ., the Toxic Substance
Control Act, 15 U.S.C. Sections 2601, ET SEQ. or any other federal, state or
local law relating to safety, health, or environmental protection or any
regulations promulgated under any of the foregoing, and specifically includes
oil and any other petroleum derived products, asbestos, polychlorinated
biphenyls (PCBs) and radiation.
"HSRA" means the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended from time to time.
"INDEMNIFIED PARTY" has the meaning given to that term in Section 8.1.
"INDEMNIFYING PARTY" has the meaning given to that term in Section 8.1.
"INDEMNITY THRESHOLD" shall have the meaning set forth in Section 8.2(c).
"IRS" means the Internal Revenue Service.
"JOINT PROXY STATEMENT -- PROSPECTUS" means the Joint Proxy Statement --
Prospectus which will be a part of the S-4 Registration Statement and by which
(i) Buyer will solicit proxies from the holders of Buyer Common Stock to vote in
favor of the approval of this Agreement at the Buyer Special Meeting and (ii)
Seller will either solicit proxies or written consents from the holders of
Seller Voting Shares to approve this Agreement.
"LIABILITY" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"LOSS CONTINGENCY" means an existing condition, situation, or set of
circumstances involving uncertainty as to possible Liability to an enterprise
that will ultimately be resolved when one or more future events occur or fail to
occur.
"MANAGEMENT REPRESENTATIVE" means the Seller Stockholder designated in the
Agency Agreement as the agent of those Seller Stockholders who are identified in
such agreement as "MANAGEMENT STOCKHOLDERS."
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, any change in
or effect on the business of that Person or any of its Subsidiaries that, in the
aggregate, is or reasonably could be expected to be materially adverse to the
business, operations (including the income statement), properties (including
intangible properties), condition (financial or otherwise), assets, liabilities,
regulatory status or prospects of that Person and its Subsidiaries taken as a
whole.
"MERGER SUB" means MCD Acquisition Corp., a Delaware corporation
wholly-owned by Buyer and formed solely for the purpose of consummating the
Merger.
"NYSE" means the New York Stock Exchange.
"NYSE RULE" means the rule of the NYSE requiring that proxies be solicited
from the shareholders of any listed corporation which issues stock in an amount
exceeding 20% of its then-existing capital stock.
"ORDINARY COURSE" means with respect to any Person, in the ordinary course
of that Person's business consistent with past custom and practice, including as
to the quantity, quality and frequency.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a Governmental Entity (or any
department, agency, or political subdivision thereof).
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"PREFERRED EXCHANGE SHARES" means the Buyer Shares issued in the Merger to
the holders of Seller Preferred Shares pursuant to Section 2.4(e).
"PROPRIETARY RIGHTS" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"RECAPITALIZATION" has the meaning given to that term in Section 2.6.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement by and among Buyer, CVC and CMP that shall be executed and delivered
as of the Closing in substantially the form of EXHIBIT C hereto.
"REPRESENTATIVES" means each of the applicable Person's directors, officers,
employees, agents, representatives and advisors.
"RESPONSE NOTICE" has the meaning given to that term in Section 8.3.
"S-4 REGISTRATION STATEMENT" shall mean the registration statement
referenced in Section 6.2(a) that includes the Joint Proxy Statement --
Prospectus, or such other registration statement as the SEC may require in
connection with the Merger.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, equity or other encumbrance, other than (a)
statutory liens for current taxes or other governmental charges, (b) mechanics
and similar statutory liens arising or incurred in the ordinary course of
business, (c) zoning, entitlement, building and other land use regulations
imposed by governments or agencies which are not violated by any current or
presently proposed use or operation, (d) covenants, conditions, restrictions,
easements and other similar matters of record affecting title to any real
property which do not materially impair the current occupancy, use or value of
that Property and which have been disclosed in SCHEDULE 3.16, (e) liens for
Taxes not yet due and payable or for taxes that the taxpayer is contesting in
good faith through appropriate proceedings, (f) purchase money liens and liens
securing rental payments under capital lease arrangements, and (g) other liens
arising in the Ordinary Course and not incurred in connection with the borrowing
of money.
"SELLER AFFILIATE" means a Person listed on SCHEDULE 3.20.
"SELLER AFFILIATE AGREEMENT" means the agreement referenced in Section
6.2(h), which agreement shall be in the form of EXHIBIT D attached hereto.
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"SELLER COMMON RATIO" means with respect to any holder of Seller Common
Shares, the number of Seller Common Shares held by that Person immediately prior
to the Closing divided by the total number of Seller Common Shares outstanding
at that time on a pro forma basis assuming the purchase of all Seller Common
Shares then purchasable upon the exercise of the CMP Warrant.
"SELLER COMMON SHARE" means a share of Seller Class A Common Stock, par
value $.01 per share, or Seller Class B Common Stock, par value $.01 per share.
"SELLER BOARD OF DIRECTORS" means the board of directors of Seller as
constituted from time to time.
"SELLER INVENTORY" has the meaning given to that term in Section 3.14.
"SELLER PREFERRED SHARE" means a share of Series 2 Junior Exchangeable 14.0%
Preferred Stock, $1.00 par value per share, or Series 3 Junior Exchangeable
14.0% Preferred Stock, par value $1.00 per share, or Series 4 Junior
Exchangeable 14.0% Preferred Stock, par value $1.00 per share.
"SELLER SHARE" means any issued and outstanding share of Seller's capital
stock.
"SELLER STOCKHOLDER" means a holder of any Seller Share immediately prior to
the Closing.
"SELLER STOCKHOLDER AGREEMENT" means that certain agreement dated as of
December 29, 1994 by and among Seller, CVC, CMP, David R. Beckerman, Thomas C.
Weaver and the other Persons specified on SCHEDULE 1 hereto.
"SELLER STOCKHOLDER APPROVAL" means the affirmative vote in favor of a
proposal to approve this Agreement, at a meeting or by written consent, of the
holders of a majority of each class of Seller Voting Shares entitled to vote
thereon in accordance with the certificate of incorporation and bylaws of Seller
and Section 251(c) of the DGCL.
"SELLER VOTING SHARE" means a Seller Share entitled to vote on the Merger.
"SENIOR SUBORDINATED CREDIT NOTES" means those promissory notes issued in
connection with the Credit Agreements.
"SUBSIDIARY" means any corporation, partnership, limited liability company
or other organization, whether or not incorporated, with respect to which a
specified Person owns (directly or indirectly through one or more Subsidiaries
thereof) at least twenty-five percent (25%) of the voting securities or equity
interests or has the power to vote or direct the voting of sufficient securities
to elect a majority of the directors.
"SURVIVING CORPORATION" means Seller as in existence after the Effective
Time.
"TAX" means any federal, state, local or foreign income, gross receipts,
franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer,
real property gains, registration, value added, excise, natural resources,
severance, stamp, occupation, premium, windfall profits, environmental
(including without limitation under Section 59A of the Code), customs, duties,
real property, personal property, capital stock, intangibles, social security
(or similar), unemployment, disability, payroll, license, employee or other
withholding, or other tax, of any kind whatsoever, including any interest,
penalties or additions to tax or similar items in respect of the foregoing
(whether disputed or not).
"TAX AFFILIATE" means a Subsidiary of Seller and any affiliated, combined,
or unitary group of which Seller or any Subsidiary is or was a member.
"TAX RETURN" means any return, report, declaration, claim for refund,
information return or other document (including any related or supporting
schedule, statement or information) filed or
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required to be filed in connection with the determination, assessment or
collection of any Tax of any party or the administration of any laws,
regulations or administrative requirements relating to any Tax (including any
amendment or other modification thereof).
"10% PIK SUBORDINATED NOTES" means those certain promissory notes dated
December 29, 1994 and March 15, 1996, the holder of which is W.R. Graced.
"TERMINATION FEE" shall have the meaning given to that term in Section 9.2
"WARRANT SHARES" has the meaning set forth in Section 2.5(a).
"YEAR 2000 COMPLIANT" has the meaning given to that term in Section 3.13.
SECTION 2. MERGER.
2.1 GENERAL. On and subject to the terms and conditions of this Agreement,
the Merger will take place at the Effective Time. The structure of the Merger
will be a reverse merger of Merger Sub with and into Seller, with Seller being
the Surviving Corporation. The Parties will take all steps necessary to cause
the Merger to comply with applicable requirements of the DGCL regarding
corporate mergers.
2.2 CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING" shall take place at the offices of Nutter, McClennen &
Fish, LLP in Boston, Massachusetts, commencing at 10:00 a.m. local time on the
second Business Day following the satisfaction or waiver of all conditions to
the obligations of the Parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions the respective Parties
will take at or after the Closing itself) or such other date as the Parties may
mutually determine) (the "CLOSING DATE").
2.3 ACTIONS AT CLOSING. At the Closing, (i) Seller and, as applicable, the
Seller Stockholders will deliver to Merger Sub and Buyer the various
certificates, instruments, and documents referred to in Section 7.2,
(ii) Merger Sub and Buyer will deliver to Seller the various certificates,
instruments, and documents referred to in Section 7.3, (iii) Seller and Merger
Sub will file with the Secretary of State of Delaware a certificate of merger in
due and proper form (the "CERTIFICATE OF MERGER"), (iv) Buyer will deliver to
CVC, as agent for the Seller Stockholders, the certificates evidencing the Buyer
Shares (other than the Escrow Shares) issued in the Merger in exchange for all
of the certificates representing the Seller Shares, together with checks
representing amounts of cash payable in lieu of fractional shares, if any, which
each Seller Stockholder is entitled to receive, (v) Buyer will deliver to CVC,
as agent for CMP, the Closing Warrant, and (vi) Buyer will deliver to the Escrow
Agent, the certificates evidencing the Escrow Shares and the Escrow Warrant.
2.4 EFFECT OF MERGER.
(a) GENERAL. The Merger shall become effective at the time (the "EFFECTIVE
TIME") the Certificate of Merger is accepted for filing by the Secretary of
State of Delaware. The Merger shall have the effect set forth under relevant
provisions of the DGCL. The Surviving Corporation may, at any time after the
Effective Time, take any action (including executing and delivering any
document) in the name and on behalf of the Merger Sub in order to fully carry
out and effectuate the Merger.
(b) CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
Merger Sub as in effect immediately prior to the Effective Time will, pursuant
to the terms of the Certificate of Merger, become the Certificate of
Incorporation of the Surviving Corporation.
(c) BY-LAWS. The By-laws of Merger Sub as in effect immediately prior to
the Effective Time will remain unchanged by the Merger and be the By-laws of the
Surviving Corporation.
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(d) DIRECTORS AND OFFICERS. The directors and officers of Merger Sub in
office immediately prior to the Effective Time will be the directors and
officers of the Surviving Corporation.
(e) CONVERSION OF SELLER SHARES. Subject to the provisions of Section
2.4(h), at and as of the Effective Time, (i) each holder of Seller Preferred
Shares then outstanding shall by virtue of the Merger be entitled to receive
that number of Buyer Shares, rounded to the nearest thousandth, equal to the
quotient obtained by dividing (X) the aggregate liquidation value of the
Preferred Shares held by such holder plus any and all accumulated and unpaid
dividends thereon to but not including the Effective Time by (Y) the Current
Market Price as of the Closing Date (the Buyer Shares delivered pursuant to this
Section 2.4(e)(i) to all holders of Seller Preferred Shares being collectively
referred to as the "PREFERRED EXCHANGE SHARES"); and (ii) each holder of Seller
Common Shares then outstanding, other than any holder of Dissenting Shares,
shall by virtue of the Merger be entitled to receive that number of Buyer
Shares, rounded to the nearest thousandth, which is equal to the product of (X)
the Seller Common Ratio applicable to such holder of Seller Common Shares
multiplied by (Y) Seven Million Seven Hundred Thousand (7,700,000) minus the
aggregate number of the Preferred Exchange Shares. After the Closing, there
shall be no transfers on the stock transfer books of Seller Shares which were
issued and outstanding at the Effective Time and converted pursuant to the
provisions of this Section 2.4(e). After the Effective Time, holders of
certificates of Seller Shares shall cease to be, and shall have no rights as,
stockholders of Seller, other than to receive Buyer Shares into which such
Seller Shares have been converted and, if applicable, fractional share payments
pursuant to the provisions hereof. SCHEDULE 2.4(e) to this Agreement illustrates
the distribution pursuant to this Agreement of the Buyer Shares and the Buyer
Warrants (including the Escrow Shares and the Escrow Warrant) among,
respectively, the Seller Stockholders and holder of the CMP Warrant (which is
the only option, warrant or similar right to acquire Seller Shares that is
outstanding as of the date of this Agreement), assuming solely for purposes of
that presentation that (i) there are no Dissenting Shares, (ii) there are no
accrued and unpaid dividends on the Seller Preferred Shares as of the Closing
Date, and (iii) the Current Market Price as of the Closing Date is equal to
$38.875.
(f) LOST CERTIFICATES. In the event any certificate representing one or
more Seller Shares shall have been lost, stolen or destroyed, upon receipt of
appropriate evidence as to such loss, theft or destruction and to the ownership
of such certificate by the Person claiming such certificate to be lost, stolen
or destroyed, and the receipt by Buyer of an appropriate and customary
indemnity, Buyer will issue, in exchange for such lost, stolen or destroyed
certificate, one or more certificates representing Buyer Shares and the
fractional share payment, if any, deliverable with respect thereof, as
determined in accordance with this Section 2.4.
(g) FRACTIONAL SHARES. In lieu of the issuance of fractional Buyer Shares
pursuant to Section 2.4(e), cash adjustments, without interest, will be paid to
the holders of Seller Shares in respect of any fractional share that would
otherwise be issuable pursuant to Section 2.4(e) after combining for each Seller
Stockholder the number of Buyer Shares, if any, issued in exchange for Seller
Preferred Shares with the number of Buyer Shares issued in exchange for Seller
Common Shares, and the amount of such cash adjustment shall be determined by
multiplying such holder's fractional interest by the Current Market Price as of
the Closing Date.
(h) ESCROW SHARES. At the Closing, CVC and the Escrow Agent shall enter
into the Escrow Agreement, which Escrow Agreement is intended to serve as an
adjustment to the aggregate amount of consideration payable to the holders of
Seller Common Shares and the CMP Warrant in connection with the Merger. At the
Closing, there shall be withheld from each holder of Seller Common Shares a
number of Buyer Shares (collectively, the "ESCROW SHARES") equal to the product,
rounded to the nearest whole share, of (X) the number of Buyer Shares such
holder would have otherwise received pursuant to Section 2.4(e) multiplied by
(Y) the Escrow Ratio. The
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"ESCROW RATIO" shall be the quotient obtained by dividing (X) One Hundred
Twenty-Seven Thousand (127,000) by (Y) the arithmetic difference between Seven
Million Seven Hundred Thousand (7,700,000) and the aggregate number of the
Preferred Exchange Shares. At the Closing, Buyer shall deposit with the Escrow
Agent one or more stock certificates representing the Escrow Shares.
(i) RESTRICTED SHARES. To the extent that any Seller Share is subject to
restrictions on transfer and/or forfeiture provisions pursuant to any agreement
between the holder and Seller, the Buyer Shares delivered in exchange therefor
shall be subject to the same restrictions if in the reasonable opinion of
Buyer's legal and accounting advisors the continuation of such restrictions are
necessary in order for the Merger to qualify for "pooling of interests"
accounting treatment under Accounting Principles Board Opinion No. 16.
(j) DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, Dissenting Shares shall not be converted into the right to receive, or
be exchangeable for, the Merger consideration provided for in Section 2.4(e),
but, instead, each holder of Dissenting Shares shall be entitled to payment by
the Surviving Corporation of the value of such Dissenting Shares as agreed upon
or determined in accordance with the provisions of Section 262 of DGCL.
2.5 BUYER WARRANTS. At the Closing, Buyer shall deliver the Buyer Warrants
in exchange for the CMP Warrant.
(a) WARRANT SHARES. As used in this Agreement, the term "Warrant
Shares" means that number, rounded up to the nearest whole integer, which is
equal to the product of (X) the Seller Common Ratio applicable to the CMP
Warrant, treating CMP as a holder of Seller Common Shares, multiplied by (Y)
Seven Million Seven Hundred Thousand (7,700,000) minus the aggregate number
of the Preferred Exchange Shares.
(b) ESCROW WARRANT. Buyer shall deliver at the Closing to the Escrow
Agent a warrant (the "ESCROW WARRANT") entitling CMP or any successor holder
thereof to purchase Buyer Shares. The Escrow Warrant shall be identical in
all material respects to the CMP Warrant, except that (i) the number of
Buyer Shares purchasable immediately after the Closing upon the full
exercise of the Escrow Warrant shall be that number, rounded to the nearest
whole share, which is equal to the product of (X) the total number of
Warrant Shares multiplied by (Y) the Escrow Ratio, and (ii) the exercise
price per Buyer Share of the Escrow Warrant shall be that price, rounded to
the nearest tenth of a cent ($.001), which is equal to the quotient of (X)
$1,500 divided by (Y) the total number of Warrant Shares.
(c) CLOSING WARRANT. Buyer shall deliver at the Closing to CVC, as
agent for CMP, a warrant (the "CLOSING WARRANT") entitling CMP or any
successor holder thereof to purchase Buyer Shares. The exercise price per
Buyer Share of the Closing Warrant shall be the same as the exercise price
per Buyer Share of the Escrow Warrant, and the Closing Warrant shall
otherwise be identical in all material respects to the Escrow Warrant,
except that the number of Buyer Shares purchasable immediately after the
Closing upon the full exercise of the Closing Warrant shall be equal to the
arithmetic difference between (X) the total number of Warrant Shares and (Y)
the number of Buyer Shares purchasable immediately after the Closing upon
the full exercise of the Escrow Warrant.
(d) If the CMP Warrant is exercised in part prior to the Closing, there
will be an appropriate adjustment to the number of Warrant Shares and the
exercise price of the Buyer Warrants. If the CMP Warrant is exercised in
full prior to the Closing, none of the Buyer Warrants will be issued in the
Merger.
2.6 ANTI-DILUTION. In the event that, subsequent to the date of this
Agreement but prior to the Effective Time, the outstanding shares of Buyer
Common Stock shall have been increased,
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decreased, changed into or exchanged for a different number of shares or
securities through a split, reverse stock split, or other like changes in
Buyer's capitalization, other than pursuant to this Agreement, as the case may
be (a "RECAPITALIZATION"), then an appropriate and proportionate adjustment
shall be made to the number of Buyer Shares so that each Seller Stockholder
shall receive under Section 2.4, or upon exercise of the Buyer Warrants, the
number of Buyer Shares (except for fractional shares) that such stockholder
would have held immediately after the Recapitalization if the Merger had
occurred immediately prior to the Recapitalization or the record date therefor,
as applicable. For purposes of this Section 2.6 and by way of illustration and
not limitation, a "Recapitalization" will in no event include the (i) issuance
of shares or securities by Buyer pursuant to any existing or hereafter
established or granted stock option or equity award or other compensation plan
or arrangement to, or for the benefit of, one or more employees, officers,
directors or contractors of Buyer or any of its Subsidiaries or (ii) in
connection with Buyer acquiring directly or indirectly the stock or assets of
any other Person.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Buyer and the Merger Sub that the
statements contained in this Section 3 are correct and complete as of the date
of this Agreement. The representations and warranties which follow are deemed to
be repeated on the Closing Date.
3.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of Seller and
its Subsidiaries is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation. Each of Seller and
its Subsidiaries is duly authorized to conduct business and is in good standing
under the laws of each jurisdiction where the absence of such qualification
would have a Material Adverse Effect on Seller. SCHEDULE 3.1 lists each of the
jurisdictions in which Seller or any of its Subsidiaries possess any foreign
qualification or license and lists such license held in such jurisdiction. Each
of Seller and its Subsidiaries has the corporate power and authority necessary
to carry on the businesses in which each is engaged and to own, lease and use
the respective properties owned, leased and/or used by each. Seller has
delivered to Buyer a true and complete copy of its certificate of incorporation
and by-laws as in effect on the date hereof.
3.2 AUTHORIZATION OF MERGER. Seller has full corporate power and authority
to execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement has been duly authorized by the board of directors of Seller, has
been duly executed and delivered on behalf of Seller, and constitutes the valid
and legally binding obligation of Seller, enforceable in accordance with its
terms and conditions. The only vote of Seller Stockholders necessary to approve
this Agreement or the consummation of the Merger is the affirmative vote of the
holders of a majority of the outstanding shares of Class A Common Stock entitled
to vote thereon approving this Agreement, and the Seller Board of Directors has
directed the officers of Seller to submit this Agreement to the holders of
Seller Voting Shares for Seller Stockholder Approval. No other corporate
proceedings on the part of Seller not heretofore taken are necessary to approve
this Agreement or to consummate the Merger.
3.3 NONCONTRAVENTION. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which Seller or any of its Subsidiaries is subject or any
provision of the certificate of incorporation or charter or bylaws of Seller or
any of its Subsidiaries or (ii) conflict with, result in a breach of, constitute
a default (or any event which, with notice or lapse of time, or both, would
constitute a default) under, result in the acceleration of, create in any party
a put right or repurchase obligation or the right to accelerate, terminate,
modify or cancel, create any Security Interest or require any notice, under any
material Contract to which Seller or any of its Subsidiaries is a party or by
which any is bound or to which any of its assets is
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subject, including, without limitation, the Grace Agreement, except for any such
matters identified on SCHEDULE 3.3. Other than in connection with the provisions
of the HSRA and the DGCL, none of Seller or any of its Subsidiaries needs to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency or other Person in order to
consummate the Merger.
3.4 CAPITALIZATION OF SELLER AND ITS SUBSIDIARIES. Seller's authorized
capital stock consists of 2,019,076 authorized shares of capital stock, which
shares are fully described on and held of record by the persons and in the
amounts set forth on SCHEDULE 3.4. Except as set forth on SCHEDULE 3.4, neither
Seller nor any of its Subsidiaries has (i) any shares of common stock or
preferred stock issued or reserved for issuance, or (ii) any Contract of any
character to which Seller or any of its Subsidiaries or, to Seller's knowledge,
any Affiliate of Seller is a party or subject relating to its capital stock or
otherwise representing a right to receive any of its capital stock, nor are
there any pending or, to Seller's knowledge, threatened claims or demands for, a
direct or indirect equity interest in Seller or any Subsidiary, including,
without limitation, any option, warrant, right or call or any stock
appreciation, phantom stock, profit participation or similar rights. All of the
issued and outstanding shares of capital stock of Seller have been duly
authorized and validly issued, and are fully paid and are nonassessable. Except
as set forth on SCHEDULE 3.4, there are no voting trusts, proxies or any other
agreements or understandings with respect to the voting of the capital stock of
Seller or any of its Subsidiaries.
3.5 SUBSIDIARIES. All Subsidiaries of Seller are listed on SCHEDULE 3.5.
Except as otherwise disclosed in SCHEDULE 3.5, neither Seller nor any Subsidiary
owns any shares of stock of any corporation or any equity interest in a
partnership, joint venture or other business entity, and neither Seller nor any
of its Subsidiaries controls any other corporation, partnership, joint venture
or other business entity by means of ownership, management contract or
otherwise. Except for nominal qualifying shares held by residents of certain
foreign jurisdictions but which are beneficially owned by Seller or its
Subsidiaries, all of the outstanding capital stock of, or other ownership
interests in, each Subsidiary of Seller is owned beneficially and of record by
Seller, directly or indirectly, is validly issued, fully paid and nonassessable
and free and clear of any preemptive rights, restrictions on transfer, Taxes or
Security Interests, except as provided under the Securities Act or state
securities laws.
3.6 FINANCIAL STATEMENTS. SCHEDULE 3.6 includes the following:
(A) Seller's audited consolidated balance sheet for the fiscal year ended
December 31, 1997 and the statements of income, cash-flow and shareholders'
equity for each of the three years in the period ended December 31, 1997; and
(B) Seller's unaudited consolidated balance sheet and statements of income,
cash-flow and shareholders' equity as of and for the three-month and
twelve-month periods ended December 31, 1998 (all such items mentioned
previously in this Section, the "FINANCIAL STATEMENTS"). The Financial
Statements (i) are correct and complete in all material respects, (ii) are
consistent with the books and records of the Company and its Subsidiaries (which
books and records are correct and complete, and are maintained in accordance
with applicable regulations), (iii) have been prepared in conformity with GAAP
applied on a consistent basis and present fairly the financial position of the
respective entities as at the dates indicated and the results of their
operations for the periods specified, and (iv) comply in all material respects,
except as may be reflected in the notes to the Financial Statements, as to form
with the accounting requirements of the Securities Act, the Securities Act
regulations, including, without limitation, Regulation S-X, and the Exchange
Act, except as may be described on SCHEDULE 3.6. Except as set forth in the
Financial Statements or described on SCHEDULE 3.6, neither Seller nor any of its
Subsidiaries has (i) any Loss Contingency which is not required by GAAP to be
accrued and which if resolved adversely to Seller or any of its Subsidiaries
could have an Material Adverse Effect on Seller or (ii) any other Liability
material to Seller and its Subsidiaries on a consolidated basis that is not
required by GAAP to be accrued. The financial statements to be delivered
pursuant to Section 6.4(i) will be
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derived from the accounting books and records of Seller, will provide adequate
disclosure of material changes to the accounts or business of Seller and its
Subsidiaries and will be prepared in accordance with GAAP and otherwise on the
same basis as the Financial Statements, subject to normal year-end adjustments
in the case of monthly financial statements.
3.7 LITIGATION. Except as set forth in SCHEDULE 3.7, there are no
judgments, decrees, lawsuits, actions, proceedings, claims, complaints,
injunctions, orders or investigations by or before any Governmental Entity
pending or, to Seller's knowledge, threatened against Seller or its Subsidiaries
(i) which could be reasonably expected to have a Material Adverse Effect on
Seller if adversely determined, or (ii) seeking to enjoin any aspect of the
Merger. To Seller's knowledge, there are no existing facts or circumstances
which give any reason to believe that any such action, suit, proceeding, hearing
or investigation may be brought or threatened against Seller or any of its
Subsidiaries.
3.8 ABSENCE OF CERTAIN DEVELOPMENTS. Except as disclosed in SCHEDULE 3.8,
since December 31, 1997 no event has occurred which has had or reasonably could
be expected to have a Material Adverse Effect on Seller. Except as disclosed in
the Financial Statements, and except for this Agreement and the Merger, since
December 31, 1997, each of Seller and its Subsidiaries has been operated in the
Ordinary Course. Without limiting the generality of the foregoing, except as
disclosed on SCHEDULE 3.8, since December 31, 1997:
(i) no party (including Seller or any of its Subsidiaries) has
accelerated, terminated, modified or canceled any Contract (or series of
related Contracts) involving more than $250,000 to which Seller or any of
its Subsidiaries is a party or by which any of them is bound;
(ii) neither Seller nor any of its Subsidiaries has imposed any Security
Interest upon any of its assets, tangible or intangible, except in the
Ordinary Course;
(iii) neither Seller nor any of its Subsidiaries has made any capital
investment in, any loan to, or any acquisition of the securities or assets
of, any other Person (or series of related capital investments, loans, and
acquisitions) either involving more than $500,000 or that is outside the
Ordinary Course;
(iv) neither Seller nor any of its Subsidiaries has issued any note,
bond, or other debt security or created, incurred, assumed, or guaranteed
any indebtedness for borrowed money or capitalized lease obligation either
involving more than $100,000 singly or $200,000 in the aggregate;
(v) neither Seller nor any of its Subsidiaries has delayed or postponed
the payment of accounts payable and other liabilities outside the Ordinary
Course;
(vi) neither Seller nor any of its Subsidiaries has granted any license
or sublicense of any rights under or with respect to any Proprietary Rights
either involving more than $100,000 or outside the Ordinary Course;
(vii) there has been no change made or authorized in the charter or
bylaws of Seller or any of its Subsidiaries;
(viii) neither Seller nor any of its Subsidiaries has issued, sold or
otherwise disposed of any of its capital stock, or granted or entered into
any option, warrant or other Contract to purchase or obtain (including upon
conversion, exchange, or exercise) any of its capital stock;
(ix) neither Seller nor any of its Subsidiaries has declared, set aside
or paid any dividend or made any distribution with respect to its capital
stock (whether in cash or in kind) or redeemed, purchased or otherwise
acquired any of its capital stock other than dividends payable in cash in
the Ordinary Course on Seller Preferred Shares in accordance with the terms
of Seller's Certificate of Incorporation;
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(x) neither Seller nor any of its Subsidiaries has entered into a
Contract or any other transaction with any of its Affiliates;
(xi) neither Seller nor any of its Subsidiaries has entered into any
employment Contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such Contract or agreement;
(xii) neither Seller nor any of its Subsidiaries has granted any increase
in the base compensation of any of its employees other than in the Ordinary
Course;
(xiii) neither Seller nor any of its Subsidiaries has adopted, amended,
modified, or terminated any bonus, profit-sharing, incentive, severance or
other plan or contract for the benefit of any of its directors, officers and
employees (or taken any such action with respect to any other Benefit Plan
(as hereinafter defined);
(xiv) neither Seller nor any of its Subsidiaries has made any other
change in employment terms for any of its officers or employees outside the
Ordinary Course;
(xv) there has not been any other occurrence, event, incident, action,
failure to act or transaction outside the Ordinary Course involving Seller
or any of its Subsidiaries; and
(xvi) neither Seller nor any of its Subsidiaries has committed to do any
of the foregoing.
