SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997 Commission File No. 0-12948
CHEMFAB CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 03-0221503
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
701 DANIEL WEBSTER HIGHWAY
P.O. BOX 1137
MERRIMACK, NEW HAMPSHIRE 03054
(Address of principal executive offices) (Zip Code)
AREA CODE (603) 424-9000
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.10 par value
Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Registrant's voting stock held by non-
affiliates of the Registrant at August 11, 1997 was approximately $158 million.
7,998,537 shares of the Registrant's common stock, $.10 par value, were
outstanding on August 11, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the 1997 Annual Meeting of Shareholders of the
Registrant to be held on October 30, 1997. Certain information therein is
incorporated by reference into Part III hereof.
PART I
ITEM 1 BUSINESS
CHEMFAB CORPORATION, together with its consolidated subsidiaries
(hereinafter, the Company), is an international manufacturer and marketer of
engineered products based on its expertise and technology in polymeric composite
materials. Relative to alternative materials, the Company's polymer-based
composite materials exhibit an outstanding range and combination of performance
properties, including superior thermal, chemical, electrical and surface release
properties, retention of flexibility-in-use, mechanical strength, and other
performance properties tailored to the requirements of particular applications.
The majority of the Company's composite materials are made by embedding woven
glass fiber into a fluoropolymer resin matrix. The Company also produces and
sells specialty fluoropolymer films and silicone-based products. Worldwide end-
use applications for the Company's products are in electrical, environmental,
food processing, architectural, aerospace, communications, laboratory test,
protective systems, and other industrial markets. The Company operates in one
business segment.
The Company's principal executive offices are located at 701 Daniel
Webster Highway, P.O. Box 1137, Merrimack, New Hampshire 03054; its telephone
number is (603) 424-9000. Unless the context indicates otherwise, the term
"Company" in this Form 10-K refers to Chemfab Corporation, a Delaware
corporation, as well as its predecessor company incorporated in 1968, and its
consolidated subsidiaries.
The Company is organized into three geographically focused business units:
(1) the Americas Business Group (North America and South America), (2) the
European Business Group (Europe, India, the Middle East and Africa), and (3) the
Asia Pacific Business Group (the Far East). Each is principally responsible for
all business operations conducted in its geographic territory, except that the
Americas Business Group is responsible for architectural product sales
worldwide.
PRODUCTS
The Company has two principal product groups: Engineered Products and
Architectural Products. Sales of Engineered Products are reported separately
for Americas Sourced sales and Europe Sourced sales (see "Comparative Sales by
Product Group" on page 5) because they represent the activities of different
marketing and manufacturing organizations within the Company; however, the
products manufactured at each location are generally similar, and rely
principally on the performance properties of the Company's fluoropolymer-
containing composite materials, as described above and below, to create value-
in-use. No Asia Pacific Sourced sales are reported because the manufactured
materials which comprise products sold into the Far East are sourced, at
present, from the Company's U.S. and European manufacturing plants and, as such,
are reflected in those other categories.
Engineered Products - Americas Sourced sales include all non-architectural
product sales from the Company's U.S. manufacturing plants. These sales are
made primarily to customers in the Americas and the Far East. Engineered
Products - Europe Sourced sales include all sales from the Company's European
manufacturing plants and are made primarily to customers in Western Europe,
Africa, the Middle East and the Far East. All architectural membrane products
are manufactured in the United States and are reported as a separate component
of revenue.
ENGINEERED PRODUCTS. Engineered Products, whether manufactured in the
United States or Europe, consist of a broad range of polymer-based composite
materials which are generally characterized by their exceptional ability to
withstand high temperatures, corrosive chemicals and other harsh conditions, and
by their excellent surface release properties. These products are generally
used in industrial applications involving severe service environments, but some
communications and protective systems products are sold to the U.S. Government
and have their own unique performance properties. The majority of the
Engineered Products sold by the Company are comprised of woven fiberglass or
other high-strength fibrous reinforcements coated or laminated with formulations
of polytetrafluoroethylene (PTFE) or other fluoropolymer resins. By designing
variations in the reinforcements and the coatings, the Company has engineered
many products with specific performance characteristics. The combination of
fluoropolymer resins and reinforcing fibers provide the resultant composite
materials with performance properties far surpassing those of the separate
component materials contained therein.
The Company's engineered products are sold into a number of specific
markets and the polymer-based composite materials of which they are comprised
are tailored accordingly to satisfy specific requirements of the product in-use.
Selected examples of typical engineered products and their markets are described
below:
Energy/Environmental Market - The Company's DARLYN(R) Chemical
Resistant Membrane is used for expansion joints at power generating
stations and in chemical processing plants to provide extended life to
flexible joints which are exposed to highly corrosive flue duct
condensates and gases at varying temperatures. In addition, the
Company manufactures a similar corrosion resistant composite which is
fabricated into floating roof seals to retard evaporation from above-
ground petroleum bulk storage tanks.
Food Processing Market - The Company manufactures and sells a broad
range of high temperature conveyor belts and grilling release sheets
used in commercial cooking applications and quick service restaurants.
These products rely on the excellent release properties of PTFE
required by the food processing industry for use in high-temperature
cooking.
Communications Market - The Company manufactures planar
electromagnetic windows, utilizing its RAYDEL(R) Microwave
Transmissive Composite, for commercial microwave communications. It
also designs and manufactures spherical radomes for radar and high
frequency satellite communications which are sold primarily under
government prime and subcontracts. These products rely on low signal
loss over a wide range of frequencies, and outstanding hydrophobicity,
which results in minimal signal loss even in adverse weather
conditions.
Lab Test/Biomedical Market - The Company manufactures a comprehensive
product line of high performance elastomeric closures for use in gas
and liquid chromatography, environmental testing and the packaging and
storage of sterile biomedical culture media. The products, sold under
the MICROSEP(R) and MICROLINK(R) trademarks, are based upon a
combination of fluoropolymer and silicone elastomer processing
technology. The performance of these products relies on the purity,
inertness and physical integrity of fluoropolymer films, in
combination with the elastomer properties of silicone, to create
closures capable of containing the most sensitive chemicals and
samples without risk of sample contamination or seal degradation.
In addition to these specific examples of products which rely on the
highly tailored performance properties of the Company's polymer-based composite
materials, the Company sells fiber-reinforced composite materials primarily in
the form of belting products, to customers in the packaging, textile, floor
covering and other industries which use the products as consumable processing
aids in their manufacturing processes. The Company also sells fiber-reinforced
composite materials and fluoropolymer films in roll stock form to end users and
distributors for use in a variety of industries where severe service
environments exist.
ARCHITECTURAL PRODUCTS. The Company has developed and markets a line of
Architectural Products under the names SHEERFILL(R) Architectural Membrane,
ULTRALUX (TM) Architectural Membrane and FABRASORB(R) Acoustical Membrane.
These products are made of PTFE coated fiberglass composite materials that are
strong, translucent, fire resistant, self cleaning and long-lived. SHEERFILL(R)
and ULTRALUX (TM) are typically used as primary structural components in roof
systems and large skylights for athletic facilities, walkways, entrance
canopies, convention centers and specialty events structures. The most visible
and cost effective applications for these products are as roofing and
skylighting systems covering large domed stadiums and transportation terminals.
An example of such a roofing application is the main terminal building at the
Denver International Airport. FABRASORB(R) is used inside such structures as a
sound dampener and/or decorative liner.
Since the inception of the permanent membrane structures business in 1973,
establishing and maintaining a reliable delivery system to install permanent
membrane structures has been a key element of the Company's strategy to develop
the market. Principally for this purpose, over the past twenty years, the
Company has held equity positions in several companies that design, fabricate,
and install permanent membrane structures. Throughout this period, however, the
Company's primary focus has been on establishing itself as the world leader in
the development, manufacture and sale of architectural membrane products.
As part of the market development strategy described above, the Company
has participated in two corporate joint ventures. In 1985, the Company formed a
corporate joint venture, now named Birdair, Inc. (Birdair), to provide
design/engineering, fabrication and installation support services related to
permanent membrane structures. Effective March 27, 1992, the Company sold its
47.5% equity interest (and 50% voting interest) in this venture to Taiyo Kogyo
Corporation (Taiyo), which owned the other 50% voting interest at that time. As
part of the transaction, the Company and Taiyo entered into a 10-year supply
agreement pursuant to which the Company continues to be Birdair's exclusive
supplier of architectural membrane products for permanent fabric structure
projects undertaken by Birdair throughout the world.
Also in 1985, the Company, together with Nitto Denko Corporation (Nitto
Denko) and Taiyo, formed a joint venture company in Japan, Nitto Chemfab Co.,
Ltd. (Nitto Chemfab), for the purpose of manufacturing and selling architectural
and industrial products into the Japanese market. As a result of changes in
economic conditions since the joint venture was established, and amendments to
its governing agreements, Nitto Chemfab's business activities are now generally
limited to promoting architectural membrane products in the Japanese market and
providing related customer service and support. Nitto Chemfab is 39% owned by
the Company, with the remainder owned 51% and 10% by Nitto Denko and Taiyo,
respectively (see Note 13 of Notes to Consolidated Financial Statements).
SALES AND MARKETING
The Company sells its Engineered Products primarily through direct sales
efforts in the United States, supplemented by commissioned representatives and
distributors as necessary in the United States and in the Far East. In Europe,
the Company sells such products primarily through distributors in its major
markets, except in the UK and Spain where it maintains its own direct sales
force. Architectural Products are sold pursuant to supply agreements with
Birdair, Taiyo, and a customer in Australia. The Company's sales and marketing
personnel strive to understand their customers' businesses and respond to their
specific applications' needs by drawing from the Company's materials, weaving,
coating, film manufacturing, laminating, design engineering, fabricating and
installation capabilities and technologies.
<TABLE>
<S><C>
COMPARATIVE SALES BY PRODUCT GROUP
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands)
Engineered Products - Americas Sourced $48,978 $41,436 $38,962 $34,008 $31,868
Engineered Products - Europe Sourced 32,061 29,710 20,833 13,882 12,527
Architectural Products 9,744 12,736 8,185 4,261 6,541
------- ------- ------- ------- -------
$90,783 $83,882 $67,980 $52,151 $50,936
======= ======= ======= ======= =======
</TABLE>
MAJOR PRODUCT SALES
Sales of grilling release sheets and belting products used in the food
processing industry accounted for 12%, 11% and 13% of the Company's fiscal 1997,
1996 and 1995 sales, respectively. Also see Note 12 of Notes to Consolidated
Financial Statements.
MANUFACTURING
The Company's manufacturing processes include the weaving of fibrous
reinforcing materials, the application of formulated coatings to reinforcements,
the production of multi-layer films, and the combination of such materials as
multi-layer composites by lamination. The Company's manufacturing processes
also include extrusion and precision calendering of silicone elastomers.
Woven reinforcements are manufactured in widths up to fifteen feet, as
well as in narrower formats of specialty design. The mechanical performance of
coated or laminated composites is substantially a function of the uniformity and
quality of such reinforcements. The Company's Merrimack, New Hampshire facility
is believed to be uniquely adapted to the manufacture of such fibrous
reinforcements at the high level of quality required for their use in structural
composite materials.
Coatings are produced from aqueous formulations of fluoropolymer resins in
the Company's North Bennington, Vermont, Merrimack, New Hampshire, Kilrush,
Ireland and Littleborough, England facilities, employing equipment and control
systems substantially designed and installed by the Company.
Specialty fluoropolymer films are produced at the Company's Merrimack, New
Hampshire facility utilizing the Company's proprietary casting process and other
related processes. Lamination of fluoropolymer-containing materials is
performed in the Merrimack facility and in the Company's Kilrush, Ireland
facility.
High performance elastomeric closures (septa and cap liners) are produced
in the Company's Poestenkill, New York facility. Precision calendered
extrusions of silicone elastomers, often laminated to specialty fluoropolymer
films, are fabricated into a wide variety of closure parts. Thermal welding of
liners into plastic caps is performed utilizing the Company's proprietary
MICROLINK(R) technology.
Design/engineering and fabrication of end-use articles are primarily
carried out at the Company's Merrimack, New Hampshire facility. Light
fabrication of conveyor belts, food processing release sheets and other products
is also performed at the Company's North Bennington, Vermont, Schaumburg,
Illinois, Kilrush, Ireland, Littleborough, England, Valencia, Spain, Suzhou,
China and Sao Paulo, Brazil facilities. The Company designs and builds
substantially all of the jigs, fixtures, heat sealing machinery and other
equipment required for fabrication.
RAW MATERIALS
The primary raw materials used by the Company in its weaving, coating and
film manufacturing operations are fiberglass yarns, commercially available woven
fiberglass reinforcements, and fluoropolymers (principally PTFE). The
fiberglass yarns are supplied principally by Owens Corning (OC) and PPG
Industries, Inc. Alternative sources of supply are available for all the
Company's key raw materials, except for Beta(R) fiberglass yarn (Beta) used in
the manufacture of certain structural membrane products, which is supplied to
the Company solely by OC. Beta(R) is a registered trademark of OC. For such
Beta yarn, OC has agreed to give the Company at least two years advance notice
prior to any discontinuance of production and supply (see below).
In March 1997, OC informed the Company of its intent to cease supplying
Beta to all of its customers and, more specifically, to the Company effective
March 31, 1999 pursuant to the above-described two year notice requirement.
Concurrently, the Company entered into an agreement with OC aimed at the
development by OC, over the remaining Beta supply period, of a new continuous
filament fiberglass yarn to replace Beta in those products wherein Beta has been
utilized. A related objective of this collaborative effort is for such new
glass fiber to also provide, relative to Beta, improved cost/performance for the
benefit of the Company and enhanced production efficiencies for the benefit of
OC. Based on development work conducted to date, management is optimistic that
this development program will be successful. Nevertheless, over the remaining
Beta supply period, the Company may inquire about, and attempt to contract for,
alternative sources of supply of Beta-type fiberglass yarn.
Subject to the foregoing, the Company believes that it maintains adequate
inventories and close working relationships with its suppliers to provide for a
continuous and adequate supply of raw materials for production. The Company has
not experienced any serious interruptions in production due to a shortage of raw
materials.
BACKLOG
The Company's backlogs, comprised of firm orders or unfilled portions
thereof, at the dates indicated were as follows:
At June 30,
--------------------------------------------
(in thousands)
1997 1996 1995
---- ---- ----
Engineered Products - Americas Sourced $10,149 $ 8,172 $ 6,157
Engineered Products - Europe Sourced 2,993 3,117 2,880
Architectural Products 1,670 2,192 3,794
------- ------- -------
$14,812 $13,481 $12,831
======= ======= =======
Included in the June 30, 1997 backlog is approximately $4,553,000
attributable to United States Government prime contracts and subcontracts. All
United States Government contracts, whether funded or unfunded, can be
terminated or curtailed at the convenience of the Government.
The Company expects to recognize as revenue in fiscal 1998 virtually all
of its June 30, 1997 backlog.
OTHER
In addition to normal business risks, operations outside the United States
are subject to other risks including: the political, economic and social
environment; governmental laws and regulations; and currency revaluations and
fluctuations.
RESEARCH AND DEVELOPMENT
Fiscal 1997 expenditures for Company-sponsored research and development
were $2,498,000, representing approximately 2.8% of consolidated net sales, an
amount which management believes was sufficient to support continuing new
product and process development. Comparable expenditures in 1996 and 1995 were
$2,270,000 and $2,047,000, respectively, which represented approximately 3% of
consolidated net sales in both years.
During fiscal 1997, the Company's research efforts were devoted to the
development of: next-generation composite wire insulation products to serve the
airframe wiring market; new PTFE/elastomer laminates for the laboratory-test and
bio-medical care markets; and high light-transmission architectural membrane
products for the construction industry. A significant effort was also initiated
in fiscal 1997 directed at developing fluoroelastomer products targeted at
fluid-handling and sealing applications in the electronic and automotive
markets. Resources were also committed to improvements in pressure sensitive
adhesive tapes for the packaging industry and in laminates and belting products
for food processing applications.