3.9 TAXES.
(a) All Tax Returns of Seller or any Tax Affiliate now subject to audit by
the IRS or other applicable governmental authority or in respect of which an
audit has been formally proposed are listed on SCHEDULE 3.9(A), and Seller has
provided to Buyer correct and complete copies of each such Tax Return. Seller
and each of its Tax Affiliates has duly and timely filed all material Tax
Returns required to be filed by it, all such Tax Returns have been prepared in
compliance with all applicable laws and regulations and are true, correct and
complete in all material respects. All Taxes owed by Seller and each of its Tax
Affiliates, whether or not shown on any Tax Return, have been timely paid or are
not yet due and payable. Seller has made available to Buyer correct and complete
copies of its federal and state income Tax returns for the 1995, 1996 and 1997
taxable years and the corresponding balance sheets of Seller as of the end of
each such year.
(b) Except as set forth on SCHEDULE 3.9(b):
(i) each taxable period of Seller and each of its Tax Affiliates either
(A) has been audited by the relevant taxing authority or (B) has closed, so
that no further assessment or collection of Tax may occur and such taxable
period is not subject to review by any relevant taxing authority;
(ii) neither Seller nor any of its Tax Affiliates is the subject of a
Tax audit or examination, in which any Tax may be assessed or collected by
any taxing authority;
(iii) neither Seller nor any of its Tax Affiliates has received from any
taxing authority any written notice of proposed adjustment, deficiency,
underpayment of Taxes or any other such written notice which has not been
satisfied by payment or been withdrawn, and no claims have been asserted in
writing relating to such Taxes against Seller or any such Tax Affiliate;
(iv) neither Seller nor any of its Subsidiaries (A) is or has been a
member of an affiliated group filing a consolidated federal income Tax
Return (other than a group the common parent of which was Seller) or (B) has
any Liability for the Taxes of any Person (other than Seller and its
Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any similar provision
of state, local, or foreign law), as a transferee or successor, by contract,
or otherwise.
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(v) Seller and each of its Tax Affiliates has complied with all
applicable laws, rules and regulations relating to the payment and
withholding of Taxes and has timely and properly withheld from employee
wages and paid over to the proper governmental authorities all amounts
required to be so withheld and paid over under all applicable laws;
(vi) neither Seller nor any of its Tax Affiliates (A) has filed a
consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by Seller or
any of its Tax Affiliates, (B) is required to include in income any
adjustment pursuant to Section 481(a) of the Code by reason of a voluntary
change in accounting method initiated by Seller or any of its Tax
Affiliates, or has proposed any such adjustment or change in accounting
method, or (C) is required, as a result of any excess loss account described
in Treas. Reg. Section 1.1502-19 or Treas. Reg. Section 1.1502-32 (or any
corresponding or similar provision or administrative rule of any federal,
state, local or foreign income tax law), to include any item in income for
any taxable period (or any portion thereof ending after the Closing Date);
(vii) there are no liens for Taxes on any assets of Seller or any of its
Tax Affiliates except liens for Taxes not yet due. No deficiency for any Tax
has been proposed, asserted or assessed against Seller or any of its Tax
Affiliates which has not been resolved and paid in full, and there are no
outstanding waivers or consents given by Seller or any of its Tax Affiliates
regarding the application of the statute of limitations with respect to any
Taxes or the period for filing any Returns;
(viii) neither Seller nor any of its Tax Affiliates is a party to or
bound by any Tax indemnification, Tax allocation or Tax sharing agreement
with any Person or has any current or potential contractual obligation to
indemnify any other Person with respect to Taxes; and
(ix) neither Seller nor any of its Subsidiaries has made or is affected
by any election under Code Sections 108(b)(5), 338(g), or 565.
(c) Seller and each of its Subsidiaries has established and until the
Effective Time will maintain on its books and records reserves adequate to pay
all Taxes accrued but not yet due and payable in accordance with GAAP, and such
reserves are reflected on the Financial Statements to the extent required. All
transactions that could give rise to an understatement of federal income tax
within the meaning of Section 6662 of the Code have been adequately disclosed in
accordance with Section 6662 of the Code. Neither Seller nor any of its
Subsidiaries is a party to any agreement, contract or arrangement that would
result, separately or in the aggregate, in the payment of any "excess parachute
payment" within the meaning of Section 280G of the Code or in the payment of
compensation that is not fully deductible pursuant to Section 162(m) of the
Code.
3.10 ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(a) Except as set forth on SCHEDULE 3.10(A), (i) Seller and each of its
Subsidiaries have complied with, and are in compliance with, the Environmental,
Health, and Safety Requirements, in all material respects, (ii) without limiting
the generality of the foregoing, Seller and each of its Subsidiaries have
obtained and complied with, and are in compliance with, in all material
respects, all permits, licenses and other authorizations that are required
pursuant to the Environmental, Health, and Safety Requirements for the
occupation of their facilities and the operation of their business, (iii)
neither Seller nor any of its Subsidiaries has received any notice regarding any
actual or alleged material violation of Environmental, Health, and Safety
Requirements, or any material Liability or Loss Contingency arising under the
Environmental, Health, and Safety Requirements (including any investigatory,
remedial or corrective obligations) (iv) neither Seller nor any of its
Subsidiaries has treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any Hazardous Material or owned
or operated any property or facility
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(and no such property or facility is contaminated by any Hazardous Material) in
a manner that has given or reasonably could be expected to give rise to any
material Liability, including Liability for response costs, corrective action
costs, personal injury, property damage, natural resources damages or attorney
fees, pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Solid Waste Disposal Act, as amended, or
any other Environmental, Health, and Safety Requirements, and (vi) neither
Seller nor any of its Subsidiaries has, either expressly or by operation of law,
assumed, undertaken or otherwise become subject to any material Liability of any
other Person relating to Environmental, Health, and Safety Requirements.
(b) There are no environmental investigations, studies, reviews, audits,
tests or other analyses of environmental conditions conducted by or which are in
the possession, custody or control of Seller or any of its Subsidiaries relating
to the operation of Seller's business or any facility owned, leased or operated
by Seller or any of its Subsidiaries, except as listed on SCHEDULE 3.10(b),
copies of which have been made available to Buyer, except for those identified
as privileged on SCHEDULE 3.10(b).
3.11 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 3.11(a) lists all bonus, compensation, deferred compensation,
pension, retirement, profit-sharing, thrift, savings, employee stock ownership,
stock bonus, stock purchase, restricted stock and stock option plans, all
employment or severance contracts, health and medical plans, life insurance and
disability plans, vacation and other employee benefit plans, policies,
contracts, agreements or arrangements, which at any time during the 24 month
period ending on the Closing Date cover (or covered) any employee(s) or former
employee(s) of Seller, any of its Subsidiaries, any ERISA Affiliate and/or any
such employees' beneficiaries or with respect to which Seller or any of its
Subsidiaries or any ERISA Affiliate had, or has, any actual or potential
Liability, including, but not limited to, all "employee benefit plans" within
the meaning of Section 3(3) of ERISA (the "BENEFIT PLANS"); PROVIDED, HOWEVER,
that with reference to "employee benefit plans" within the meaning of Section
3(3) of ERISA, the 24 month period referenced above shall be lengthened to a 60
month period. Except, as set forth on SCHEDULE 3.11(a), no Benefit Plan is or
was established, maintained or contributed to including any Benefit Plan to
which there is (or was) an obligation to contribute to pursuant to an agreement
with an employee organization (within the meaning of Section 3(4) of ERISA).
Except as set forth on SCHEDULE 3.11(a), no Benefit Plan has terms requiring
assumption by Buyer or the Merger Sub. No Benefit Plan is a multiemployer plan
(as defined in Section 4001(a)(3) of ERISA), neither Seller nor any of its
Subsidiaries nor any of its ERISA Affiliates has incurred any withdrawal
liability with respect to any multiemployer plan (and the transactions
contemplated by this Agreement shall not give rise to any such withdrawal
liability) or any Liability in connection with the termination or reorganization
of any multiemployer plan and no Benefit Plan provides health or other welfare
benefits to former employees extending beyond their retirement or other
termination of service, other than coverage mandated by Part 6 of Title I of
ERISA or death benefits or retirement benefits under any Benefit Plan that is an
"employee pension plan," as that term is defined in Section 3(2) of ERISA. All
contributions or other amounts payable by Seller or any of its Subsidiaries or
any ERISA Affiliate as of the Effective Time with respect to each Benefit Plan
in respect of current or prior plan years have been paid or accrued in
accordance with GAAP, Section 302 of ERISA and Section 412 of the Code, and
there is no accumulated funding deficiency with respect to any Benefit Plan. The
present value of accrued benefits under each Benefit Plan which is an employee
pension benefit plan, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared by such Benefit Plan's
actuary with respect to such Benefit Plan, did not, as of its latest valuation
date, exceed the then current value of the assets of such Benefit Plan allocable
to such accrued benefits.
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(b) Neither Seller, nor any of its Subsidiaries, nor any ERISA Affiliate
contributes or has contributed to any "multiemployer plan" as such term is
defined in Section 3(37) of ERISA. Neither Seller nor any of its Subsidiaries
nor any ERISA Affiliate is or was a substantial employer (within the meaning of
Section 4001(a)(2) of ERISA) for any single employer plan that is (or was)
subject to Section 4063 of ERISA.
(c) To the extent applicable, each Benefit Plan (and its related trust) is
maintained and administered in compliance in all respects with the applicable
provisions of ERISA, the Code and any other laws. Each Benefit Plan (and its
related trust) which is maintained, administered, reported or contributed to as
if qualified under Sections 401(a) or 501(a) of the Code is so qualified and has
received a favorable determination letter from the Internal Revenue Service that
it is so qualified. Except as specified in SCHEDULE 3.11(c), each Benefit Plan
that is an employee benefit plan within the meaning of Section 3(3) of ERISA
(and its related trust) may, by its terms, be amended or terminated, in whole or
in part, at any time and from time to time by Seller (or, as applicable, any of
its Subsidiaries or any ERISA Affiliate) without penalty or cost (other than
out-of-pocket costs customary payable in the Ordinary Course in connection with
the preparation and filing of any such amendment or termination, including
reasonable fees and expenses of counsel).
(d) No Liability to the Pension Benefit Guaranty Corporation (the "PBGC")
(except for routine payment of premiums) has been incurred with respect to any
Benefit Plan that is subject to Title IV of ERISA (and no fact or circumstance
exists which could give rise to any such liability), no reportable event within
the meaning of Section 4043 of ERISA has occurred with respect to any such
Benefit Plan, the PBGC has not commenced proceedings for the termination of any
Benefit Plan or the appointment of a trustee with respect to any Benefit Plan,
and no fact or circumstance exists which can reasonably be expected to cause the
PBGC to commence any proceedings under Title IV of ERISA with respect to any
Benefit Plan. None of the assets of Seller or any of its Subsidiaries or any
ERISA Affiliate is the subject of any Security Interest arising under Section
302 of ERISA or Section 412 of the Code, and no facts or circumstances exist
which could give rise to such Security Interest. Neither Seller nor any of its
Subsidiaries nor any ERISA Affiliate has been required to post any security
under Section 307 of ERISA or Section 401(a) of the Code, and no facts or
circumstances exist which could give rise to such posting of security.
(e) With respect to each Benefit Plan, Seller has provided to Buyer true,
complete and correct copies, to the extent applicable, of (i) all documents
pursuant to which such Benefit Plans are maintained, funded and administered,
(ii) the two most recent annual report (Form 5500 series), (iii) the two most
recent actuarial and financial statements, and (iv) all governmental rulings,
determinations and opinions (and any pending requests), including the most
recent favorable determination letter issued by the IRS with respect to each
such plan, or a written statement that no such determination exists or is
required.
(f) Neither Seller nor any of its Subsidiaries nor any ERISA Affiliate has
engaged in a transaction in connection with which Seller, any of its
Subsidiaries or any ERISA Affiliate, or any other Person or entity, could be
subject to a Liability under ERISA, or the Code, including, without limitation,
liability under Section 409 of ERISA or a civil penalty assessable pursuant to
Section 502 of ERISA or a tax imposed pursuant to Section 4975 of the Code, and
no event has occurred and no condition exists with respect to any Benefit Plan
that could subject Seller or any of its Subsidiaries or any ERISA Affiliate to
any tax, fine or penalty imposed by the Code or ERISA.
(g) Except as provided in SCHEDULE 3.11(g), neither the execution and
delivery of this Agreement nor the consummation of the Merger will (i) result in
any payment (including, without limitation, deferred compensation, severance,
unemployment compensation, golden parachute or
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otherwise) becoming due to any director, employee, contractor, consultant or
other service provider of Seller or any of its Subsidiaries or any ERISA
Affiliate from Seller or any of its Subsidiaries or any ERISA Affiliate under
any Benefit Plan or otherwise, (ii) increase any benefits otherwise payable
under any Benefit Plan or otherwise, (iii) result in any acceleration of the
time of payment or vesting of any such benefits, or (iv) result in any increase
in or acceleration of the contribution or funding obligation, if any, of Seller
or any of its Subsidiaries or any ERISA Affiliate.
(h) No Benefit Plan will be amended or terminated on or prior to the Closing
Date without the prior written approval of Buyer. The Seller has made all
contributions and payments required to each Benefit Plan through the Effective
Time, inclusive, or provided for such contributions and payments in accordance
with GAAP.
3.12 PROPRIETARY RIGHTS. Except as set forth in SCHEDULE 3.12, Seller and
its Subsidiaries own and possess all right, title and interest in, free and
clear of all Security Interests, or have a license or other right to use, all
Proprietary Rights which are used in, or held for use in, the operation of the
business of Seller and its Subsidiaries as presently conducted or as presently
proposed to be conducted and which are material to such presently conducted or
proposed business. Each of Seller and its Subsidiaries has taken all
commercially reasonable action to maintain and protect each item of Proprietary
Rights owned by Seller or any of its Subsidiaries. No item of the Proprietary
Rights set forth in SCHEDULE 3.12 has been adjudicated to be invalid or
unenforceable and, to the knowledge of Seller and its Subsidiaries, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any of such Proprietary Rights. Notwithstanding any other
provision of this Section, SCHEDULE 3.12 lists all of the following items: all
patented and registered Proprietary Rights owned by Seller or any of its
Subsidiaries; all pending patent applications and applications for the
registration of other Proprietary Rights filed by or on behalf of Seller or any
of its Subsidiaries; all trade and corporate names owned or used by Seller or
any of its Subsidiaries; and all joint development agreements to which Seller or
any of its Subsidiaries is a party that assign or limit any Proprietary Rights
owned or used by Seller or any of its Subsidiaries. SCHEDULE 3.12 lists all
licenses or other written contracts between Seller or any of its Subsidiaries
and any third party regarding any of the Proprietary Rights (other than computer
software) listed on SCHEDULE 3.12. Neither Seller nor any of its Subsidiaries
has interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Proprietary Right of any third party as could reasonably be
expected to have a Material Adverse Effect on Seller, and to the knowledge of
Seller, neither Seller nor any of its Subsidiaries will interfere with, infringe
upon, misappropriate, or otherwise come into conflict with any Proprietary Right
of any third party as a result of the continued operation of its businesses as
presently conducted and as presently proposed to be conducted as could
reasonably be expected to have a Material Adverse Effect on Seller. Except as
set forth on SCHEDULE 3.12, each item of Proprietary Rights listed on
SCHEDULE 3.12 will be owned or available for use by Buyer or its Subsidiaries on
identical terms and conditions immediately subsequent to the Effective Time.
3.13 YEAR 2000.
(a) The Seller and the Subsidiaries have conducted an inventory and
assessment (written summaries of which, to the extent prepared, have been
provided to Buyer) of the computer software, computer firmware or computer
hardware (whether general or special purpose) of Seller and each of its
Subsidiaries in order to determine the extent to which such software, firmware
or hardware is not Year 2000 Compliant (as defined below) and to estimate the
cost of rendering such software, firmware or hardware Year 2000 Compliant prior
to January 1, 2000 or such earlier date on which such software, firmware or
hardware may shut down or may produce incorrect calculations or otherwise
malfunction in any material respect. Any failure of the Computer Systems to be
Year 2000 Compliant will not have a Material Adverse Effect on the Seller. The
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aggregate amount to be expended by Seller and its Subsidiaries, on a
consolidated basis, during the 12-month period ending December 31, 1999 to
render the Computer Systems Year 2000 Compliant, and to test whether any
Computer System is Year 2000 Compliant, will not have a Material Adverse Effect
on the Seller. For the purposes of this Agreement "Year 2000 Compliant" means
that none of the Computer Systems or Benefit Plan Computer Systems (as defined
below) of a particular Person will, in any material respect, malfunction, cease
to function, generate incorrect data, or produce incorrect results when
processing, receiving, calculating, writing and/or providing (i) date-related
data into and between the twentieth and twenty-first centuries and (ii) date-
related data in connection with any valid date in the twentieth and twenty-first
centuries.
(b) Seller has made available to Buyer copies of all material in-house
correspondence and memoranda and all material correspondence between the Seller
or any of its Subsidiaries with any customers, insurance company, vendor,
supplier or service provider of Seller and its Subsidiaries concerning whether
such Persons (including Seller or any of its Subsidiaries) are or expect to be
Year 2000 Compliant or whether such Persons expect to be adversely affected by
the failure of any other Person to be Year 2000 Compliant.
(c) To the knowledge of Seller, no customer, supplier, contractor,
distributor, insurance company, or other vendor or service provider with which
Seller or any of its Subsidiaries transacts business can reasonably be expected
not to be Year 2000 Compliant in any respect that could reasonably be expected
to have a Material Adverse Effect on Seller.
(d) To the knowledge of Seller (which for purposes of this Section 3.13(c)
shall include, without limitation, the knowledge of each employee or consultant
of Seller or any of its Subsidiaries that in the ordinary course is engaged in
the administration or operation of any Benefit Plan), the Benefits Plans and
each of the sponsors of and fiduciaries with respect to each Benefit Plan have
conducted an inventory and assessment of the Computer Systems that are material
to the administration or management of any Benefit Plan (including the
management, investment and disposition of Benefit Plan assets, maintained under
a trust or otherwise), including, without limitation, the Computer Systems of
each Benefit Plan, the sponsor(s) of each such Benefit Plan, and third-party
service providers to each such Benefit Plan, and each of the Computer Systems
that are material to the investment of the assets of any of the Benefit Plans
(the "BENEFIT PLAN COMPUTER SYSTEMS") in order to determine which parts of the
Benefit Plan Computer Systems are not Year 2000 Compliant. The failure,
individually or in the aggregate, of Benefit Plan Computer Systems to be Year
2000 Complaint will not result in any sponsor or fiduciary of any Benefit Plan
incurring any liability or expense that will have a Material Adverse Effect on
Seller.
(e) Each Benefit Plan has made available to Buyer copies of all material
in-house correspondence and memoranda and all material correspondence between
such Benefit Plan (including its sponsor(s) and fiduciaries) and its agents,
insurance companies, vendors, suppliers, service providers, participants and
beneficiaries concerning whether such Persons are or expect to be Year 2000
Compliant or whether such Persons expect to be adversely affected by the failure
of any other Person to be Year 2000 Compliant.
(f) To the knowledge of Seller, no Benefit Plan (including its sponsor(s)
and fiduciaries), and no agent, insurance company, supplier, vendor or service
provider with which such Benefit Plan transacts business, can reasonably be
expected not to be Year 2000 Compliant in any respect that could reasonably be
expected to have a Material Adverse Effect on any Benefit Plan.
3.14 INVENTORIES. Except as set forth on SCHEDULE 3.14 and subject to
applicable reserves reflected on Seller's unaudited consolidated balance sheet
as of December 31, 1998, and except for obsolete items and items of
below-standard quality, all of which have been written-off or written-down to
net realizable value on Seller's unaudited consolidated balance sheet as of
December 31, 1998, all items of finished goods reflected on the books of Seller
and its Subsidiaries, or thereafter
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acquired (the "SELLER INVENTORY") consist of items of a quality and quantity
usable and saleable in the Ordinary Course.
3.15 ACCOUNTS RECEIVABLE. All accounts receivable reflected in the books
of Seller and its Subsidiaries consist of accounts that are good and collectible
in the Ordinary Course except for those which Seller and its Subsidiaries know
to be invalid, past due or uncollectible and for which Seller and its
Subsidiaries has created an applicable reserve for bad debts on Seller's
unaudited consolidated balance sheet as of December 31, 1998.
3.16 TANGIBLE PROPERTY.
(a) Seller or one or more of its Subsidiaries own or lease all buildings,
equipment, and other tangible assets necessary for the conduct of their
businesses as presently conducted and as presently proposed to be conducted.
SCHEDULE 3.16 sets forth a true and complete list of all owned U.S. real
property and owned foreign real property used by Seller or any of its
Subsidiaries. Except as set forth in SCHEDULE 3.16, the identified owner has
good and marketable title to the parcel of real property, free and clear of any
Security Interests, and there are no parties (other than Seller or its
Subsidiaries) in possession of such parcel of real property. SCHEDULE 3.16 also
sets forth a list of all of the leased and subleased parcels of real property
subject to leases and subleases in favor of Seller or one or more of its
Subsidiaries which evidence leasehold or subleasehold interests of Seller or its
Subsidiaries in such properties and designates those leases which require
consent of a lessor or sublessor in connection with the Merger.
(b) Except as set forth in SCHEDULE 3.16, Seller has all easements,
certificates of occupancy, permits, approvals, franchises, authorizations and
other such rights, including but not limited to easements for all utilities
(including without limitation all power lines, water lines and sewers) and
roadways necessary to conduct the business conducted on such properties.
3.17 BOOKS AND RECORDS. Except as set forth in SCHEDULE 3.17 attached
hereto, the books and records of Seller and each of its Subsidiaries are
accurate and complete in all material respects, have been maintained in
accordance with GAAP consistently applied, and accurately reflect in all
material respects the ownership, use, and operations of Seller and each of its
Subsidiaries.
3.18 BROKERS' FEES. None of Seller and its Subsidiaries has any Liability
or obligation to pay any fees or commissions to any broker, finder, or similar
agent with respect to the transactions contemplated by this Agreement.
3.19 TAX-FREE REORGANIZATION REPRESENTATIONS. To Seller's knowledge, it
has not taken any action that would or reasonably could be expected to cause the
Merger to fail to qualify as a "reorganization" within the meaning of Section
368 of the Code. Without limiting the generality of the immediately preceding
sentence:
(a) There is no intercorporate indebtedness existing between Seller and
Buyer that was issued, acquired or will be settled at a discount.
(b) Seller is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(c) The Merger will be effected for a bona fide business purpose.
(d) None of the Buyer Shares received by any stockholder/employee of
Seller pursuant to the Merger are, or will be, separate consideration for,
or allocable to, any employment, consulting or similar arrangement. The
compensation paid to any stockholder/employee of Seller pursuant to any such
employment, consulting or similar arrangement (including any covenant not to
compete) is or will be for services actually rendered and performed (or not
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competing), and will be commensurate with amounts paid to third parties
bargaining at arms length for similar services.
(e) As at the Effective Time, Seller will hold at least ninety percent
(90%) of the fair market value of its net assets and at least seventy
percent (70%) of the fair market value of its gross assets held immediately
prior to the Effective Time. For purposes of this representation, amounts
paid or expected to be paid by Seller or the Surviving Corporation to
dissenters, amounts paid by Seller to shareholders who receive cash or other
property, amounts used or expected to be used by Seller or the Surviving
Corporation to pay Seller's or any Seller Stockholder's reorganization
expenses, and all redemptions and distributions (except for regular, normal
dividends) made by Seller, will be included as assets of Seller immediately
prior to the Merger.
(f) In the Merger, Seller Shares representing control of Seller, as
defined in Section 368(c) of the Code, will be exchanged for Buyer Shares.
For purposes of this representation, Seller Shares exchanged for cash from
Buyer will be treated as outstanding Seller Shares at the Effective Time.
(g) Immediately after the Effective Time, Seller will not have
outstanding any warrants, options, convertible securities, or any other type
of right pursuant to which any Person could acquire stock in Seller that, if
exercised or converted, would affect Buyer's acquisition or retention of
control of Seller, as defined in Section 368(c) of the Code.
(h) Immediately after the Effective Time, the fair market value of the
assets of Seller will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
(i) Seller will not redeem any Seller Shares, or make an extraordinary
distribution with respect to any Seller Shares prior to, or in connection
with, the Merger within the meaning of Temporary Regulation Section1.368-1T.
3.20 POOLING OF INTEREST TREATMENT. To Seller's knowledge, it has not
taken any action that would or reasonably could be expected to cause the Merger
to fail to qualify for "pooling of interests" accounting treatment under
Accounting Principles Board Opinion No. 16. Each of the Affiliates of Seller,
within the meaning of SEC Accounting Staff Releases Nos. 130 and 135, is listed
on SCHEDULE 3.20.
3.21 CERTAIN CONTRACTS.
(a) SCHEDULE 3.21(a) lists the following contracts to which Seller or any of
its Subsidiaries is a party: (i) any Contract concerning noncompetition, (ii)
any Contract between Seller and any of its Affiliates or Subsidiaries,
(iii) any profit sharing, stock option, stock purchase, stock appreciation,
deferred compensation, severance, or other plan or arrangement for the benefit
of its current or former directors, officers, and employees, (iv) any powers of
attorney executed on behalf of Seller or any of its Subsidiaries, (v) any
Contract under which any of them has advanced or loaned any amount to any of its
directors, officers, and employees outside the Ordinary Course, (vi) any
Contract under which the consequences of a default or termination reasonably
could be expected to have a Material Adverse Effect on Seller; (vii) any
instrument or Contract whereby Seller or any of its Subsidiaries indemnifies or
guarantees any loss or Liability which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Seller; (viii) any
Contract under which Seller or any of its Subsidiaries could have Liabilities or
obligations in the future relating to the acquisition or disposition of material
assets by way of merger, consolidation, purchase, sale or otherwise, or granting
to any Person a right at such person's option to purchase
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or acquire any material asset or property of Seller or any interest therein (not
including dispositions of inventory in the Ordinary Course); and (ix) any other
Contract (or group of related contracts) the performance of which involves
consideration in excess of $250,000.
(b) To Seller's knowledge, the Grace Agreement is the valid and legally
binding obligation of the parties thereto, is enforceable in accordance with its
terms and conditions, and has not been amended or modified in any manner that
would affect the rights of Seller or any of its Subsidiaries under Sections
14.05 thereof. To Seller's knowledge, there are no existing facts or
circumstances which give Seller any reason to believe that the Selling Companies
(as defined in the Grace Agreement) would not satisfy their obligation to
indemnify Seller and the other members of the Buyer Group (as defined in the
Grace Agreement) in accordance with the terms of Section 14.05 of the Grace
Agreement.
(c) To Seller's knowledge, the Seller Stockholder Agreement is the valid and
legally binding obligation of the parties thereto, is enforceable in accordance
with its terms and conditions, and has not been amended or modified in any
manner that would affect the rights of Seller or CVC thereunder.
3.22 ABSENCE OF IMPROPER PAYMENTS. Neither Seller nor any of its
Subsidiaries (a) has made any contributions, payments or gifts of its property
to or for the private use of any governmental official, employee or agent where
either the payment or the purpose of such contribution, payments or gift is
illegal under the laws of the United States, any state thereof or any other
jurisdiction (foreign or domestic); (b) has established or maintained any
unrecorded fund or asset for any purpose, or has made any false or artificial
entries on its books or records for any reason; (c) has made any payments to any
Person with the intention or understanding that any part of such payment was to
be used for any other purpose other than that described in the documents
supporting the payment; or (d) has made any contribution, or has reimbursed any
political gift or contribution made by any other Person, to candidates for
public office, whether Federal, state or local, where such contribution would be
in violation of applicable law.
3.23 INSURANCE. Seller and its Subsidiaries maintain insurance policies,
self-insurance programs and other forms of insurance in such amounts, with such
deductibles and retained amounts, and against such risks and losses, as are
reasonable for the conduct of the business of Seller and its Subsidiaries in the
Ordinary Course as conducted on the date hereof. SCHEDULE 3.23 lists all such
insurance policies, self-insurance programs and other forms of insurance
maintained on the date hereof by or on behalf of Seller or any of its
Subsidiaries.
3.24 EMPLOYEES. To Seller's knowledge, no executive officer, or group of
employees, has any plans to terminate employment with Seller or any of its
Subsidiaries. Except as disclosed on SCHEDULE 3.24, neither Seller nor any of
its Subsidiaries: (i) is a party to or bound by any collective bargaining
agreement, nor has any of them experienced any strikes, grievances, claims of
unfair labor practices, or other collective bargaining disputes; or (ii) has
committed any unfair labor practice.
3.25 DISCLOSURE. No representation or warranty of Seller contained in this
Agreement or any schedule, attachment or exhibit hereto, and no statement
contained herein or in any certificate or document furnished to Buyer pursuant
to the transactions contemplated hereby, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they were made, not misleading.
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SECTION 4. CVC REPRESENTATIONS AND WARRANTIES.
CVC represents and warrants to Buyer and Merger Sub that the statements
contained in this Section 4 are correct and complete as of the date of this
Agreement. The representations and warranties which follow are deemed to be
repeated on the Closing Date.
4.1 ORGANIZATION AND CORPORATE POWER. CVC is duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
organization, and has the power and authority necessary to enter into and
perform its obligations under this Agreement.
4.2 AUTHORIZATION OF MERGER. This Agreement has been duly authorized,
executed and delivered by CVC and constitutes the valid and legally binding
obligation of CVC, enforceable in accordance with its terms and conditions.
4.3 NONCONTRAVENTION. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which CVC is subject or any provision of the charter or
bylaws of CVC or (ii) conflict with, result in a breach of, constitute a default
(or any event which, with notice or lapse of time, or both, would constitute a
default) under, result in the acceleration of, create in any party a put right
or repurchase obligation or the right to accelerate, terminate, modify or
cancel, create any Security Interest or require any notice, under any Contract
to which CVC is a party or by which it is bound or to which any of its assets is
subject. Other than in connection with the provisions of the HSRA, CVC is not
required to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency or
other Person in order for Seller to consummate the Merger.
4.4 AGENCY AGREEMENT. The Agency Agreement has been duly authorized by
CVC, and as of the Closing, will have been duly executed and delivered by CVC,
and will constitute the valid and legally binding obligation of CVC and each
other Seller Stockholder, enforceable in accordance with its terms and
conditions.
4.5 CVC SHARES. CVC beneficially owns and has the sole and unrestricted
voting power with respect to the number of Seller Shares indicated opposite
CVC's name on SCHEDULE 3.4 (together with any other Seller Shares of which CVC
acquires beneficial ownership and sole voting power during the term of this
Agreement, the "CVC SHARES"), it being understood that the Class B Seller Common
Shares are generally non-voting. CVC owns the CVC Shares free and clear of any
liens, claims, charges or other encumbrances or restrictions of any kind
whatsoever, other than pursuant to the Securities Act, the Exchange Act, or the
Seller Stockholder Agreement.
4.6 SECURITIES LAW ISSUES.
(a) CVC has received and had an opportunity to review Buyer's 1998 Annual
Report to Stockholders, Buyer's Annual Report on Form 10-K for the fiscal year
ended March 31, 1998 and Buyer's definitive proxy statement for its 1998 Annual
Meeting of Stockholders, and CVC is aware of and has access to all other Buyer
Public Reports and other filings by Buyer with the SEC since March 31, 1998.
(b) CVC is familiar with Rule 145 of the Securities Act and understands and
agrees that (i) the resale limitations imposed thereby will be applicable to all
Seller Affiliates, including CVC, and (ii) any stock certificate evidencing the
Buyer Shares issued to a Seller Affiliate may have the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT (I) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE
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SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), (II) IN CONFORMITY WITH
THE VOLUME AND OTHER LIMITATIONS OF RULE 145 OF THE ACT, EVIDENCED BY A
LETTER OF REPRESENTATION IN A FORM REASONABLY SATISFACTORY TO THE
CORPORATION, OR (III) IN A TRANSACTION WHICH, IN THE OPINION OF
INDEPENDENT COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION OR AS
DESCRIBED IN A "NO ACTION" OR INTERPRETIVE LETTER FROM THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION, IS NOT REQUIRED TO BE REGISTERED
UNDER THE ACT.
4.7 TAX-FREE REORGANIZATION. CVC has not taken, to its knowledge, any
action that would or reasonably could be expected to cause the Merger to fail to
qualify as a "reorganization" within the meaning of Section 368 of the Code.
4.8 POOLING OF INTEREST TREATMENT. CVC has not taken, to its knowledge,
any action that would or reasonably could be expected to cause the Merger to
fail to qualify for "pooling of interests" accounting treatment under Accounting
Principles Board Opinion No. 16.
4.9 DISCLOSURE. No representation or warranty of CVC contained in this
Agreement or any schedule, attachment or exhibit hereto, and no statement
contained herein or in any certificate or document furnished to Buyer pursuant
to the transactions contemplated hereby, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they were made, not misleading.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB.
Each of Buyer and Merger Sub represents and warrants to Seller and each
Seller Stockholder that the statements contained in this Section 5 are correct
and complete as of the date of this Agreement. The representations and
warranties which follow are deemed to be repeated on the Closing Date.
5.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of Buyer and
its Subsidiaries is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation. Each of Buyer and
its Subsidiaries is duly authorized to conduct business and is in good standing
under the laws of each jurisdiction where the absence of such qualification
would have a Material Adverse Effect on Buyer and its Subsidiaries. Each of
Buyer and its Subsidiaries has the corporate power and authority necessary to
carry on the businesses in which it is engaged and to own and use the properties
owned and used by it. Buyer has delivered to Seller a true and complete copy of
its certificate of incorporation and by-laws as in effect on the date hereof.
5.2 AUTHORIZATION OF MERGER. Each of Buyer and Merger Sub has full
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder subject to Buyer Stockholder Approval. This
Agreement has been duly executed and delivered on behalf of each of Buyer and
Merger Sub, and constitutes the valid and legally binding obligation of Buyer
and Merger Sub, enforceable and in effect in accordance with its terms and
conditions. The only further corporate action of Buyer required to consummate
the Merger is Buyer Stockholder Approval.
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5.3 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which either Buyer or its Subsidiaries is
subject or any provision of the charter or bylaws of either Buyer or any of its
Subsidiaries or (ii) conflict with, result in a breach of, constitute a default
(or any event which, with notice or lapse of time, or both, would constitute a
default) under, result in the acceleration of, create in any party a put right
or repurchase obligation or the right to accelerate, terminate, modify or
cancel, create any Security Interest or require any notice under, any material
Contract to which either of Buyer or any of its Subsidiaries is a party or by
which it is bound or to which any of its material assets is subject, except for
any such matters identified on SCHEDULE 5.3. Other than in connection with the
provisions of the HSRA, the federal and state securities laws and the NYSE Rule,
neither Buyer nor any of its Subsidiaries needs to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency or other Person in order for the Parties to consummate
the Merger, except as set forth on SCHEDULE 5.3.
5.4 CAPITALIZATION. The authorized capital stock of Buyer consists of
77,000,000 shares of capital stock, consisting of 75,000,000 of common stock, no
par value per share, of which 25,136,349 shares are issued and outstanding as of
the date of this Agreement, and 2,000,000 shares of serial preferred stock, none
of which is outstanding. Except as set forth on SCHEDULE 5.4, neither Buyer nor
any of its Subsidiaries has (i) any shares of common stock or preferred stock
reserved for issuance, or (ii) any Contract to which Buyer or any of its
Subsidiaries or, to Buyer's knowledge, any Affiliate of Buyer is a party or
subject relating to its capital stock or otherwise representing a right to
receive any of its capital stock, nor are there any pending or, to Buyer's
knowledge, threatened claims or demands for, a direct or indirect equity
interest in Buyer or any Subsidiary, including, without limitation, stock
appreciation, phantom stock, profit participation or similar rights. All of the
issued and outstanding shares of Buyer Common Stock have been duly authorized,
validly issued, are fully paid and are nonassessable. All Buyer Shares have been
duly authorized and, upon consummation of the Merger, will be validly issued,
fully paid and nonassessable. Notwithstanding the foregoing, Seller acknowledges
that, after the date hereof and prior to the Effective Time, Buyer may issue
additional shares of Buyer Common Stock. The authorized capital stock of the
Merger Sub is owned in its entirety by Buyer.
5.5 SEC FILINGS. Buyer has made all filings with the SEC that it has been
required to make since December 31, 1995 under the Securities Act and the
Exchange Act (including any exhibits and amendments thereto). Each such filing
complied with the Securities Act and the Securities Exchange Act in all material
respects when filed. No such filing, when filed, contained any untrue statement
of a material fact or omitted to state a material fact necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
5.6 FINANCIAL STATEMENTS. Buyer has filed an Annual Report on Form 10-K
for the fiscal year ended March 31, 1998 and a Quarterly Report on Form 10-Q for
each of the fiscal quarters ended June 30, 1998 and September 30, 1998 (together
the "BUYER PUBLIC REPORTS"). The financial statements included in Buyer Public
Reports have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby unless noted therein, present fairly the
financial condition of Buyer and its Subsidiaries as of the indicated dates and
the results of operations of Buyer and its Subsidiaries for the indicated
periods, are consistent with the books and records of Buyer and its
Subsidiaries, and comply in all material respects with the provisions of
Regulations S-K and S-X of the Securities Act. Attached as SCHEDULE 5.6 are the
unaudited consolidated balance sheet, income statement and cash-flow statement
of Buyer and its Subsidiaries as of and for the three and nine-month periods
ended December 31, 1998, which have been prepared in accordance with GAAP on a
basis consistent with Buyer Public Reports with the
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exception of footnotes, present fairly the financial condition of Buyer and its
Subsidiaries as of the indicated dates and the results of operations of Buyer
and its Subsidiaries for the indicated periods, and are consistent with the
books and records of Buyer and its Subsidiaries.
5.7 LITIGATION. There are no judgments, decrees, lawsuits, actions,
proceedings, claims, complaints, injunctions, orders or investigations by or
before any Governmental Entity pending or, to Buyer's knowledge, threatened
against Buyer or its Subsidiaries seeking to enjoin any aspect of the Merger. To
Buyer's knowledge, there are no existing facts or circumstances which give any
reason to believe that any such action, suit, proceeding, hearing or
investigation may be brought or threatened against Buyer or any of its
Subsidiaries.
5.8 ABSENCE OF CERTAIN DEVELOPMENTS.
(a) Except as disclosed in SCHEDULE 5.8(a), since March 31, 1998 no event
has occurred which has had or reasonably could be expected to have a Material
Adverse Effect on Buyer.
(b) Except as disclosed in SCHEDULE 5.8(b) or the Financial Statements, and
except for this Agreement and the Merger, since March 31, 1998, each of Buyer
and its Subsidiaries has been operated in the Ordinary Course.
5.9 TAXES.
(a) Except as set forth on SCHEDULE 5.9(a), all Taxes owed by Buyer and each
of its Tax Affiliates, whether or not shown on any Tax Return, have been timely
paid or are not yet due and payable.
(b) Except as set forth on SCHEDULE 5.9(b):
(i) neither Buyer nor any of its Subsidiaries (A) is or has been a
member of an affiliated group filing a consolidated federal income Tax
Return (other than a group of the common parent of which was Buyer) or (B)
has any Liability for the Taxes of any Person (other than Buyer and its
Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any similar provision
of state, local or foreign law), as a transferee or successor, by contract,
or otherwise;
(ii) Buyer and each of its Tax Affiliates has complied with all
applicable laws, rules and regulations relating to the payment and
withholding of Taxes and has timely and properly withheld from employee
wages and paid over to the proper governmental authorities all amounts
required to be so withheld and paid over under all applicable laws;
(iii) there are no liens for Taxes on any assets of Buyer or any of its
Tax Affiliates except liens for Taxes not yet due.
(iv) neither Buyer nor any of its Tax Affiliates is a party to or bound
by any Tax indemnification, Tax allocation or Tax sharing agreement with any
Person or has any current or potential contractual obligation to indemnify
any other Person with respect to Taxes; and
(v) Buyer and each of its Subsidiaries has established and until the
Effective Time will maintain on its books and records reserves adequate to
pay all Taxes accrued but not yet due and payable in accordance with GAAP,
and such reserves are reflected on the Financial Statements to the extent
required. Neither Buyer nor any of its Subsidiaries is a party to any
agreement, contract or arrangement that would result, separately or in the
aggregate, in the payment of any "excess parachute payment" within the
meaning of Section 280G of the Code, or in the payment of compensation that
is not fully deductible pursuant to Section 162(m) of the Code, as a result
of the Merger.
5.10 ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS. Except as set forth on
SCHEDULE 5.10, (i) Buyer has complied with, and is in compliance with, the
Environmental, Health, and Safety
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Requirements, in all material respects, (ii) without limiting the generality of
the foregoing, Buyer has obtained and complied with, and is in compliance with,
in all material respects, all permits, licenses and other authorizations that
are required pursuant to the Environmental, Health, and Safety Requirements for
the occupation of their facilities and the operation of their business,
(iii) Buyer has not received any notice regarding any actual or alleged material
violation of Environmental, Health, and Safety Requirements, or any material
Liability or potential Liability arising under the Environmental, Health, and
Safety Requirements (including any investigatory, remedial or corrective
obligations) (iv) Buyer has not treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled, or released any Hazardous
Material or owned or operated any property or facility (and no such property or
facility is contaminated by any Hazardous Material) in a manner that has given
or reasonably could be expected to give rise to any material Liability,
including Liability for response costs, corrective action costs, personal
injury, property damage, natural resources damages or attorney fees, pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, the Solid Waste Disposal Act, as amended, or any other
Environmental, Health, and Safety Requirements, and (v) Buyer has not, either
expressly or by operation of law, assumed, undertaken or otherwise become
subject to any material Liability of any other Person relating to Environmental,
Health, and Safety Requirements.
5.11 EMPLOYEE BENEFIT PLANS.
(a) All contributions or other amounts payable by Buyer or any ERISA
Affiliate as of the Effective Time with respect to each Benefit Plan in respect
of current or prior plan years have been paid or accrued in accordance with
GAAP, Section 302 of ERISA and Section 412 of the Code, and there is no
accumulated funding deficiency with respect to any Benefit Plan. The present
value of accrued benefits under each Benefit Plan which is an employee pension
benefit plan, based upon the actuarial assumptions used for funding purposes in
the most recent actuarial report prepared by such Benefit Plan's actuary with
respect to such Benefit Plan, did not, as of its latest valuation date, exceed
the then current value of the assets of such Benefit Plan allocable to such
accrued benefits.
(b) To the extent applicable, each Benefit Plan (and its related trust) is
maintained and administered in material compliance in all respects with the
applicable provisions of ERISA, the Code and any other laws. Each Benefit Plan
(and its related trust) which is maintained, administered, reported or
contributed to as if qualified under Sections 401(a) or 501(a) of the Code is so
qualified and has received a favorable determination letter from the Internal
Revenue Service that it is so qualified. Each Benefit Plan (and its related
trust) may, by its terms, be amended or terminated, in whole or in part, at any
time and from time to time by Buyer (or, as applicable, any ERISA Affiliate)
without penalty or cost.
(c) No Liability to the Pension Benefit Guaranty Corporation (the "PBGC")
(except for routine payment of premiums) has been incurred with respect to any
Benefit Plan that is subject to Title IV of ERISA (and no fact or circumstance
exists which could give rise to any such liability), no reportable event within
the meaning of Section 4043 of ERISA has occurred with respect to any such
Benefit Plan, the PBGC has not commenced proceedings for the termination of any
Benefit Plan or the appointment of a trustee with respect to any Benefit Plan,
and no fact or circumstance exists which can be expected to cause the PBGC to
commence any proceedings under Title IV of ERISA or otherwise with respect to
any Benefit Plan. None of the assets of Seller or any ERISA Affiliate is the
subject of any Security Interest arising under Section 302 of ERISA or
Section 412 of the Code, and no facts or circumstances exist which could give
rise to such Security Interest. Neither Buyer nor any ERISA Affiliate has been
required to post any security under Section 307 of ERISA or Section 401(a) of
the Code, and no facts or circumstances exist which could give rise to such
posting of security.
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(d) Neither Buyer nor any ERISA Affiliate has engaged in a transaction in
connection with which Buyer or any ERISA Affiliate, or any other Person or
entity, could be subject to a material Liability under ERISA, or the Code,
including, without limitation, liability under Section 409 of ERISA or a civil
penalty assessable pursuant to Section 502 of ERISA or a tax imposed pursuant to
Section 4975 of the Code, and no event has occurred and no condition exists with
respect to any Benefit Plan that could subject Buyer or any ERISA Affiliate to
any tax, fine or penalty imposed by the Code or ERISA.
5.12 BROKER'S FEE. None of Buyer and its Subsidiaries has any Liability or
obligation to pay any fees or commissions to any broker, finder, or similar
agent with respect to the transactions contemplated by this Agreement.
5.13 TAX-FREE REORGANIZATION REPRESENTATIONS. To Buyer's knowledge, it has
not taken any action that would or reasonably could be expected to cause the
Merger to fail to qualify as a "reorganization" within the meaning of Section
368 of the Code, and does not intend to take any such action. Without limiting
the generality of the immediately preceding sentence:
(a) Except with respect to the payment of cash in lieu of fractional
share interests pursuant to Section 2.4(g), neither Buyer nor any related
Person (within the meaning of Treas. Reg. Section1.368-1(e)(3)) has any plan
or intention to reacquire any of the Buyer Shares that will be issued in the
Merger pursuant to either Buyer Warrant.
(b) There is no intercorporate indebtedness existing between Buyer and
Seller that was issued, acquired or will be settled at a discount.
(c) Neither Buyer nor Merger Sub is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(d) Merger Sub will have no liabilities that will be assumed by or
transferred to Seller in the Merger.
(e) Prior to and through the Effective Time of the Merger, Buyer will be
in control of Merger Sub within the meaning of Section 368(c) of the Code.
(f) Buyer has no plan or intention to: (i) liquidate the Surviving
Corporation, (ii) merge the Surviving Corporation with and into another
corporation other than Merger Sub, (iii) sell or otherwise dispose of the
Seller Shares, or (iv) cause the Surviving Corporation to sell or otherwise
dispose of any of its assets, except for dispositions made in the ordinary
course of business or transfers described in Section 368(a)(2)(C) of the
Code.
(g) Neither Buyer nor any related Person (within the meaning of Treas.
Reg. Section 1.368-1(e)(3)) has acquired or will acquire any Seller Shares
in anticipation of the Merger.
(h) Buyer does not own, and has not owned during the past five years,
any Seller Shares.
(i) The Merger will be effected for a bona fide business purpose.
(j) None of the Buyer Shares received by any stockholder/employee of
Seller pursuant to the Merger are, or will be, separate consideration for,
or allocable to, any employment, consulting or similar arrangement. The
compensation paid to any stockholder/employee of Seller pursuant to any such
employment, consulting or similar arrangement (including any covenant not to
compete) is or will be for services actually rendered and performed (or not
competing), and will be commensurate with amounts paid to third parties
bargaining at arms length for similar services.
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(k) Buyer has no plan or intention to cause the Surviving Corporation to
issue Seller Shares after the Merger that would result in Buyer losing
control of the Surviving Corporation within the meaning of Section 368(c) of
the Code.
(l) Buyer presently intends that after the Merger it will cause the
Surviving Corporation to continue the historic business of Seller and/or to
use a significant portion of Seller's business assets in a business.
5.14 POOLING OF INTEREST TREATMENT. To Buyer's knowledge, it has not taken
any action that would or reasonably could be expected to cause the Merger to
fail to qualify for "pooling of interests" accounting treatment under Accounting
Principles Board Opinion No. 16.
5.15 DISCLOSURE. No representation or warranty of Buyer contained in this
Agreement or any schedule, attachment or exhibit hereto, and no statement
contained herein or in any certificate or document furnished to Buyer pursuant
to the transactions contemplated hereby, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they were made, not misleading.
SECTION 6. COVENANTS.
The Parties agree as follows with respect to the period from and after the
execution of this Agreement.
6.1 GENERAL. Each of the Parties will use all commercially reasonable
efforts to take all action and to do all things necessary, proper, and advisable
in order to consummate and make effective the Merger as soon as practicable
after the date of this Agreement (including satisfaction, but not waiver, of the
closing conditions set forth in Section 7). Each party will give any notices for
which it is responsible by law or under this or any other contract (and will
cause each of its Subsidiaries to give any notices) to any third parties, and
will use all commercially reasonable efforts to obtain (and will cause each of
its Subsidiaries to use all commercially reasonable efforts to obtain) any third
party consents, necessary to the consummation of the Merger, including any
consents, waivers, amendment or other action.
6.2 JOINT PROXY STATEMENT -- PROSPECTUS AND S-4 REGISTRATION STATEMENT;
STOCKHOLDER APPROVAL; NYSE LISTING.
(a) Buyer shall promptly prepare and file with the SEC the Joint Proxy
Statement -- Prospectus (including the preliminary form thereof), and shall
thereafter prepare and file with the SEC a registration statement on Form S-4
(the "S-4 REGISTRATION STATEMENT"), in which the Joint Proxy Statement --
Prospectus will be included as a prospectus. Buyer and Seller shall use all
commercially reasonable efforts to file the preliminary form of the Joint Proxy
Statement -- Prospectus with the SEC within twenty (20) Business Days after the
date of this Agreement. Buyer's Representatives shall have principal
responsibility for preparing the Joint Proxy Statement -- Prospectus. Each of
Buyer and Seller shall use all commercially reasonable efforts to have the S-4
Registration Statement declared effective under the Securities Act as promptly
as practicable after the initial filing of the preliminary form of Joint Proxy
Statement -- Prospectus. Buyer shall use all commercially reasonable efforts to
obtain all necessary state securities law or "Blue Sky" permits and approvals
required for Buyer and Seller to carry out the transactions contemplated by this
Agreement and Seller shall furnish all information concerning Seller and the
holders of Seller Shares as may be reasonably requested in connection with any
such action. Buyer shall promptly notify Seller and CVC of the receipt by it of
any comments of the SEC or state securities laws regulators and will promptly
supply Seller and CVC with copies of all correspondence between it or its
Representatives, on the one hand, and the SEC or state securities law
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regulators, on the other hand, regarding the Joint Proxy Statement --
Prospectus, the S-4 Registration Statement or such "Blue Sky" permits and
approvals.
(b) Each Party shall, promptly upon request, furnish each other Party with
all information concerning itself, its Subsidiaries, Representatives,
stockholders, Affiliates and such other matters as may be reasonably necessary
or advisable in connection with the Joint Proxy Statement -- Prospectus, the S-4
Registration Statement or any other statement, filing, notice or application
made by or on behalf of Buyer, Seller or any of their respective subsidiaries to
any Governmental Entity in connection with the Joint Proxy Statement --
Prospectus, the S-4 Registration Statement or the "Blue Sky" permits and
approvals. Seller shall use all commercially reasonable efforts to cause the
following items to be delivered to Buyer within ten (10) Business Days after the
date of this Agreement: (x) Seller's audited consolidated balance sheets as of
December 31, 1998 and 1997 and its audited statements of income, cash-flow and
shareholders' equity for each of the years in the three-year period ended
December 31, 1998, and the report of PricewaterhouseCoopers, LLP with respect
thereto, and (y) Seller's discussion and analysis of Seller's financial
condition as of December 31, 1998 and 1997 and its results of operations for
fiscal 1998 and 1997 prepared in accordance with the requirements of Item 303 of
SEC Regulation S-K.
(c) Except as expressly provided in the immediately following sentence, the
Joint Proxy Statement -- Prospectus shall contain a recommendation by each of
the Buyer Board of Directors and the Seller Board of Directors in favor of the
approval of this Agreement. Notwithstanding the immediately preceding sentence,
nothing in this Section 6.2 shall be construed to require any director of Buyer
to take any action or permit any event otherwise required under this
Section 6.2 to the extent that the Buyer Board of Directors or such director
shall conclude in good faith, based upon the written advice of counsel, that
such action is prohibited or inadvisable in order for the Buyer Board of
Directors or such director to act in a manner that is consistent with its or his
fiduciary obligations under applicable laws.
(d) Buyer and Seller shall cause the Joint Proxy Statement -- Prospectus to
be mailed to their respective stockholders as promptly as practicable after the
S-4 Registration Statement is declared effective under the Securities Act, and
in any event Seller shall cause the Joint Proxy Statement -- Prospectus to be
mailed to the Seller Stockholders no later than the third (3rd) Business Day
after the Joint Proxy Statement -- Prospectus is mailed to Buyer stockholders.
Notwithstanding any other provision in this Agreement, Seller shall use its best
efforts to obtain Seller Stockholder Approval not later than the first Business
Day that is at least twenty (20) calendar days after the Joint Proxy
Statement -- Prospectus is mailed to the Seller Stockholders.
(e) Seller represents and warrants to Buyer that, as of the date the Joint
Proxy Statement -- Prospectus is issued and as of the date of each of Seller
Stockholder Approval and the Buyer Special Meeting, the Joint Proxy
Statement -- Prospectus will not contain any untrue statement of a material fact
regarding Seller or any of its Subsidiaries or omit to state any material fact
regarding Seller or any of its Subsidiaries necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not misleading, it being understood that Seller is making no representation or
warranty with respect to information set forth in the Joint Proxy Statement --
Prospectus concerning Buyer or the Buyer Special Meeting. Seller will promptly
advise Buyer in writing if, at any time prior to the date of Seller Stockholder
Approval or the date of the Buyer Special Meeting, it shall obtain knowledge of
any facts that might make it necessary or appropriate to amend or supplement the
Joint Proxy Statement -- Prospectus in order to make the statements regarding
Seller or any of its Subsidiaries contained therein not misleading or to comply
with applicable law and agrees to correct any statements that are or have become
misleading.
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(f) Buyer represents and warrants to Seller that as of the date the Joint
Proxy Statement -- Prospectus is issued and as of the date of each of Seller
Stockholder Approval and the Buyer Special Meeting, the S-4 Registration
Statement and the Joint Proxy Statement -- Prospectus will comply as to form in
all material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, and the rules and regulations of the SEC
thereunder, and will not at any such time contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not misleading, except that no representation or warranty is made with respect
to information set forth in the Joint Proxy Statement -- Prospectus concerning
Seller or the terms of Seller Stockholder Approval. Buyer will promptly advise
Seller in writing if, at any time prior to the Seller Stockholder Approval,
Buyer shall obtain knowledge of any facts that might make it necessary or
appropriate to amend or supplement the S-4 Registration Statement or the Joint
Proxy Statement -- Prospectus in order to make the statements contained or
incorporated by reference therein not misleading or to comply with applicable
law and agrees to correct any statements that are or have become misleading.
(g) Seller shall use all commercially reasonable efforts to cause to be
delivered to Buyer letters from its independent accountants dated the date on
which the S-4 Registration Statement or last amendment thereto shall become
effective, and dated the Closing Date, and addressed to Buyer and Seller, with
respect to Seller's consolidated financial position and the results of
operations, which letters shall be based on SAS 72 and certain agreed-upon
procedures, which procedures shall be consistent with applicable professional
standards for letters delivered by independent accountants in connection with
comparable transactions, and each in form and substance which is reasonably
satisfactory to Buyer.
(h) Seller and CVC shall use all commercially reasonable efforts to cause
each Seller Affiliate to deliver to Buyer within fifteen (15) Business Days
after the date of this Agreement an executed copy of the Seller Affiliate
Agreement in the form of EXHIBIT D. Within sixty (60) days after the end of the
first fiscal quarter of Buyer ending at least thirty (30) days after the
Effective Time, Buyer shall publish results including at least thirty (30) days
of combined operations of Buyer and Seller as referred to in Seller Affiliates
Agreement as contemplated by and in accordance with SEC Accounting Series
Release No. 135.
(i) Buyer shall identify, after consultation with counsel, all persons who,
at the time of the Buyer Special Meeting, it believes may be deemed to be
"affiliates" of Buyer, as that term is defined for purposes of paragraphs (c)
and (d) of Rule 145 under the Securities Act and/or as used in and for purposes
of Accounting Series Releases 130 and 135, as amended, of the SEC (the "BUYER
AFFILIATES"). Buyer shall use all commercially reasonable efforts to provide to
each Buyer Affiliate, at least forty (40) days prior to the Effective Time,
written notice regarding the applicable restrictions in Rule 145 and the
ramifications of the SEC interpretative positions in Accounting Series Releases
130 and 135, as amended.
(j) Buyer shall use all commercially reasonable efforts to cause the Buyer
Shares that will be issued to the Seller Stockholders upon consummation of the
Merger, and the Warrant Shares that will be issued upon the exercise of the
Buyer Warrants, to be authorized for listing on the NYSE, subject to official
notice of listing, prior to the Closing.