COMPETITION
The Company believes that the integration of its materials and processing
technologies represents a significant factor in its competitive position. The
Company also competes on the basis of technological suitability, quality and
price of its products, its ability to meet individual customer specifications,
and the quality of technical assistance and service furnished to customers.
The majority of the Company's engineered products are comprised of the
Company's fluoropolymer-containing composite materials and specialty
fluoropolymer films. These materials are manufactured through the application
of a number of different production processes, including custom fiber
reinforcement weaving, fluoropolymer coating, fluoropolymer film casting, and
fluoropolymer film lamination. In the area of fluoropolymer coated composites,
the Company has three major and several smaller competitors worldwide in a
relatively mature marketplace. The Company believes that it is the market
leader in both the United States and Europe in the majority of product lines
based on this production methodology. The Company's multi-layer fluoropolymer
films and products made from fluoropolymer film laminates are based on
proprietary technologies and, accordingly, there is no significant competition
worldwide which utilizes the same process technologies. These products do,
however, compete with other valued products comprised of similar and dissimilar
materials.
In the area of high performance elastomeric closures, the Company has four
major and several smaller competitors worldwide.
None of the Company's competitors have the same breadth of offering in
these specialty niches, and the Company believes it is the global leader in the
principal markets where it competes. The Company's fluoropolymer-containing
composite materials are also fabricated into end-use products. The Company
believes that these fabricated articles, which include chemical protective
suits, spherical radomes, and military shelters, compete favorably against
products manufactured from other materials.
The Company believes that its architectural membrane products, which are
sold through supply agreements with Birdair, Taiyo, and a customer in Australia,
have a worldwide leadership position in the market for permanent membrane
structures. The Company believes its leadership position in this field is the
result of its expertise in wide-width weaving and coating, coupled with the
expertise of its customers in the design/engineering and installation of
permanent membrane structures. SHEERFILL(R) Architectural Membrane and ULTRALUX
(TM) Architectural Membrane products compete with alternative construction
materials, and with permanent architectural membrane materials manufactured by
other companies.
PATENTS AND TRADEMARKS
The Company holds numerous patents covering manufacturing processes and
product compositions. In addition, the Company has several patent applications
on file, including applications related to specific end-uses for its products.
Additionally, a notice of allowance was received for two patents in fiscal
1997. The first, from the United States Patent Office, related to the use of a
fluoropolymer-based composite for use in air-distribution systems. The second,
from the European Patent Office, related to the use of a fluoropolymer-based
laminate in structural applications. During fiscal year 1997, the Company also
filed a patent application in the U.S. and Japan for a high light-transmission
architectural membrane product and is in the process of filing in Europe. In
addition, a trademark application for ULTRALUX (TM) Architectural Membrane has
been filed for use with this product. These high light-transmission
architectural membranes are expected to serve markets in sports arena and
stadium applications.
U.S. patents and trademarks, and their foreign counterparts, are key
elements in the Company's strategy to maintain and extend its competitive
position in its markets. The Company also relies on trade secrets and
proprietary know-how in the design and manufacture of its products, and may
license some of those trade secrets and proprietary know-how to others for
certain new products and applications.
ENVIRONMENTAL CONTROLS
Federal, state, local, and foreign governmental requirements relating to
the discharge of materials into the environment, the disposal of hazardous
wastes and other factors affecting the environment have had, and will continue
to have, an impact on the manufacturing operations of the Company (see Item 3
Legal Proceedings). Thus far, the Company believes compliance with such
provisions has been accomplished without material effect on the Company's
capital expenditures, earnings and competitive position, and it is expected that
this will continue to be the case.
EMPLOYEES
At June 30, 1997, the Company had 584 full-time employees.
ITEM 2 PROPERTIES
The sales, marketing, administrative, research and development,
manufacturing and distribution facilities used by the Company and its
subsidiaries are located in four different states within the U.S., and in
Ireland, England, Spain, Japan, Brazil and China. The Company owns an aggregate
of approximately 302,000 square feet of facilities, and leases approximately
149,000 square feet of additional space.
In December 1993, the Company purchased, for approximately $5.3 million in
cash, its Merrimack, New Hampshire headquarters site. The property, which
previously had been occupied under lease, consists of a 170,000 square foot
building and 21 acres of land. At the time of the purchase, the Company also
acquired a 10-year right to purchase an additional 32 acres of adjacent
undeveloped land.
In the opinion of the Company, its properties have been well maintained,
are in sound operating condition, and contain all equipment and facilities
necessary to conduct its business at present levels. A summary of the square
footage of floor space currently being utilized at the Company's facilities at
June 30, 1997 is as follows:
NO. OF
PRIMARY USE LOCATIONS OWNED LEASED(1)
Manufacturing and engineering 9 245,000 122,000
Research and development, 11(2) 57,000 27,000
sales and administrative
office facilities
(1) The lease in the Republic of Ireland is a tenant-at-
will lease; leases in Japan expire in 1997, Spain in
1997, Vermont in 1997, Brazil in 1998, Illinois in 1998,
China in 1999, New York in 1999, and England in 2000.
Leased space in these locations is primarily used for
storage and/or sales and administrative functions.
Principal manufacturing facilities in New Hampshire,
Vermont and Ireland are owned by the Company.
(2) Of the Company's eleven research and development,
sales and administrative office facilities, nine are
located together with manufacturing and engineering
facilities.
ITEM 3 LEGAL PROCEEDINGS
In March 1991, the United States Environmental Protection Agency ("EPA")
informed the Company it was one of a number of Potentially Responsible Parties
("PRPs") under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") and related laws concerning the disposal of hazardous
waste at the Bennington Landfill Superfund Site in Bennington, Vermont (the
"Site"). Under these statutes, PRPs may be jointly and severally liable for the
cost of study and remediation actions at the Site and for other damages. While
denying liability, the Company has worked with the approximately twelve (12)
other Site PRPs to respond to the EPA's claim.
In April 1997, the EPA and the United States Department of Justice ("DOJ")
issued a Consent Decree to resolve Site-related claims against the Company and
the other PRPs. Under terms of the Consent Decree, the Company is a "de
minimis" party, eligible for settlement under section 122 (g) of CERCLA, and
entitled to statutory contribution protection. The Company's contribution to
the settlement is set at $180,000, of which the Company's insurance carriers
have agreed to pay $120,000. The Company executed the Consent Decree on April
10, 1997. Signatures from the necessary government officials have been obtained
by the EPA and the DOJ and the Consent Decree was filed with the United States
District Court for the District of Vermont on July 2, 1997. Assuming no
objections to the Consent Decree are filed, it is anticipated the United States
District Court will give final approval to the Consent Decree by the end of
calendar year 1997.
Upon approval of the Consent Decree by the Court, the Company will have 30
days to make its settlement payment. The Consent Decree provides for the
Company, upon payment of the settlement amount, to receive final convenants from
Federal and State Governments prohibiting those entities from taking further
civil or administrative action against the Company related to the Site, subject
to standard statutory reopeners. The Company is not aware of any other pending
or threatened claims or administrative actions involving the Site, and believes
that any such claims or actions would be unlikely.
The Company is involved in a number of other lawsuits as either a
defendant or a plaintiff. Although the outcome of such matters cannot be
predicted with certainty, and some lawsuits or claims may be disposed of
unfavorably to the Company, management believes that the disposition of its
current legal proceedings, to the extent not covered by insurance, will not have
a material adverse effect on the Company's consolidated financial statements.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1997.
ITEM 4A OFFICERS OF THE COMPANY
The name, age, positions, and offices held with the Company, and principal
occupations and employment during the past five years of each of the Officers of
the Company, are as follows:
NAME AGE POSITION OR OFFICE HELD
Duane C. Montopoli 48 President, Chief Executive Officer
and Director
John W. Verbicky 45 Executive Vice President and Chief
Operating Officer
Michael P. Cushman 44 Vice President - Americas Business
Group
Moosa E. Moosa 40 Vice President - Finance, Treasurer,
and Chief Financial Officer
Thomas C. Platt III 42 Vice President - General Counsel and
Administration and Secretary
Charles Tilgner III 62 Vice President and Director of U.S.
Operations and Engineering
Hilary A. Arwine 37 Corporate Controller
Duane C. Montopoli was elected President and Chief Executive Officer in
January 1987; he had been serving as interim President since June 1986. He
joined the Company as Chief Financial Officer in February 1986. Until January
1990, he was also a partner in Oak Grove Ventures, Menlo Park, California, which
he joined in December 1983. Prior to that time, Mr. Montopoli was employed by
Arthur Young & Company (now Ernst & Young LLP) where he was a general partner
from October 1982 through December 1983. On August 7, 1997, the Company
announced that Mr. Montopoli had informed its Board of Directors of his
intention to terminate his employment with the Company effective on or about
December 31, 1997, while thereafter remaining a director of the Company. John
W. Verbicky has been named to succeed Mr. Montopoli as the Company's President
and Chief Executive Officer (see below).
John W. Verbicky Ph.D. joined the Company in January 1993 as Vice
President - Research & Development. In April 1994, Dr. Verbicky assumed the
position of Vice President - U.S. Business Group, and in March 1996 he was
promoted to the position of Executive Vice President and Chief Operating
Officer. From November 1990 until the commencement of his employment with the
Company, Dr. Verbicky was employed by General Electric (GE) as manager of the
Environmental Technology Laboratory at GE's Research and Development Center. He
previously served as manager of the Chemical Synthesis Laboratory after joining
GE in 1979. In this role, he led a series of research and development teams
focused on product and process development efforts in the area of engineering
thermoplastics and composites supporting the GE Plastics and Silicones
businesses. Concurrent with the announcement of Mr. Montopoli's intention to
terminate his employment with the Company effective on or about December 31,
1997 (see above), the Board of Directors named Dr. Verbicky to succeed Mr.
Montopoli as the Company's President and Chief Executive Officer at that time.
Michael P. Cushman joined the Company in February 1978 as Customer Service
Coordinator. He served in various product and sales management functions and
became Director of the European Business Group in June 1984. In July 1991, he
was named Director of the Asia Pacific Business Group. He assumed leadership of
the Americas Business Group as General Manager in March 1996, and was named Vice
President - Americas Business Group effective July 1997.
Moosa E. Moosa joined the Company as Vice President - Finance, Treasurer
and Chief Financial Officer in July 1996. Prior to joining the Company, Mr.
Moosa was employed by Freudenberg Nonwovens LP as Vice President of Finance &
Chief Financial Officer since 1992. Prior to that time, he worked for KPMG Peat
Marwick, an international public accounting firm, since 1980.
Thomas C. Platt III joined the Company in July 1997 as Vice President -
General Counsel and Administration and Secretary. Prior to joining the Company,
Mr. Platt was a senior level Director and Shareholder at the law firm of Orr &
Reno, P.A. in Concord, New Hampshire. He had worked for Orr & Reno since his
graduation from law school in 1980. Mr. Platt and his firm have served as
outside legal counsel to the Company on many business matters over the past 10
years, particularly in the areas of the architectural products business and real
estate and employment matters.
Charles Tilgner III joined the Company in January 1978 as the Company's
Manager of Engineering. In January 1984 he was named Site Manager, Buffalo
Operations. In May 1985, Mr. Tilgner became Director of Technical Operations.
He was named Vice President - Manufacturing in October 1986, and became Vice
President - Engineering in September 1990. In September 1994, while retaining
his office of Vice President, he was named Director of U.S. Operations and
Engineering.
Hilary A. Arwine joined the Company in June 1996 as Controller of the
Merrimack manufacturing facility. In June 1997, she was promoted to the
position of Corporate Controller. Prior to joining the Company, Ms. Arwine was
Vice President, Finance and Administration at Saphikon Inc. where she had held
positions of increasing responsibility since 1989. Prior to 1989, she held
various finance positions at Hollis Engineering and New Hampshire Ball Bearing,
Inc.
All Officers are elected annually to serve at the discretion of the Board
of Directors.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Until March 10, 1997, the common stock of the Company was traded on the
Nasdaq National Market under the symbol "CMFB". Effective March 11, 1997, the
Company moved its listing to the New York Stock Exchange.
The common stock of the Company is now traded on the New York Stock
Exchange under the symbol "CFA". The following table sets forth, for the
periods indicated, the high and low sale prices per share of the Company's
common stock as reported by the New York Stock Exchange or the Nasdaq National
Market, as applicable. These figures have been adjusted to reflect the
Company's three for two stock split in February 1996.
Fiscal year ended Fiscal year ended
----------------- -----------------
June 30, 1997 June 30, 1996
------------- -------------
High Low High Low
---- --- ---- ---
First quarter 14 1/2 12 1/4 13 1/3 10 2/3
Second quarter 15 1/4 12 3/4 14 1/3 12
Third quarter 18 1/2 13 14 1/3 12
Fourth quarter 21 3/8 16 3/8 14 3/4 11 1/2
As of August 11, 1997, the number of record holders of the Company's stock
was 470. At the present time, the Company intends to follow a policy of not
paying any dividends and retaining all earnings to finance the development and
growth of the business.
ITEM 6 SELECTED FINANCIAL DATA
(in thousands except per share data)
For the year ended June 30,
----------------------------------------------------
1997 1996 1995 (1) 1994 1993
---- ---- -------- ---- ----
Net sales $90,783 $83,882 $67,980 $52,151 $50,936
Gross profit 30,944 28,109 21,856 16,717 16,890
Other (income) expense (213) 51 (111) (251) (282)
Income before income
taxes 13,300 11,154 7,480 5,218 4,632
Net income $ 9,106 $ 7,714 $ 5,310 $ 3,895 $ 3,502
Number of shares and share
equivalents used to compute
earnings per share 8,278 8,199 7,991 7,926 7,875
Net income per share $1.10 $0.94 $0.66 $0.49 $0.45
The Company has never paid a cash dividend.
(1) See also Note 2 of Notes to Consolidated Financial Statements.
ITEM 6 SELECTED FINANCIAL DATA (CONTINUED)
(in thousands)
at June 30,
-----------------------------------------------------
1997 1996 1995 (1) 1994 1993
---- ---- -------- ---- ----
Working capital $33,226 $28,292 $25,501 $22,930 $25,970
Net property, plant and
equipment 21,472 20,540 19,833 17,889 12,851
Total assets 80,565 73,662 70,619 53,794 48,669
Long-term debt
including current portion --- 2,377 8,132 --- ---
Shareholders' equity 66,385 58,505 50,321 44,372 39,846
(1) See also Note 2 of Notes to Consolidated Financial Statements.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table indicates the percentage relationships of selected
financial items included in the Consolidated Statements of Income for the three
fiscal years ended June 30, 1997, 1996, and 1995, and the pertinent percentage
changes in those items for the year.
Percent of net sales Increase from
for the years ended June 30, prior year
---------------------------- -------------
1997 1996
vs. vs.
1997 1996 1995 1996 1995
---- ---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 8.2% 23.4%
Gross profit 34.1% 33.5% 32.2% 10.1% 28.6%
Income before
income taxes 14.7% 13.3% 11.0% 19.2% 49.1%
Net income 10.0% 9.2% 7.8% 18.0% 45.3%
1997 COMPARED TO 1996
SALES
The Company's fiscal 1997 consolidated sales increased 8% to $90,783,000
from $83,882,000 in 1996. This revenue growth was the result of a 14% increase
over the prior year in worldwide sales of industrial and fabricated products,
net of a decline in shipments of architectural products relative to the
preceding year. The growth in sales for the fiscal year was primarily volume-
related.
Engineered Products - Americas Sourced sales (which include all non-
architectural product sales from the Company's U.S. manufacturing plants;
principal geographic markets are the Americas and the Far East) increased 18% to
$48,978,000 from $41,436,000 in the prior year. This sales increase was broad-
based, with sales of fabricated products and shipments to industrial
distributors being particularly strong relative to the prior year.