6.3 OTHER REGULATORY MATTERS AND APPROVALS. Each of the Parties will (and
will cause each of its Subsidiaries to) give any notices to, make any filings
with, and use all commercially reasonable efforts to obtain any authorizations,
consents, and approvals of governments and governmental agencies in connection
with the matters referred to in Sections 3.3 and 5.3. Without limiting the scope
of the immediately preceding sentence, Buyer and Seller will as promptly as
practicable, but in no event later than fifteen (15) Business Days following the
date of this Agreement, each file
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any Notification and Report Forms or other form or report and related material
that the Parties may be required to file with the Federal Trade Commission
("FTC") and the Antitrust Division of the United States Department of Justice
("DOJ") under the HSRA or with any other Governmental Entity under the laws of
any foreign jurisdiction. Any such notification and report form and supplemental
information will be in substantial compliance with the requirements of the HSRA.
Each of Buyer and Seller shall furnish to the other such necessary information
and reasonable assistance as the other may request in connection with its
preparation of any filing or submission which is necessary under the HSRA. Buyer
and Seller shall keep each other apprised of the status of any communications
with, and inquiries or requests for additional information from, the FTC and the
DOJ and shall respond promptly with any such inquiry or request. Buyer and
Seller will use all commercially reasonable efforts to obtain an early
termination of any applicable waiting period, and will make any further filings
pursuant thereto that may be necessary, proper, or advisable.
6.4 SELLER'S INTERIM OPERATION OF BUSINESS. Prior to the Closing, except
as otherwise expressly provided herein, Seller shall, and shall cause its
Subsidiaries to:
(a) except as contemplated by this Agreement, operate only in the
Ordinary Course;
(b) use all commercially reasonable efforts to keep in full force and
effect its corporate existence and all material rights, franchises,
Proprietary Rights and goodwill relating or obtaining to its business;
(c) use reasonable efforts to retain its employees and preserve its
present relationships with customers, suppliers, contractors, distributors
and such employees;
(d) perform in all material respects all of its obligations under all
Contracts to which it is a party or by which it or its properties or assets
may be bound and not enter into, assume, create, renew, amend or terminate,
or give notice of a proposed renewal, amendment or termination of, (i) any
Contract for goods, services or office space to which Seller or any of its
Subsidiaries is (or would thereby be) a party or by which Seller or any of
its Subsidiaries or any of their properties are (or would thereby be) bound,
excepting only Contracts made in the Ordinary Course or under which the
aggregate payments by either party over the term of the Contract do not
exceed $100,000, (ii) any Contract the benefits of which (to either party)
will accrue or be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of the Merger (either alone or upon the
occurrence of any additional acts or events) or the value of any of the
benefits under which will be calculated on the basis of the Merger or any
portion or aspect of either (including any so-called retention or similar
bonuses), (iii) any Contract relating to non-competition, or (iv) any
Contract that materially restricts the conduct of any line of business by
Seller or any of its Subsidiaries;
(e) not make any single capital expenditure exceeding $2,000,000 or any
capital expenditures exceeding $3,000,000 in the aggregate; PROVIDED,
HOWEVER, that with Buyer's prior written consent, which consent may not be
unreasonably withheld, conditioned or delayed, Seller's aggregate capital
expenditures during the term of this Agreement may exceed $3,000,000 but not
more than $7,000,000;
(f) not enter into any new line of business;
(g) not enter into, renew or amend any agreement relating to employment,
salary continuation, severance, consulting, collective bargaining or
otherwise relating to the provision of personal services or payment
therefor; not institute, amend or terminate any Benefit Plan; not terminate
any group health plan that covers, as of the date of this Agreement, current
or former employees of Seller, any of its Subsidiaries or any ERISA
Affiliate or their beneficiaries; not enter into, renew or amend any
agreement that, upon the consummation of the
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Merger, will result in any payment (whether of severance pay or otherwise)
becoming due from Buyer, the Surviving Corporation, or any of their
Subsidiaries, to any officer or employee of Seller or any of its
Subsidiaries; not pay any pension or retirement allowance to any Person not
required by an existing plan or agreement; not increase in any manner the
compensation or fringe benefits of, or pay any bonus to, any officer,
director or employee except (i) as set forth on SCHEDULE 6.4(G) or
(ii) customary annual (or less frequent) increases in the wages or salaries
of employees and customary annual (or less frequent) bonuses to employees,
in each case substantially consistent with past practice and which on an
annualized basis do not increase the aggregate personnel costs for all
employees by more than six percent (6.0%) over the levels in effect as of
December 31, 1998; or not increase any other direct or indirect compensation
or employee benefit for or to any of its officers, directors or employees;
(h) prepare and file, on a timely basis, all Tax Returns and other Tax
reports, filings and amendments thereto required to be filed by it;
(i) deliver to Buyer, within fifteen (15) days of each month end from
the date hereof through the Closing Date, Seller's consolidated unaudited
balance sheets, income statements and cash flow statements as of and for the
immediately preceding month, all consistent with the applicable requirements
of Section 3.6;
(j) not declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of its
outstanding capital stock, except for cash dividends in the Ordinary Course
on the Seller Preferred Shares in accordance with the terms of Seller's
Certificate of Incorporation;
(k) not issue, sell, grant, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or option to acquire, any such shares, voting
securities or convertible securities, or take any action that would make the
representations and warranties set forth in Section 3.4 as applicable not
true and correct in all material respects;
(l) not amend its Certificate of Incorporation or By-laws or other
comparable charter or organizational documents;
(m) not acquire by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, joint venture, association or other
business organization or division thereof (or any interest therein), or form
any subsidiary or solicit or negotiate any Acquisition Proposal with respect
to any other Person;
(n) not change its accounting policies in any material respect, except
as required by GAAP;
(o) pay their own expenses in connection with the Merger and, at
Seller's discretion, pay any expense CVC reasonably incurs in connection
with the Merger; and
(p) not authorize or enter into any agreement or commitment to take any
action inconsistent with any of the foregoing.
Further, prior to the Closing, without the prior written consent of Buyer or as
otherwise expressly provided herein, Seller will not, and will not permit any of
its Subsidiaries, to enter into any Contract or take any other action which, if
entered into or taken prior to the date of this Agreement, would cause any
representation or warranty of Seller to be untrue in any respect or be required
to be disclosed on any Schedule; or take any action that is intended or may
reasonably be expected to result in any of the conditions to the Merger as set
forth in Section 7 not being
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satisfied or in a violation of this Agreement; or take or omit to be taken any
action which reasonably could be expected to have a Material Adverse Effect on
Seller.
6.5 COVENANTS OF BUYER. Prior to the Closing, except as otherwise
expressly provided for herein, Buyer shall, and shall cause its Subsidiaries to:
(a) not take any action that is intended or may reasonably be expected
to result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect, or in any of the
conditions to the Merger set forth in Sections 7.2 not being satisfied or in
a violation of any provision of this Agreement, except, in every case, as
may be required by applicable law;
(b) not take any other action that would materially impede the ability
of Buyer to obtain the requisite regulatory approvals or otherwise
materially adversely affect Buyer's ability to consummate the transactions
contemplated by this Agreement;
(c) not declare or pay any dividend on, or make any other distributions
in respect of, Buyer Common Stock except for dividends in the Ordinary
Course and dividends or distributions in Buyer Common Stock;
(d) not issue any shares of Buyer Common Stock in connection with Buyer
acquiring directly or indirectly the stock or assets of any other Person,
except with the prior consent of Seller, which consent may not be
unreasonably withheld, conditioned or delayed;
(e) not consolidate with or merge into any other Person or convey,
transfer or lease its properties and assets substantially as an entirety to
any Person unless such Person shall expressly assume the obligations of
Buyer hereunder;
(f) pay their own expenses in connection with the Merger; and
(g) not authorize or enter into any agreement or commitment to take any
action inconsistent with any of the foregoing.
Further, prior to the Closing, without the prior written consent of Seller or as
otherwise expressly provided for herein, Buyer will not, and will not permit any
of its Subsidiaries, to enter into any Contract or take any other action which,
if entered into or taken prior to the date of this Agreement, would cause any
representation or warranty of Buyer to be untrue in any respect or be required
to be disclosed on any Schedule; or take any action that is intended or may
reasonably be expected to result in any of the conditions to the Merger as set
forth in Section 7 or in a violation of this Agreement.
6.6 ACCESS. (a) Seller shall make available to Buyer all information
regarding Seller that Buyer reasonably may request and shall authorize all
reasonable visits to Seller's premises to make such investigations of the
business, properties, books and records of Seller and its Subsidiaries
(including without limitation Phase I and Phase II environmental assessments and
other environmental due diligence) as Buyer reasonably may request. Buyer agrees
to coordinate closely all such activities with Seller's President or Chief
Financial Officer and to conduct any such inquiries with appropriate discretion
and sensitivity to Seller's relationships with its employees, customers and
suppliers.
(b) Upon reasonable notice, Buyer shall, within a reasonable period of time
prior to the Closing, afford Seller and its officers, employees, counsel,
accountants and other authorized Representatives, such access as is reasonably
necessary to confirm that the representations and warranties of Buyer made
herein are true and correct in all material respects. Buyer shall furnish
promptly to Seller a copy of each application, report, schedule, correspondence
and other document filed by Buyer with or received by Buyer from any
Governmental Entity in connection with
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the transactions contemplated hereunder, and Buyer agrees to notify Seller by
telephone within twenty-four (24) hours of receipt of any adverse oral
communication from any Governmental Entity regarding the outcome of any
regulatory applications required in connection with the Merger.
(c) Nothing in this Section 6.6 shall require any Party or any of its
Subsidiaries to provide access to or to disclose information where such access
or disclosure would jeopardize the attorney-client privilege of the Person in
possession or control of such information or would contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The Parties will make appropriate
substitute disclosure arrangements under circumstances in which the restrictions
of the immediately preceding sentence apply.
(d) Each Party acknowledges that certain of the information made available
to it pursuant to this Section 6.6 and otherwise in connection with the Merger
may be confidential, proprietary or otherwise nonpublic, and each Party agrees,
for itself and for each of its Representatives, that it (i) shall hold in
confidence all confidential information received by it from or with regard to
the other Party ("CONFIDENTIAL INFORMATION") subject to the terms of this
Section 6.6, (ii) shall disclose such Confidential Information only to those of
its Representatives and, in the case of Buyer, its current or prospective
lenders, and other sources of capital, in each case having a need to know the
same for purposes of evaluating, negotiating or implementing financing for
Buyer, and (iii) shall inform each Representative or current or prospective
lender or investor to whom Confidential Information is disclosed that such
information is confidential and direct such Representative or current or
prospective lender or investor not to disclose the same. Each Party shall remain
responsible for any disclosure of Confidential Information by any of its
Representatives or current or prospective lender or investors. Each Party
further agrees that, upon the request of the other Party given following the
termination of this Agreement for any reason, the receiving Party and each of
its Representatives either shall return to the requesting Party all Confidential
Information received by the receiving Party and its Representatives (including
all compilations, analyses or other documents prepared by it that contain
Confidential Information) or shall certify that the same has been destroyed. As
used herein, Confidential Information shall not include (i) information that is
or becomes generally available to the public other than as a result of a breach
of this Agreement, (ii) information that the receiving Party demonstrates was
known to it on a non-confidential basis prior to receiving such information from
the other Party, (iii) information that the receiving Party develops
independently without relying on Confidential Information, and (iv) information
that becomes available to the receiving Party on a non-confidential basis from
another source if the source was not known to or not reasonably believed by the
receiving Party to be subject to any prohibition against disclosing such
information.
6.7 NOTICE OF DEVELOPMENTS. Each Party shall promptly advise the other
Party of any change or event having a Material Adverse Effect on it or its
ability to perform its obligations under this Agreement or which it believes
would or may be reasonably likely to cause or constitute a material breach of
any of its representations, warranties or covenants contained herein or to
preclude the satisfaction of one or more of the conditions set forth in
Section 7; PROVIDED, HOWEVER, that any such disclosure shall not have any effect
for the purpose of determining the accuracy of any representation or warranty
when made, for determining satisfaction of the conditions set forth in
Section 7, or for determining the compliance by Seller with any other provision
of this Agreement.
6.8 ACQUISITION PROPOSALS. Seller shall not, and it shall not authorize or
permit any of its Subsidiaries, officers, directors, employees, Affiliates,
stockholders or any Representative retained by Seller or its Subsidiaries,
directly or indirectly, to (i) solicit, initiate or knowingly encourage or
induce the making of any Acquisition Proposal, (ii) negotiate with any third
party with respect to any Acquisition Proposal, (iii) endorse or recommend the
Acquisition Proposal of any Person
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other than the Buyer or any of its Subsidiaries or (iv) enter into any Contract
with any third party with the intent to effect any Acquisition Proposal.
6.9 BOARD OF DIRECTORS. CVC shall have the right to designate one (1)
director to serve on Buyer's Board of Directors from and after the Effective
Time, and Buyer's Board of Directors shall take all such action reasonably
necessary to cause and maintain such designation, so long as at all times from
and after the Effective Time each of the following conditions is satisfied: (i)
CVC owns shares of Buyer Common Stock constituting forty percent (40.0%) or more
of the total number of Buyer Shares issued to CVC in the Merger (as adjusted for
any Recapitalization) and (ii) CVC owns shares of Buyer Common Stock
constituting two percent (2.0%) or more of the shares of Buyer Common Stock
outstanding from time to time. A condition to the election of the CVC designee
is the agreement of such designee to resign at the request of Buyer's Board of
Directors if the either of the conditions set forth in the immediately preceding
sentence is not satisfied. Buyer shall use all commercially reasonable efforts
to maintain directors' and officers' liability insurance covering the CVC
director designee, and in no event shall such directors' and officers' liability
insurance applicable to the CVC director designee be less favorable than the
directors' and officers' liability insurance covering Buyer's directors
generally. Buyer shall reimburse such designee for any reasonable out-of-pocket
expenses incurred in connection with his or her position on the Board of
Directors in accordance with Buyer's customary practices and shall pay such
designees any fees or other compensation comparable to other non-executive
directors of Buyer.
6.10 FINANCING. Buyer shall use all commercially reasonable efforts to
obtain, on terms satisfactory to Buyer, debt financing on or prior to the
Closing Date in an amount not less than the amount required to refinance all
financial indebtedness of Seller and its Subsidiaries under the Credit
Agreements, the Senior Credit Notes and the 10% PIK Subordinated Notes and to
provide for the ordinary working capital needs of Seller and its Subsidiaries.
Buyer shall deliver to Seller true and correct copies of the fully executed and
delivered definitive financing agreements with respect thereto on or before the
Closing Date. Buyer shall use all commercially reasonable efforts to cause it
and its Subsidiaries to satisfy on or before the Closing Date all requirements
of the definitive financing agreements which are conditions to closing the
transactions constituting the financing and to drawing the cash proceeds
thereunder. Seller and its Subsidiaries shall use all commercially reasonable
efforts to cooperate with Buyer to facilitate such financing.
6.11 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. Other than required by this
Agreement, no Party shall issue any press release or make any public
announcement (including filings with the SEC or NYSE) prior to the Effective
Time and relating to the subject matter of this Agreement without the prior
written approval of the other Parties; PROVIDED, HOWEVER, that any Party may
make any public disclosure it believes in good faith is required by applicable
law or any listing or trading agreement concerning its publicly-traded
securities (in which case the disclosing Party will use all commercially
reasonable efforts to advise the other Parties prior to making the disclosure).
6.12 COVENANTS OF CVC.
(a) Prior to the Closing, without the prior written consent of Buyer or as
otherwise expressly provided herein, CVC will not, and will not permit any of
its Affiliates to, enter into any Contract or take any other action which, if
entered into or taken prior to the date of this Agreement, would cause any
representation or warranty of Seller or CVC in Article 3 or Article 4 to be
untrue in any respect or be required to be disclosed on any Schedule; or take
any action that is intended or may reasonably be expected to result in any of
the conditions to the Merger as set forth in Section 7 not being satisfied or in
a violation of this Agreement; or take or omit to be taken any action which
reasonably could be expected to have a Material Adverse Effect on Seller.
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(b) CVC shall use its best efforts to cause Seller to obtain Seller
Shareholder Approval and to cause the condition set forth in Section 7.2(g) to
be satisfied, including, with respect to Section 7.2(g), enforcing to the extent
necessary the waiver of dissenter's rights provided in the Seller Stockholder
Agreement. Without limiting the scope of the immediately preceding sentence, so
long as this Agreement has not been terminated in accordance with the terms CVC
shall vote or cause to be voted all of the CVC Shares that are Seller Voting
Shares and that are owned by CVC as of the record date for Seller Stockholder
Approval, for the approval of this Agreement, and shall vote, or cause to be
voted, all such CVC Shares against the approval of any Acquisition Proposal
providing for a merger, acquisition, consolidation, sale of a material amount of
assets or other business combination of Seller or any of its Subsidiaries with
any Person other than Buyer or any of its Subsidiaries.
(c) So long as this Agreement has not been terminated in accordance with the
terms hereof, CVC will not sell, assign, transfer or otherwise dispose of
(including, without limitation, by the creation of a Security Interest), or
permit to be sold, assigned, transferred or otherwise disposed of, any of the
CVC Shares, whether such CVC Shares are held on the date of this Agreement or
are subsequently acquired, whether pursuant to the exercise of stock options or
otherwise, except (i) transfers by operation of law (in which case this
Agreement shall bind the transferee), and (ii) as Buyer may otherwise agree in
its sole discretion.
(d) CVC agrees that, so long as this Agreement has not been terminated in
accordance with the terms hereof, CVC shall, and shall instruct each of its
Representatives and Affiliates to, cease and refrain from any and all
activities, discussions, negotiations, providing any information with respect
to, or other actions with any Person other than Buyer or any of its Subsidiaries
or any of their respective Representatives with respect to any Acquisition
Proposal other than the Merger.
(e) From the date that is thirty (30) days prior to the Effective Time, CVC
will not sell, transfer or otherwise dispose of, or reduce the risk of ownership
with respect to, any CVC Share and will not sell, transfer or otherwise dispose
of, or reduce the risk of ownership with respect to, any Buyer Shares received
by CVC in the Merger or other shares of Buyer Common Stock until after such time
as results covering at least thirty (30) days of combined operations of Buyer
and Seller have been published by Buyer, in the form of a quarterly earnings
report, an effective registration statement filed with the Commission, a report
to the Commission on Form 10-K, 10-Q, or 8-K, or any other public filing or
announcement which includes the results of at least thirty (30) days of combined
operations as contemplated by and in accordance with SEC Accounting Series
Release No. 135.
SECTION 7. CONDITIONS TO CLOSING.
7.1 JOINT CONDITIONS TO OBLIGATIONS OF BUYER, MERGER SUB AND SELLER. The
obligations of Buyer and Seller to consummate the Merger are subject to the
satisfaction of each of the following conditions:
(a) Buyer Stockholder Approval and Seller Stockholder Approval shall
have been obtained.
(b) All necessary approvals of any Governmental Entity required for the
consummation of the Merger shall have been obtained and shall remain in full
force and effect; all statutory or other required waiting periods in respect
thereof shall have expired; and no approval of any Governmental Entity shall
have imposed any condition or requirement which, in the reasonable opinion
of Buyer, would so materially adversely affect the economic or business
benefits to Buyer of the Merger so as to render inadvisable the consummation
thereof.
(c) The S-4 Registration Statement shall have become effective under the
Securities Act, no stop order suspending its effectiveness shall have been
issued, and no proceedings for that purpose shall have been initiated or
shall be threatened by the SEC.
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(d) The Buyer Shares that will be issued to the Seller Stockholders upon
consummation of the Merger, and the Warrant Shares that will be issued upon
the exercise of the Buyer Warrants, shall have been authorized for listing
on the NYSE subject to official notice of listing.
(e) There shall be no claim, action, suit, investigation or other
proceeding pending or overtly threatened before any court or other
Governmental Entity wherein an unfavorable judgment, order, decree, ruling,
charge or injunction has been issued, or reasonably could be expected to be
issued, which would (i) prevent consummation of any of the transactions
contemplated by this Agreement, (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, or
(iii) present a substantial risk of the obtaining of material damages from
Seller or Buyer or their respective officers or directors in connection
therewith.
7.2 CONDITIONS TO OBLIGATIONS OF BUYER AND MERGER SUB. The obligations of
Buyer and the Merger Sub to consummate the transactions to be performed by them
in connection with the Closing are subject to satisfaction of the following
conditions.
(a) the representations and warranties set forth in Section 3 and
Section 4 shall be true and correct in all material respects as of the date
of this Agreement and as of the Closing Date;
(b) Seller shall have performed and complied with all of its agreements
and covenants hereunder through the Closing;
(c) there shall have been no event having a Material Adverse Effect on
Seller;
(d) Seller shall have delivered to Buyer and Merger Sub a certificate
signed by its Chief Executive Officer and its Chief Financial Officer to the
effect that each of the conditions specified above in Section 7.1 and 7.2
(a)-(c) is satisfied in all respects, provided, that such certificate need
not address Section 4 of this Agreement;
(e) CVC shall have delivered to Buyer and Merger Sub a certificate to
the effect that the representations and warranties in Section 4 are true and
correct in all material respects as of the date of this Agreement and as of
the Closing Date; that CVC has complied with the agreements and covenants
applicable to it; and that the condition in Section 7.1(e) has been
satisfied as it pertains to CVC;
(f) Buyer shall have obtained the proceeds of the financing necessary to
provide debt financing of an amount not less than the amount required to
refinance all financial indebtedness of Seller and its Subsidiaries under
the Credit Agreement, the Senior Subordinated Credit Note and the 10% PIK
Subordinated Notes and to provide for the ordinary working capital needs of
Seller and its Subsidiaries, in each case on terms and conditions reasonably
satisfactory to Buyer, and Buyer shall have received in form and substance
reasonably satisfactory to it such releases, discharges and other similar
instruments as it may reasonably request to confirm that all creditors under
such lending arrangements have released all Security Interests encumbering
or otherwise affecting the assets of Seller or any of its Subsidiaries.
(g) The total number of Buyer Shares that potentially may not be issued
in the Merger as a consequence of one or more Seller Stockholders having the
right, as of the Closing, to exercise dissenter's rights under the DGCL
shall not exceed Three Hundred Eighty-Five Thousand (385,000).
(h) Buyer shall have received letters, in form and substance acceptable
to it, from KPMG Peat Marwick LLP and PricewaterhouseCoopers, LLP, dated the
Closing Date, substantially to the effect that, on the basis of a review of
the Agreement and the Merger
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contemplated hereby, in such accountants' unqualified opinion, Accounting
Principles Board Opinion No. 16 provides that the Merger may be accounted
for as a pooling of interests.
(i) Buyer shall have received an opinion, dated as of the Closing Date,
from its counsel, Nutter, McClennen & Fish, LLP or other counsel acceptable
to Buyer, substantially to the effect that, on the basis of facts and
representations set forth therein, or set forth in writing elsewhere and
referred to therein, for federal income tax purposes the Merger constitutes
a reorganization within the meaning of Section 368(a) of the Code.
(j) each of Buyer and the Merger Sub shall have received from counsel
to Seller opinions as to corporate matters dated as of the Closing Date and
addressed to, and in form and substance reasonably satisfactory to, each of
Buyer and the Merger Sub;
(k) Seller and each Seller Affiliate shall have terminated, to the
extent requested by Buyer, the Seller Stockholder Agreement and any and all
other similar agreements or arrangements, to which Seller or any Seller
Affiliate is a party;
(l) CVC, the Management Representative, all other Seller Stockholders
(other than Seller Stockholders who have perfected dissenter's rights) and
the holder of the CMP Warrant shall have entered into the Agency Agreement;
(m) CVC and the Management Representative, in their individual
capacities and as agents for the holders of Seller Common Shares and the CMP
Warrant, shall have entered into an Escrow Agreement with Buyer and Escrow
Agent;
(n) Each Seller Affiliate shall have executed and delivered to Buyer the
Seller Affiliate Agreement;
(o) Each of David R. Beckerman and any other Seller employee who owns a
stock or other ownership interest in any Subsidiary of Seller shall have
executed and delivered to Buyer an instrument in form and substance
reasonably acceptable to Buyer whereby such Person will transfer or agree to
transfer, to any Person reasonably designated by Buyer, any and all stock or
other ownership interest he or she may have in any Subsidiary of Seller; and
(p) Without limiting the scope of any other provision of this Section
7.2 and except for the CMP Warrant, there shall be, as of the Closing, no
Contract of any character to which Seller or any of its Subsidiaries is a
party or subject representing an option, warrant, right call or similar
right to receive or acquire any capital stock of Seller or any of its
Subsidiaries, nor shall there be, as of the Closing, any pending or, to
Seller's knowledge, threatened any claim or demand for, a direct or indirect
equity interest in Seller or any Subsidiary, including, without limitation,
any option, warrant, right or call or any stock appreciation, phantom stock,
profit participation or similar rights.
7.3 CONDITIONS TO OBLIGATIONS OF SELLER. The obligation of Seller and
Seller Stockholders to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions.
(a) the representations and warranties set forth in Section 5 shall be
true and correct in all material respects as of the date of this Agreement
and as of the Closing Date;
(b) each of Buyer and the Merger Sub shall have performed and complied
with all of its covenants hereunder through the Closing;
(c) each of Buyer and the Merger Sub shall have delivered to Seller a
certificate to the effect that each of the conditions specified in Section
7.1 and 7.3(a)-(b) is satisfied in all respects;
(d) Seller shall have received a letter, in form and substance
acceptable to it, from PricewaterhouseCoopers, LLP, dated the Closing Date,
substantially to the effect that, on the
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basis of a review of the Agreement and the Merger contemplated hereby, in
such accountants' unqualified opinion, Accounting Principles Board Opinion
No. 16 provides that the Merger may be accounted for as a pooling of
interests.
(e) Seller shall have received from counsel to Buyer and the Merger Sub
opinions as to corporate matters dated as of the Closing Date and addressed
to, and in form and substance reasonably satisfactory to, Seller;
(f) Seller shall have received an opinion, dated as of the Closing Date,
from its counsel, Kirkland & Ellis or other counsel acceptable to Seller,
substantially to the effect that, on the basis of facts and representations
set forth therein, or set forth in writing elsewhere and referred to
therein, for federal income tax purposes the Merger constitutes a
reorganization within the meaning of Section 368(a) of the Code.
(g) Buyer shall have taken all steps necessary to cause to be elected,
effective not later than the Effective Time, the Person designated by CVC
pursuant to Section 6.9;
(h) Buyer shall have refinanced not later than the Effective Time all
financial indebtedness of Seller and its Subsidiaries under the Credit
Agreement, the Senior Subordinated Credit Note and the 10% PIK Subordinated
Notes; and
(i) Buyer shall have executed and delivered to CVC the Registration
Rights Agreement.
SECTION 8. INDEMNIFICATION.
8.1 AGREEMENTS TO INDEMNIFY.
(a) As used in this Section 8:
(i) "DAMAGES" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and attorneys' fees and expenses,
and including costs of environmental investigations and/or cleanups ordered
by federal, state, local, or foreign governments (or any agencies thereof).
(ii) "INDEMNIFYING PARTY" means the party obligated to provide
indemnification under Sections 8.1(b), (c) or (d).
(iii) "INDEMNIFIED PARTY" shall mean a party entitled to indemnification
under Sections 8.1(b), (c), or (d).
(b) On the terms and subject to the limitations set forth in this Section 8
and the Escrow Agreement, the Escrow Agent, solely on behalf of the Persons
receiving Buyer Shares in connection with the Merger and the holder of the
Escrow Warrant, and not individually, shall indemnify, defend and hold harmless
Buyer and its Subsidiaries and their Representatives from and against any and
all Damages incurred in connection with or arising out of or resulting from or
incident to (i) any breach of any warranty, or the inaccuracy of any
representation made by Seller in or pursuant to this Agreement, or (ii) any
breach of any other covenant or agreement made by Seller in or pursuant to this
Agreement.
(c) On the terms and subject to the limitations set forth in this Section 8,
Buyer shall indemnify, defend and hold harmless Seller and the Seller
Stockholders and their respective Subsidiaries and Representatives from and
against any and all Damages incurred in connection with or arising out of or
resulting from or incident to (i) any breach of any or warranty, or the
inaccuracy of any representation, made by Buyer in or pursuant to this
Agreement, or (ii) the breach of any other covenant or agreement made by Buyer
in or pursuant to this Agreement.
(d) On the terms and subject to the limitations set forth in this Section 8
and the Escrow Agreement, the Escrow Agent, solely on behalf of CVC, and not
individually, shall indemnify,
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defend and hold harmless Buyer and its Subsidiaries and their respective
Representatives from and against any and all Damages incurred in connection with
or arising out of or resulting from or incident to (i) any breach of any or
warranty, or the inaccuracy of any representation, made by CVC in or pursuant to
this Agreement, or (ii) the breach of any other covenant or agreement made by
CVC in or pursuant to this Agreement.
(e) Any payment made by the Escrow Agent on behalf of CVC or any other
Seller Stockholder pursuant to the indemnification obligations provided for in
this Section 8 shall constitute a reduction in the consideration paid by Buyer
in the Merger. Any payment made by Buyer pursuant to the indemnification
obligations provided for in this Section 8 shall constitute an addition to the
consideration paid by Buyer.
8.2 LIMITATIONS ON INDEMNIFICATION.
(a) None of the parties hereto shall be liable to the other pursuant to the
indemnification provisions of Sections 8.1(b), (c) or (d) unless it receives
notice from the other party of its claim for indemnification hereunder within
twelve (12) months after the Closing Date; or in the case of the representations
of Seller set forth in Sections 3.6 and 3.9 and of Buyer under Sections 5.6 and
5.9 as to which the notice must be received by the later of (x) twelve (12)
months after the Closing Date or (y) by April 30, 2000 or such later date as the
audit of Buyer's financial statements for the year ended March 31, 2000 is
complete.
(b) Indemnification payments due under Sections 8.1 shall be reduced by (i)
any insurance proceeds received by the Indemnified Party with respect to those
Damages which relate to the indemnity claim and which proceeds are received
under an insurance policy of Seller or any of its Subsidiaries in effect as of
the date of this Agreement; provided that this Section 8.2(b) shall not obligate
Buyer or any of its Subsidiaries to obtain any insurance coverage or, if already
obtained, to maintain the effectiveness of such insurance or to make any claim
thereunder; and (ii) the amount of any Tax savings realized by the indemnified
party with respect to those Damages which relate to the indemnity claim (net of
any increased Tax Liability which may result from the receipt of an indemnity
payment under Sections 8.1(b), 8.1(c) or 8.1(d)); provided that future Tax
deductions and Tax Liability will be discounted at the prime rate of interest
reported in the Wall Street Journal at the time the indemnification payment
pursuant to this Section 8 is made.
(c) Pursuant to claims for indemnification of the type referred to in
Sections 8.1(b), 8.1(c) or 8.1(d), an Indemnifying Party shall only be liable to
an Indemnified Party to the extent the aggregate amount of such claims by the
Indemnified Party for indemnification exceeds Two Million Dollars ($2,000,000)
in the aggregate (the "INDEMNITY THRESHOLD"), whereupon only the amount of such
claims in excess of the Indemnity Threshold shall be recoverable in accordance
with the terms hereof. For purposes of the applying the Indemnity Threshold to
Seller Stockholder claims under Section 8.1(c), all Seller Stockholders shall be
treated as a single Indemnified Party.
(d) If the Merger has occurred, (i) the aggregate liability of the Seller
Stockholders for any and all Damages arising from indemnification claims under
Section 8.1(b) shall not exceed the value of the Escrow Fund (as defined in the
Escrow Agreement), (ii) the aggregate liability of Buyer for any and all Damages
arising from indemnification claims under Section 8.1(c) shall not exceed the
aggregate Current Market Price of the Escrow Shares as of the Closing Date, and
(iii) the liability of CVC for any and all Damages arising from indemnification
claims under Section 8.1(b) or Section 8.1(d), in the aggregate, shall not
exceed the value of Escrow Account (as defined in the Escrow Agreement) of CVC
and each Escrow Account Beneficiary, if any, who is a successor or assignee of
CVC under the Escrow Agreement.
(e) If the Merger has occurred, any indemnification payment owed by Buyer
pursuant to Section 8.1(c) shall be payable solely in additional shares of Buyer
Common Stock with the value
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of such shares being deemed to be equal to the Current Market Price of Buyer
Common Stock as of the Closing Date.
(f) The indemnification provided for in this Section 8 shall be the sole and
exclusive remedy of Buyer, Merger Sub, Seller, the Seller Stockholders and CMP,
for any and all Damages incurred in connection with or arising out of or
resulting from or incident to any breach of any warranty, or the inaccuracy of
any representation made any Party in or pursuant to this Agreement, or any
breach of any other covenant or agreement made by any Party in or pursuant to
this Agreement or otherwise related to or arising out of the Merger. Without
limiting the scope of the immediately preceding sentence, except as expressly
set forth in this Section 8 and subject only to the occurrence of the Effective
Time, each Party does hereby irrevocably and absolutely waive and release, to
the fullest extent permitted under law, any and all claims, demands, damages,
debts, liabilities, accounts, reckonings, obligations, costs, expenses, liens,
actions and causes of action of every kind and nature whatsoever, which it/he
now has, own or holds, or at any time heretofore ever had, owned or held, or
could, shall or may hereafter have, own or hold, whether now known or unknown,
suspected or unsuspected, against any other Party or other Seller Stockholder
incurred in connection with or arising out of or resulting from or incident to
any breach of any warranty or the inaccuracy of any Party in or pursuant to this
Agreement or any breach of any other covenant or agreement made by any Party in
or pursuant to this Agreement or otherwise related to or arising out of this
Agreement or the Merger.
8.3 METHOD OF ASSERTING AND RESOLVING CLAIMS.
(a) All claims for indemnification by Buyer pursuant to Section 8.1(b) shall
be made and resolved in accordance with the provisions of the Escrow Agreement.
(b) Any claim for indemnification pursuant to Section 8.1(c) or (d), shall
be made and resolved in accordance with this Section 8.3. A Person seeking
indemnification shall, prior to the Termination Date, give written notice of
such claim (a "CLAIM NOTICE") to the proposed Indemnifying Party. In the case of
Claim Notice seeking indemnification pursuant to Section 8.1(c), the Claim
Notice shall be given by CVC. Each Claim Notice shall state the amount of
claimed Damages and the basis for such claim. Within thirty (30) days after
delivery of a Claim Notice, the proposed Indemnifying Party shall provide a
written response (the "RESPONSE NOTICE") to the Person who gave the Claim
Notice. If no Response Notice is delivered within such thirty (30) day period,
the proposed Indemnifying Party shall be deemed to have waived its right to
dispute such claim for indemnification. Buyer, on the one hand, and Seller or
CVC, on the other hand, shall use good faith efforts to resolve any disputed
indemnification claim. If the matter is not resolved within fifteen (15) days of
the delivery of the Response Notice, either Party shall have the right, by
delivery of written notice to the other (the "ARBITRATION NOTICE"), to submit
the matter to binding arbitration in Stamford, Connecticut. Such matter shall
then be settled by three arbitrators in accordance with the Commercial
Arbitration Rules then in effect of the American Arbitration Association (the
"AAA RULES"). CVC and Buyer shall each designate one arbitrator within fifteen
(15) days of the delivery of the Arbitration Notice. CVC and Buyer shall cause
such designated arbitrators mutually to agree upon and shall designate a third
arbitrator; PROVIDED, HOWEVER, that (i) failing such agreement within forty-five
(45) days of delivery of the Arbitration Notice, the third arbitrator shall be
appointed in accordance with the AAA Rules and (ii) if either CVC or Buyer fails
to timely designate an arbitrator, the dispute shall be resolved by the one
arbitrator timely designated. CVC and Buyer shall pay the fees and expenses of
their respectively designated arbitrators and shall bear equally the fees and
expenses of the third arbitrator. CVC and Buyer shall cause the arbitrators to
decide the matter to be arbitrated pursuant hereto within sixty (60) days after
the appointment of the last arbitrator. The arbitrators' decision shall relate
solely to whether the proposed Indemnified Party is entitled to receive the
claimed Damages (or a portion thereof) pursuant to the applicable terms of this
Agreement. The final decision of the majority of
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the arbitrators shall be furnished to Seller or CVC, as applicable, and Buyer in
writing and shall constitute a conclusive, final and nonappealable determination
of the issue in question, binding upon Seller or CVC, as applicable, Buyer and
all Seller Stockholders, as applicable, and their successors and assigns. Such
decision may be used in a court of law only for the purpose of seeking
enforcement of the arbitrators' award.
(c) The Indemnified Party shall give prompt written notification to the
Indemnifying Party of the commencement of any action, suit or proceeding
relating to a third party claim for which indemnification pursuant to this
Section 8 may be sought. Within twenty (20) Business Days after delivery of such
notification, the Indemnifying Party (which for purposes of this Section 8.3(c)
shall mean Seller or, if the merger has occurred, CVC, as agent for the Seller
Stockholders, in the case of a claim pursuant to Section 8.1(c)) may, upon
written notice thereof to the Indemnified Party, assume control of the defense
of such action, suit or proceeding with counsel reasonably satisfactory to the
Indemnified Party, provided the Indemnifying Party acknowledges in writing to
the Indemnified Party that any Damages that may be assessed against the
Indemnified Party in connection with such action, suit or proceeding constitute
Damages for which the Indemnified Party shall be entitled to indemnification
pursuant to this Section 8. If the Indemnifying Party does not so assume control
of such defense, the Indemnified Party shall control such defense. The Person
not controlling such defense may participate therein at its own expense. The
Person controlling such defense shall keep the other Person (i.e., the
Indemnified Party or the Indemnifying Party, as the case may be) advised of the
status of such action, suit or proceeding and the defense thereof and shall
consider in good faith recommendations made by the other Party with respect
thereto. The Indemnified Party shall not agree to any settlement of such action,
suit or proceeding without the prior written consent of the Indemnifying Party,
which shall not be unreasonably withheld. The Indemnifying Party shall not agree
to any settlement of such action, suit or proceeding without the prior written
consent of the Indemnified Party, which consent shall not be unreasonably
withheld.
SECTION 9. TERMINATION AND ITS CONSEQUENCES.
9.1 TERMINATION OF AGREEMENT.
(a) Buyer and Seller may terminate this Agreement by mutual written consent
at any time prior to the Effective Time.
(b) Either Buyer or Seller may terminate this Agreement by giving written
notice to the other Party at any time prior to the Effective Time, if the
Closing has not occurred on or before July 31, 1999 by reason of the failure of
any condition precedent under Section 7.1, 7.2 or 7.3 hereof, unless the failure
of the Closing to occur by such date shall be due to the failure of the Party
seeking to terminate this Agreement to perform or observe the covenants and
agreements of such Party set forth herein.
(c) Either Buyer or Seller may terminate this Agreement by giving written
notice to the other Party at any time prior to the Effective Time if any other
Party has breached any material representation, warranty, covenant or agreement
contained in this Agreement, which breach has not been cured within ten (10)
Business Days of receiving notice thereof from the other Party or which breach,
by its nature, cannot be cured prior to July 31, 1999, PROVIDED, HOWEVER, that a
Party may not terminate this Agreement pursuant to this Section 9.1(c) if such
Party is then in breach of any material representation, warranty, covenant or
agreement contained in this Agreement.
(d) Buyer may terminate this Agreement at any time after Buyer Stockholder
Approval is obtained if (i) Seller Stockholder Approval has not been obtained as
of the effective date of such termination and (ii) each other condition
precedent under Section 7.1 and 7.3 has been, or it is probable will be,
satisfied on or before July 31, 1999.
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9.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either Buyer or Seller as provided in Section 9.1, all rights and obligations
of the Parties hereunder will terminate without any liability of any Party to
any other Party, except (i) Sections 6.6(d) and 9.2 and the liability to pay the
Termination Fee in accordance with Section 9.3, if applicable, will survive any
termination of this Agreement and (ii) notwithstanding anything to the contrary
contained in this Agreement, any termination of this Agreement will not relieve
or release any Party from any liability or damages arising out of its breach of
any provision of this Agreement.
9.3 TERMINATION FEE.
(a) If Buyer terminates this Agreement either
(i) pursuant to Section 9.1(c) after the deadline for Seller
Stockholder Approval specified in Section 6.2(d), if either Seller or CVC
materially breached its covenant to use its best efforts to obtain Seller
Stockholder Approval and as of the effective date of such termination Seller
Stockholder Approval has not been obtained, or
(ii) pursuant to Section 9.1(d),
Seller shall, within three (3) Business Days after the effectiveness of such
termination, pay to Buyer the Termination Fee in immediately available funds.
(b) If Seller terminates this Agreement because of the failure to obtain
Seller Stockholder Approval on or before July 31, 1999, Seller shall, prior to
and as a precondition of the effectiveness of such termination, pay to Buyer the
Termination Fee in immediately available funds.
(c) The "Termination Fee" shall be equal to Five Million Dollars
($5,000,000).
SECTION 10. MISCELLANEOUS.
10.1 REPRESENTATIONS AND SURVIVAL. The Parties make no other
representations or warranties to each other except as expressly set forth in
this Agreement. Except as expressly provided in Section 8, none of the
representations, warranties, and covenants of the Parties will survive the
Effective Time.
10.2 NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns, except as expressly provided in Section 8 with
respect to Buyer's obligation to indemnify the Seller Stockholders as
represented through CVC.
10.3 ENTIRE AGREEMENT. This Agreement (including the Schedules) and other
documents referenced herein as exhibits hereto constitute the entire agreement
between the Parties and supersedes any prior understanding, agreement, or
representation by or between the Parties, written or oral, to the extent they
relate in any way to the subject matter, including without limitation those
certain confidentiality agreements entered into prior to the date of this
Agreement.
10.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
10.5 COUNTERPARTS AND DELIVERY. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. The delivery of a
signature page of this Agreement by one Party to the each of the other Parties
via facsimile transmission shall constitute the execution and delivery of this
Agreement by the transmitting Party.
10.6 NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be
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<PAGE>
deemed duly given two Business Days after it is sent either by certified mail or
FedEx or similar overnight courier service, and addressed to the intended
recipient as set forth below:
<TABLE>
<S> <C>
IF TO SELLER: COPY TO (which shall not constitute
notice):
PTI, Inc. Kirkland & Ellis
c/o Polyfibron Technologies, Inc. Citicorp Center
900 Middlesex Turnpike 153 East 53rd Street
Billerica, MA 01821-3946 New York, NY 10022-4675
Fax: (508) 439-2105 Fax: (212) 446-4900
Attention: David R. Beckerman Attention: Kirk A. Radke, Esq.
Chief Executive Officer
IF TO BUYER OR THE MERGER SUB: COPY TO (which shall not constitute
notice):
MacDermid, Incorporated Nutter, McClennen & Fish, LLP
245 Freight Street One International Place
Waterbury, CT 06702 Boston, MA 02110-2699
Fax: (203) 575-5630 Fax: (617) 973-9748
Attention: John L. Cordani, Esq. Attention: Michael E. Mooney, Esq.
General Counsel and Secretary and Michael K. Krebs, Esq.
IF TO CVC: COPY TO (which shall not constitute
notice):
Citicorp Venture Capital, Ltd. Kirkland & Ellis
399 Park Avenue Citicorp Center
New York, NY 10022 153 East 53rd Street
Fax: (212) 888-2940 New York, NY 10022-4675
Attention: Joseph Silvestri Fax: (212) 446-4900
Attention: Kirk A. Radke, Esq.
</TABLE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice of the change in the manner herein set forth.
10.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Connecticut without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Connecticut or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Connecticut.
10.8 CONSENT TO JURISDICTION. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS SITTING IN THE STATE OF
CONNECTICUT IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE AGENCY AGREEMENT, THE ESCROW AGREEMENT, THE REGISTRATION RIGHTS
AGREEMENT, THE SELLER AFFILIATE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY
ANY OF THE FOREGOING. EACH PARTY HEREBY IRREVOCABLY AGREES, ON BEHALF OF ITSELF
AND ON BEHALF OF SUCH PARTY'S SUCCESSORS AND PERMITTED ASSIGNS, THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN ANY
SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION SUCH PERSON MAY NOW OR HEREAFTER
HAVE AS TO THE VENUE OF ANY SUCH
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<PAGE>
SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM.
10.9 WAIVER OF JURY TRIAL. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT
THEY MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE AGENCY AGREEMENT, THE
ESCROW AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, THE SELLER AFFILIATE
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY ANY OF THE FOREGOING.
10.10 AMENDMENTS AND WAIVERS. The Parties may mutually amend any provision
of this Agreement at any time prior to the Effective Time with the prior
authorization of their respective boards of directors. No amendment or other
modification of any provision of this Agreement and no waiver of any provision
hereof or any right or benefit hereunder shall be valid unless the same shall be
in writing and signed by each of the Parties. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
10.11 CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation. The terms "herein",
"hereunder", and terms of similar import refer to this Agreement as a whole and
not to the specific Section or Article in which they are used. The phrase "to
the knowledge" of a Party (and phrases of similar import) shall mean to the
actual knowledge, after reasonable inquiry, of the executive officers of the
Party, as applicable. The Exhibits and Schedule identified in this Agreement are
incorporated herein by reference and made a part hereof. The section headings
contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement.
10.12 TIME IS OF THE ESSENCE; COMPUTATION OF TIME. Time is of the essence
for each and every provision of this Agreement. Whenever the last day for the
exercise of any privilege or the discharge of any duty hereunder shall fall upon
a Saturday, Sunday, or any date on which banks in New York, New York are
authorized to be closed, the party having such privilege or duty may exercise
such privilege or discharge such duty on the next succeeding day which is a
Business Day.
10.13 SPECIFIC PERFORMANCE. Each of the Parties acknowledges that the
rights created hereby are unique and recognizes and affirms that in the event of
a breach of this Agreement irreparable harm would be caused, money damages may
be inadequate and an aggrieved party may have no adequate remedy at law.
Accordingly, each of the Parties agrees that the other Party shall have the
right, in addition to any other rights and remedies existing in its favor at law
or in equity, to enforce its rights and the obligations of the other party
hereunder not only by an action or actions for damages but also by an action or
actions for specific performance, injunctive and/or other equitable relief
(without posting of bond or other security).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
<TABLE>
<S> <C> <C>
MACDERMID, INCORPORATED
By: /s/ JOHN L. CORDANI
----------------------------------------
Name: John L. Cordani
Title: Secretary
MCD ACQUISITION CORP.
By: /s/ JOHN L. CORDANI
----------------------------------------
Name: John L. Cordani
Title: Vice President
PTI, INC.
By: /s/ DAVID R. BECKERMAN
----------------------------------------
Name: David R. Beckerman
Title: President
CITICORP VENTURE CAPITAL, LTD.
By: /s/ JOSEPH M. SILVESTRI
----------------------------------------
Name: Joseph M. Silvestri
Title: Vice President
</TABLE>
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<PAGE>
APPENDIX B
FIRST AMENDMENT
THIS FIRST AMENDMENT (the "Amendment") is entered into as of July 27, 1999
by and among MacDermid, Incorporated, a Connecticut corporation ("Buyer"), MCD
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Buyer
("Merger Sub"), PTI, Inc., a Delaware corporation ("Seller"), and Citicorp
Venture Capital, Ltd., a New York corporation ("CVC"), to amend that certain
Plan and Agreement of Merger entered into as of February 18, 1999 (as amended
hereby, the "Merger Agreement"), by and among Buyer, Merger Sub, Seller and CVC.
Buyer, Merger Sub, Seller and CVC are collectively referred to as the "Parties."
Any capitalized term used in this Amendment and not otherwise defined shall have
the meaning ascribed to that term in the Merger Agreement.
WHEREAS, the Parties desire to extend the date on which the Parties may
terminate the Merger Agreement and to effectuate certain other amendments to the
Merger Agreement in accordance with the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual agreements set forth herein
and other good and valuable consideration the receipt and sufficiency of which
is hereby acknowledged the Parties agree as follows:
A. The Merger Agreement is hereby amended, effective as of the date hereof:
1. By deleting the section reference "2.4(e)" from Section 2.4(h) of
the Merger Agreement and substituting in the place thereof section reference
"2.4(e)(ii)."
2. By adding the following sentence to the end of Section 6.3 to the
Merger Agreement:
"The Parties shall use all commercially reasonable efforts, and will
negotiate in good faith with each other and the FTC, to persuade the FTC
to approve the Merger in exchange for a settlement with the FTC that is
consistent in all material respects with the terms set forth on
SCHEDULE 6.3 to this Agreement and containing such other terms and
conditions as the Parties and the FTC may agree; provided that nothing
contained in this Agreement shall obligate Buyer to accept a settlement
with the FTC that imposes any material term or condition that is (i) not
expressly specified in SCHEDULE 6.3 and (ii) unacceptable to Buyer in
Buyer's reasonable discretion. Seller shall use all commercially
reasonable efforts to negotiate and enter into a definitive agreement for
the sale of the portion of its business described on SCHEDULE 6.3 to a
purchaser that Buyer and Seller reasonably believe will be acceptable to
the FTC, which sale may be contingent on the completion of the Merger;
and the other Parties shall use all commercially reasonable efforts to
cooperate with Seller in negotiating such sale. A Party will be deemed to
have satisfied its obligations under this Section to use all commercially
reasonable efforts to obtain the FTC's approval of the Merger if the
Party complies with its obligations under the two immediately preceding
sentences. FTC approval that is conditioned upon a settlement on the
terms described in SCHEDULE 6.3 hereto shall not by itself be deemed to
prevent the closing condition specified in Section 7.1(b) from being
satisfied.
3. Seller's actions in entering into one or more agreements necessary
for the sale of the portion of its business consistent with Section 6.3 and
SCHEDULE 6.3, and all actions by Seller and CVC reasonably necessary in
connection therewith, shall not, individually or in the aggregate, (i)
constitute a breach by either Seller or CVC of any of their respective
obligations under Section 6.4 or Section 6.8 of the Merger Agreement or
(ii) prevent the satisfaction of
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<PAGE>
any of the closing conditions in Section 7.1, Section 7.2 or Section 7.3 of
the Merger Agreement.
4. By deleting in its entirety Section 6.4(e) of the Merger Agreement
and substituting in the place thereof the following:
"(e) not make any single capital expenditure or series of capital
expenditures during the term of this Agreement outside the Ordinary
Course without the prior written consent of Buyer, which consent shall
not be unreasonably withheld, conditioned or delayed."
5. By deleting in its entirety Section 6.4(i) of the Merger Agreement
and substituting in the place thereof the following:
"(i) deliver to Buyer, within fifteen (15) Business Days of each
month end from the date hereof through the Closing Date, Seller's
consolidated unaudited balance sheets, income statements and cash flow
statements as of and for the immediately preceding month, all consistent
with the applicable requirements of Section 3.6;
6. By deleting in its entirety Section 6.4(f) of the Merger Agreement
and substituting in the place thereof the following:
"(f) not enter into any new line of business without Buyer's consent,
which consent shall not be unreasonably withheld, conditioned or delayed
and shall be deemed to be given if Buyer does not respond to Seller in
writing within ten (10) Business Days after receipt of a written request
from Seller;
7. By deleting in its entirety Section 6.4(m) of the Merger Agreement
and substituting in the place thereof the following:
"(m) not, without Buyer's consent, which consent shall not be
unreasonably withheld, conditioned or delayed and shall be deemed to be
given if Buyer does not respond to Seller in writing within ten (10)
Business Days after receipt of a written request from Seller, (i) acquire
by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any
corporation, partnership, joint venture, association or other business
organization or division thereof (or any interest therein), or form any
subsidiary or (ii) solicit or negotiate any Acquisition Proposal with
respect to any other Person; provided, however, that Buyer shall have no
obligation whatsoever to consent to any action by Seller or CVC regarding
an Acquisition Proposal with respect to which Seller is the target
company and which is not permitted under Section 6.8 of this Agreement;
8. By deleting all references to the date "July 31, 1999" from Section
9 of the Merger Agreement and substituting in the place thereof the date
"September 30, 1999."
9. By correcting Seller's facsimile number by replacing the number
"508-439-2105" from Section 10.6 of the Merger Agreement and substituting in
the place thereof the facsimile number "978-439-2105."
10. By adding the following names to SCHEDULE 1 to the Merger Agreement:
H. Theodore Miller, Jr.
Kai Wenk-Wolff
Thomas O. Gavin
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<PAGE>
11. By adding the following disclosure to paragraphs (xiii) and (xiv) of
SCHEDULE 3.8 to the Merger Agreement:
"Stay bonuses for 6 SAP specialists (none of whom hold PTI stock)
totalling $240,000 in the aggregate and to be paid after January 1, 2002
if the SAP specialist stays with PTI at least through January 1, 2002."
12. By deleting the disclosure to paragraph (xvi) of SCHEDULE 3.8 to the
Merger Agreement and substituting in the place thereof the following
disclosure:
"Pursuant to a Stock Purchase Agreement among Polyfibron Technologies
("Buyer"), Nippon Paint (USA) Inc. and Nippon Paint Co., Ltd. ("Seller")
executed January 20, 1999, Buyer has consummated the transaction and
purchased the stock of Supratech, Inc. Pursuant to a Letter of Intent
between Polyfibron Technologies ("Buyer") and International Composites
Corporation, Inc. ("Seller") executed December 16, 1998, Buyer has
consummated the transaction and purchased the stock of International
Composites Corporation, Inc."
13. By adding the following name to SCHEDULE 3.11(A)(i) of the Merger
Agreement under "Change of Control Contracts:" Kai Wenk-Wolff.
14. By adding the following name to SCHEDULE 3.11(G) of the Merger
Agreement under "Change of Control Contracts:" Kai Wenk-Wolff.
15. By deleting the disclosure "NAPP Quality Council (seven
individuals)" in SCHEDULE 3.11(G) of the Merger Agreement under "Severance
Contracts/Stay Bonuses for NAPP" and substituting in the place thereof the
following disclosure: "Two NAPP executives."
16. By adding the following contracts to SCHEDULE 3.21(A)(ix) of the
Merger Agreement:
"Supply Contract with Precision Coating, Inc. for a three-year period
providing for the supply of certain film products."
"Sales Agreement with Lancaster Newspapers, Inc. for a three-year period
providing for the sale of Polyfibron's Letterflex Platemaking materials."
B. Each of the Parties represents to the other that (i) it has full
corporate power and authority to execute and deliver this Amendment and to
perform its obligations hereunder, (ii) the execution and delivery of this
Amendment by such Party have been duly and validly approved its Board of
Directors and no other corporate proceedings on the part of such Party are
necessary in connection with this Amendment, except for shareholder approval of
the Merger Agreement as amended hereby by the shareholders of Buyer and the
holders of Seller voting common stock, and (iii) this Amendment has been duly
and validly executed and delivered by such Party and constitutes a valid and
binding obligation of such Party, enforceable against such Party in accordance
with its terms.
C. Each Party (an "Acknowledging Party") agrees that no action taken or
omitted to be taken by any other Party and known to the Acknowledging Party
through and including the date of this Amendment with respect to preparation and
prosecution of either the Joint Proxy Statement-Prospectus or any submission to
the FTC or DOJ in connection with the HSRA shall constitute a basis for any
Acknowledging Party to claim that another Party has breached any of its
obligation under the Agreement, including without limitation any obligation set
forth in Section 6.1, Section 6.2 or Section 6.3 of the Merger Agreement. Each
Acknowledging Party further agrees that no statement, claim or allegation made
by any Governmental Entity (and known to the Acknowledging Party) in connection
with SEC's review of the Joint Proxy Statement-Prospectus or the FTC's review of
the Merger under the HSRA, including without limitation any allegation
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regarding the conduct of any Party unrelated to the Merger or the Merger
Agreement or the conduct underlying or alleged to be underlying such statement,
claim or allegation, and no response by a Party (and known to the Acknowledging
Party) to any such statement, claim or allegation, shall constitute a basis for
any Acknowledging Party to claim that another Party has breached any of its
representations, warranties, covenants or agreements under the Merger Agreement.
D. Except as expressly provided by this Amendment, the Merger Agreement
remains in full force and effect, and except as expressly provided by this
Amendment, this Amendment shall not constitute a modification or waiver of any
other provision of the Merger Agreement.
E. This Amendment may be executed in counterparts, all of which shall be
considered one and the same instrument, each being deemed to constitute an
original, and shall be effective when one or more counterparts have been signed
by each Party and delivered to the other Parties, which delivery may be made by
facsimile transmission.
F. This Agreement shall be governed by, and interpreted in accordance with
the laws of the State of Connecticut, without regard to any applicable conflicts
of law.
G. In the event of any inconsistency between the terms of this Amendment and
the Merger Agreement, this Amendment shall govern.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed, under seal, in counterparts by their duly authorized officers, as of
the date first above written.
<TABLE>
<S> <C> <C>
MACDERMID, INCORPORATED
By: /s/ JOHN L. CORDANI
----------------------------------------
Name: John L. Cordani
Title: Secretary
MCD ACQUISITION CORP.
By: /s/ JOHN L. CORDANI
----------------------------------------
Name: John L. Cordani
Title: Vice President
PTI, INC.
By: /s/ DAVID R. BECKERMAN
----------------------------------------
Name: David R. Beckerman
Title: President
CITICORP VENTURE CAPITAL, LTD.