Engineered Products - Europe Sourced sales (which include all product sales
from the Company's European manufacturing plants; principal geographic markets
are Europe, Africa and the Middle East) increased 8% to $32,061,000 from
$29,710,000 in the prior year. This increase in revenues resulted principally
from greater sales into general distributor and pharmaceutical markets within
Europe. During the fiscal year, the British Pound, which is the currency in
which the Company's European sales are recorded, strengthened relative to
mainland Europe currencies and relative to the U.S. Dollar. Although this
adversely affected European sales made in those other currencies upon conversion
into British Pounds, and beneficially affected European sales upon translation
into U.S. Dollars, the net effect on reported sales for the year was immaterial.
Architectural Product sales decreased 23% to $9,744,000 from $12,736,000 in
fiscal 1996. This decrease in revenues was expected and was a consequence of a
higher concentration of large construction contract awards to the Company's
architectural product customers in fiscal 1996 as compared to fiscal 1997.
For fiscal 1998, worldwide demand for industrial and fabricated products is
expected to remain generally strong and architectural product sales are expected
to be up over the levels achieved in fiscal 1997.
GROSS PROFIT MARGINS
Gross profit margins as a percentage of net sales for fiscal 1997 increased
to 34.1% from 33.5% in fiscal 1996. The improvement resulted principally from
increased production efficiencies and targeted cost reduction programs.
SELLING, ADMINISTRATIVE, RESEARCH AND DEVELOPMENT EXPENSES
Selling, general and administrative expenses increased to $15,539,000 in
fiscal 1997 from $14,157,000 in fiscal 1996. Increased selling, general and
administration expenditures resulted from the combined effects of the higher
cost structure in place to support the Company's newly established subsidiary
operations in China, Brazil and Japan, as well as normal increases in salaries
and other costs. The percentage of selling, general and administrative expenses
to sales was 17%, unchanged from fiscal 1996.
Research and development (R&D) expenses increased to $2,498,000 in fiscal
1997 from $2,270,000 in fiscal 1996. R&D expenses, as a percentage of revenues,
were approximately 2.8% of sales in both years. At the present time, management
believes that R&D spending in the range of 3% of sales will be generally
adequate to support the Company's present new product and process development
programs.
INTEREST (INCOME) EXPENSE AND OTHER INCOME
In fiscal 1997, net interest income was $180,000 compared to net interest
expense of $477,000 in fiscal 1996. This change resulted from the repayment of
debt incurred to finance the Tygaflor business acquisition in England.
Other income, net of other expense, was $213,000 in fiscal 1997 compared to
$51,000 of other expense in fiscal 1996. Included in the current period is
$115,000 of income related to a fire insurance claim and realized foreign
exchange gains of $83,000. Other expense in fiscal 1996 included realized
foreign exchange losses of $90,000.
INCOME TAXES
In fiscal 1997, the Company recorded $4,194,000 of income tax expense as
compared to $3,440,000 in 1996. The Company's effective tax rate for 1997 was
31.5% as compared to 30.8% in the prior year. The increase in the effective tax
rate is due primarily to the increased proportion of income from U.S. and U.K.
operations, as compared to income from operations in lower tax jurisdictions.
PROFITABILITY
The Company earned net income before taxes of $13,300,000 for the year
ended June 30, 1997 as compared to $11,154,000 in the prior year. This
represents an increase in pre-tax income of 19% over the prior year on an 8.2%
increase in revenues. Net income increased 18% to $9,106,000 or $1.10 per share
for fiscal 1997 from $7,714,000 or $0.94 per share in 1996.
1996 COMPARED TO 1995
SALES
The Company's fiscal 1996 consolidated net sales increased 23% to
$83,882,000 from $67,980,000 in 1995. Revenues in fiscal 1996 included the
sales of the Tygaflor business in England, which was acquired in February 1995.
This growth was attributable to a strong market for the Company's architectural
products, continued strength in the industrial products business in Europe and
the U.S., and the full-year inclusion of Tygaflor sales compared to 4.5 months
in fiscal 1995. Measured in constant foreign currency translation rates, fiscal
1996 net sales would have increased 25% over fiscal 1995. The growth in
revenues was primarily volume-related.
Engineered Products - Americas Sourced sales (which included all non-
architectural product sales from the Company's U.S. manufacturing plants with
principal geographic markets in the Americas and the Far East) increased 6% to
$41,436,000 from $38,962,000 in the prior year. This growth was principally
attributable to strength in the Company's government related and fabricated
products business.
Engineered Products - Europe Sourced sales (which include all product
sales from the Company's European manufacturing plants with principal geographic
markets in Europe, Africa and the Middle East) increased 43% to $29,710,000 from
$20,833,000 in the prior year. Without the impact of the Tygaflor business
(acquired February 1995), it is estimated that this increase would have been
approximately 14%. This increase in revenues was broad based and extended
across most of the Company's products manufactured in Europe.
Architectural Product sales increased 56% to $12,736,000 from $8,185,000
in fiscal 1995, due primarily to strong demand for the Company's products in the
Far East.
GROSS PROFIT MARGINS
Gross profit margins as a percentage of net sales for fiscal 1996
increased to 33.5% from 32.2% in fiscal 1995. Consolidated gross margins
benefited from significantly increased production volumes without a
corresponding percentage increase in fixed manufacturing overhead costs.
SELLING, ADMINISTRATIVE, RESEARCH AND DEVELOPMENT EXPENSES
Selling, general and administrative expenses increased to $14,157,000 in
fiscal 1996 from $12,124,000 in fiscal 1995. This increase in spending was
principally the result of added expenses relating to the full-year impact of
owning the Tygaflor business versus the prior year, normal salary and wage
increases, and increased performance-based compensation versus the prior year.
The percentage of selling, general and administrative expenses to sales
decreased to approximately 17% in fiscal 1996 from 18% in fiscal 1995.
Research and development expenses increased to $2,270,000 in 1996 from
$2,047,000 in 1995. R&D expenses, as a percentage of revenues, were
approximately 2.7% versus 3% in fiscal 1996 and 1995.
INTEREST EXPENSE, EQUITY OPERATIONS AND OTHER INCOME
In fiscal 1996, net interest expense was $477,000 compared to $95,000 in
fiscal 1995. This change was caused by the full-year impact of the long-term
debt incurred to acquire the Tygaflor business in England (See Notes 2 and 5 of
Notes to Consolidated Financial Statements).
Results of equity operations for fiscal 1995 were a loss of $221,000. For
fiscal 1996, no amount was recorded since the Company's investment in this
venture had been written down to zero as of the end of fiscal 1995.
Other expense, net of other income, was $51,000 in fiscal 1996 compared to
$111,000 of other income in fiscal 1995. Other expense in 1996 included
realized foreign exchange losses of $90,000. Other income in fiscal 1995
included realized foreign exchange gains of $68,000.
INCOME TAXES
In fiscal 1996, the Company recorded $3,440,000 of income tax expense as
compared to $2,170,000 in 1995. The Company's effective tax rate for 1995 was
31% as compared to 29% in the prior year. The increase in the effective tax
rate was due primarily to the increased proportion of income from U.S. and UK
operations as compared to income from operations in lower tax jurisdictions.
PROFITABILITY
The Company earned net income before taxes of $11,154,000 for the year
ended June 30, 1996 as compared to $7,480,000 in the prior year. This
represented an increase in pre-tax income of 49% over the prior year on a 23%
increase in revenues. Net income increased 45% to $7,714,000 or $0.94 per share
for fiscal 1996 from $5,310,000 or $0.66 per share in 1995.
EFFECTS OF INFLATION
Inflation rates over the past three years have remained relatively low and
as a result have not had a material impact on the financial results of the
Company.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1997, the Company generated $11,954,000 of cash from
operations and an additional $4,478,000 from the exercise of stock options.
During this same period, the Company spent $3,860,000 for capital additions,
repaid $2,447,000 of long-term debt and expended $7,064,000 for the acquisition
of treasury shares (see Note 8 of Notes to Consolidated Financial Statements).
Working capital increased to $33,226,000 at June 30, 1997 from $28,292,000
at June 30, 1996. Current assets increased from $39,548,000 in 1996 to
$45,616,000 at June 30, 1997. Current liabilities increased to $12,390,000 at
June 30, 1997 from $11,256,000 at June 30, 1996. The higher working capital
levels were the result of higher levels of sales and profitability in fiscal
1997 as compared to fiscal 1996 and the establishment of new operations in
China, Brazil and Japan.
As of June 30, 1997, the Company had approximately $21,000,000 of
additional credit available under its domestic and international borrowing
facilities. Management believes that cash on hand, together with cash expected
to be generated from operations and the credit facilities mentioned above, will
be adequate to finance operations during fiscal 1998 and the foreseeable future
and to deal with any liabilities or contingencies described in Note 14 of Notes
to Consolidated Financial Statements.
FORWARD-LOOKING STATEMENTS
Statements in this report that are not historical facts may be forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Without limiting the foregoing, the words "believes,"
"anticipates," "plans," "expects," "assumes" and similar expressions are
intended to identify forward-looking statements. Forward-looking statements are
inherently uncertain and there are a number of important factors that could
cause actual results to differ materially from those expressed or suggested in
any forward-looking statement made by the Company. These factors include, but
are not limited to:
- The impact of changes in foreign currency exchange rates on sales, gross
profit margins, expenses, and net income.
- The level and timing of architectural product sales over the course of
the fiscal year, considering the cyclical nature of demand for such
products.
- The level and timing of U.S. Government contract awards (either as prime
contractor or as a sub-contractor) in particular for radome systems, and
the completion (i.e., non- cancellation or curtailment) of such
contracts after award.
- The financial operating performance of the Company's recently
established China, Japan and Brazil subsidiaries during their respective
start-up phases.
- The uninterrupted availability, at reasonable prices, of key raw
materials used in the production of the Company's products including,
without limitation, fluoropolymer resins and fiberglass yarns in various
fiber diameters, especially Beta-type fiberglass yarn and/or its
intended replacement fiber currently under development by OC (see
Part I, Item 1, Raw Materials). There can be no assurance that the OC
development program will be successful or that the Company will be able,
if and as necessary after the remaining Beta supply period, to obtain
from other sources adequate quantities of Beta-type yarn at reasonable
prices.
- The strength of industrial economies around the world, in particular the
economies of the United States, Germany, England and Japan.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in Item 14 in
Part IV on Page 21, are filed as part of this report.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 DIRECTORS AND OFFICERS OF THE REGISTRANT
See the information under the captions "Nominees for Election As
Directors" and "Information As To Directors and Nominees For Director" on pages
3 and 4, of the Proxy Statement for the 1997 Annual Meeting of Shareholders of
the Company to be held on October 30, 1997, which information is incorporated
herein by reference. See also the information with respect to officers of the
Company under Item 4a of Part I hereof.
ITEM 11 EXECUTIVE COMPENSATION
See the information under the caption "Executive Compensation" beginning
on page 7 of the Proxy Statement for the 1997 Annual Meeting of Shareholders of
the Company, which information is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information under the captions "Principal Shareholders" and
"Ownership of Equity Securities by Management" on pages 2 and 6 of the Proxy
Statement for the 1997 Annual Meeting of Shareholders of the Company, which
information is incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information under the caption "Certain Transactions" on page 14 of
the Proxy Statement for the 1997 Annual Meeting of Shareholders of the Company,
which information is incorporated herein by reference.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) LISTED BELOW ARE ALL OF THE DOCUMENTS FILED AS PART OF THE REPORT: PAGE
----
(1) FINANCIAL STATEMENTS OF CHEMFAB CORPORATION 25
Report of Ernst & Young LLP Independent Auditors
Consolidated Balance Sheets at June 30, 1997 and 1996 26-27
For the three years ended June 30, 1997, 1996 and 1995:
Consolidated Statements of Income 28
Consolidated Statements of Shareholders' Equity 29
Consolidated Statements of Cash Flows 30
Notes to Consolidated Financial Statements
June 30, 1997, 1996 and 1995 31-45
Quarterly Financial Data (unaudited) 46
(2) FINANCIAL STATEMENT SCHEDULES OF CHEMFAB CORPORATION
II - Valuation and Qualifying Accounts S-1
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the Consolidated
Financial Statements or the notes thereto.
(3) EXHIBITS
3(a) Certificate of Incorporation of the Company filed as Exhibit 3(a) to
the Company's Annual Report on Form 10-K for the year ended June 30,
1996 is incorporated herein by reference.
3(a)(1) Certificate of Amendment to Certificate of Incorporation of the
Company (effective November 6, 1991) filed as Exhibit 3(a)(1) to the
Company's Annual Report on Form 10-K for the year ended June 30, 1996
is incorporated herein by reference.
3(b) By-Laws of the Company filed as Exhibit 3(b) to the Company's
Registration Statement on Form S-1 (File No. 2-85949) filed November
10, 1983 is incorporated herein by reference.
4(a) Specimen Common Stock Certificate.
4(b) See Exhibit 3(a) above.
4(c) See Exhibit 3(b) above.
10(a)(1) The Company's 1986 Stock Option Plan filed as Exhibit 10(a)(1) to the
Company's Annual Report on form 10-K for the year ended June 30, 1996
is incorporated herein by reference.
10(a)(2) Forms of Stock Option Agreements under the Company's 1986 Stock
Option Plan and for Non-Plan Options filed as Exhibit 10(a)(2) to the
Company's Annual Report on form 10-K for the year ended June 30, 1996
are incorporated herein by reference.
10(a)(3) Employment Agreement with Mr. Duane C. Montopoli, dated May 29, 1992
and effective July 1, 1992, filed as Exhibit 10(a)(9) to the
Company's Annual Report on Form 10-K for the year ended June 30, 1992
is incorporated herein by reference.
10(a)(4) Letter Agreement with Mr. James C. Manocchi dated June 4, 1991 filed
as Exhibit 10(a)(4) to the Company's Annual Report on form 10-K for
the year ended June 30, 1996 is incorporated herein by reference.
10(a)(5) Letter Agreement with Dr. John W. Verbicky dated October 15, 1992 and
effective January 11, 1993 filed as Exhibit 10(a)(6) to the Company's
Annual Report on Form 10-K for the year ended June 30, 1993 is
incorporated herein by reference.
10(a)(6) Second Amended and Restated Chemfab Corporation 1991 Stock Option Plan
filed as Exhibit 10(a)(6) to the Company's Annual Report on form 10-K
for the year ended June 30, 1996 is incorporated herein by reference.
10(a)(7) Forms of Stock Option Agreements under the Company's 1991 Stock Option
Plan filed as Exhibit 10(a)(8) to the Company's Annual Report on form
10-K for the year ended June 30, 1995 is incorporated herein by
reference.
10(a)(8) Form of Amendment to 1986 and/or 1991 Stock Option Plan Agreements,
filed as exhibit 10(a)(10) to the Company's Annual Report on Form 10-K
for the year ended June 30, 1994 is incorporated herein by reference.
10(a)(9) Stock Option Agreement between the Company and Mr. Manocchi dated
October 21, 1994 filed as Exhibit 10(a)(10) to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995 is incorporated
herein by reference.
10(a)(10) Amendment to 1991 Stock Option Plan agreements between the Company and
Mr. Manocchi dated October 21, 1994 filed as Exhibit 10(a)(11) to the
Company's Annual Report on Form 10-K for the year ended June 30, 1995
is incorporated herein by reference.
10(a)(11) Letter Agreement with Mr. Moosa E. Moosa dated June 25, 1996.
10(a)(12) Amendment No. 1 to Second Amended and Restated 1991 Stock Option
Plan.
10(b)(1) Share Purchase Agreement, dated January 18, 1991, relating to
Fluorocarbon Fabrication Limited.
10(b)(2) Supply Agreement, dated January 18, 1991, by and between Chemical
Fabrics Europe and Aerovac Systems (Keighley) Limited filed as Exhibit
10(b)(2) to the Company's Annual Report on form 10-K for the year
ended June 30, 1996 is incorporated herein by reference.
10(b)(3) Purchase and Sale Agreement, relating to Birdair, Inc. dated as of
March 27, 1992 between Taiyo Kogyo Corporation and the Company, filed
as Exhibit 10(b)(13) to the Company's Annual Report on Form 10-K for
the year ended June 30, 1992 is incorporated herein by reference.