By: /s/ JOSEPH M. SILVESTRI
----------------------------------------
Name: Joseph M. Silvestri
Title: Vice President
</TABLE>
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<PAGE>
APPENDIX C
THIRD AMENDMENT
THIS THIRD AMENDMENT (the "AMENDMENT") is entered into as of October ,
1999 by and among MacDermid, Incorporated, a Connecticut corporation ("BUYER"),
MCD Acquisition Corp., a Delaware corporation and wholly owned subsidiary of
Buyer ("MERGER SUB"), PTI, Inc., a Delaware corporation ("SELLER"), and Citicorp
Venture Capital, Ltd., a New York corporation ("CVC"), to amend that certain
Plan and Agreement of Merger entered into as of February 18, 1999 and amended by
the First Amendment thereto (the "FIRST AMENDMENT") dated as of July 27, 1999
and the Second Amendment thereto (the "SECOND AMENDMENT") dated as of
September 13, 1999 (as further amended hereby, the "MERGER AGREEMENT"), by and
among Buyer, Merger Sub, Seller and CVC. Buyer, Merger Sub, Seller and CVC are
collectively referred to as the "Parties." Any capitalized term used in this
Amendment and not otherwise defined shall have the meaning ascribed to that term
in the Merger Agreement.
WHEREAS, the Parties desire to amend the Merger Agreement to, among other
things, adjust the number of Buyer Shares issuable in connection with the Merger
and to extend the date on which the Parties may terminate the Merger Agreement;
NOW THEREFORE, in consideration of the mutual agreements set forth herein
and other good and valuable consideration the receipt and sufficiency of which
is hereby acknowledged the Parties agree as follows:
A. The Merger Agreement is hereby amended, effective as of the date hereof:
1. By deleting Section 2.4(e) of the Merger Agreement in its entirety
and substituting in the place thereof the following:
(e) CONVERSION OF SELLER SHARES. Subject to the provisions of Section
2.4(h), at and as of the Effective Time, (i) each holder of Seller
Preferred Shares then outstanding shall by virtue of the Merger be
entitled to receive that number of Buyer Shares, rounded to the nearest
thousandth, equal to the quotient obtained by dividing (X) the aggregate
liquidation value of the Preferred Shares held by such holder plus any
and all accumulated and unpaid dividends thereon to but not including the
Effective Time by (Y) the Current Market Price as of the Closing Date
(the Buyer Shares delivered pursuant to this Section 2.4(e)(i) to all
holders of Seller Preferred Shares being collectively referred to as the
"PREFERRED EXCHANGE SHARES"); and (ii) each holder of Seller Common
Shares then outstanding, other than any holder of Dissenting Shares,
shall by virtue of the Merger be entitled to receive that number of Buyer
Shares, rounded to the nearest thousandth, which is equal to the product
of (X) the Seller Common Ratio applicable to such holder of Seller Common
Shares multiplied by (Y) Seven Million (7,000,000) MINUS the aggregate
number of the Preferred Exchange Shares. After the Closing, there shall
be no transfers on the stock transfer books of Seller Shares which were
issued and outstanding at the Effective Time and converted pursuant to
the provisions of this Section 2.4(e). After the Effective Time, holders
of certificates of Seller Shares shall cease to be, and shall have no
rights as, stockholders of Seller, other than to receive Buyer Shares
into which such Seller Shares have been converted and, if applicable,
fractional share payments pursuant to the provisions hereof. SCHEDULE
2.4(E) to this Agreement illustrates the distribution pursuant to this
Agreement of the Buyer Shares and the Buyer Warrants (including the
Escrow Shares and the Escrow Warrant) among, respectively, the Seller
Stockholders and holder of the CMP Warrant (which is the only option,
warrant or similar right to acquire Seller Shares that is outstanding as
of the date of this Agreement), assuming solely for purposes of that
presentation that (i) there are no Dissenting
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Shares, (ii) there are no accrued and unpaid dividends on the Seller
Preferred Shares as of the Closing Date, and (iii) the Current Market
Price as of the Closing Date is equal to $33.375.
2. By deleting SCHEDULE 2.4(E) attached to the Merger Agreement in its
entirety and substituting in the place thereof the SCHEDULE 2.4(E) attached
hereto.
3. By deleting Section 2.4(h) of the Merger Agreement in its entirety
and substituting in the place thereof the following:
(h) ESCROW SHARES. At the Closing, CVC and the Escrow Agent shall
enter into the Escrow Agreement, which Escrow Agreement is intended to
serve as an adjustment to the aggregate amount of consideration payable
to the holders of Seller Common Shares and the CMP Warrant in connection
with the Merger. At the Closing, there shall be withheld from each holder
of Seller Common Shares a number of Buyer Shares (collectively, the
"ESCROW SHARES") equal to the product, rounded to the nearest whole
share, of (X) the number of Buyer Shares such holder would have otherwise
received pursuant to Section 2.4(e) MULTIPLIED by (Y) the Escrow Ratio.
The "ESCROW RATIO" shall be the quotient obtained by DIVIDING (X) One
Hundred Twenty-Seven Thousand (127,000) by (Y) the arithmetic difference
between Seven Million (7,000,000) and the aggregate number of the
Preferred Exchange Shares. At the Closing, Buyer shall deposit with the
Escrow Agent one or more stock certificates representing the Escrow
Shares.
4. By deleting Section 2.5(a) of the Merger Agreement in its entirety
and substituting in the place thereof the following:
(a) WARRANT SHARES. As used in this Agreement, the term "WARRANT
SHARES" means that number, rounded up to the nearest whole integer, which
is equal to the product of (X) the Seller Common Ratio applicable to the
CMP Warrant, treating CMP as a holder of Seller Common Shares, MULTIPLIED
by (Y) Seven Million (7,000,000) MINUS the aggregate number of the
Preferred Exchange Shares.
5. By deleting Section 7.2(g) of the Merger Agreement in its entirety
and substituting in the place thereof the following:
(g) The total number of Buyer Shares that potentially may not be
issued in the Merger as a consequence of one or more Seller Stockholders
having the right, as of the Closing, to exercise dissenter's rights under
the DGCL shall not exceed Three Hundred Eighty-Five Thousand (350,000).
6. By deleting all references to the date "October 29, 1999" from
Section 9 of the Merger Agreement and substituting in the place thereof the
date "December 15, 1999."
B. Buyer and Seller shall use all commercially reasonable efforts to
(a) prepare a revised Joint Proxy Statement -- Prospectus or a supplement
to the Joint Proxy Statement -- Prospectus dated August 30, 1999, as
Buyer with the advice of counsel shall determine (which documents are
collectively referred to as the "Revised Proxy Statement") and (b) file
the Revised Proxy Statement in one or more post-effective amendments
(collectively, the "Post-Effective Amendment") to the S-4 Registration
Statement (No. 333-86129) and have the Post-Effective Amendment declared
effective under the Securities Act as promptly as practicable after the
date of this Amendment. All references in the Merger Agreement to the
"Joint Proxy Statement -- Prospectus" and the "S-4 Registration
Statement" shall include the "Revised Proxy Statement" and "Post-
Effective Amendment," respectively, unless the context otherwise
requires. Seller and, if required pursuant to the NYSE Rule, Buyer shall
cause the Revised Proxy Statement to
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<PAGE>
be mailed to their respective stockholders as promptly as practicable
after the Post-Effective Amendment is declared effective under the
Securities Act. All references in the Merger Agreement to "Seller
Stockholder Approval" shall mean the affirmative vote, in favor of a
proposal to approve the Merger Agreement as amended by this Amendment, at
a meeting or by written consent after the effective date of the
Post-Effective Amendment, of the holders of a majority of each class of
Seller Voting Shares entitled to vote thereon in accordance with the
certificate of incorporation and bylaws of Seller and Section 251(c) of
the DGCL. To the extent Buyer is required pursuant to the NYSE Rule to
resolicit Buyer Stockholder Approval, all references in the Merger
Agreement to Buyer Stockholder Approval shall mean the affirmative vote,
in favor of a proposal to approve the Merger Agreement as amended by this
Amendment, at a meeting after the effective date of the Post-Effective
Amendment, of the holders of a majority of the outstanding shares of
Buyer Common Stock in accordance with the certificate of incorporation
and bylaws of Buyer and Section 251(c) of the DGCL.
C. Except as expressly provided by this Amendment, the First
Amendment and the Second Amendment, the Merger Agreement remains in full
force and effect, and except as expressly provided by this Amendment,
this Amendment shall not constitute a modification or waiver of any other
provision of the Merger Agreement, the First Amendment or the Second
Amendment.
D. This Amendment may be executed in counterparts, all of which shall
be considered one and the same instrument, each being deemed to
constitute an original, and shall be effective when one or more
counterparts have been signed by each Party and delivered to the other
Parties, which delivery may be made by facsimile transmission.
E. This Agreement shall be governed by, and interpreted in
accordance with the laws of the State of Connecticut, without regard to
any applicable conflicts of law.
F. In the event of any inconsistency between the terms of this
Amendment and the Merger Agreement, the First Amendment or Second
Amendment, this Amendment shall govern.
G. At the request of any Party, the Parties shall amend and restate
the Merger Agreement in its entirety to reflect this Amendment and the
First Amendment and Second Amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed, under seal, in counterparts by their duly authorized officers, as of
the date first above written.
<TABLE>
<S> <C> <C>
MACDERMID, INCORPORATED
By: /s/ JOHN CORDANI
----------------------------------------
Name: John Cordani
Title: Corporate Secretary
MCD ACQUISITION CORP.
By: /s/ JOHN CORDANI
----------------------------------------
Name: John Cordani
Title: Corporate Secretary
PTI, INC.
By: /s/ DAVID R. BECKERMAN
----------------------------------------
Name: David R. Beckerman
Title: President
CITICORP VENTURE CAPITAL, LTD.
By: /s/ JOSEPH M. SILVESTRI
----------------------------------------
Name: Joseph M. Silvestri
Title: Vice President
</TABLE>
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APPENDIX D
DELAWARE GENERAL CORPORATION LAW
SECTION 262, APPRAISAL RIGHTS
262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merge or consolidation, who
has otherwise complied with subsection (d) of this section and who have neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections
(d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of SUCH STOCKHOLDER'S shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of SUCH STOCKHOLDER'S shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of SUCH STOCKHOLDER'S shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation
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shall send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw SUCH
STOCKHOLDER'S demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
SUCH STOCKHOLDER'S written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock
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represented by certificates to submit their certificates of stock to the
Register in Chancery for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such direction, the
Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation of by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
SUCH STOCKHOLDER'S certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that SUCH STOCKHOLDER is not entitled to appraisal rights under this
section.
(i) The Court may direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation by a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, of if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
339, L. '98, eff. 7-1-98.)
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APPENDIX E
FORM OF ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into as of the day of [ ], 1999,
by and among MacDermid, Incorporated, a Connecticut corporation ("BUYER"),
Citicorp Venture Capital, Ltd., a New York corporation ("CVC"), David Beckerman
(the "MANAGEMENT REPRESENTATIVE") and State Street Bank and Trust Company, a
Massachusetts trust company (the "ESCROW AGENT").
WHEREAS, Buyer has agreed to acquire all of the issued and outstanding
shares of capital stock of PTI, Inc., a Delaware corporation ("SELLER"), in
exchange for shares of Buyer common stock, no par value (the "BUYER SHARES"),
pursuant to that certain Plan and Agreement of Merger dated as of February ,
1999 (the "MERGER AGREEMENT") by and among Buyer, MCD Acquisition Corp., Seller
and CVC;
WHEREAS, Buyer has agreed to acquire a certain Warrant exercisable for
capital stock of Seller in partial exchange for the Escrow Warrant (as defined
below) pursuant to the Merger Agreement;
WHEREAS, CVC has entered into this Agreement on behalf of itself and as an
agent for and attorney-in-fact of those Seller stockholders designated as
outside stockholders on SCHEDULE 1 attached hereto (the "OUTSIDE STOCKHOLDERS")
pursuant to that certain Agency Agreement dated as of [ ], 1999 (the
"AGENCY AGREEMENT");
WHEREAS, Management Representative has entered into this Agreement on his
own behalf and as agent for and attorney-in-fact of those Seller stockholders
designated as management stockholders on SCHEDULE 1 attached hereto (the
"MANAGEMENT STOCKHOLDERS") pursuant to the Agency Agreement;
WHEREAS, the Merger Agreement provides that an Escrow Fund will be
established to secure the indemnification obligations to Buyer under
Section 8.1(b) and 8.1(d) of the Merger Agreement on the terms and conditions
set forth herein; and
WHEREAS, the parties hereto desire to establish the terms and conditions
pursuant to which such Escrow Fund will be established and maintained.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINED TERMS.
"CLOSING DATE" means April , 1999.
"CMP" means Citicorp Mezzanine Partners, L.P.
"DESIGNATED PERCENTAGES" has the meaning set forth in Section 3.2
hereof.
"EFFECTIVE DATE" means the effective date of the Merger, as defined in
the Merger Agreement.
"ESCROW ACCOUNT" has the meaning set forth in Section 3.2 hereof.
"ESCROW ACCOUNT BENEFICIARY" means CVC, the Management Representative, a
Person listed on SCHEDULE 1 hereto, or any permitted successor or assignee of
such Person.
"ESCROW FUND" has the meaning set forth in Section 3.1 hereof.
"ESCROW SECURITY" means any Primary Escrow Security or any Secondary
Escrow Security that is an asset of an Escrow Account.
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"ESCROW SHARES" means 127,000 shares of Buyer's common stock, no par
value, issued in connection with the Merger Agreement and deposited with the
Escrow Agent hereunder.
"ESCROW VALUE" means, except as otherwise provided in this Agreement,
(i) with respect to each Escrow Share, Dollars ($)(1), (ii) with respect to any
Primary Escrow Security (other than an Escrow Share or the Escrow Warrant), the
Escrow Value of the equivalent number of Escrow Shares as determined by CVC and
the Buyer, (iii) with respect to any Secondary Escrow Security that is listed on
a national exchange or Nasdaq, the average of the daily closing prices per such
for the thirty (30) consecutive trading days immediately prior to the specified
date, rounded to the nearest cent and ignoring the highest and lowest closing
prices during such period as determined by CVC and the Buyer, and (iv) with
respect to any other assets in the Escrow Fund, other than cash or a cash
equivalent instrument, such value as Buyer and CVC may mutually agree, or, if
Buyer and CVC are unable to agree, as determined by a nationally recognized
investment banking firm selected by CVC and consented to by Buyer, such consent
not to be unreasonably withheld, and all fees and expenses incurred in
connection with such retention of an investment banking shall be split equally
between Buyer and CVC. The Escrow Value of the Escrow Warrant shall be equal to
(X) the Escrow Value of the total number of the Primary Escrow Securities
purchasable upon the full exercise thereof minus (Y) the aggregate exercise
price thereof. Notwithstanding anything contained herein to the contrary, for
the purpose of making distributions to the Buyer pursuant to Section 6 hereof,
the aggregate value of the Escrow Fund and of each Escrow Account shall not be
deemed to exceed the Escrow Value of the Primary Escrow Securities held therein.
"ESCROW WARRANT" means that certain warrant for Buyer Shares held by CMP
or any successor holder and any replacement warrant issued in exchange therefor.
"PRIMARY ESCROW SECURITY" means the Escrow Shares and the Escrow Warrant
and any other securities distributable to the holders of those Primary Escrow
Securities in respect of or in exchange therefor, whether by way of stock
dividends, stock splits, merger or otherwise.
"POOLING PERIOD EXPIRATION DATE" means that date on which results
covering at least thirty (30) days of combined operations of Buyer and Seller
have been published by Buyer, in the form of a quarterly earnings report, an
effective registration statement filed with the Commission, a report to the
Commission on Form 10-K, 10-Q, or 8-K, or any public filing or announcement
which includes the results of at least 30 days of combined operations.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement, dated as of the date of this Agreement, among Buyer, CVC and certain
other parties named therein providing for the registration under the Securities
Act of 1933, as amended, of the resale of Buyer Shares.
"SECONDARY ESCROW SECURITY" means any security (other than a Primary
Escrow Security) that is an asset of an Escrow Account.
"TERMINATION DATE" means April 30, 2000 unless two (2) business days
prior to such date the Escrow Agent receives notice that such date will not be
the Termination Date, in which event, the Termination Date shall be the date
which is five (5) days after Escrow Agent has received written notice from Buyer
that the audit of Buyer's financial statements for the fiscal year ending
March 31, 2000 is completed.
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(1) This amount shall be calculated as of the Closing and shall equal the
average of the daily closing price of Buyer Common Stock for the thirty (30)
consecutive trading days immediately prior to the Closing Date, rounded to
the nearest cent and ignoring the highest and lowest closing prices during
such period.
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2. ESCROW AGENT. The Escrow Agent accepts appointment hereunder and agrees
to hold in escrow the Escrow Fund in accordance with the terms of this Escrow
Agreement.
3. ESCROW FUND.
3.1 ESCROW FUND. In accordance with the provisions of the Merger
Agreement, Buyer will deliver to the Escrow Agent the Closing Date (i) a
certificate evidencing the Escrow Shares and (ii) a certificate evidencing the
Escrow Warrant, each registered in the name of the Escrow Agent, as Escrow Agent
under this Agreement. The Primary Escrow Securities represented by such
certificates and any income thereon, or other property which is delivered to the
Escrow Agent under the terms of this Agreement with respect thereto, shall be
referred to herein as the "ESCROW FUND." The Escrow Fund and each Escrow Account
shall be held as a separate fund and shall not be subject to any lien,
attachment, trustee process or any other judicial process of any creditor of any
party hereto. The Escrow Agent will hold the Escrow Fund until it is released in
accordance with the provisions of this Agreement. In order to facilitate the
sale or release, in accordance with the terms of this Agreement, of the Escrow
Warrant (or an interest therein) or any Primary Escrow Securities purchasable
upon the exercise of the Escrow Warrant, Buyer shall deliver a replacement
Escrow Warrant to the Escrow Agent promptly after receipt of a written request
therefor from the Escrow Agent, which replacement Escrow Warrant shall be
adjusted appropriately to reflect the partial exercise of such Escrow Warrant,
the assignment of an interest therein, or the release of a portion of the
underlying Primary Escrow Securities thereof to Buyer or each Escrow Account
Beneficiary entitled thereto. The Escrow Agent shall have no responsibility for
the genuineness, validity, market value, title or sufficiency for any intended
purpose of the Escrow Fund.
3.2 ESCROW ACCOUNTS. The Escrow Agent shall establish and maintain
separate escrow accounts (each an "ESCROW ACCOUNT") within the Escrow Fund for
each Escrow Account Beneficiary. SCHEDULE 1 attached hereto specifies (i) the
percentage (each, a "DESIGNATED PERCENTAGE") of the total Escrow Fund which each
such Escrow Account shall constitute as of the Closing Date and (ii) the
specific assets (e.g., Escrow Shares or Escrow Warrant) that comprise each such
Escrow Account as of the Closing Date. The Escrow Agent shall promptly amend
SCHEDULE 1 to reflect any change in the assets comprising an Escrow Account;
provided, however, that the Designated Percentages of the Escrow Accounts shall
remain fixed. The Escrow Agent shall deliver an amended SCHEDULE 1 to Buyer,
CVC, the Management Representative and each Escrow Account Beneficiary on a
quarterly basis along with the reports required by Section 4.2 below.
4. CUSTODY OF ESCROW FUND.
4.1. INVESTMENTS. The Escrow Agent shall hold assets in an Escrow Account
until (i) sold in accordance with the written direction of the respective Escrow
Account Beneficiary or (ii) released in accordance with the provisions of this
Agreement. The Escrow Agent will invest and reinvest, from time to time, any
cash or cash equivalents in an Escrow Account (including without limitation cash
received as a result of dividends on or the sale of any Escrow Security) in any
one or more of the following investments as designated in writing by the
respective Escrow Account Beneficiary: (a) obligations of the United States of
America having a remaining maturity of one year or less; (b) general obligations
of any State of the United States of America having a remaining maturity of one
year or less, if such obligations are rated by at least two recognized rating
services as at least "AAA"; (c) certificates of deposit of any domestic
commercial bank or trust company (including, if applicable, the Escrow Agent or
an affiliate of the Escrow Agent) if the deposits of such bank are insured up to
applicable limits by the Federal Deposit Insurance Corporation (FDIC) and the
bank has a net worth in excess of $500 million (an "ACCEPTABLE BANK"), provided
that the maturity date of any such certificate of deposit is prior to April 30,
2000; (d) demand interest bearing accounts of Escrow Agent or an affiliate of
Escrow Agent if
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Escrow Agent is an Acceptable Bank; or (e) any open-end or closed-end management
type investment company or investment trust registered under the Investment
Company Act of 1940, as amended, which invests in any of the investments
described in clause (a) or (b) of this sentence. In the absence of such
instructions, the Escrow Agent shall invest any cash in a State Street Money
Market account.
The Escrow Agent shall not be responsible or liable for any loss accruing
from any investment made in accordance herewith. All earnings received from the
investment of property in an Escrow Account shall be credited to, and shall
become a part of such Escrow account (and any losses on such investments shall
be debited to the appropriate Escrow Account). The Escrow Agent shall have no
liability for any investment losses, including any losses on any investment
required to be liquidated prior to maturity in order to make a payment required
hereunder.
4.2. REPORTS. In addition to the delivery of an amended SCHEDULE 1, the
Escrow Agent shall deliver to Buyer, CVC, the Management Representative and each
Escrow Account Beneficiary, as promptly as practicable after the end of each
calendar quarter during the term of this Agreement, a statement setting forth
the assets in each Escrow Account as of the end of such calendar quarter, and
the interest, income, dividends or distributions which were added to or paid
from, or any changes otherwise made to, any Escrow Account during the quarter
ending as of that date.
5. DIVIDENDS, VOTING AND SALE OF ESCROW FUND ASSETS.
5.1 DIVIDENDS, ETC. Any cash dividends or property (including, without
limitation, any securities distributable to the holders of Escrow Securities in
respect of or in exchange for any of the Escrow Securities, whether by way of
stock dividends, stock splits or otherwise) shall be delivered to the Escrow
Agent, in the name of the Escrow Agent or its nominee, who shall hold such cash
or securities in the applicable Escrow Account. Any such dividends or property
shall be accompanied by written notice from the person making such deposit
identifying such property as relating to an identified Escrow Account
Beneficiary and as being delivered for deposit to the Escrow Account identified
in such writing.
5.2 VOTING OF SHARES. Each Account Beneficiary shall have the right to
direct the Escrow Agent in writing as to the exercise of any voting rights
pertaining to such Account Beneficiary's Escrow Securities and the Escrow Agent
shall comply with any such written instructions. In the absence of such
instructions, the Escrow Agent shall not vote any of the Escrow Securities. The
Escrow Agent shall not be responsible for forwarding to any Account Beneficiary
or any other party, notifying any such Beneficiary or Party with respect to, or
taking any action with respect to, any notice, solicitation or other document or
information, written or otherwise, received from an issuer or other person with
respect to the assets in the Escrow Fund, including but not limited to, proxy
material, tenders, options, the pendency of calls and maturities and expiration
of rights.
5.3 SALE OF PROPERTY CONSTITUTING ESCROW FUND ASSETS. Except as otherwise
provided in this Agreement and the Registration Rights Agreement pursuant to
which CVC may request the registration of certain Primary Escrow Securities
pursuant to the Securities Act of 1933, as amended, at any time and from time to
time during the term of this Escrow Agreement, each Escrow Account Beneficiary
may direct in writing the Escrow Agent to sell for cash any or all of assets,
including without limitation, any of the Escrow Securities, in such Escrow
Account Beneficiary's Escrow Account. The Escrow Agent shall have no
responsibility for the adequacy of sale proceeds, compliance with securities
laws or otherwise in connection with any such sale and shall provide any
information reasonably required by the Escrow Agent to consummate such sale. No
Escrow Securities may be sold or otherwise transferred prior to the Pooling
Period Expiration Date (which date shall be noticed to the Escrow Agent by the
Buyer).
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5.4 TRANSFERABILITY. No interest in the Escrow Fund or in any individual
Escrow Account may be assigned or transferred, other than by operation of law,
provided that CMP may assign one or more interests in its Escrow Account to any
one or more of its partners. Notice of any such assignment or transfer shall be
given to the Escrow Agent and Buyer, and no such assignment or transfer shall be
valid until such notice is given. Upon receipt of written notice substantially
in the form of Exhibit A attached hereto that a total or partial transfer or
assignment of an Escrow Account has been made, the Escrow Agent shall promptly
amend SCHEDULE 1 to reflect such transfer or assignment and deliver such amended
SCHEDULE 1 to Buyer, CVC, the Management Representative and each Escrow Account
Beneficiary simultaneously with the reports required by Section 4.2 above.
Escrow Agent shall have no duty or responsibility for determining that an
assignment or transfer is permissible hereunder.
5.5 CVC AND MANAGEMENT REPRESENTATIVE REPRESENTATIONS AND SUCCESSION.
(a) Each of CVC and the Management Representative represents and warrants to
the Escrow Agent that it or he has irrevocable right, power and authority (i) to
enter into and perform this Agreement and bind all of the Outside Stockholders
or Management Stockholders, as the case may be, to its terms, (ii) to give and
receive directions and notices hereunder; and (iii) to make all determinations
that may be required or that it or he deems appropriate under this Escrow
Agreement.
(b) Until notified in writing by CVC and the Management Representative that
it or he has resigned or been removed and a successor has been named, the Escrow
Agent may act upon the directions, instructions and notices of CVC and the
Management Representative and, thereafter, upon the directions, instructions and
notices of any successor named in such writing.
6. CLAIMS AGAINST ESCROW FUND.
6.1 CLAIM NOTICE. If Buyer has incurred or suffered Damages for which it
is entitled to indemnification under Section 8.1(b) or (d) of the Merger
Agreement, Buyer shall, prior to the Termination Date, give written notice of
such claim (a "CLAIM NOTICE") to CVC, the Management Representative and the
Escrow Agent. Each Claim Notice shall state the amount of claimed Damages (the
"CLAIMED AMOUNT") and the basis for such claim.
6.2 RESPONSE NOTICE. Within 30 days after delivery of a Claim Notice, CVC
shall provide to Buyer, with a copy to the Escrow Agent and the Management
Representative, a written response (the "RESPONSE NOTICE") in which CVC shall
either: (i) agree that the full Claimed Amount may be released from the Escrow
Fund to Buyer, (ii) agree that part, but not all, of the Claimed Amount (the
"AGREED AMOUNT") may be released from the Escrow Fund to Buyer or (iii) contest
that any of the Escrow Fund may be released to Buyer. CVC may contest the
release of Escrow Fund assets equal to all or a portion or the Claimed Amount
only based upon a good faith belief that all or such portion of the Claimed
Amount does not constitute Damages for which Buyer is entitled to
indemnification under Section 8.1(b) or (d) of the Merger Agreement. If no
Response Notice is delivered to the Escrow Agent by CVC within the 30-day period
from the Escrow Agent's receipt of such Claim Notice, CVC shall be deemed to
have agreed, on behalf of itself and all Escrow Account Beneficiaries, including
the Management Stockholders, that all of the Claimed Amount may be released to
Buyer from the Escrow Fund.
6.3 CONTESTED AMOUNT. If CVC in the Response Notice contests the release
of Escrow Fund assets equal to all or part of the Claimed Amount (the "CONTESTED
AMOUNT"), Buyer and CVC shall use good faith efforts to resolve the matter
between themselves. If the matter is not resolved within 15 days of the delivery
of the Response Notice contesting the Claimed Amount, either Buyer or CVC shall
have the right, by delivery of written notice to the other (the "ARBITRATION
NOTICE"), to submit the matter to binding arbitration in Stamford, Connecticut.
Such matter shall
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then be settled by three arbitrators in accordance with the Commercial
Arbitration Rules then in effect of the American Arbitration Association (the
"AAA RULES"). CVC and Buyer shall each designate one arbitrator within 15 days
of the delivery of the Arbitration Notice. CVC and Buyer shall cause such
designated arbitrators mutually to agree upon and shall designate a third
arbitrator; provided, however, that (i) failing such agreement within 45 days of
delivery of the Arbitration Notice, the third arbitrator shall be appointed in
accordance with the AAA Rules and (ii) if either CVC or Buyer fails to timely
designate an arbitrator, the dispute shall be resolved by the one arbitrator
timely designated. CVC and Buyer shall pay the fees and expenses of their
respectively designated arbitrators and shall bear equally the fees and expenses
of the third arbitrator. CVC and Buyer shall cause the arbitrators to decide the
matter to be arbitrated pursuant hereto within 60 days after the appointment of
the last arbitrator. The arbitrators' decision shall relate solely to whether
Buyer is entitled to receive the Contested Amount (or a portion thereof)
pursuant to the applicable terms of the Merger Agreement and this Agreement. The
final decision of the majority of the arbitrators shall be furnished to CVC, the
Management Representative, Buyer and the Escrow Agent in writing and shall
constitute a conclusive, final and nonappealable determination of the issue in
question, binding upon CVC, the Management Representative, Buyer, the Escrow
Agent and all Escrow Account Beneficiaries. Such decision may be used in a court
of law only for the purpose of seeking enforcement of the arbitrators' award.