10(b)(4) Asset Purchase Agreement between Chemfab Corporation, Chemfab U.K.
Ltd., Courtaulds plc and Courtaulds Aerospace Limited dated February
13, 1995 filed as exhibit 10(b)(8) to the Company's Quarterly Report
on Form 10-Q for the quarter ended April 2, 1995 is incorporated
herein by reference.
10(b)(5) Facilities Agreement between Chemfab Europe, Chemfab Holdings U.K.
Ltd., Chemfab U.K. Ltd. and Bank of Ireland dated February 17, 1995
filed as exhibit 10(b)(9) to the Company's Quarterly Report on Form
10-Q for the quarter ended April 2, 1995 is incorporated herein by
reference.
10(b)(6) Consulting Agreement dated August 2, 1996 between Chemfab Corporation
and Chemfab Director, Dr. Nicholas Pappas filed as Exhibit 10(b)(11)
to the Company's Quarterly Report on form 10-Q for the quarter ending
September 29, 1996 is incorporated herein by reference.
10(b)(7) $20,000,000 Credit Agreement by and between Chemfab Corporation as
borrower and The First National Bank of Boston and The Bank of Ireland
as lenders filed as Exhibit 6(a) to the Company's Quarterly Report on
form 10-Q for the quarter ending December 29, 1996 is incorporated
herein by reference.
10(b)(8) $1,000,000 Credit Agreement by and between Chemfab Corporation as
borrower and The First National Bank of Boston.
21 List of Subsidiaries of Chemfab Corporation.
23 Consent of Ernst & Young LLP, Independent Auditors, set forth at page
S-2 of this Annual Report on Form 10-K.
24 Power of Attorney authorizing certain persons to sign this Annual
Report on Form 10-K on behalf of certain directors and officers of
this Company.
(b) REPORTS ON FORM 8-K None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on behalf of the Registrant and in the capacities indicated.
CHEMFAB CORPORATION
(Registrant)
By /s/ Duane C. Montopoli
----------------------------------------------------
Duane C. Montopoli
President and Chief Executive Officer
-------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 18th day of September 1997 by the following
persons on behalf of the Registrant and in the capacities indicated.
By /s/ Duane C. Montopoli
-----------------------------------------------------------------------
Duane C. Montopoli, President, Chief Executive Officer
(principal executive officer) and Director
By *
-------------------------------------------------------------------------
Moosa E. Moosa, Vice President Finance, Treasurer and
Chief Financial Officer (principal financial officer)
By *
------------------------------------------------------------------------
Hilary A. Arwine, Corporate Controller (principal
accounting officer)
By *
------------------------------------------------------------------------
Paul M. Cook, Director
By *
------------------------------------------------------------------------
Warren C. Cook, Director
By *
------------------------------------------------------------------------
Robert E. McGill, III, Director
By *
------------------------------------------------------------------------
James E. McGrath, Director
By *
------------------------------------------------------------------------
Nicholas Pappas, Director
* By /S/ Duane C. Montopoli
----------------------------------------------------
Duane C. Montopoli, Attorney-In-Fact*
*By authority of powers of attorney filed herewith.
CHEMFAB CORPORATION
Index to Consolidated Financial Statements Page
Report of Ernst & Young LLP Independent Auditors 25
Consolidated Balance Sheets 26-27
Consolidated Statements of Income 28
Consolidated Statements of Shareholders' Equity 29
Consolidated Statements of Cash Flows 30
Notes to Consolidated Financial Statements 31-45
Quarterly Financial Data (unaudited) 46
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Chemfab Corporation
We have audited the accompanying consolidated balance sheets of Chemfab
Corporation as of June 30, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended June 30, 1997. Our audits also included the financial
statement schedule listed in the Index at Item 14(a)(2). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Chemfab
Corporation at June 30, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Boston, Massachusetts
July 29, 1997
Ernst & Young LLP
<TABLE>
<S><C>
CONSOLIDATED BALANCE SHEETS CHEMFAB CORPORATION
June 30, 1997 and 1996
(in thousands) 1997 1996
ASSETS ---- ----
CURRENT ASSETS Cash and cash equivalents $ 8,055 $ 5,017
Receivables:
Trade, net of allowance for doubtful 17,078 17,797
accounts of $367 ($382 in 1996)
Other 425 185
Costs and estimated earnings in excess 1,741 886
of billings on uncompleted contracts
Inventories 16,373 13,622
Prepaid expenses and other current assets 1,174 1,246
Deferred tax assets 770 795
------ ------
Total current assets 45,616 39,548
------ ------
PROPERTY, PLANT & Land 634 571
EQUIPMENT, AT COST Buildings 10,377 9,426
Machinery and equipment 31,926 29,104
Leasehold improvements 1,000 912
------ ------
43,937 40,013
Less accumulated depreciation and
amortization 22,465 19,473
------ ------
Net property, plant and equipment 21,472 20,540
------ ------
GOODWILL, NET OF ACCUMULATED AMORTIZATION
OF $2,866 ($1,819 IN 1996) 10,740 11,084
OTHER ASSETS 2,737 2,490
------- -------
TOTAL ASSETS $80,565 $73,662
======= =======
See accompanying notes to Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS CHEMFAB CORPORATION
June 30, 1997 and 1996
(in thousands, except shares and per share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
---- ----
CURRENT Accounts payable $ 6,042 $ 5,172
LIABILITIES
Accrued liabilities 4,127 4,330
Accrued income taxes 2,119 1,441
Billings in excess of costs and estimated
earnings on uncompleted contracts 102 313
------- ------
Total current liabilities 12,390 11,256
------- ------
LONG-TERM DEBT --- 2,377
DEFERRED TAX LIABILITIES 1,790 1,524
SHAREHOLDERS' Preferred stock, par value $.50:
EQUITY authorized - --- ---
1,000,000, none issued
Common stock, par value $.10: authorized -
15,000,000; issued - 8,521,110 in 1997 852 809
and 8,085,607 in 1996
Additional paid-in capital 22,749 18,314
Retained earnings 50,104 40,998
Treasury stock, at cost, (547,719 shares
in 1997 and 95,938 in 1996) (8,007) (943)
Foreign currency translation adjustment 687 (673)
------- -------
Total shareholders' equity 66,385 58,505
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $80,565 $73,662
======= =======
See accompanying notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<S><C>
CONSOLIDATED STATEMENTS OF INCOME CHEMFAB CORPORATION
For the years ended June 30, 1997, 1996 and 1995
(in thousands, except per share data)
1997 1996 1995
---- ---- ----
NET SALES $90,783 $83,882 $67,980
Cost of sales 59,839 55,773 46,124
------- ------- -------
Gross profit 30,944 28,109 21,856
Selling, general and
administrative expenses 15,539 14,157 12,124
Research and development expenses 2,498 2,270 2,047
Interest expense 80 611 395
Interest income (260) (134) (300)
Results of equity operations --- --- 221
Other (income) expense (213) 51 (111)
------- ------- -------
Income before income taxes 13,300 11,154 7,480
Provision for income taxes 4,194 3,440 2,170
------- ------- -------
Net income $ 9,106 $ 7,714 $ 5,310
======= ======= =======
Weighted average common and
common equivalent shares 8,278 8,199 7,991
NET INCOME PER SHARE $ 1.10 $ .94 $ .66
</TABLE>
See accompanying notes to Consolidated Financial Statements
<TABLE>
<S><C>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CHEMFAB CORPORATION
For the years ended June 30, 1997, 1996 and 1995
(in thousands)
COMMON STOCK
-------------- FOREIGN
ADDITIONAL CURRENCY
NUMBER PAID-IN RETAINED TREASURY TRANSLATION
OF CAPITAL EARNINGS STOCK ADJUSTMENT TOTAL
SHARES AMOUNT
-------- ------ -------- -------- ------ ------- --------
Balance at June 30, 1994 5,220.8 $522 $16,396 $28,241 $(26) $(761) $44,372
Net income --- --- --- 5,310 --- --- 5,310
Options exercised 32.1 3 238 --- --- --- 241
Foreign currency
translation adjustment --- --- --- --- --- 398 398
-------- ----- -------- -------- ------ ------- --------
Balance at June 30, 1995 5,252.9 525 16,634 33,551 (26) (363) 50,321
Net income --- --- --- 7,714 --- --- 7,714
Options exercised 172.0 17 1,680 --- --- --- 1,697
Purchase of shares
for treasury --- --- --- --- (917) --- (917)
Three-for-two stock split 2,660.7 267 --- (267) --- --- ---
Foreign currency
translation adjustment --- --- --- --- --- (310) (310)
-------- ----- -------- -------- ------ ------- --------
Balance at June 30, 1996 8,085.6 809 18,314 40,998 (943) (673) 58,505
Net income --- --- --- 9,106 --- --- 9,106
Options exercised 435.5 43 4,435 --- --- --- 4,478
Purchase of shares
for treasury --- --- --- --- (7,064) --- (7,064)
Foreign currency
translation adjustment --- --- --- --- --- 1,360 1,360
-------- ----- -------- -------- --------- ------ --------
Balance at June 30, 1997 8,521.1 $852 $22,749 $50,104 $(8,007) $ 687 $66,385
======== ===== ======== ======== ========= ====== ========
See accompanying notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<S><C>
CONSOLIDATED STATEMENTS OF CASH FLOWS CHEMFAB CORPORATION
Years ended June 30, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
---- ---- ----
CASH FLOWS FROM
OPERATING ACTIVITIES Net income $ 9,106 $ 7,714 $ 5,310
ADJUSTMENTS TO
RECONCILE NET INCOME Depreciation 3,194 2,733 2,481
TO NET CASH PROVIDED
BY OPERATING Amortization 1,317 1,219 786
ACTIVITIES
Results of equity operations --- --- 221
Change in assets and liabilities:
Receivables 950 (1,658) (2,342)
Costs and estimated earnings in
excess of billings on uncompleted
contracts, net (1,066) (2) (320)
Inventories (2,405) (630) (1,668)
Prepaid expenses and other current assets 96 (350) (95)
Other assets (489) (431) (430)
Accounts payable and accrued liabilities 406 844 1,139
Accrued income taxes 554 (280) 431
Deferred tax assets and liabilities 291 330 (112)
------- ------- -------
Total adjustments 2,848 1,775 91
------- ------- -------
Net cash provided by operating
activities 11,954 9,489 5,401
------- ------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES Capital expenditures (3,860) (3,553) (1,826)
Purchase of Tygaflor --- --- (16,252)
------- -------- --------
Net cash used in investing activities (3,860) (3,553) (18,078)
-------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES Repayment of long-term debt (2,447) (5,515) (2,928)
Proceeds from the issuance of --- --- 11,060
long-term debt
Proceeds from exercise of stock options 4,478 1,697 241
Purchase of treasury shares (7,064) (917) ---
-------- -------- --------
Net cash (used in) provided by
financing activities (5,033) (4,735) 8,373
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (23) 36 161
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,038 1,237 (4,143)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,017 3,780 7,923
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,055 $ 5,017 $ 3,780
======== ======== ========
INTEREST PAID $ 106 $ 604 $ 310
INCOME TAXES PAID $ 2,270 $ 2,924 $ 1,763
See accompanying notes to Consolidated Financial Statements
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CHEMFAB CORPORATION
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: The Company is an international manufacturer and
marketer of polymer-based engineered products and material systems for use in
harsh conditions such as high temperature and/or corrosive chemical
environments. The majority of the Company's products, which are also
characterized by their retention of flexibility-in-use and by their excellent
surface release properties, are made by embedding interlaced glass fiber
reinforcement into a fluoropolymer resin matrix. The Company also makes and
sells specialty fluoropolymer films and high performance elastomeric closure
products. Worldwide end-use applications are in communications, food
processing, architectural, aerospace, electronics, environmental, protective
clothing, and other industrial markets.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. The Company's
investments in corporate joint ventures are accounted for under the equity
method. All significant intercompany transactions and amounts have been
eliminated in consolidation.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Such estimates include, but are not limited
to, allowances for doubtful accounts and returns, provisions for slow-moving or
obsolete inventory, provisions for environmental matters, and various other
accruals. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents consist of cash on hand,
cash deposited in highly liquid money market accounts, and investments in high
grade commercial paper or treasury notes having maturities of three months or
less when purchased. There were no commercial paper or treasury notes
outstanding at June 30, 1997 and 1996.
LONG-TERM CONTRACTS: The Company recognizes revenues on most long-term
contracts under the percentage-of-completion method. Under the percentage-of-
completion method, profit on contracts is recognized based on the ratio of costs
incurred to date to estimated final costs. Revisions in costs and estimated
final profits are reflected in the accounting period in which the facts that
require the revisions become known. At the time a loss on a contract becomes
known, the entire amount of the estimated loss is accrued. Revenues on certain
long-term contracts are recognized on a units of delivery basis. Each contract
has a unique set of terms and conditions for the billing of unbilled amounts.
INVENTORIES: Inventories are valued at the lower of cost or market. Cost is
determined on a first-in, first-out basis.
GOODWILL: Costs in excess of net assets acquired, which relate to the
acquisition of the Tygaflor business in fiscal 1995 and the Canton Bio-Medical
business in fiscal 1994, are being amortized over fifteen years. Costs in
excess of net assets acquired related to the purchase of two distributor
businesses in the U.K. in fiscal 1991 are being amortized over ten years.
Goodwill is reviewed periodically for impairment by comparing the carrying
amount to the estimated future undiscounted cash flows of the business acquired.
PROPERTY, PLANT AND EQUIPMENT: Depreciation is computed using the straight-line
method over the estimated useful lives of the assets.
LONG-LIVED ASSETS: In March 1995, Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of", was issued. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and used or
disposed of by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. During fiscal 1997, the Company adopted SFAS No. 121 which did not
have any impact on the Company's consolidated financial position or results of
operations.
INCOME TAXES: The Company uses the liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
TRANSACTIONS IN FOREIGN CURRENCY: The Company enters into forward exchange
contracts to reduce the impact of foreign currency fluctuations on certain sales
and material purchase transactions. The gains or losses on these hedge contracts
are included in income when the underlying purchase or sale transaction is
recorded. The carrying value of these contracts at June 30, 1997 and 1996,
which approximated fair value based on exchange rates at June 30, 1997 and 1996,
was not significant. In addition, the Company recognizes in current income
gains or losses from the remeasurement of transactions denominated in currencies
other than the Company's functional currencies. Translation adjustments arising
from the consolidation of foreign subsidiaries have been included in
shareholders' equity.
EARNINGS PER SHARE: Per share amounts are based upon the weighted average
number of common shares outstanding during each year, plus common stock
equivalents. On February 1, 1996, the Company's Board of Directors authorized a
three-for-two stock split in the form of a dividend to shareholders of record as
of February 12, 1996. The split resulted in the issuance of 2,660,713 new
shares of common stock. All references in the financial statements to average
numbers of shares outstanding and related prices, per share amounts, and Stock
Option Plan data have been restated to reflect the split.
STOCK-BASED COMPENSATION: The Company accounts for stock options as prescribed
by APB Opinion No. 25 and has included additional pro forma information as
required by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123).
RECENT ACCOUNTING PRONOUNCEMENTS: In February 1997, the Financial Accounting
Standards Board (FASB) issued Statement No. 128, "Earnings per Share" and
Statement No. 129, "Disclosure of Information about Capital Structure".
Statement 128, which must be adopted by the Company in fiscal year 1998,
establishes standards for computing and presenting earnings per share by
simplifying previous standards and making them comparable to international
standards. Statement 129, which must also be adopted by the Company in fiscal
year 1998, establishes standards for disclosing information about the Company's
capital structure.
In July 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" and Statement No. 131, "Disclosure about Segments of an Enterprise and
Related Information". Statement 130, which must be adopted by the Company in
fiscal year 1999, establishes standards for the reporting and display of
comprehensive income and its components in a complete set of financial
statements. Statement No. 131, which must also be adopted by the Company in
fiscal year 1999, changes the way segment information is reported and
establishes standards for related disclosures about products and services,
geographic areas, and major customers.
The Company believes that the adoption of these new standards is not likely
to have a material impact on the Company's financial position or results of
operations.
NOTE 2 - PURCHASE - TYGAFLOR BUSINESS
On February 17, 1995, the Company purchased the Tygaflor fluoropolymer
products business of the Advanced Materials Division of Courtaulds Aerospace
Ltd. ("Tygaflor") in England, for approximately $16.3 million in cash,
including associated transaction costs and anticipated severance costs. The
acquisition was accounted for using the purchase method of accounting. Net
assets acquired included working capital, machinery and equipment, goodwill and
other intangibles. Tygaflor, based in Littleborough, Lancashire, England,
manufactures and markets fluoropolymer-based composite materials and fabricated
products for a broad range of industrial applications. The acquisition of the
Tygaflor business resulted in the recognition of approximately $9.5 million of
goodwill. In connection with the acquisition, the Company borrowed $11,060,000
( Pounds 7,000,000) from a commercial bank in Ireland (see Note 5).
The following unaudited pro forma information for fiscal 1995 is presented
as if the acquisition had occurred at the beginning of fiscal year 1995: sales
$74,241,000; net income $5,713,000; and earnings per share $0.71. The pro forma
information is provided for informational purposes only and does not reflect the
actual results that would have occurred nor is it indicative of the future
results of operations of the combined enterprises.
NOTE 3 - INVENTORIES
Inventories at June 30, 1997 and 1996 consisted of the following:
1997 1996
---- ----
(in thousands)
Finished goods $ 6,153 $ 5,112
Work in process 5,597 4,602
Raw materials 4,623 3,908
------- -------
$16,373 $13,622
======= =======
NOTE 4 - ACCRUED LIABILITIES
Accrued liabilities at June 30, 1997 and 1996 consisted of the following:
1997 1996
---- ----
(in thousands)
Accrued payroll and related expenses $2,433 $2,199
Other accrued expenses 1,694 2,131
------ ------
$4,127 $4,330
====== ======
NOTE 5 - DEBT
In October 1996, the Company entered into a new three year revolving
credit agreement jointly with two commercial banks, one based in the U.S. and
the other in Ireland. Under the terms of the agreement, the Company has
available a $20,000,000 unsecured credit facility until October 4, 1999.
Thereafter, any balance outstanding will convert into a four-year term loan with
a five-year amortization schedule and a lump sum payment due October 4, 2003.
Borrowing under this facility is at the higher of the bank's base rate (8.5% at
June 30, 1997), or 0.5% over the federal funds rate (6.87% at June 30, 1997), as
defined in the agreement. The Company has also secured Eurocurrency pricing
options for certain debt as defined in the agreement. The Company is obligated
to pay a commitment fee of 0.125% of the unused portion of the line. At June
30, 1997, there were no borrowings under this revolving credit agreement.
The revolving credit agreement contains financial covenants with which the
Company must comply including maintenance of minimum levels of debt service
coverage and tangible net worth. These covenants also limit the net losses that
the Company may incur over any six-month period.
In March 1997, the Company entered into an additional line of credit
agreement with a bank. Under the terms of the agreement, the Company has
available a $1,000,000 line of credit in the form of revolving loans and letters
of credit. The revolving loans are payable on demand and the letters of credit
expire no later than 365 days from the date of issuance. Revolving loan
borrowings are subject to interest at the Company's option of either the rate
quoted by the bank, or the higher of the bank's base rate (8.5% at June 30,
1997) or 0.5% over the federal funds rate (6.87% at June 30, 1997), as defined
in the agreement. The Company is obligated to pay a 1% commitment fee of the
face amount of each letter of credit. At June 30, 1997, there were no
borrowings under this credit agreement.
In connection with its acquisition of the Tygaflor business (see Note 2),
the Company borrowed $11,060,000 ( Pounds 7,000,000) from a commercial bank in
Ireland. The loan had a 5-year term and required no principal repayments for
the first year. After the first year, quarterly principal payments of
approximately $437,500 were required. The weighted average interest rate on the
loan was 10.15%, 10.05% and 10.12% in fiscal 1997, 1996 and 1995, respectively.
This loan was fully repaid as of September 1996.
NOTE 6 - FINANCIAL INSTRUMENTS
At June 30, 1997 and 1996, the carrying value of financial instruments
such as cash and cash equivalents and foreign currency contracts approximated
their fair values based on the short-term maturities of these instruments and
contracts. Additionally, the carrying value of long-term debt at June 30, 1996
approximated its fair value. Fair value is estimated using discounted cash flow
analysis, based on the Company's current incremental borrowing rate.
It was not practicable to estimate the fair value of the Company's
investment in preferred stock of Birdair, Inc. (a customer for its architectural
products) because of the lack of a quoted market price and the inability to
estimate fair value without incurring excessive costs. The $533,000 carrying
amount at June 30, 1997 represents the original cost of the investment, which
management believes is not impaired. Dividends received for the years ended
June 30, 1997, 1996 and 1995 were $45,000 annually.
NOTE 7 - INCOME TAXES
The components of the income tax provision for the years ended June 30,
1997, 1996 and 1995 consisted of the following:
1997 1996 1995
---- ---- ----
(in thousands)
Current:
--------
Federal $ 1,972 $1,830 $1,474
State 472 447 379
Foreign 1,459 833 429
------ ------ -------
3,903 3,110 2,282
Deferred:
---------
Federal 112 (85) (192)
State 29 (22) (39)
Foreign 150 437 119
------- ------ -------
291 330 (112)
------- ------ -------
Total income taxes $ 4,194 $3,440 $2,170
======= ====== ======
The components of income before income taxes were as follows:
1997 1996 1995
---- ---- ----
(in thousands)
United States $ 7,046 $ 5,984 $3,989
Foreign 6,254 5,170 3,491
------- ------- ------
Total $13,300 $11,154 $7,480
======= ======= =======
The U.S. statutory federal income tax rate is reconciled to the Company's
consolidated effective tax rate as follows:
1997 1996 1995
---- ---- ----
Statutory tax rate 35.0% 35.0% 35.0%
Earnings of foreign subsidiaries
taxed at rates less than the U.S.
statutory rate (6.3) (7.3) (10.0)
Non-deductible goodwill amortization
relating to foreign acquisitions 1.7 1.9 1.4
FSC benefit (0.5) (0.5) (0.7)
Tax rate exemption (1.0) (1.0) (1.0)
State income taxes, net of federal
income tax benefit 2.8 2.8 2.8
Equity in joint ventures, net of tax --- --- 1.0
Other, net (.2) (.1) .5
------ -------- ------
Effective tax rate 31.5% 30.8% 29.0%
===== ===== =====
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of June 30, 1997 and
1996 were as follows:
Domestic Foreign
June 30, 1997 Operations Operations Total
- ------------- ---------- ---------- -------
(in thousands)
Deferred Tax Liabilities:
- -------------------------
Plant and equipment $ 979 $ 304 $1,283
Intangibles --- 477 477
Other (36) 66 30
------ ------ ------
Total deferred tax liabilities 943 847 1,790
------ ------ ------
Deferred Tax Assets:
- --------------------
Inventories (468) --- (468)
Valuation reserves (122) --- (122)
Other (182) 2 (180)
------ ------ ------
Total deferred tax assets (772) 2 (770)
------ ------ ------
Net deferred tax liabilities $ 171 $ 849 $1,020
====== ====== =====
Domestic Foreign
June 30, 1996 Operations Operations Total
- ------------- ---------- ---------- -----
(in thousands)
Deferred Tax Liabilities:
- -------------------------
Plant and equipment $ 851 $248 $1,099
Intangibles --- 335 335
Other (1) 91 90
----- ----- -------
Total deferred tax liabilities 850 674 1,524
---- ----- -------
Deferred Tax Assets:
- --------------------
Inventories (314) --- (314)
Valuation reserves (229) --- (229)
Other (277) 25 (252)
----- ---- -----
Total deferred tax assets (820) 25 (795)
----- ---- -----
Net deferred tax liabilities $ 30 $699 $ 729
====== ==== ======
The Company does not provide for federal income taxes on the undistributed
earnings of its foreign subsidiaries. These earnings, which are deemed to be
permanently reinvested, aggregated approximately $22,496,000 at June 30, 1997.
Chemfab Europe, the Company's Irish subsidiary, was exempt from Irish taxes on
its income from manufacturing operations until April 1990. Manufacturing
profits earned each year from April 1990 through April 2010 are subject to a 10%
tax rate.
NOTE 8 - COMMON STOCK AND STOCK OPTIONS
During fiscal 1992, the Board of Directors adopted and the shareholders
ratified the "1991 Stock Option Plan" which reserved 750,000 shares (adjusted
for the Company's three-for-two stock split) of common stock for issuance upon
exercise of option grants to key employees, directors, and consultants. The
shareholders ratified the adoption of the increase in the maximum number of
shares available for option under the 1991 plan to 1,050,000 in fiscal 1993 and
up to 1,500,000 in fiscal 1996. Under this plan, options generally vest at the
rate of 25% per year on the anniversary of the date of grant.
During fiscal 1992, the Company also adopted the "1991 Employee Stock
Option Plan" which reserved 75,000 (adjusted for the Company's three-for-two
stock split) shares of common stock for issuance upon exercise of grants to
specific eligible employees with a minimum of two years of service on the date
of the grant. At June 30, 1997, there were 41,250 options outstanding under
this plan, held by 275 employees.
During fiscal 1987, the Company's Board of Directors adopted and the
shareholders subsequently ratified a non-qualified stock option plan (the 1986
Plan). The 1986 Plan at the time of adoption reserved 1,125,000 shares
(adjusted for the Company's three-for-two stock split) of common stock for
issuance upon exercise of option grants under this plan to employees, directors
and consultants. During fiscal 1990, the shareholders ratified the adoption of
an increase in the maximum number of shares available for option under the 1986
Plan to 1,500,000. The options under the 1986 Plan generally vest at the rate
of 25% per year on the anniversary of the grant.
A summary of stock option activity, adjusted for the Company's three-for-
two stock split, related to all of the Company's plans for fiscal 1995, 1996 and
1997 is as follows:
Weighted Average
Options Exercise Price
--------- ----------------
June 30, 1994 Outstanding 1,378,215 $ 9.08
Granted 170,550 7.27
Cancelled (110,343) 11.37
Exercised (48,245) 4.99
------------------------------------------------------------
June 30, 1995 Outstanding 1,390,177 8.83
Granted 305,388 12.14
Cancelled (39,282) 10.43
Exercised (206,232) 5.30
------------------------------------------------------------
June 30, 1996 Outstanding 1,450,051 9.98
Granted 245,500 14.47
Cancelled (89,351) 11.70
Exercised (435,503) 7.92
------------------------------------------------------------
June 30, 1997 Outstanding 1,170,697 11.55
========= =====
The following table summarizes information about stock options outstanding
at June 30, 1997.
<TABLE>
<S><C>
Options Outstanding Options Exercisable
------------------------------------ -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life(inYears) Price Shares Price
- --------------- --------- ------------- -------- ------ ----------
$2.83 - $7.50 133,487 5.08 $ 6.42 83,056 $ 6.07
$7.51 - $11.33 384,535 5.68 9.48 253,104 9.47
$11.34 - $18.25 652,675 7.09 13.95 356,275 11.43
-------- ---- ----- ------- -----
$2.83 - $18.25 1,170,697 6.24 $11.55 692,435 $10.90
========= ==== ====== ======= ======
</TABLE>
As of June 30, 1996, and 1995 options to purchase 994,390 and 992,249
shares were exercisable at a weighted average exercise price of $9.91 and $8.85
per share, respectively. The Company does not intend to grant any further
options or stock appreciation rights under the 1986 Plan. At June 30, 1997,
there were 284,811 shares available for grant under the 1991 Stock Option Plan
and 30,450 shares available under the 1991 Employee Stock Option Plan.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". Under SFAS No. 123, the
Company had the choice of adopting a fair value based method of accounting for
employee stock-based compensation plans, as established by SFAS No. 123, or
retaining the intrinsic value-based method prescribed under Accounting
Principles Board Opinion ("APB") No. 25, provided certain pro forma disclosures
are made. Effective July 1, 1996, the Company chose to retain the intrinsic
value-based method of accounting for employee stock-based compensation plans as
prescribed by APB No. 25 and adopted the pro forma disclosure provisions of SFAS
No. 123. Accordingly, no compensation expense has been recognized for its stock
option awards as they are granted at prices not less than fair market value of
the stock on date of grant.
The following pro forma disclosures required by SFAS No. 123 have been
prepared as if the Company accounted for its employee stock options using the
fair value-based method of accounting:
Year ended June 30
---------------------------
1997 1996
---- ----
Net Income (in thousands)
As Reported $9,106 $7,714
Pro Forma $8,750 $7,517
Net Income per share
As Reported $ 1.10 $ 0.94
Pro Forma $ 1.06 $ 0.92
The fair value of each option grant is estimated on the date of grant
using the following weighted-average assumptions for fiscal 1997 and 1996:
1997 1996
---- ----
Risk-free Interest Rate 6.5% 5.9%
Expected Stock Price Volatility 21.8% 21.8%
Expected Life of Options (in years) 3.2 3.2
The weighted-average fair value of options granted during the years ended
June 30, 1997 and 1996 were $3.59 and $2.85 respectively. The Company amortizes
the estimated fair value of options over the options' vesting period. In
estimating the fair value of each option, the Company uses the Black-Scholes
option valuation method. The Black-Scholes model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models, such as the
Black-Scholes model, require the input of highly subjective assumptions
including the expected stock price volatility which are subject to change from
time to time. For this reason, and because the SFAS No. 123 fair value-based
method of accounting has not been applied to options granted prior to July 1,
1995, the resulting pro forma compensation costs are not necessarily indicative
of costs to be expected in future years.
In May 1996, Chemfab Corporation's Board of Directors authorized the
repurchase, at management's discretion, of up to 400,000 shares of the Company's
common stock during any one fiscal year. In May 1997, Chemfab Corporation's
Board of Directors increased the authorization to 500,000 shares for fiscal
1997. Subsequently, Chemfab Corporation's Board of Directors increased the
authorization to repurchase up to 600,000 shares of the Company's common stock
during any one fiscal year.
NOTE 9 - RETIREMENT PLANS
DEFINED BENEFIT PLANS
The Company has three defined benefit pension plans covering substantially
all of its employees. The Retirement Plan for Employees of Chemfab Corporation
("U.S. Plan") provides pension benefits for the Company's domestic employees.
The "Irish Pension Plan" provides benefits to employees of the Company's
subsidiary in Ireland and the "Tygaflor Pension Plan" provides pension benefits
to employees of the Company's U.K. subsidiary. The plans provide pension
benefits that are based on the employee's compensation and service. The
Company's funding policy is to fund amounts required by applicable government
regulations. The U.S. plan is non-contributory while the Irish and Tygaflor
plans require employee contributions of 5% and 6%, respectively, of pensionable
salary.