After delivery of a Response Notice that the Claimed Amount is contested by CVC,
the Escrow Agent shall continue to hold in the Escrow Fund an amount of Escrow
Fund assets sufficient to cover the Contested Amount (or such lesser amount as
is then available in the Escrow Fund), notwithstanding the occurrence of the
Termination Date, until (i) delivery of a copy of a settlement agreement
executed by Buyer and CVC setting forth instructions to the Escrow Agent as to
the release of Escrow Fund, if any, that shall be made with respect to the
Contested Amount or (ii) delivery of a copy of the final award of the majority
of the arbitrators setting forth instructions to the Escrow Agent as to the
amount of the Escrow Fund, if any, that shall be released with respect to the
Contested Amount. The Escrow Agent shall promptly thereafter release such Escrow
Fund assets in accordance with Section 6.4 of this Agreement.
6.4 RELEASE OF ESCROW FUND TO BUYER. If (i) pursuant to Section 6.2 CVC
agrees (or is deemed to have agreed) that Escrow Fund assets having a value
equal to all of the Claimed Amount may be released from the Escrow Fund to Buyer
or (ii) the Escrow Agent is instructed pursuant to Section 6.3 to release Escrow
Fund assets to Buyer, the Escrow Agent shall promptly thereafter transfer,
deliver and assign to Buyer such an amount of assets from the Escrow Fund equal
to (X) in the case of clause (i) of this sentence, the amount of the Escrow Fund
assets that CVC has agreed (or is deemed to have agreed) to allow the Escrow
Agent to release (or such lesser amount of assets as then comprises the entire
Escrow Fund) or (Y) in the case of clause (ii) of this sentence, the amount of
the Escrow Fund assets that the Escrow Agent has been directed to release (or
such lesser amount of assets as then comprises the entire Escrow Fund), in each
case pro rata from each Escrow Account in accordance with the Designated
Percentages. For purpose of calculating the amount of Escrow Fund assets to be
released, Escrow Securities shall be valued at the Escrow Value. If less than
all of the Escrow Fund assets in an Escrow Account will be released to Buyer
pursuant to this Section 6.4 such assets shall be released in the following
order: (i) first, Primary Escrow Securities in such amounts as the Escrow
Account Beneficiary may direct in writing and (ii) second (to the extent that
assets in addition to Escrow Securities must be released in order to give effect
to the provisions hereof), Secondary Escrow Securities, cash or cash equivalents
or other property constituting assets of each Escrow Account or any combination
thereof per the written instructions of each Escrow Account Beneficiary). If the
Escrow Agent does not receive such instruction from an Escrow Account
Beneficiary at least two (2) business days prior to an anticipated release date,
Buyer shall so instruct the Escrow Agent. Under no circumstances shall the terms
of this Escrow Agreement require the Escrow Agent to release or
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distribute all or any portion of the Escrow Fund sooner than two (2) Business
Days after the Escrow Agent has received the requisite notices or paperwork in
good form, or passage of the applicable claims period or release date, as the
case may be.
6.5 LIMITATIONS ON ESCROW ACCOUNT BENEFICIARY LIABILITY. Notwithstanding
anything contained in this Agreement to the contrary, if the Escrow Value of the
Escrow Fund assets in an Escrow Account is insufficient to satisfy the
indemnification obligations to the Buyer with respect thereto, none of CVC, the
Management Representative, the Escrow Account Beneficiary of that Escrow Account
or any other Escrow Account Beneficiary shall be liable hereunder for such
deficiency.
7. RELEASE OF ESCROW FUND UPON TERMINATION DATE. Promptly after the
Termination Date, the Escrow Agent shall distribute to the Escrow Account
Beneficiaries, all of the assets constituting each such Escrow Account
Beneficiary's Escrow Account after the payment of such Escrow Account
Beneficiary's share of the fees and expenses of the Escrow Agent.
Notwithstanding the immediately preceding sentence, if Buyer has previously
given a Claim Notice which has not then been resolved in accordance with
Section 6, the Escrow Agent shall retain in the Escrow Fund after the
Termination Date an amount of assets from the Escrow Fund equal to the Claimed
Amount which has not then been resolved, which amount shall be retained pro rata
from each Escrow Account in accordance with the Designated Percentages. For
purpose of calculating the amount of Escrow Fund assets to be distributed
pursuant to this Section 7, Escrow Securities shall be valued at the Escrow
Value. If less than all of the Escrow Fund assets in an Escrow Account will be
released to an Escrow Account Beneficiary pursuant to this Section 7, such
assets shall be released in the following order: (i) first, Secondary Escrow
Securities, cash or cash equivalents, or other property (other than Primary
Escrow Securities) in such amounts as the Escrow Account Beneficiary may direct
in writing and (ii) second (to the extent that additional assets from an Escrow
Account must be released in order to give effect to the provisions hereof),
Primary Escrow Securities in such amounts as the Escrow Account Beneficiary may
direct in writing. If the Escrow Agent does not receive such instruction from an
Escrow Account Beneficiary, Buyer shall so instruct the Escrow Agent.
8. FEES AND EXPENSES. The fees and expenses of the Escrow Agent (including
reasonable attorneys' fees and expenses) for the preparation of this agreement
and the services to be rendered by the Escrow Agent hereunder in accordance with
the attached fee schedule (which may be subject to change hereafter on an annual
basis) shall be payable out of the Escrow Account pro rata in accordance with
the Designated Percentages of the Escrow Account Beneficiaries. To the extent
there is insufficient cash in an Escrow Account to pay the fees and expenses of
the Escrow Agent in full on a timely basis, Buyer shall advance such funds to
the Escrow Agent, which amounts shall be reimbursed in cash or Escrow Securities
prior to any release of Escrow Fund assets to the respective Escrow Account
Beneficiary, provided, however, that if there are insufficient assets in an
Escrow Account to repay in full any such advance, Buyer shall not be entitled to
recover the deficiency from any other Escrow Account or from any other Person.
9. LIMITATION OF ESCROW AGENT'S LIABILITY.
9.1 DUTIES AND RESPONSIBILITIES. (a) The Escrow Agent may act on any
instrument or other writing reasonably believed by it to be genuine and to have
been signed or presented by the proper person and shall have no responsibility
for the accuracy thereof. The Escrow Agent shall incur no liability with respect
to any action taken or suffered by it in reliance upon any notice, direction,
instruction (including without limitation, wire transfer instructions, whether
incorporated herein or provided in a separate written instruction), consent,
statement or other documents believed by it to be genuine and duly authorized,
nor for other action on inaction except its own willful misconduct or gross
negligence. The Escrow Agent is not charged with any knowledge of,
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or any duties or responsibilities in connection with, any other documents and
agreements (including without limitation the Merger Agreement or Agency
Agreement), and shall not be responsible for determining or compelling
compliance therewith, and shall not otherwise be bound thereby. The Escrow
Agent's duties and responsibilities shall be entirely administrative and not
discretionary and determined only with reference to this Escrow Agreement and
applicable laws. The Escrow Agent shall not be responsible for the validity or
sufficiency of this Agreement. In all questions arising under the Escrow
Agreement, the Escrow Agent may rely on the advice of counsel (provided such
counsel is not counsel to any other party to this Agreement) including in-house
counsel, and for anything done, omitted or suffered in good faith by the Escrow
Agent based on such advice the Escrow Agent shall not be liable to anyone. The
Escrow Agent shall not be required to take any action hereunder involving any
expense or liability unless the payment of such expense or liability is made or
provided for in a manner reasonably satisfactory to it. The Escrow Agent shall
be obligated only for the performance of such duties as are expressly and
specifically set forth in this Escrow Agreement on its part to be performed,
each of which is ministerial (and shall not be construed to be fiduciary) in
nature, and no implied duties or obligations of any kind shall be read into this
Agreement against or on the part of the Escrow Agent. In no event shall the
Escrow Agent be liable for indirect, punitive, special or consequential damage
or loss (including but not limited to lost profits) whatsoever, even if the
Escrow Agent has been informed of the likelihood of such loss or damage and
regardless of the form of action.
(b) The Escrow Agent shall have no more or less responsibility or liability
on account of any action or omission of any book-entry depository, securities
intermediary or other subescrow agent employed by the Escrow Agent than any such
book-entry depository, securities intermediary or other subescrow agent has to
the Escrow Agent, except to the extent that such action or omission of any
book-entry depository, securities intermediary or other subescrow agent was
caused by the Escrow Agent's own gross negligence, bad faith or wilful
misconduct in breach of this Agreement.
9.2 INDEMNIFICATION. The Buyer, on the one hand, and the Escrow Account
Beneficiaries, on the other hand, hereby agree, severally and jointly, to
indemnify the Escrow Agent for, and to hold it harmless against, any loss,
liability or expense (including reasonable attorneys' fees and other costs and
expenses of defending or preparing to defend any claim of liability) incurred
without gross negligence or willful misconduct on the part of Escrow Agent
arising out of or in connection with its carrying out of its duties hereunder.
Without altering or limiting the joint and several liability of the parties
hereunder, as between themselves the Buyer, on the one hand, and the Escrow
Account Beneficiaries, on the other hand, shall be liable for half of any
indemnification amount due hereunder. The amount payable by the Escrow Account
Beneficiaries pursuant to this Section 9.2 shall be allocated among the Escrow
Accounts pro rata in accordance with the Designated Percentages and shall be
paid as an expense in accordance with Section 8. The foregoing indemnification
and agreement to hold harmless shall survive the termination of this Escrow
Agreement and the resignation of the Escrow Agent.
9.3 TAX-RELATED TERMS.
(a) TAX REPORTING. The parties hereto agree that, for tax reporting
purposes, all interest or other income earned from the investment of the Escrow
Funds in any tax year shall (i) to the extent such interest or other income is
distributed by the Escrow Agent to any person or entity pursuant to the terms of
this Agreement during such tax year, be allocated to such person or entity, and
(ii) otherwise shall be allocated to the applicable Escrow Account Beneficiary.
(b) CERTIFICATION OF TAX IDENTIFICATION NUMBER. Each of the parties hereto
agree to, and shall cause each Escrow Account Beneficiary to, provide the Escrow
Agent with a certified tax identification number by signing and returning a Form
W-9 (or Form W-8, in case of non-U.S. persons) to the Escrow Agent prior to the
date on which any income earned on the investment of the
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Escrow Fund is credited to the appropriate Escrow Account. The parties hereto
understand that, in the event their tax identification numbers are not certified
to the Escrow Agent, the Internal Revenue Code, as amended from time to time,
may require withholding of a portion of any interest or other income earned on
the investment of the Escrow Fund.
(c) TAX INDEMNIFICATION. Each of the Buyer and the Escrow Account
Beneficiaries agrees, jointly and severally, (i) to assume any and all
obligations imposed now or hereafter by any applicable tax law with respect to
any payment or distribution of the Escrow Funds or performance of other
activities under this Agreement, (ii) to instruct the Escrow Agent in writing
with respect to the Escrow Agent's responsibility for withholding and other
taxes, assessments or other governmental charges, and to instruct the Escrow
Agent with respect to any certifications and governmental reporting that may be
required under any laws or regulations that may be applicable in connection with
its acting as Escrow Agent under this Agreement, and (iii) to indemnify and hold
the Escrow Agent harmless from any liability or obligation on account of taxes,
assessments, additions for late payment, interest, penalties, expenses and other
governmental charges that may be assessed or asserted against the Escrow Agent
in connection with or relating to any payment made or other activities performed
under the terms of this Agreement, including without limitation any liability
for the withholding or deduction of (or the failure to withhold or deduct) the
same, and any liability for failure to obtain proper certifications or to report
properly to governmental authorities in connection with this Agreement,
including costs and expenses (including reasonable legal fees and expenses),
interest and penalties. The foregoing indemnification and agreement to hold
harmless shall survive the termination of this Agreement.
10. TERMINATION. This Agreement shall terminate upon the later of the
Termination Date or the release by the Escrow Agent of all of the Escrow Fund
assets in accordance with this Agreement.
11. NOTICES. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) via a reputable
nationwide overnight courier service, in each case to the address set forth
below. Any such notice, instruction or communication shall be deemed to have
been delivered two business days after it is sent by registered or certified
mail, return receipt requested, postage prepaid, or one business day after it is
sent via a reputable nationwide overnight courier service for next day delivery.
If to Buyer:
245 Freight Street
Waterbury, Connecticut 06702
Attention: John Cordani, Esq.
If to CVC:
Citicorp Venture Capital, Ltd.
399 Park Avenue
New York, NY 10022
Attention: John Silvestri
If to Management Representative:
PTI, Inc.
c/o Polyfibron Technologies, Inc.
900 Middlesex Turnpike
Billerica, MA 01821-3946
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If to Escrow Agent:
State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attention: Corporate Trust Department, Fourth Floor
Attention: [INSERT NAME OF ESCROW AGREEMENT]
Fax: 617-664-5365
Any funds to be paid to or by the Escrow Agent hereunder shall be sent by
wire transfer pursuant to the following instructions (or by such method of
payment and pursuant to such instruction as may have been given in advance and
in writing to or by the Escrow Agent, as the case may be, in accordance with
Section 11 above):
If to ___________________________:
Bank: _________________________
ABA #: ________________________
A/C #: ________________________
Attn: _________________________
Ref: __________________________
If to ___________________________:
Bank: _________________________
ABA #: ________________________
A/C #: ________________________
Attn: _________________________
Ref: __________________________
If to the Escrow Agent:
Bank: State Street Bank and
Trust Company
ABA #: 0110 0002 8
A/C #: 9903-990-1
Attn: Corporate Trust
Department
Ref: ________________________
Escrow
Any party may give any notice, instruction or communication in connection
with this Agreement using any other means (including personal delivery, telecopy
or ordinary mail), but no such notice, instruction or communication shall be
deemed to have been delivered unless and until it is actually received by the
party to whom it was sent. Any party may change the address to which notices,
instructions or communications are to be delivered by giving the other parties
to this Agreement notice thereof in the manner set forth in this Section 11.
12. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, Escrow Agent may
resign and be discharged from its duties and obligations hereunder by delivering
a resignation to the parties to this Escrow Agreement, not less than sixty (60)
days prior to the date when such resignation shall take effect. Buyer may
appoint a successor Escrow Agent without the consent of CVC so long as such
designee meets the definition of an Acceptable Bank, and may appoint any other
successor Escrow Agent with the consent of CVC, which shall not be unreasonably
withheld. If, within such notice period,
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Buyer provides to the Escrow Agent written instructions with respect to the
appointment of a successor Escrow Agent and directions for the transfer of the
Escrow Fund then held by the Escrow Agent to such successor, the Escrow Agent
shall act in accordance with such instructions and promptly transfer such Escrow
Fund to such designated successor. If no successor is so named, the Escrow Agent
may apply to a court of competent jurisdiction for appointment of a successor.
13. GENERAL.
13.1 GOVERNING LAW, ASSIGNS. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Connecticut
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Connecticut or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Connecticut, and shall be binding upon, and inure to the benefit of, the parties
hereto and their respective successors and assigns.
13.2 JURISDICTION, VENUE AND WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF THE FEDERAL AND STATE COURTS SITTING IN THE STATE OF CONNECTICUT IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS ESCROW AGREEMENT, THE
MERGER AGREEMENT, THE AGENCY AGREEMENT AND THE WAIVER AND RELEASE OR THE
TRANSACTIONS CONTEMPLATED BY ANY OF THE FOREGOING. EACH PARTY HERETO HEREBY
IRREVOCABLY AGREES, THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING
SHALL BE INSTITUTED, HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY
WAIVES ANY OBJECTION IT, HE OR SHE MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT
IS AN INCONVENIENT FORUM.
EACH PARTY HERETO HEREBY WAIVES ANY RIGHT IT, HE OR SHE MAY HAVE TO TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS ESCROW AGREEMENT, THE MERGER AGREEMENT, THE WAIVER AND
RELEASE, THE AGENCY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY ANY OF THE
FOREGOING.
13.3 DISPUTE RESOLUTION.
It is understood and agreed that should any dispute arise with respect to
the delivery, ownership, right of possession, and/or disposition of any or all
of the Escrow Fund, or should any claim be made upon the Escrow Agent or the
Escrow Fund by a third party, the Escrow Agent upon receipt of notice of such
dispute or claim is authorized and shall be entitled (at its sole option and
election) to retain in its possession without liability to anyone, all or any of
said Fund until such dispute shall have been settled either by the mutual
written agreement of the parties involved or by a final order, decree or
judgment of a court in the United States of America, the time for perfection of
an appeal of such order, decree or judgment having expired. The Escrow Agent
may, but shall be under no duty whatsoever to, institute or defend any legal
proceedings which relate to the Escrow Fund.
13.4 FORCE MAJEURE.
The Escrow Agent shall not be responsible for delays or failures in
performance resulting from acts beyond its control. Such acts shall include but
not be limited to acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, communication line
failures, computer viruses, power failures, earthquakes or other disasters.
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13.5 COUNTERPARTS. This Agreement may be executed 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.
13.6 ENTIRE AGREEMENT. Except as set forth in the Merger Agreement (but
then solely with respect to CVC, Buyer, and the Management Stockholders), this
Agreement constitutes the entire understanding and agreement of the parties with
respect to the subject matter of this Agreement and supersedes all prior
agreements or understandings, written or oral, between the parties with respect
to the subject matter hereof.
13.7 WAIVERS. No waiver by any party hereto of any condition or of any
breach of any provision of this Escrow Agreement shall be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, shall be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
13.8 AMENDMENT. This Agreement may be amended only with the written
consent of Buyer, the Escrow Agent, CVC and the Management Representative.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
<TABLE>
<S> <C> <C>
MACDERMID, INCORPORATED
By:
----------------------------------------
Title:
----------------------------------------
CITICORP VENTURE CAPITAL, LTD.,
on its own behalf and as agent and
attorney-in-fact for the Outside Stockholders
By:
----------------------------------------
Title:
----------------------------------------
---------------------------------------------
David Beckerman, on his own behalf and as
agent and attorney-in-fact for the Management
Stockholders
STATE STREET BANK AND TRUST COMPANY
By:
----------------------------------------
Title:
----------------------------------------
</TABLE>
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APPENDIX G
FORM OF AGENCY AGREEMENT, WAIVER AND RELEASE
THIS AGREEMENT, made as of the day of February, 1999, by and among Citicorp
Venture Capital, Ltd ("CVC,"), a Delaware corporation, David R. Beckerman (the
"MANAGEMENT REPRESENTATIVE" and together with CVC, the "REPRESENTATIVES" and
each individually a "REPRESENTATIVE") and the other Stockholders (as defined
herein).
W I T N E S S E T H:
WHEREAS, the parties hereto (the "STOCKHOLDERS" and each individually a
"STOCKHOLDER") are stockholders or holders of warrants to purchase capital stock
of PTI, Inc. ("PTI"), a Delaware corporation;
WHEREAS, CVC has entered into a Plan and Agreement of Merger dated as of
February , 1999 (the "MERGER AGREEMENT") with PTI, MacDermid, Incorporated
("BUYER"), and MCD Acquisition Corp. (the "MERGER SUB");
WHEREAS, in connection with the Merger Agreement, the Representatives will
enter into an Escrow Agreement (the "ESCROW AGREEMENT") with Buyer and an escrow
agent named therein in order to provide for the collateralization of those
indemnification obligations set forth in the Merger;
WHEREAS, it is the intention and desire of the parties hereto that the
indemnification provisions set forth in the Merger Agreement be the sole remedy
and recourse for any and all claims arising out of or in connection with the
Merger Agreement and the transactions contemplated thereby;
WHEREAS, the Stockholders wish to appoint the Representatives as their
agents and attorneys-in-fact to act on their behalf in connection with certain
transactions contemplated by the Merger Agreement and the Escrow Agreement; and
WHEREAS, the Merger Agreement requires the Stockholders to become parties to
this Agency Agreement appointing the Representatives as the Stockholders' agents
and attorneys-in-fact.
NOW, THEREFORE, for good and valuable consideration and the mutual covenants
and conditions herein contained, the receipt and sufficiency of which is hereby
acknowledged, it is agreed as follows:
1. CAPITALIZED TERMS. Capitalized terms not otherwise defined herein shall
have the meanings assigned to them in the Merger Agreement.
2. APPOINTMENT OF REPRESENTATIVES BY STOCKHOLDERS.
2.1 GENERAL. Each Management Stockholder irrevocably appoints an
authorizes (i) CVC for the purposes set forth in Section 2.2(a) and
(ii) Management Representative for the purposes set forth in
Section 2.2(b) and each Outside Stockholder irrevocably appoints CVC for the
purposes set forth in Sections 2.2(a) and (b), in each case, to be such person's
true and lawful agent and attorney-in-fact, to act for such person and in such
person's name, place and stead, in any and all capacities, as fully to all
intents and purposes as such person might or could do in person with full power
of substitution and with the power to make, execute, sign, acknowledge and
deliver all waivers, opinions, certificates, agreements and other documents and
instruments in connection with the exercise of such powers.
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2.2 SCOPE OF AUTHORITY. (a) CVC is authorized to act on behalf of the
Stockholders to do and perform every act and thing required or permitted to be
done in connection with or contemplated by Section 8 of the Merger Agreement and
Section 6 of the Escrow Agreement (collectively, the "INDEMNIFICATION
PROVISIONS") or which CVC may deem necessary or appropriate in order to give
effect to the Indemnification Provisions including without limitation:
(i) To give or accept any notices or other communications and to
authorize or give any waiver or consent with respect to the Indemnification
Provisions.
(ii) To approve or disapprove claims against the Escrow Fund (as defined
in the Escrow Agreement) made by Buyer against the Stockholders.
(iii) To defend claims made against the Stockholders and to bring claims
against the Buyer on behalf of the Stockholders in each case, under the
Merger Agreement and to retain and hire, or replace counsel in connection
therewith.
(iv) To refer any matter to dispute resolution or arbitration as
provided in the Merger Agreement and to settle, resolve or dismiss any
matter.
(v) To incur or pay expenses on behalf of the Stockholders in connection
with this Agreement and the Indemnification Provisions.
(b) The Management Representative is authorized to act on behalf of the
Management Stockholders and CVC is authorized to act on behalf of the Outside
Stockholders to do and perform every acta d thing required or permitted to be
done in connection with the transactions contemplated by the Escrow Agreement
other than Section 6 thereof, or which a Representative may deem necessary or
appropriate in order to give effect to this Agreement and the Escrow Agreement,
including without limitation:
(i) To negotiate, execute and perform the Escrow Agreement.
(ii) To give or accept notices under, or to amend, give any waiver or
consent with respect to any provision of, the Escrow Agreement or to
terminate the Escrow Agreement.
(iii) To incur and pay expenses in connection with this Agreement and in
connection with the negotiation and performance of the transactions
contemplated by the Escrow Agreement.
2.3 POWER TO BIND STOCKHOLDERS. Each Stockholder acknowledges and agrees
that upon execution of this Agreement, such Stockholder shall be bound by any
waiver, opinion, certificate, agreement or other document executed by its
Representative and delivered to Buyer in accordance with this Section 2, as
fully as if such Stockholder had executed and delivered such documents.
2.4 DURATION OF APPOINTMENT. Each Stockholder hereby empowers each of the
Representatives to determine in the Representative's sole discretion the time
when, purpose for, and the manner in which any power herein conferred upon the
Representative shall be exercised an the conditions, provisions an covenants of
any instruments or document which may be executed by it pursuant to this
Section 2. The powers granted hereunder are coupled with an interest and shall
be irrevocable and shall survive the termination, liquidation, dissolution or
bankruptcy of each Stockholder, but shall terminate upon a Representative's
resignation. In the event CVC's appointment hereunder is so terminated, CVC
shall be succeeded by a person selected by Stockholders owning two-thirds of the
Buyer Shares issued to the Stockholders in the Merger in exchange for the Seller
Common Shares (giving effect tot he exercise of the Buyer Warrants). Such
successor agent shall have all the powers, duties and obligations of CVC
provided under this Agreement.
2.5 RESERVATION OF RIGHTS. Nothing in this Section 2 shall be interpreted
to abridge or otherwise negate the powers and privileges specifically granted to
the Stockholders pursuant to Sections
G-2
<PAGE>
4.1, 5.2 and 5.3 of the Escrow Agreement, except to the extent that the Escrow
Agreement is amended in accordance with its terms.
3. INSTRUCTIONS TO ESCROW AGENT. CVC hereby covenants and agrees that it
will promptly deliver to the Escrow Agent all written instructions received from
an Outside Stockholder relating to the exercise of the powers and privileges
granted to such Outside Stockholder pursuant to Sections 4.1, 5.2 and 5.3 of the
Escrow Agreement. The Management Representative hereby covenants and agrees that
it will promptly deliver to the Escrow Agent all written instructions received
from a Management Stockholder relating to the exercise of the powers and
privileges granted to such Management Stockholder pursuant to Sections 4.1, 5.2
and 5.3 of the Escrow Agreement.
4. LIMITATION ON LIABILITY. Neither Representative shall have by reason of
this Agreement a fiduciary relationship in respect of any Stockholder, except in
respect of amounts received on behalf of such Stockholder. Neither
Representative shall not be liable to any Stockholder for any action taken or
omitted by it or him hereunder, under the Merger Agreement, Escrow Agreement or
under any other certificate, agreement or document contemplated hereunder or
thereunder, in connection therewith, except that neither Representative shall be
relieved of any liability imposed by law for gross negligence or willful
misconduct. Neither Representative shall be liable to the Stockholders for any
apportionment or distribution of payments made by it or him in good faith, and
if any such apportionment or distribution is subsequently determined to have
been made in error the sole recourse of any Stockholder to whom payment was due,
but not made, shall be to recover from the other Stockholders any payment in
excess of the amount to which such other Stockholders are determined to have
been entitled. Neither Representative shall be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of this Agreement, the Merger Agreement, the Escrow Agreement or
any other certificate, agreement or document contemplated hereunder or
thereunder.
5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each of the
Stockholders hereby, represents and warrants to the Representatives that the
statements contained in this Section 5 are correct and complete as of the date
of this Agreement. The representations and warranties which follow are deemed to
be repeated on the Closing Date.
5.1 ORGANIZATION AND CORPORATE POWER. Each of the non-individual
Stockholders (i) is duly organized, validly existing, and in good standing under
the laws of its jurisdiction of organization, and (ii) has the power and
authority necessary to enter into and perform its obligations under this
Agreement.
5.2 AUTHORIZATION OF AGREEMENT. This Agreement has been duly authorized by
each non-individual Stockholder. This Agreement has been duly executed and
delivered by each Stockholder and constitutes the valid and legally binding
obligation of each Stockholder, enforceable in accordance with its terms and
conditions.
5.3 NONCONTRAVENTION. Neither the execution or delivery of this Agreement
nor the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which any Stockholder is subject or any provision of the
charter or bylaws of any Stockholder or (ii) conflict with, result in a breach
of, constitute a default (or any event which, with notice or lapse of time, or
both, would constitute a default) under, result in the acceleration of, create
in any party a put right or repurchase obligation or the right to accelerate,
terminate, modify or cancel, create any lien, encumbrance, claim or other
security interest or require any notice, under any agreement to which any
Stockholder is a party or by which it, he or she is bound or to which any of
its, his or her assets is subject.
G-3
<PAGE>
5.4 CONSULTATION WITH ATTORNEY. Each Stockholder has reviewed the
provisions of this Agreement carefully and to the extent necessary discussed
such provisions with PTI's counsel or its, his or her counsel.
6. WAIVER AND RELEASE.
6.1 DEFINITIONS. For the purposes of this Section 6, "CLAIMS" shall mean
any and all claims, demands, judgments, liabilities, damages, accounts, bonds,
bills, covenants, contracts, agreements, promises, complaints, and causes of
action of whatever kind or character, whether known or unknown, at law or in
equity, contingent or liquidated.