Net pension expense for the domestic plans for fiscal 1997, 1996 and 1995
consisted of the following:
1997 1996 1995
---- ---- ----
(in thousands)
Service Cost: benefits earned
during the period $ 376 $ 318 $ 327
Interest cost on projected
benefit obligation 340 312 292
Return on assets (777) (406) (422)
Deferral of gains 378 122 183
Amortization of prior service cost 96 96 96
Amortization of gain (10) (8) (1)
----- ------ ------
Net pension expense $ 403 $ 434 $ 475
===== ===== =====
The following table sets forth the funded status of the Company's
domestic defined benefit pension plans at June 30, 1997 and 1996:
1997 1996
---- ----
(in thousands)
Actuarial present value of:
Vested benefit obligation $3,832 $3,216
Non-vested benefit obligation 139 110
------ ------
Accumulated benefit obligation 3,971 3,326
Additional amount related to
projected wage increases 1,488 1,419
----- ------
Projected benefit obligation 5,459 4,745
Unrecognized prior service costs (453) (549)
----- -----
$5,006 $4,196
====== ======
Plan assets at fair value (primarily U.S.
publicly traded stocks and bonds
and Government Securities) $5,263 $4,593
1997 1996
---- ----
(in thousands)
Accrued pension liability recognized
on consolidated balance sheets 648 245
Unrecognized net gain (905) (642)
------ ------
$5,006 $4,196
====== ======
Assumptions used in determining
actuarial present value of
plan benefit obligations:
1997 1996 1995
---- ---- ----
Discount rate 7.25% 7.50% 7.50%
Average rate of increase in
compensation levels 4.50% 5.50% 5.50%
Expected long-term rate of
return on plan assets 9.00% 7.50% 7.50%
Net pension expense for the Irish Plan in fiscal 1997, 1996 and 1995 was
$156,000, $106,000, and $67,000 respectively. Certain Tygaflor employees were
covered by the seller's pension plan until September 1995. In September 1995, a
new plan was established, the cost of which was $208,000 and $141,000 in fiscal
1997 and fiscal 1996, respectively. Information concerning the components of
net pension expense and the funded status of the Company's Irish Plan and
Tygaflor Plan have not been provided since the amounts are not significant.
DEFINED CONTRIBUTION PLAN
The Company sponsors a Savings and Security Plan and Trust ("the Savings
Plan") for its eligible U.S. employees. Subject to certain limitations,
eligible employees may elect to contribute a percentage of their salaries
ranging from 1% to 12%. The Savings Plan also contains an employer contribution
formula equal to 25% of the first 6% of compensation that each participant
defers under the Savings Plan. In addition, the Savings Plan provides that the
Company may make an annual supplemental discretionary contribution to the
Savings Plan based on its profitability. The discretionary contributions are
allocated to eligible U.S. employees employed by the Company at the end of the
relevant plan year based upon years of service and employee contributions made
during the plan year. Total employer contributions made to this plan for the
fiscal years ended June 30, 1997, 1996 and 1995 were as follows:
(in thousands)
1997 . . . . . . . . . . $237
1996 . . . . . . . . . . $226
1995 . . . . . . . . . . $186
NOTE 10 - LEASE COMMITMENTS
The Company incurred rent expense for office and manufacturing facilities,
vehicles and office equipment of $883,000, $811,000, and $762,000 in fiscal
1997, 1996 and 1995, respectively, under various operating leases expiring
through 2001. Future minimum rental commitments at June 30, 1997 under
existing, non-cancellable operating leases with initial terms of one year or
more are as follows:
(in thousands)
1998 . . . . . . . . . . $822
1999 . . . . . . . . . . $579
2000 . . . . . . . . . . $129
2001 . . . . . . . . . . $ 18
NOTE 11 - CONTINGENCIES
In connection with obtaining incentive grants from the Industrial
Development Authority of Ireland to subsidize investments in plant and equipment
in Ireland, the Company's Irish subsidiary, Chemfab Europe, has agreed to
restrict repatriation of 410,000 Irish Pounds (U.S. $621,000) of its retained
earnings to fund repayment of the grants in the event of default under the
agreement. Chemfab Corporation has also provided a parent company guarantee in
the event that the subsidiary's equity, so restricted, is not sufficient to
repay any amounts due.
NOTE 12 - BUSINESS SEGMENT AND FOREIGN OPERATIONS
The Company operates in one business segment which focuses on the
development, manufacture and marketing of high-performance flexible composite
materials.
SALES TO MAJOR CUSTOMERS
Sales to the United States Government under prime contracts and
subcontracts for the fiscal years ended June 30, 1997, 1996 and 1995 were as
follows:
(in thousands)
1997 . . . . . . . . . . $7,607
1996 . . . . . . . . . . $6,216
1995 . . . . . . . . . . $2,146
BUSINESS SEGMENT AND FOREIGN OPERATIONS
SALES BY GEOGRAPHIC AREA
(in thousands)
United Elimi- Consol-
1997 States Europe(1) nations idated
- ---- --------- --------- --------- -------
Sales to unaffiliated
customers $ 57,458 $ 33,325 $ --- $ 90,783
Transfers between geographic
areas 3,337 836 (4,173) ---
--------- --------- ---------- ---------
Net sales $ 60,795 $ 34,161 $ (4,173) $ 90,783
========= ========= ========== =========
Income from operations $ 6,863 $ 6,257 $ --- $ 13,120
========= ========== ========== ========
Identifiable assets $ 48,213 $ 32,352 $ --- $ 80,565
========= ========== ========== ========
1996
- ----
Sales to unaffiliated
customers $ 54,172 $ 29,710 $ --- $ 83,882
Transfers between geographic
areas 2,546 362 (2,908) ---
--------- --------- --------- --------
Net sales $ 56,718 $ 30,072 $ (2,908) $ 83,882
========= ========= ========= ========
Income from operations $ 5,727 $ 5,904 $ --- $ 11,631
========= ========= ======== ========
Identifiable assets $ 47,056 $ 26,606 $ --- $ 73,662
========= ========= ======== ========
1995
----
Sales to unaffiliated
customers $ 47,147 $ 20,833 $ --- $ 67,980
Transfers between geographic
areas 2,793 623 (3,416) ---
--------- -------- -------- --------
Net sales $ 49,940 $ 21,456 $(3,416) $ 67,980
========= ======== ======== ========
Income from operations $ 4,137 $ 3,659 $ --- $ 7,796
========= ======== ======== ========
Identifiable assets $ 42,966 $ 27,653 $ --- $ 70,619
========= ======== ========= ========
(1) Fiscal 1997 includes amounts for subsidiaries in Japan, Brazil and China.
Transfers between geographic areas are accounted for at cost plus a
reasonable profit. Income from operations excludes interest expense and
interest income.
EXPORT SALES
The Company's export sales from the United States for the fiscal years
ended June 30, 1997, 1996 and 1995 were as follows:
1997 1996 1995
------- ------- -------
(in thousands)
Far East $ 6,830 $10,746 $ 7,694
Canada 850 695 899
Mexico 959 741 616
Australia 1,210 1,156 883
Europe and other 258 770 556
Central and South America 180 176 365
------- ------- -------
$10,287 $14,284 $11,013
======= ======= =======
NOTE 13 - RELATED PARTIES
The Company's balances and transactions with Nitto Chemfab Co., Ltd. as of
and for the years ended June 30, 1997, 1996 and 1995, were as follows:
1997 1996 1995
---- ---- ----
(in thousands)
Purchases from Company $ 402 $9,748 $6,677
Amount due to Company 83 3,282 1,708
Company's 39% Equity Investment in subsidiary --- --- ---
Amounts due to the Company are principally trade receivables carrying standard
trade terms.
In February 1995, two employees (one of whom is now a consultant to the
Company and was an officer of the Company until the termination of his
employment in June, 1997), acquired an ownership interest in Fothergill
Engineered Fabrics ("FEF"), a commercial weaver of specialty fibers in England.
FEF is also a raw material supplier to the Company's U.K. and Irish
subsidiaries, and owns the site on which the U.K. subsidiary operates. The
Company's transactions and balances with FEF for the years ended June 30, 1997
and June 30, 1996, and five months ended and as of June 30, 1995, were as
follows:
1997 1996 1995
---- ---- ----
(in thousands)
Sales to Company $1,801 $1,552 $704
Payments for shared services and rent 516 450 75
Amount due from Company 318 365 424
NOTE 14 - LEGAL PROCEEDINGS
In March 1991, the United States Environmental Protection Agency ("EPA")
informed the Company it was one of a number of Potentially Responsible Parties
("PRPs") under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") and related laws concerning the disposal of hazardous
waste at the Bennington Landfill Superfund Site in Bennington, Vermont (the
"Site"). Under these statutes, PRPs may be jointly and severally liable for the
cost of study and remediation actions at the Site and for other damages. While
denying liability, the Company has worked with the approximately twelve (12)
other Site PRPs to respond to the EPA's claim.
In April 1997, the EPA and the United States Department of Justice ("DOJ")
issued a Consent Decree to resolve Site-related claims against the Company and
the other PRPs. Under terms of the Consent Decree, the Company is a "de
minimis" party, eligible for settlement under section 122 (g) of CERCLA, and
entitled to statutory contribution protection. The Company's contribution to
the settlement is set at $180,000, of which the Company's insurance carriers
have agreed to pay $120,000. The Company executed the Consent Decree on April
10, 1997. Signatures from the necessary government officials have been obtained
by the EPA and the DOJ and the Consent Decree was filed with the United States
District Court for the District of Vermont on July 2, 1997. Assuming no
objections to the Consent Decree are filed, it is anticipated the United States
District Court will give final approval to the Consent Decree by the end of
calendar year 1997.
Upon approval of the Consent Decree by the Court, the Company will have 30
days to make its settlement payment. The Consent Decree provides for the
Company, upon payment of the settlement amount, to receive final convenants from
Federal and State Governments prohibiting those entities from taking further
civil or administrative action against the Company related to the Site, subject
to standard statutory reopeners. The Company is not aware of any other pending
or threatened claims or administrative actions involving the Site, and believes
that any such claims or actions would be unlikely.
The Company is involved in a number of other lawsuits as either a
defendant or a plaintiff. Although the outcome of such matters cannot be
predicted with certainty, and some lawsuits or claims may be disposed of
unfavorably to the Company, management believes that the disposition of its
current legal proceedings, to the extent not covered by insurance, will not have
a material adverse effect on the Company's Consolidated Financial Statements.
CHEMFAB CORPORATION QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Per Share
1997 Data (1)
---- ----------
Net Gross Net Net
Quarter Sales Profit Income Income
------ ------ ------ ------
First $19,938 $ 6,747 $1,700 $ 0.21
Second 22,127 7,458 2,125 0.26
Third 23,446 7,876 2,319 0.28
Fourth 25,272 8,863 2,962 0.36
------- ------- ------
Year $90,783 $30,944 $9,106 $ 1.10
======= ======= ======
Per Share
1996 Data (1)
---- ---------
Net Gross Net Net
Quarter Sales Profit Income Income
------- ------- ------ ------
First $18,466 $ 5,899 $1,359 $ 0.17
Second 20,885 6,942 1,821 0.22
Third 21,814 7,337 2,013 0.24
Fourth 22,717 7,931 2,521 0.31
------- ------- ------
Year $83,882 $28,109 $7,714 $ 0.94
======= ======= ======
(1) Computations of earnings per share for each quarter are independent and do
not necessarily equal the amount computed for the year. Amounts have been
adjusted to reflect the Company's three-for-two stock split in February 1996.
CHEMFAB CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(in thousands)
Balance at Charges Balance at
beginning to Deductions end
of year Expense and Other (1) of year
---------- ------- ------------- ----------
1997
- ----
Allowance for
doubtful accounts $382 $112 $ (127) $367
==== ==== ======= ====
1996
- ----
Allowance for
doubtful accounts $276 $201 $ (95) $382
==== ==== ======= ====
1995
- ----
Allowance for
doubtful accounts $154 $119 $ 3(2) $276
==== ==== ======== ====
(1) Uncollectible accounts written off, net of recoveries.
(2) Adjusted for valuation accounts acquired as part of the Tygaflor
acquisition.
COMMON STOCK COMMON STOCK
NUMBER SHARES
CHEMFAB
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 16361L 10 2
CHEMFAB CORPORATION
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $0.10 PER SHARE,
OF Chemfab Corporation transferable only on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon the surrender of
this certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amemdments thereto, to
all of which the holder of this certificate by acceptance hereof assents. This
certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
CERTIFICATE OF STOCK CHEMFAB CORPORATION 1983 DELAWARE
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NY)
/s/ Duane C. Montopoli PRESIDENT
----------------------
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE /s/ Moosa E. Moosa SECRETARY
------------------------
American Bank Note Company
(Reverse Side)
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each authorized class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-as tenants in common UNIF GIFT MIN ACT-_______Custodian_____
(Cust) (Minor)
TEN ENT -as tenants by the entireties under Uniform
JT TEN -as joint tenants with right of Gifts to Minors
survivorship and not as tenants Act ___________
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
______________________________________________________________________________
______________________________________________________________________________
_______________________________________________________________________ shares
of the capital stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint
________________________________________________ Attorney
to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated __________________________________
_________________________________________________________________
NOTICE THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- --------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
June 25, 1996
Mr. Moosa E. Moosa
20 Trinity Terrace
Newton Center, MA 02159
Dear Moosa:
On behalf of Chemfab Corporation, I'm pleased to offer you the position of Vice
President - Finance and Administration and Chief Financial Officer of Chemfab
Corporation. In this officer-level position, you will report directly to me.
Moosa, I truly look forward to having you join us. I'm confident that you have
the background and personal qualities needed to be successful at Chemfab, and
that you will make a significant contribution to our business as a key member of
our senior management team.
Enclosed with this letter are the following documents, each of which is an
integral part hereof:
Details of Offer of Employment
Summary Outline of Fringe Benefits
Automobile Policy for Corporate Officers.
Level A Employee Agreement
Form I-9
Policy Statement regarding Drug-Free Workplace and Pre-Employment Drug
Screening, and related Consent and Release for Medical Examination and
Testing.
As you know, this employment offer is subject to Chemfab Board approval, which I
will seek within five business days of your acceptance. Furthermore, this offer
is conditioned on the following:
(1) Your entering into a Level A Employee Agreement with the Company (form
enclosed) at the time of commencement of your employment. This is a standard
form which all of Chemfab's officers have signed.
Mr. Moosa E. Moosa
June 25, 1996
Page 2
(2) Passing a urine drug screening analysis which will be conducted as part of
Chemfab's Pre-Employment Medical Evaluation. See attached forms for details and
required consent and release.
(3) Your providing to Chemfab, on your first day of employment (which we've
agreed will be July 29, 1996), with proof of legal employability. I refer you
to the enclosed Form I-9 regarding what is required in that regard.
This letter will also confirm your representation that you have not entered into
any non-disclosure or non-competition agreements with Freudenberg Nonwovens LP.
while in its employ. Had you done so, this offer would also be subject to our
review of any such agreements.
If you have any questions regarding the content of this letter, please do not
hesitate to call me. If these terms and conditions are acceptable to you,
please confirm same by signing one copy of this letter and returning it to me
not later than July 1, 1996. As stated above, I very much look forward to
having you join us.
Very truly yours,
Duane C. Montopoli
President and
Chief Executive Officer
DCM/jea
Enclosures
I hereby accept this offer of employment in its entirety as described above.
June 27, 1996 /s/ Moosa E. Moosa
- ----------------- ----------------------------------------------------
Date Signature
June 25, 1996
Mr. Moosa E. Moosa
DETAILS OF OFFER OF EMPLOYMENT
------------------------------
Position: Vice President - Finance and Administration and Chief
- --------- Financial Officer. Reporting to you will be Chemfab's
Corporate Controller and the corporate accounting staff at
our Merrimack, NH headquarters. You will report to
Chemfab's Chief Executive Officer, Duane C. Montopoli.
Cash Compensation: $136,000 per annum base salary with an annual review on or
- ----------------- about September 1st. Additionally, you will receive a cash
payment of $10,000 when you commence working at Chemfab.
You will also be eligible to participate in Chemfab's
Officer Bonus Plan for FY 1997 (i.e. our year which ends
June 30, 1997) and for each fiscal year thereafter. Please
note that annual bonuses under this Plan are determined
based on both corporate and individual performance, and are
subject to the terms and conditions of the plan as in effect
each year.
Equity: Effective on your first day of employment with Chemfab,
- ------- you will be granted non-qualified stock options on 45,000
shares of Chemfab common stock at an exercise price equal to
the closing price on that day. These options will vest
(i.e. become exercisable) as follows:
One year from date of employment 11,250 shares
Two years from date of employment 11,250 shares
Three years from date of employment 11,250 shares
Four years from date of employment 11,250 shares
------
TOTAL . . . . . . . . . . . . . . 45,000
If prior to the scheduled vesting date of any of the above-
listed options Chemfab is acquired by another entity (i.e.
there is a change of control), the vesting of all such
options (i.e. the as yet unvested options) shall be
accelerated to the date which is one day prior to the
corporate acquisition date.
Benefits: See attached Summary Outline and Automobile Policy.
- --------
Severance: In the unexpected circumstance that
- ---------- your employment is terminated by Chemfab for any reason
other than for Cause (as defined in the enclosed Level A
Employee Agreement), you will qualify for salary
continuation (i.e. severance pay) during the six-month
period following termination date, subject to dollar-
for-dollar reduction for cash amounts received by you or
accrued for your benefit from any successor employer or
other entity that pays you for services rendered during
that period.
Moving Expenses: If, while in the employ of Chemfab and within two years
- --------------- from the commencement thereof, you change your principal
residence to a location closer to Chemfab's Merrimack,
NH headquarters site, the Company will pay the entire
actual cost of moving your household effects plus it
will provide you with a $1,000. cash payment to cover
incidental expenses incurred in the move.
CHEMFAB CORPORATION
AMENDMENT NO. 1 TO
SECOND AMENDED AND RESTATED
1991 STOCK OPTION PLAN
1. Effective as of May 1, 1997, subsection (c) of Section 6 of the
Corporation's Second Amended and Restated 1991 Stock Option Plan (the "1991
Plan") was deleted in its entirety.
2. Effective as of May 1, 1997, the following sentence was inserted
following the last sentence of Section 20 of the 1991 Plan:
The deletion of Section 6(c), which did not require shareholder
approval, was approved by the Board of Directors on May 1, 1997.
DATED 18 JANUARY 1991
---------------------
HOWARD THOMAS GIBSON
- and -
JOAN GIBSON (1)
CHEMFAB HOLDINGS U.K. LIMITED (2)
CHEMICAL FABRICS EUROPE (3)
---------------------------------
SHARE PURCHASE AGREEMENT
relating to
Fluorocarbon Fabrications Limited
---------------------------------
Withers
20 Essex Street
London
WC2R 3AL
Tel: 071-836 8400
Tlx: 24213 WITHER G
Fax: 071-240 2278
Ref: CAS
CONTENTS
---------
Page No.
--------
PARTIES
-------
RECITALS
--------
1. Interpretation 1
2. Sale of Shares 2
3. Consideration 2
4. Completion Accounts 3
5. Escrow Account 5
6. Completion 6
7. Loans 7
8. Restriction on Vendors 8
9. Warranties 10
10. Limitation of Liability 11
11. Nature of obligations 16
12. Confidentiality and Announcements 16
13. Further Assurance 17
14. Employees 17
15. Costs 17
16. Waiver of Pre-emption Rights 17
17. Notices 17
18. Miscellaneous 18
Schedule 1 - Vendors 21
Schedule 2 - Definitions 22
Schedule 3 - Directors 25
Schedule 4 - Representations and Warranties 26
Schedule 5 - Deed of Indemnity 48
Schedule 6 - Fixed Assets 54
THIS AGREEMENT is made the 18 of January 1991
PARTIES : -
(1) The Persons whose names and addresses are set out in the first column of
Schedule 1 (together called "the Vendors"); and
(2) CHEMFAB HOLDINGS U.K. LIMITED ("the Purchaser") a company registered in
England under number 2560118 with its registered office at 20 Essex Street,
London WC2R 3AL
(3) CHEMICAL FABRICS EUROPE ("the Guarantor") a company registered in Ireland
with its registered office at Kilrush, County Clare, Republic of Ireland.
RECITALS : -
(A) The Vendors and Chemical Fabrics Corporation ("Chemfab") entered into
Heads of Agreement on 5th November 1990 ("the Heads of Agreement") pursuant
to which the Vendors agreed subject to contract to sell all of the issued
and allotted shares of the Company to Chemfab or its Affiliate as therein
defined
(B) The Vendors are the beneficial owners of the whole of the issued and
allotted shares of the Company (as defined in Schedule 2) in the respective
amounts set out opposite their names in Schedule 1.
(C) The Vendors have the right, power and authority to sell and procure the
transfer of such shares free from any claims, charges, liens,
encumbrances or equities.
(D) The Purchaser is an affiliate of Chemfab and wishes to purchase and the
Vendors wish to sell the issued and allotted shares of the Company owned
by the Vendors on the terms and conditions and on the basis of the
representations, warranties, undertakings, agreements and indemnities
hereinafter mentioned.
NOW IT IS HEREBY AGREED:
1. INTERPRETATION
--------------
1.1 In this Agreement and in the Schedules except where the context
otherwise requires the words and expressions defined in Schedule 2
shall have the meanings respectively there given to them.
1.2 Subject to Clause 1.1, words and phrases the definitions of which are
contained or referred to in Part XXVI Companies Act 1985 shall be
construed as having the meaning thereby attributed to them.
1.3 References to statutory provisions shall be construed as references to
those provisions as re-enacted or as their application is modified by
other provisions (whether before or after the date hereof but not so
as to increase or impose any liability upon the Vendors under the
Warranties or Indemnities) from time to time and shall include
references to any provisions of which they are re-enactments (whether
with or without modfication) and shall also include statutory
instruments or orders from time to time made pursuant to them.
1.4 Any document expressed to be "in the approved form" means a document
approved by (and for the purpose of identification signed by or on
behalf of) the parties hereto.
1.5 References to clauses and schedules are references to clauses and
schedules in this Agreement and references to sub-clauses are,
unless otherwise stated, references to sub-clauses of the clause in
which the references appear.
1.6 The headings in this Agreement and the Schedules are inserted for
convenience only and shall not affect the construction of this
Agreement.
2. SALE OF SHARES
--------------
2.1 Subject to the terms of this Agreement each of the Vendors as
beneficial owner shall sell and the Purchaser shall purchase, free
from all liens, charges, adverse claims and encumbrances and together
with all rights now or hereafter attaching thereto the number of
ordinary shares in the capital of the Company set opposite his name
in the second column of Schedule 1.
2.2 The Purchaser shall not be obliged to complete the purchase of any of
the Shares unless the purchase of all the Shares is completed
simultaneously.
3. CONSIDERATION
-------------
3.1 Subject to Clauses 3.2 and 4 below, the price payable to the Vendors
for the Sale Shares ("the Purchase Price") will be TWO HUNDRED
THOUSAND POUNDS ( Pounds 200,000).
3.2 The Purchase Price will be satisfied by payments in cash as follows.
3.2.1 the sum of Pounds 175,000 by telegraphic transfer to the Vendors'
Solicitors designated bank at Completion;
3.2.2 the sum of Pounds 25,000 into an interest bearing deposit account
in the joint names of the Purchaser's Solicitors and the Vendors'
Solicitors ("the Escrow Account") on the terms set out in Clause 5.
4. Completion Accounts
--------------------
4.1.1 As soon as practicable and in any event within 45 days of Completion
the Vendors' Accountants (at the cost of the Vendor or (so far as
may be lawful so to do) as a cost accrued to the Company) will
prepare a balance sheet of the Company as at the date of Completion
and a profit and loss account of the Company for the period from 1
November 1990 to the close of business on the day before the date of
Completion ("the Completion Accounts") and a certificate of the Net
Asset Value of the Company as at Completion (the "NAV Certificate")
using the same accounting policies as used in the Accounts and
deliver the Completion Accounts and the NAV Certificate to the
Purchaser.
4.1.2 At its election and at its own cost the Purchaser will either carry
out its own audit or review the work of the Vendors' Accountants and
within 45 days of delivery of the NAV Certificate notify the Vendors
as to whether or not it approves the NAV Certificate.
4.1.3 In the event that the Purchaser shall not within such period of 45
days agree the Net Asset Value then the Vendors and the Purchaser
shall together attempt to resolve any such written queries and
observations that have been raised by the Purchaser with regard
thereto. If no such resolution has been agreed between the parties
within a further period of 14 days of notification to the Vendors by
the Purchaser, the matter shall be referred to an independent firm of
chartered accountants as may be appointed by agreement between the
Vendors and the Purchaser or, failing such agreement within 7 days,
by the President of the Institute of Chartered Accountants in England
and Wales for the time being. The decision of such chartered
accountants (acting as experts and not as arbitrators) shall, in the
a bsence of manifest error, be final and binding upon the parties
and shall be incorporated in or otherwise dealt with in the NAV
Certificate. The fee of such chartered accountants shall be borne as
such independent firm shall determine, or, in the absence of any such
determination, equally by the Vendors and the Purchaser.
4.1.4 In the event that the Purchaser does not raise any queries or
observations in respect of the Completion Accounts and the N.A.V.
Certificate within 45 days of their delivery to it or if they shall
agree the Completion Accounts and the N.A.V. Certificate then (and in
either such case) the Net Asset Value shall be as stated in the
N.A.V. Certificate and the Purchaser shall be deemed to have agreed
for all purposes of this Agreement the Net Asset Value of the Company
4.1.5 IT IS HEREBY AGREED tht in preparing the Completion Accounts and the
N.A.V. Certificate, the Vendors' Accountants shall not be required to
re-circulate any of the debtors of the Company in respect of debts in
respect of which contact was made in the preparation of the Accounts
but the Purchasers may, if they so decide and to the extent that time
permits in accordance with Clause 4.1.2, re-circulate such debtors in
carrying out their review under such Clause.
4.2 In the event that the Net Asset Value is agreed, certified or
determined to be more or less than SEVENTY SIX THOUSAND POUNDS
(Pounds 76,000) sterling as at Completion, the Purchase Price shall
be accordingly increased or decreased respectively on a pound for
pound basis.
4.3 For the purposes of the NAV Certificate, the Fixed Assets of the
Company, being those listed in Schedule 6, shall be deemed to have an
aggregate fair value of TWELVE THOUSAND SIX HUNDRED AND TEN POUNDS
(Pounds 12,610) sterling. In addition stock will be valued on the
same basis as in the accounts for the periods ended 31 October 1989
and 31 October 1990 using the same accounting principles consistently
applied.
4.4 For the purposes of this Agreement, Fixed Assets shall be defined
as only the property, plant and equipment owned by the Company at
Completion shown in Schedule 6.
4.5 Immediately following completion of the Completion Accounts and
agreement or adjudication of the NAV Certificate the Purchaser
shall procure the resignation of the Vendors Accountants as
Auditors of the Company, together with their acknowledgement
that no monies are owed to them by the Company and a statement in
accordance with Section 394 of the Companies Act 1985.
5. Escrow Account
--------------
Upon agreement or adjudication of the NAV Certificate: -
5.1 if the Net Asset Value is greater than Pounds 76,000, an amount equal
to the excess over Pounds 76,000 will be paid in cash to the Vendors
together with the amount (including interest) in the Escrow
Account within five (5) working days.
5.2 if the Net Asset Value is found to be less than Pounds 76,000 but
not less than Pounds 51,000, the difference below Pounds 76,000 will
be paid out of the Escrow Account to the Purchaser within five (5)
working days together with interest accrued on that amount from
Completion until the date of payment;
5.3 if the Net Asset Value is found to be less than Pounds 51,000, in
addition to the payment out of the Escrow Account pursuant to
Clause 5.2, the Vendors will pay the balance to the Purchaser within
five (5) working days;
5.4 the remaining balance in the Escrow Account after the application
of Clause 5.2 above, together with accrued interest, will then be
immediately paid out to the Vendors as the balance of the Purchase
Price;
5.5 if the Net Asset Value is found to be exactly Pounds 76,000, the
balance in the Escrow Account (including interest) will be paid to the
Vendors within five (5) working days.
5.6 Any sums which are not paid to the other party as required under
Clause 5.1 or 5.3 or Clause 7 shall bear interest (which shall accrue
from day to day after as well as before any judgment for the same) at
the rate of 4% per annum over the base rate of the National
Westminster Bank Plc from that date up to and including the date of
actual payment of such sums.
6. COMPLETION
----------
6.1 Subject to the provisions of this clause Completion shall take
place on 17 January 1991 whereupon:
6.1.1 The Vendors shall deliver to the Purchaser:
6.1.1.1 duly executed transfers of the Shares by the registered holders
thereof in favour of the Purchaser or its nominees together with
the relevant share certificates;
6.1.1.2 statements in respect of all bank accounts of the Company as at a date
not more than 2 working days before Completion and all cheque books
and bankers' cards in respect thereof;
6.1.1.3 such waivers or consents in the approved form as the Purchaser may
require to enable the Purchaser or its nominees to be registered as
holders of the Shares; and
6.1.1.4 the Supply Agreement in the approved form signed by Aerovac Systems
(Keighley) Ltd;
6.1.2 The Vendors shall deliver to the Purchaser:
6.1.2.1 the Deed of Indemnity duly executed by the covenantors named
therein;
6.1.2.2 all the statutory and other books (duly written up to but excluding
the date of Completion) of the Company and its certificate of
incorporation and common seal;
6.1.3 The Vendors shall procure:
6.1.3.1 a board meeting to be held at which such persons as the Purchaser
shall before completion have nominated to be appointed as directors
and as new secretary of the Company be appointed and, upon such
appointment, forthwith cause the Directors and the secretary or
secretaries of the Company to retire from their respective offices
and as employees each delivering to the Purchaser a letter under seal
in the approved form acknowledging that the person so retiring
has no claim or right of action outstanding of whatever nature against
the Company excluding sums due to them pursuant to Clause 7 but
including but not limited to claims or rights of action for breach of
contract wrongful dismissal, compensation for loss of office, unfair
dismissal or redundancy;
6.1.3.2 amendment of all authorities to the bankers of the Company relating to
bank accounts to give authority to such persons as the Purchaser may
prior to Completion have nominated to operate the same;
6.1.3.3 the repayment of all loans due to the Company from and all loans due
from the Company to every other company in the issued share capital of
which the Vendors have directly or indirectly an interest;
6.1.3.4 save as provided in Clause 7 below, the repayment of all loans
due from the Company to and all loans due to the Company from
directors or employees of the Company including repayment of the loan
from the directors' pension scheme by the Company;
6.1.3.5 the payment up to Completion of all directors' fees, expenses,
pensions configurations and bonuses (if any) of all directors in the
amounts disclosed in the Disclosure Letter;
6.1.4 The Purchaser shall:
6.1.4.1 pay the amount of Pounds 175,000 as provided by Clause 3
(payment to be made by way of banker's draft or telegraphic transfer
to the Vendors' whose receipt shall be an absolute discharge and the
Purchaser shall not be concerned with the allocation or distribution
amongst the Vendors of any sum paid by way of consideration
hereunder); and
6.1.4.2 deliver to the Vendors a counterpart of the Deed of Indemnity duly
executed by the Purchaser and the Company;
6.1.4.3 deliver to the Vendors the Supply Agreement in the approved form
signed by its affiliate Chemical Fabrics Europe.
7. LOANS
-----
7.1 The Vendors agree to provide the Company an interest free loan of
Pounds 54,231 representing part of the ACT paid on 14 November 1990
on the pre-sale dividend of Pounds 200,000 declared in the period
ended 31 October 1990. The Purchaser hereby undertakes to procure
the Company to repay the loan on the date and to the extent the
Company receives the ACT refund or any part thereof without set-off or
any reduction in mainstream corporation tax attributable thereto.
The Vendors acknowledge that in respect of Pounds 47,543 of the
loan the Purchaser's undertaking is limited to taking no action
to prevent collection or remittance to the Vendors by the Vendors'
Accountants in accordance with a letter of instruction by the Company
to the Vendors' Accountants dated 14 December 1990. The Purchaser
undertakes to file its 1991 Corporation Tax Return at the earliest
possible date once the audited figures are available to complete such
calculation and further undertakes itself and undertakes to procure
that the Company and all of its holding and subsidiary companies take
no steps which will cause a delay or reduction in the ACT refund or
the said reduction in mainstream corporation tax.