6.2 RELEASED CLAIMS. Each Stockholder, on behalf of itself, himself or
herself and its, his or her estate, agents, employees, former employees,
representatives, attorneys, accountants, assigns, partners, administrators,
executors, successors, and any other person or entity claiming by, through or
under it, him or her (collectively, the "RELEASING PARTY"), does hereby
unconditionally, waive, release and forever discharge Buyer, and all of its
respective agents, employees, former employees, officers, directors,
shareholders, affiliates (including but not limited to the Merger Sub and the
Surviving Corporation), representatives, attorneys, accountants and successors
and assigns (collectively the "RELEASED PARTY") from any and all Claims arising
from, in connection with or relating to the following:
(i) the execution, delivery or performance of the Merger Agreement;
(ii) the execution or performance of any agreement, document or
instrument delivered in connection with the Merger Agreement, including but
not limited to this Agency Agreement, the Escrow Agreement and the
Registration Rights Agreement;
(iii) the consummation of the transactions contemplated by the Merger
Agreement including but not limited to the Merger; or
(iv) the issuance of Buyer Shares;
which the Releasing Party may now have or ever had against any Released Party,
from the beginning of the world through and including the date of this Waiver
and Release (the "RELEASED CLAIMS"); provided, however, that nothing in this
Waiver and Release shall be construed to release any Claim that the Releasing
Party may have to indemnification pursuant to the terms and conditions of the
Merger Agreement.
The Releasing Party acknowledges and agrees that the Released Claims include
all Claims, whether known or unknown, suspected or unsuspected, and even though
it, he or she may hereafter discover facts different from or in addition to
those which the Releasing Party now knows, or believes to be true with respect
to the Released Claims. This Waiver and Release shall remain effective in all
respects, notwithstanding such different or additional facts, or the discovery
thereof.
Notwithstanding anything to the contrary contained herein, this Waiver and
Release shall not extend to, or operate to release, any Claims which the
Releasing Party may have against PTI or its affiliates in the nature of
indemnity or contribution if a Claim is brought by a third party against the
Releasing Party which arises out of or relates to the Releasing Party having
been an officer, director or employee of PTI or an affiliate of PTI, and PTI or
such affiliate would otherwise have had an obligation to defend and/or indemnify
the Releasing Party with regard to such Claim. In addition, this Waiver and
Release shall not be construed to have, and shall have, no effect upon, and
shall not be construed to affect, any insurance coverages which may be available
to the Releasing Party.
G-4
<PAGE>
6.3 ENFORCEABILITY OF WAIVER AND RELEASE. No breach or alleged breach of
the terms and conditions of this Agency Agreement, shall affect, limit, or
otherwise negate the enforceability of the Waiver and Release granted pursuant
to this Section 6.
7. ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the parties with respect to the subject matter hereof and supersedes all prior
written or oral understandings.
8. GOVERNING LAW, JURISDICTION AND VENUE. This Agreement shall be governed
by and construed in accordance with the domestic laws of the State of
Connecticut without giving effect to any choice or conflict of law provision or
rule (whether of the State of Connecticut or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Connecticut.
EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF THE FEDERAL AND STATE COURTS SITTING IN THE STATE OF CONNECTICUT IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGENCY AGREEMENT, THE
MERGER AGREEMENT, THE ESCROW AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, OR
THE TRANSACTIONS CONTEMPLATED BY ANY OF THE FOREGOING. EACH PARTY HERETO HEREBY
IRREVOCABLY AGREES, ON BEHALF OF ITSELF, HIMSELF OR HERSELF AND ON BEHALF OF
SUCH PARTY'S SUCCESSORS AND PERMITTED ASSIGNS THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING SHALL BE INSTITUTED, HEARD AND DETERMINED IN ANY SUCH COURT
AND IRREVOCABLY WAIVES ANY OBJECTION IT, HE OR SHE MAY NOW OR HEREAFTER HAVE AS
TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR
THAT SUCH COURT IS AN INCONVENIENT FORUM.
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT IT, HE OR SHE MAY HAVE
TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR
IN CONNECTION WITH THIS AGENCY AGREEMENT, THE MERGER AGREEMENT, THE ESCROW
AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY
ANY OF THE FOREGOING.
9. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally or
mailed, by certified or registered mail, return receipt requested, first class
postage prepaid or by Federal Express or some other reputable overnight carrier
to the parties at the addresses set forth on the records of PTI or to such other
place and with such other copies as any party may designate by written notice.
10. ENFORCEABILITY. If any one or more of the provisions of this Agreement
or any application thereof shall be invalid, illegal, or unenforceable in any
respect, the validity, legality, and enforceability of the remaining provisions
hereof and any other application thereof shall not be affected or impaired.
11. ASSIGNMENT. No Stockholder shall assign its, his or her liabilities
and obligations under this Agreement without the express written consents of the
other Stockholders. This Agreement shall be binding on the heirs,
administrators, executors, personal representatives and assigns of the parties
hereto.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
G-5
<PAGE>
IN WITNESS WHEREOF, CVC, the Management Representative and each of the
Stockholders has set his or her hands, hereto as of the date and year first
above written.
<TABLE>
<S> <C> <C>
MACDERMID, INCORPORATED
By:
----------------------------------------
Name:
Title:
CITICORP VENTURE CAPITAL, LTD.
By:
----------------------------------------
Name:
Title:
----------------------------------------
David R. Beckerman
CCT PARTNERS I, L.P.
By:
----------------------------------------
Name:
Title:
CITICORP MEZZANINE PARTNERS
By:
----------------------------------------
Name:
Title:
----------------------------------------
Bruce C. Bruckman
----------------------------------------
WTC/63 BR Partnership
----------------------------------------
Bruce C. Bruckman
----------------------------------------
Richard M. Cashin
----------------------------------------
Stephen C. Sherrill
</TABLE>
G-6
<PAGE>
<TABLE>
<S> <C> <C>
----------------------------------------
David F. Thomas
----------------------------------------
Joseph M. Silvestri
----------------------------------------
Harold O. Rosse
----------------------------------------
Michael A. Delaney
----------------------------------------
Thomas McWilliams
----------------------------------------
Stephen Edwards
----------------------------------------
James Urry
----------------------------------------
Richard E. Mayberry
----------------------------------------
Saleem Muqaddam
----------------------------------------
David Howe
----------------------------------------
Noelle Cournoyer
----------------------------------------
John Weber
----------------------------------------
David Kolb
----------------------------------------
Robert Pokelwaldt
----------------------------------------
Ann P. McDowell
----------------------------------------
James W. Stevens
</TABLE>
G-7
<PAGE>
<TABLE>
<S> <C> <C>
----------------------------------------
Gerald Loeb
----------------------------------------
Thomas C. Weaver
----------------------------------------
Edward T. Murphy
----------------------------------------
Shojiro Makino
----------------------------------------
Tom Gavin
----------------------------------------
John Rastetter
----------------------------------------
Etienne Igersheim
----------------------------------------
Hugues Serain
----------------------------------------
Reto Buchli
----------------------------------------
Michael M. Yang
----------------------------------------
Ted Miller
----------------------------------------
Rai Wenk-Wolff
----------------------------------------
Terence Smith
----------------------------------------
Allan T. Michaud
----------------------------------------
Douglas H. Rich
----------------------------------------
Thomas W. Pietrocini
</TABLE>
G-8
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Connecticut Business Corporation Act, Sections 33-770 to 33-778, inclusive,
and Article 11 of MacDermid, Incorporated (the "Registrant")'s by-laws, contain
provisions authorizing indemnification by the Registrant of directors, officers
and employees of the Registrant against certain liabilities and expenses which
they may incur as directors, officers and employees of the Registrant or of
certain other corporations. Section 33-773 also provides that such
indemnification may include payment by the Registrant of expenses incurred in
defending a proceeding in advance of the final disposition of such proceeding,
upon certain representations being made by such indemnified person as to his or
her good faith belief that he or she has met the relevant standard of conduct
and upon agreement by the person indemnified to repay such payment if he or she
shall be adjudicated not entitled to be indemnified under Sections 33-772,
33-774 or 33-775.
Section 33-777 provides that the Registrant may purchase and maintain
insurance on behalf of an individual who is a director, officer, employee or
agent of the corporation, or who, while a director, officer, employee or agent
of the corporation, serves at the corporation's request as a director, officer,
employee or agent of another entity against liability asserted against or
incurred by such person in such capacity, whether or not the corporation would
have power to indemnify or advance expenses to him against the same liability
under Sections 33-770 to 33-778 inclusive. The Registrant maintains an officer's
and director's liability insurance policy.
ITEM 21. EXHIBITS.
See the Exhibit Index immediately preceding the exhibits attached hereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-1
<PAGE>
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions of the Connecticut Business Corporation
Act and the registrant's certificate of incorporation and by-laws, or otherwise,
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or a controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Waterbury, State of Connecticut, on the 3rd day of
November, 1999.
<TABLE>
<S> <C> <C>
MACDERMID, INCORPORATED.
By: /s/ DANIEL H. LEEVER
----------------------------------------
Daniel H. Leever
Chief Executive Officer
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ HAROLD LEEVER,*
------------------------------------------- Chairman Emeritus November 3, 1999
Harold Leever Director
/s/ DANIEL H. LEEVER Chairman of the Board
------------------------------------------- Chief Executive Officer November 3, 1999
Daniel H. Leever Director
/s/ R. NELSON GRIEBEL,* President, Chief
------------------------------------------- Operating Officer November 3, 1999
R. Nelson Griebel Director
/s/ DONALD G. OGILVIE,*
------------------------------------------- Director November 3, 1999
Donald G. Ogilvie
/s/ JAMES C. SMITH,*
------------------------------------------- Director November 3, 1999
James C. Smith
/s/ THOMAS W. SMITH,*
------------------------------------------- Director November 3, 1999
Thomas W. Smith
</TABLE>
<TABLE>
<S> <C>
*By: /s/ DANIEL H. LEEVER
Daniel H. Leever
ATTORNEY-IN-FACT
POWER OF ATTORNEY HAS BEEN
FILED WITH THIS REGISTRATION
STATEMENT
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
+2.1 Plan and Agreement of Merger dated as of February 18, 1999,
by and among MacDermid, Incorporated, MCD Acquisition
Corp., PTI, Inc. and Citicorp. Venture Capital, Ltd.
++2.2 First Amendment to Plan and Agreement of Merger dated as of
July 27, 1999 by and among MacDermid, Incorporated, MCD
Acquisition Corp., PTI, Inc. and Citicorp Venture Capital,
Ltd.
**2.3 Second Amendment to Plan and Agreement of Merger dated as of
September 13, 1999 by and among MacDermid, Incorporated,
MCD Acquisition Corp., PTI, Inc. and Citicorp Venture
Capital, Ltd.
***2.4 Third Amendment to Plan and Agreement of Merger dated as of
October 29, 1999 by and among MacDermid, Incorporated, MCD
Acquisition Corp., PTI, Inc. and Citicorp Venture Capital,
Ltd.
+++3.1 Restated Certificate of Incorporation of MacDermid,
Incorporated amended as of December 1, 1997
+++3.2 By-Laws of MacDermid, Incorporated amended as of February
12, 1997
*5 Opinion of Nutter, McClennen & Fish, LLP
*8.1 Opinion of Nutter, McClennen & Fish, LLP with respect to
certain tax matters
*8.2 Opinion of Kirkland & Ellis with respect to certain tax
matters
****10.1 Second Amended and Restated Multicurrency Credit Agreement,
dated as of October 25, 1998, amended and restated
December 15, 1998 and June 15, 1999, among MacDermid,
Incorporated, the banks signatory thereto and Chase
Manhattan Bank, N.A., as Agent
*23.1 Consent of Nutter, McClennen & Fish, LLP (contained in
Exhibits 5 and 8.1)
*23.2 Consent of Kirkland & Ellis (contained in Exhibit 8.2)
*23.3 Consent of KPMG Peat Marwick LLP
*23.4 Consent of PricewaterhouseCoopers LLP / Boston
*23.5 Consent of PricewaterhouseCoopers LLP / U.K.
****24 Power of Attorney
****27 Financial Data Schedule
*99.1 Form of PTI Proxy Card
*99.2 Consent of Joseph M. Silvestri
</TABLE>
- --------------------
* Filed herewith.
** Incorporated by reference from MacDermid's Form 8-K/A filed on
September 27, 1999 with the Securities and Exchange Commission.
*** Incorporated by reference from MacDermid's Form 8-K/A filed on November 2,
1999 with the Securities and Exchange Commission.
****Incorporated by reference from MacDermid's Registration Statement on
Form S-4 (Registration No. 333-86129) declared effective on August 30, 1999
by the Securities and Exchange Commission.
+ Incorporated by reference from the proxy statement -- prospectus,
Appendix A-1.
++ Incorporated by reference from the proxy statement -- prospectus,
Appendix B-1.
+++ Incorporated by reference from MacDermid's 1999 Annual Report on Form 10-K.
<PAGE>
Exhibit 8.1
November 3, 1999
9678-7841
MacDermid, Incorporated
245 Freight Street
Waterbury, CT 06702
Re: REGISTRATION STATEMENT ON FORM S-4, AS AMENDED BY
POST-EFFECTIVE AMENDMENT NO. 1
Ladies and Gentlemen:
We have acted as counsel to MacDermid, Incorporated, a Connecticut
corporation ("MacDermid"), in connection with (i) the Merger, as defined and
described in the Plan and Agreement of Merger dated as of February 18, 1999, as
amended by a First Amendment dated as of July 27, 1999, a Second Amendment dated
as of September 13, 1999 and a Third Amendment dated as of October 29, 1999 (as
so amended, the "Merger Agreement") by and among MacDermid, MCD Acquisition
Corporation, a Delaware corporation ("Merger Subsidiary") and a wholly owned
subsidiary of MacDermid, PTI, Inc., a Delaware corporation ("PTI"), and Citicorp
Venture Capital, Ltd., a New York corporation ("CVC") and (ii) the preparation
and filing of the related Registration Statement on Form S-4, as amended by a
Post-Effective Amendment No. 1 thereto (together, the "Registration Statement"),
which includes the Joint Proxy Statement-Prospectus (the "Proxy Statement"),
filed with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended. Unless otherwise indicated, each capitalized
term used herein has the meaning ascribed to it in the Merger Agreement.
In connection with this opinion, we have examined the Merger Agreement,
the Proxy Statement and such other documents as we have deemed necessary or
appropriate in order to enable us to render this opinion. For purposes of this
opinion, we have assumed (i) the validity and accuracy of the documents that we
have examined, (ii) that the Merger will be consummated in the manner described
in the Merger Agreement and the Proxy Statement, and (iii) that the
representations made and the representations to be made by MacDermid and the
Merger Subsidiary pursuant to Section 5 of the Merger Agreement, PTI pursuant to
Section 3 of the Merger Agreement, CVC pursuant to Section 4 of the Merger
Agreement, and the officers of each of the aforementioned entities pursuant to
certain respective officer's
<PAGE>
MacDermid, Incorporated
November 3, 1999
Page 2
certificates, are and will be accurate and complete. In rendering our opinion,
we have considered the applicable provisions of the Internal Revenue Code of
1986, as amended (the "Code"), Treasury Department regulations promulgated
thereunder, pertinent judicial authorities, interpretive rulings of the Internal
Revenue Service (the "Service") and such other authorities as we have considered
relevant. It should be noted that statutes, regulations, judicial decisions and
administrative interpretations are subject to change at any time (possibly with
retroactive effect). A change in the authorities or the inaccuracy of any of the
documents or assumptions on which our opinion is based could affect our
conclusions.
Based solely upon the foregoing, in our opinion, the Merger will be
treated for Federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code and MacDermid, Merger Subsidiary and PTI will each
be a party to the reorganization within the meaning of Section 368(b) of the
Code, and accordingly, for Federal income tax purposes:
(i) No gain or loss will be recognized by MacDermid or PTI as a
result of the Merger; and
(ii) There will be no Federal income tax consequences arising from
the Merger due solely to status as a MacDermid shareholder
prior to the Merger.
The preceding are all of the material U.S. Federal income tax
consequences of the Merger to MacDermid and shareholders of MacDermid. Our
opinion does not address, however, Federal income tax consequences which may
vary with, or are contingent upon, a shareholder's individual circumstances. In
addition, our opinion does not address any non-income tax or any foreign, state
or local tax consequences of the Merger.
This opinion is furnished to you solely for use in connection with the
Merger, as described in the Merger Agreement and the Proxy Statement, and is not
to be used, circulated, quoted or otherwise referred to for any other purpose
without our express written permission. In accordance with the requirements of
Item 601(b)(23) of Regulation S-K under the Securities Act, we hereby consent to
the discussion of this opinion in the Proxy Statement, to the filing of this
opinion as an exhibit to the Registration Statement, and to the reference to our
firm under the headings "MERGER TRANSACTION - Material Federal Tax Consequences
of the Merger to MacDermid Shareholders," "MERGER AGREEMENT - Conditions to the
Merger" and "LEGAL MATTERS" in the Proxy Statement. In giving such consent, we
do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations of
the SEC thereunder.
Very truly yours,
/s/ Nutter, McClennen & Fish, LLP
NUTTER, MCCLENNEN & FISH, LLP
<PAGE>
Exhibit 23.1
(617) 439-2000
November 3, 1999
MacDermid, Incorporated
245 Freight Street
Waterbury, CT 06702
Ladies and Gentlemen:
Reference is made to Post-Effective Amendment No. 1 to the Registration
Statement on Form S-4 (Reg. No. 333-86129) and the Proxy Statement-Prospectus
constituting a part thereof (as amended, the "Registration Statement"), which
MacDermid, Incorporated, a Connecticut company (the "Company"), has filed with
the Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to up to 7,127,000 shares
of the Company's Common Stock, no par value (the "Common Stock").
We have acted as counsel for the Company in connection with the
Registration Statement. We have examined original or certified copies of the
Restated Certificate of Incorporation of the Company and all amendments thereto,
its By-laws, as amended, the corporate records of the Company to the date
hereof, certificates of public officials and such other documents, records and
materials as we have deemed necessary in connection with this opinion letter.
Based upon the foregoing, and in reliance upon information from time to
time furnished to us by the Company's officers, directors and agents, we are of
the opinion that under Connecticut law the shares of Common Stock to be issued
by the Company, when issued upon the terms described in the Registration
Statement, will be duly and validly issued, fully paid and non-assessable.
It is understood that this opinion letter is to be used in connection
with the offer and sale of the aforesaid shares only while the Registration
Statement is effective as so amended and as it may be amended from time to time
as contemplated by Section 10(a)(3) of the Securities Act.
<PAGE>
MacDermid, Incorporated
November 3, 1999
Page 2
We understand that this opinion letter is to be used in connection with
the Registration Statement, as finally amended, and hereby consent to the filing
of this opinion letter with and as a part of the Registration Statement as so
amended, and to the reference to our firm in the Prospectus under the heading
"Legal Matters." In giving such consent, we do not thereby admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the SEC thereunder.
Very truly yours,
/s/ Nutter, McClennen & Fish, LLP
Nutter, McClennen & Fish, LLP
MKK/AJM2
<PAGE>
EXHIBIT 23.2
To Call Writer Directly:
(212) 446-4800
November 3, 1999
PTI, Inc.
c/o Polyfibron Technologies, Inc.
900 Middlesex Turnpike
Billerica, MA 01821-3946
Re: Registration Statement on Form S-4
Dear Ladies and Gentlemen:
We have acted as counsel to PTI, Inc., (the "COMPANY"), a
Delaware corporation, with respect to (i) the merger with and into the Company
of MCD Acquisition Corp. ("MACDERMID SUB"), a Delaware corporation and direct
wholly-owned subsidiary of MacDermid, Incorporated, a Connecticut corporation
("MACDERMID"), pursuant to that certain Agreement and Plan of Merger by and
among the Company, Citicorp Venture Capital, Ltd., MacDermid Sub and MacDermid,
dated February 18, 1999, as amended by a First Amendment dated as of July 27,
1999, by a Second Amendment dated as of September 13, 1999 and by a Third
Amendment dated as of October 29, 1999 (as so amended, the "MERGER AGREEMENT",
and such transaction, the "MERGER"), (ii) the preparation and filing of the
related Registration Statement on Form S-4, dated August 30, 1999 (the
"REGISTRATION STATEMENT"), which includes the Joint Proxy Statement- Prospectus
(the "PROXY STATEMENT"), filed with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and
the Securities Exchange Act of 1934, as amended, and (iii) the preparation and
filing of Post-Effective Amendment No. 1 to the Registration Statement,
including a revised Proxy Statement (the "REVISED PROXY STATEMENT"), filed with
the SEC under the Securities Act. Defined terms used herein shall have the
meaning ascribed to such terms in the Merger Agreement, unless otherwise
specified.
In connection with rendering our opinion, we have examined the
Merger Agreement, the Proxy Statement, the Revised Proxy Statement and such
other documents as we have determined to be necessary for purposes of this
opinion. In addition, with your permission, we have examined and relied upon
certain Officers' Certificates of the Company, MacDermid and MacDermid Sub,
copies of which are attached hereto as Exhibits A, B and C (the "OFFICERS'
CERTIFICATES"). Our opinion is conditioned on, among other things, the initial
and continuing
<PAGE>
PTI, Inc.
November 3, 1999
Page 3
accuracy of the facts, information, covenants and representations set forth in
the Merger Agreement and other documents referred to above. We have assumed the
genuineness of all signatures, the legal capacity of natural persons, and that
the person who affixed such signature to such documents had authority to do so.
Moreover, we have assumed the accuracy of all information contained in the
documents described above, but have not made any independent inquiry with regard
thereto. We have assumed the authenticity of all documents submitted to us as
originals, and the conformity to original documents of all documents submitted
to us as certified, telecopied or photostatic copies. We also have assumed that
the Merger will be consummated in the manner contemplated by the Merger
Agreement and as described in the Proxy Statement and the Revised Proxy
Statement.
In rendering our opinion, we have considered the current
provisions of the Internal Revenue Code of 1986, as amended (the "CODE"),
Treasury regulations (proposed, temporary and final) promulgated thereunder,
judicial decisions and Internal Revenue Service rulings, all of which are
subject to change, which changes may be retroactively applied. A change in the
authorities upon which our opinion is based could affect our conclusions.
Moreover, there can be no assurance that any of the opinions expressed herein
will be accepted by the Internal Revenue Service or, if challenged, by a court.
Based solely upon the foregoing, in our opinion:
1. The Merger will be treated for federal income tax
purposes as a reorganization within the meaning of
Section 368(a) of the Code, and MacDermid, MacDermid
Sub and the Company will each be a party to the
reorganization within the meaning of Section 368(b)
of the Code.
2. No gain or loss will be recognized by the Company as
a result of the Merger.
3. A shareholder of the Company will not recognize
taxable gain or loss on the exchange of stock of the
Company for MacDermid common stock in the Merger,
except in respect of cash received instead of
fractional shares or as a consequence of the exercise
of appraisal rights.
4. A shareholder of the Company will recognize gain or
loss with respect to cash received instead of a
fractional share of MacDermid common stock, measured
by the difference between the amount of cash received
and the portion of the tax basis of the shareholder's
share(s) of Company stock allocable to the fractional
share. Such gain or loss will be capital gain or loss
if the holder of Company stock holds such stock as a
capital asset
<PAGE>
PTI, Inc.
November 3, 1999
Page 4
within the meaning of Section 1221 of the Code, and
such capital gain or loss will be long-term if the
shareholder's holding period in the Company stock
exchanged for cash in lieu of the fractional share is
more than one year at the time of the Merger.
5. A shareholder of the Company who, as a result of
exercising appraisal rights, receives solely cash in
exchange for the shareholder's shares of Company
stock will recognize gain or loss with respect to the
cash received, measured by the difference between the
amount of cash received and the tax basis of the
shareholder's shares of Company stock surrendered.
Such gain or loss will be capital gain or loss if the
shareholder holds such shares as a capital asset
within the meaning of Section 1221 of the Code, and
such capital gain or loss will be long-term if the
shareholder's holding period in such shares is more
than one year at the time of the Merger.
6. The tax basis of MacDermid common stock received by a
Company shareholder in the Merger will be the same as
the tax basis of the Company stock surrendered by the
shareholder in the Merger, reduced by any portion of
such basis allocable to a fractional share interest
for which cash is received.
7. The holding period of the MacDermid common stock that
a Company shareholder receives in the Merger will
include the holding period of the Company stock
exchanged therefor, provided that the shareholder
holds the Company common stock as a capital asset at
the time of the Merger.
You have not requested, and we do not express, an opinion concerning any other
tax consequences of the Merger, including without limitation any tax
consequences of the Merger under state, local or foreign law. Our opinion also
does not address U.S. federal income tax consequences which may vary with, or
are contingent upon, a shareholder's individual circumstances (including as a
result of a Company shareholder or certain related persons owning MacDermid
common stock other than as a result of the Merger).
This opinion is furnished to you solely for use in connection
with the Merger, as described in the Merger Agreement, the Proxy Statement, and
the Revised Proxy Statement, and is not to be used, circulated, quoted or
otherwise referred to for any other purpose without our
<PAGE>
PTI, Inc.
November 3, 1999
Page 5
express written permission. In accordance with the requirements of Item
601(b)(23) of Regulation S-K under the Securities Act, we hereby consent to the
discussion of this opinion in the Revised Proxy Statement, to the filing of this
opinion as an exhibit to the Revised Proxy Statement, and to the reference to
our firm under the headings "MERGER TRANSACTION Material Federal Tax
Consequences of the Merger to PTI Shareholders", "MERGER AGREEMENT - Conditions
to the Merger", and "LEGAL MATTERS" in the Revised Proxy Statement. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act or the rules and
regulations of the SEC thereunder.
Very Truly Yours,
/s/ Kirkland & Ellis
Kirkland & Ellis
<PAGE>
Exhibit 23.3
[LOGO]
CityPlace II
Hartford, CT 06103-4103
The Board of Directors
MacDermid, Incorporated:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
KPMG LLP
Hartford, Connecticut
November 3, 1999
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Proxy Statement of MacDermid,
Incorporated of our report dated March 19, 1999 relating to the financial
statements of PTI, Inc., which appear in such Proxy Statement. We also
consent to the references to us under the headings "Experts" in such Proxy
Statement.
Boston, MA
November 3, 1999 /s/ PricewaterhouseCoopers LLP
--------------------------------
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Proxy Statement
of MacDermid, Incorporated of our report on W. Canning plc dated 18 March
1998, except for note 28 which is as of 8 June 1999, appearing in such Proxy
Statement. We also consent to the references to us under the headings
"Experts" in such proxy Statement.
3 November 1999
Birmingham, England /s/ PricewaterhouseCoopers
----------------------------
<PAGE>
IRREVOCABLE IRREVOCABLE
PROXY PTI, INC. PROXY
This Irrevocable Proxy is Solicited on Behalf of the Board of Directors
Irrevocable Proxy for Special Meeting of Stockholders
to be held December 14, 1999
The undersigned, having received the Notice of Special Meeting and
accompanying Joint Proxy Statement--Prospectus, hereby appoint(s) Thomas
Weaver and David Beckerman, and each of them, Proxies of the undersigned
(with full power of substitution) to attend the above Special Meeting of
Shareholders and all adjournments thereof (the "Meeting"), and there to vote
all shares of common stock, no par value, of PTI, Inc. that the undersigned
would be entitled to vote, if personally preset, in regard to all matters
which may come before the Meeting.
The undersigned hereby confer(s) upon the Proxies, and each of them,
discretionary authority to consider and act upon such business, matters or
proposals other than the proposal set forth below as may properly come before
the Meeting. THIS IRREVOCABLE PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN
THE MANNER SPECIFIED HEREIN. IF NO SPECIFICATION IS MADE THE PROXIES INTEND
TO VOTE FOR ITEM 1.
This Irrevocable Proxy and all authority conferred hereby, to the extent
enforceable by law, shall be deemed coupled with an interest and irrevocable
and not subject to termination by the undersigned or by operation of law,
whether by the death or incapacity of the undersigned or by the occurrence of
any other event.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE)
- ------------------------------------------------------------------------------
<PAGE>
PTI, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. O
The Board of Directors of PTI, Inc. recommends a vote FOR Item 1.
1. Proposal to approval and adopt the Plan and For Against Abstain
Agreement of Merger dated as of February 18, O O O
1999, as amended as of July 27, 1999,
September 13, 1999 and October 29, 1999 by
and among MacDermid Incorporated, a Connecticut
corporation, MCD Acquisition Corp., a Delaware
Corporation, PTI, Inc., a Delaware corporation,
and Citicorp Venture Capital, Ltd., a New York
corporation.
Dated: _____________________, 1999
Signature(s)____________________________________
________________________________________________
In signing, please write name(s) exactly as
appearing in the imprint on this card. For shares
held jointly, each joint owner should sign. If
signing as executor, or in any other
representative capacity, or as an officer of a
corporation, please indicate your full title as
such.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
<PAGE>
Exhibit 99.2
CONSENT OF JOSEPH M. SILVESTRI
I hereby consent to my inclusion as a prospective director of MacDermid,
Incorporated and to the use in this Proxy Statement -- Prospectus of
MacDermid, Incorporated of my name and information which appears relating
to me under the headings "Summary -- Executive Officers and Directors of
MacDermid After the Merger" and "Executive Officers and Directors of
MacDermid After the Merger."
/s/ Joseph M. Silvestri
- -----------------------
Joseph M. Silvestri
November 2, 1999