7.2 In addition the Vendors will maintain a loan to the Company in an
amount sufficient at the date of Completion to ensure that the Company
does not have an overdraft in its bank account being the sum of
Pounds NIL. The Purchaser hereby undertakes to procure the Company
to repay the loan referred to under this Clause 7.2 as soon as funds
are available but in any event within 90 days of Completion.
8. RESTRICTIONS ON VENDORS
-----------------------
8.1 The Vendors hereby undertake with the Purchaser and the Company that
except with the written consent of the Purchaser they, either
separately or together will not:
8.1.1 for the period of five (5) years from Completion, directly or
indirectly, on their own account or jointly with or for any other
person, firm or company be engaged or concerned or interested in
any business, firm or company carrying on business in the area
comprising the United Kingdom and France which is competitive with any
business carried on by the Company within 2 years prior to Completion,
provided that nothing in this clause shall prevent any of the Vendors
from being the holder of or from being beneficially interested in any
class of securities in any company if such class of securities is
listed on The Stock Exchange, traded in the Unlisted Securities Market
or any other recognised stock exchange where the relevant Vendor
neither holds nor is beneficially interested in more than a total of 5
per cent of all the issued securities of that class; or
8.1.2 for a period of five (5) years from Completion either personally or
by their agent or by letters, circulars or advertisements and
whether for themselves or on behalf of any person, firm or company,
canvass or solicit orders for goods (of similar type to those being
manufactured or dealt in or for services similar to those being
provided by the Company within 2 years prior to Completion] from any
person, firm or company who or which is at Completion or has been at
any time within eighteen months prior to Completion a customer of the
Company; or
8.1.3 at any time hereafter make use of or disclose or divulge to any third
party (other than to officers or employees of the Company whilst it
remains under the ownership and control of the Purchaser and whose
province it is to know the same or to the Purchaser, or except insofar
as they shall have a statutory duty so to do) any information of a
secret or confidential nature relating to any business of the Company.
This restriction shall cease to apply to any information or
knowledge which may come into the public domain other than through the
act or default of either of the Vendors; or
8.1.4 at any time hereafter in relation to a business competitive with any
business carried on by the Company in the period 2 years prior
to Completion use or (insofar as they can reasonably do so) allow to
be used any trade name (save for "Fluorovac") used by the Company at
Completion or any other name intended or likely to be confused
therewith; or
8.1.5 at any time during the period of 3 years hereafter solicit or
induce, or endeavour to solicit or induce, anyone other than the
Vendors who is an employee of the Company at the date hereof or at
Completion to leave the employment or service of the Company save with
the prior written consent of the Purchaser.
8.2 The reference to the Company in clause 8.1 shall include its
successors in business.
8.3 Each of the covenants contained clause 8.1 shall be enforceable by the
Purchaser independently of each of such other covenants and shall not
be affected by any unenforceability or invalidity of any of such other
covenants.
8.4 The Vendors hereby acknowledge and agree that having obtained
professional advice, the covenants contained in this clause are fair
and reasonable in the context of this Agreement as a whole.
8.5 If any of the restrictions contained in this clause shall be found to
be void but would be valid if some part thereof were deleted, or the
period or area of application reduced, such restriction shall apply
with such modification as may be necessary to make it valid
and effective.
8.6 Nothing contained in this Agreement shall prevent the Vendors, either
separately or together, from directly or indirectly, on their own
account or jointly with or for any other person, firm or Company be
engaged or concerned or interested in and may either personally or by
their agent or by letters, circulars or advertisements and whether for
themselves or on behalf of any person, firm or Company canvass or
solicit orders for goods in relation to:-
8.6.1 any business engaged in the cutting and forming of PTFE glass cloth
shapes for sale into the composite fibre reinforced resin,
electronic/PCB and glass laminated industries; and
8.6.2 vacuum/pressure composite film lamination.
9. WARRANTIES
----------
9.1 The Vendors jointly and severally warrant to the Purchaser in the
terms of Schedule 4 as at Completion and it is hereby declared that
the Purchaser has entered into this Agreement in reliance on the
Vendors so warranting.
9.2 The Warranties are given subject to matters expressly disclosed in
the Disclosure Letter and to the other provisions of this Agreement
but no other information relating to the Company of which the
Purchaser has knowledge (actual, imputed or constructive) shall
prejudice any claim made by the Purchaser under the Warranties or
operate to reduce any amount recoverable.
9.3 The Warranties set out in each sub-paragraph or paragraph of Schedule
4 shall be separate and independent, and save as expressly provided,
shall not be limited by reference to any other sub-paragraph or
anything in this Agreement or the Schedules.
9.4 The Vendors hereby acknowledge to and agree with the Purchaser (as
trustee for the Company) that, in making the Warranties and preparing
the Disclosure Letter, the Vendors have not relied on any information
or advice supplied or given by the Company or its officers and
employees and hereby waive any rights which they may have against them
in respect of any misrepresentation, inaccuracy or omission in or from
any such information and advice.
9.5 Where any of the Warranties is qualified by the words "to the best of
the knowledge, information and belief of the Vendors" or "as far as
the Vendors are aware" or any similar expression there shall be
deemed to be included (save where expressly stated) an additional
warranty that the Vendors have made due and careful enquiry in
respect of such matters.
9.6 The Vendors hereby warrant to the Purchaser (for itself and as trustee
for and for the benefit of the Company that they will at all times
keep the Purchaser and the Company indemnified from and against all
costs, claims, damages, demands, expenses, losses and liabilities
which the Purchaser and/or the Company may sustain incur or pay by
reason of any breach or non-fulfilment of any of the Warranties
numbered 3, 5, 7, 8, 9, 18.2, 18.4, 24, 25, 27 and 40.
10. LIMITATION OF LIABILITY
-----------------------
10.1 The liability of the Vendors under this Agreement (which for the
avoidance of doubt for the purposes of this Clause shall be deemed to
include the Schedules thereto) and under the Deed of Indemnity shall
be limited in accordance with the following provisions of this Clause
notwithstanding any other provision of this Agreement or the Deed
of Indemnity and where any such other provisions appear to be in
conflict or inconsistent with this Clause the provisions hereof shall
prevail.
10.2 The liability of the Vendors under this Agreement and under the
Deed of Indemnity shall in respect of matters relating to Tax cease
six years from the Completion Date and in relation to all other
matters shall cease on 31st January 1993 unless as regards any alleged
specific breach of any of the warranties or any Tax Claim notice in
writing (containing details of the circumstances giving rise to such
breach or claim, the nature thereof and the total amount or alleged
liability therefor), shall have been served on the Vendors within
the respective periods aforementioned and further provided that
proceedings shall have been commenced and served on the Vendors within
six months of the giving of the notice as aforesaid.
10.3 The liability of the Vendors under this Agreement and under the Deed
of Indemnity including for this purpose all reasonable costs and
expenses of or incidental to the negotiation, presentation and
settlement of any claim which the Vendors agree to pay shall not in
aggregate exceed Pounds 200,000 subject to adjustment following the
Completion Audit.
10.4 The Purchaser shall not be entitled to make any claim under the
Warranties or under the Deed of Indemnity until the aggregate of all
claims has reached Pounds 5,000 when the whole of such claims shall be
presented by the Purchaser to the Vendors for payment.
10.5 The Vendors shall have no liability under this Agreement in respect of
any loss if and to the extent that the same is covered by any policy
of insurance effected by the Company at the date hereof under which
the Purchaser is able to recover its loss.
10.6 The Purchaser shall have no claim against the Vendors under the
provisions of this Agreement to the extent of the amount of any
specific provision or reserve in the Completion Accounts or note in
the Accounts for any liabilities (including but not limited to
contingent unqualified and disputed liabilities and including
provisions for Tax) which would otherwise have been the subject of
such claim.
10.7 The Vendors shall have no liability under this Agreement for any claim
which would not have arisen but for some voluntary act or transaction
carried out by or on behalf of the Purchaser and/or the Company after
Completion.
10.8 The Purchaser shall have no claim against the Vendor under this
Agreement to the extent that such claim arises as a result only of any
provision or reserve in respect thereof being insufficient by reason
of an increase in rate of Tax made after the Accounting Date.
10.9 The Purchaser (which shall for this purpose include the Company) shall
not be entitled to recover from the Vendors under this Agreement and
under the Deed of Indemnity more than once in respect of the same
damage suffered.
10.10 In the event of the Purchaser becoming aware of any claim under this
Agreement (as opposed to claim under the Deed of Indemnity) it shall
as soon as reasonably practicable procure that notice of such claim
and circumstances giving rise thereto is given to the Vendors. Subject
to being fully indemnified by the Vendors to its reasonable
satisfaction the Purchaser or the Company as appropriate will at the
request and cost of the Vendors take such action as the Vendors may
reasonably request to enforce any claim which either the Purchaser or
the Company may have against any third party in respect of such claim
under this Agreement and shall account to the Vendors for any amount
recovered.
10.11 If any provision for any liabilities including contingent unquantified
and disputed liabilities and including provisions for Tax or in
respect of any assets (including debts) reflected in the Accounts or
the Completion Accounts proves to have been unnecessary or if the
Company recover any debts or parts thereof which have been treated as
doubtful or bad for the purposes of the Accounts or the Completion
Accounts the amounts of such provision or recovery as the case may be
shall be set off against the liability (if any) of the Vendors under
this Agreement or under the Deed of Indemnity.
10.12 Any amount paid by the Vendors to the Purchaser under this Agreement
or under the Deed of Indemnity shall be treated as a reduction in the
Purchase Price payable to the Vendors hereunder and any sum
subsequently received or benefit received by the Purchaser or the
Company from third parties in respect of any amount paid by the
Vendors under this Agreement or under the Deed of Indemnity shall
forthwith be paid to the Vendors.
10.13 The Purchaser hereby warrants and represents to the Vendors that, at
the date hereof, the Purchaser is not aware of any matter, fact or
thing as may be inconsistent with any of the Warranties or that may
give rise to any liability on the part of the Vendors hereunder.
10.14 If any breach or claim arising under the Warranties or under the
Indemnities shall arise by reason of some liability of the Company
which, at the time the breach is notified to the Vendors, is
contingent only, the Vendors shall not to be under any obligation to
make any payment to the Company or the Purchaser thereunder until such
time as the contingent liability shall become an actual liability.
10.15 No liability shall attach to the Vendors under the Warranties to the
extent that
(a) the Net Asset Value (after making allowance for Taxation or
adjustments to capital allowances and other consequential
adjustments) of the Company is increased bv reason that: -
(i) any assets held at Accounts Date were not included in the
Accounts or the value of any such assets shall have been
understated in the Accounts;
(ii) any losses or other allowable sums previously unutilised
become available for set off against Tax;
(b) the subject matter thereof is fully taken into account in
determining the Net Asset Value of the Company.
10.16 No breach of the Warranties or claim under the Indemnities shall in
any event give rise to a right on the part of the Purchaser to rescind
or terminate this agreement following Completion. The sole remedy of
the Purchaser in respect of any breach of the Warranties shall
be in damages.
10.17 Nothing herein or in the Warranties or the Indemnities shall be
deemed to relieve the Purchaser or the Company from any common law
duty to mitigate any loss or damage incurred by either of them.
10.18 The Purchaser hereby acknowledges that no reliance has been placed nor
will at any time hereafter be placed by the Purchaser on any
representation or warranty (whether expressed or implied and whether
written or oral) relating to the Company other than the
Warranties and accordingly all representations and warranties (whether
expressed or implied, statutory or otherwise) on the part of the
Vendors other than the Warranties are hereby excluded.
10.19 The Purchaser shall not be entitled to make any claim under or
pursuant to the Warranties or the Deed of Indemnity in relation to:
10.19.1 any matter where the claim arises as a result of, or would not
have arisen but for, legislation not in force at the date of this
Agreement, or any change in legislation with retrospective effect
after the date of this Agreement;
10.19.2 any claim which has been made good or is otherwise compensated for
otherwise than by the Company or the Purchaser.
10.20.1 Within 30 days after circumstances have come to the notice of the
Purchaser or the Company which will, or are likely to, or may give
rise to a claim under the Warranties or the Deed of Indemnity give to
the Vendors written notice of such claim and in particular (but
without prejudice to the generality of the foregoing) shall give such
written notice of any claim by or against, or any liability of or to
any third party (or of circumstances which become known to the
Purchaser and/or the Company likely or capable of giving rise to any
such claim or liability) in consequence of which the Vendors will or
may become liable for a claim under the Warranties or the Deed of
Indemnity, and further shall not settle or compromise any such claim
or liability without the prior written consent of the Vendors (such
consent not to be unreasonably withheld or delayed); and
10.20.2 at all times allow the Vendors and its professional advisers and other
agents access to and to inspect and take copies of, all necessary b
books, and files and records of the Company for the purpose of
assessing and dealing with any such claim or liability.
10.21 If the Purchaser is entitled to make a claim both under the Warranties
and under the Deed of Indemnity, the claim shall be made first under
the Warranties, and any amount payable under the Deed of Indemnity
shall be reduced to the extent of such claim.
11. NATURE OF OBLIGATIONS
---------------------
11.1 Each of the Obligations shall be binding on the respective successors,
estates and personal representatives of the Vendors.
11.2 If any shares in the Company shall at any time be sold or transferred
the benefit of each of the Obligations shall be assignable to the
purchaser or transferee of such shares without the consent of the
Vendors if the purchaser or transferee is an associated company of
the Purchaser and with the consent of the Vendors (such consent not to
be unreasonably withheld) in any other case. Such purchaser or
transferee shall be entitled to enforce each of the Obligations
against the Vendors as if he were named herein as the Purchaser.
11.3 Save as aforesaid none of the rights or obligations hereunder may be
assigned or transferred to any other person.
11.4 Warranties representations indemnities covenants agreements and
obligations given or entered into by more than one person are given or
entered into jointly and severally.
12. CONFIDENTIALITY AND ANNOUNCEMENTS
---------------------------------
The terms of the letter agreement dated 2nd July 1990 remain in full
force and effect save that from and after the execution of this
Agreement the Purchaser may make any disclosure or public announcement
it thinks fit or is required to make to comply with the requirements
of state or federal regulations or laws or the requirements of any
stock exchange provided that the Purchaser shall consult with the
Vendors if a proposed announcement refers to the Vendors or to Aerovac
Systems (Keighley) Limited.
13. FURTHER ASSURANCE
-----------------
The Vendors (at the Purchaser's reasonable request and expense) and
the Purchaser shall do and execute and perform all such further deeds,
documents, assurances, acts and things as either of them may
reasonably require bv notice in writing to give effect to the terms of
this Agreement.
14. EMPLOYEES
---------
14.1 The Vendors shall for a period of 6 months after Completion endeavour
to cause R. A. Knox to remain in the employment or as a consultant or
adviser to the Company after Completion.
14.2 The parties acknowledge that other employees of the Company will be
made redundant or dismissed on or after Completion. The Purchaser
agrees to consult with the Vendors in connection with such matters and
contribute up to Pounds 2,500 in relation thereto. Any additional
liability to such employees for compensation for termination of
employment or redundancy shall be borne by the Vendors and not by the
Company.
15. COSTS
-----
Save as for the costs of the Vendors' Accountants referred to in
Clause 4.1, each party to this Agreement shall pay its own costs of
and incidental to this Agreement and the sale and purchase hereby
agreed to be made.
16. WAIVER OF PRE-EMPTION RIGHTS
----------------------------
Each of the Vendors hereby waives all rights (if any) which he may
have under the articles of association of the Company or in any other
way to have any of the Shares offered to him for purchase before such
Shares may be offered to any other person.
17. NOTICES
-------
Any notice required to be given bv any of the parties hereto to any of
the others shall be deemed validly served by prepaid registered or
recorded delivery letter sent through the post to its address given
herein and in the case of the Purchaser copied simultaneously to the
Purchaser's solicitor and in the case of the Vendors copied to the
Vendors' Solicitor and any notice so served shall be deemed to have
been served 48 hours after the time at which it was posted and in
proving such service it shall be sufficient to prove that the notice
was properly addressed and posted.
18. MISCELLANEOUS
-------------
18.1 This Agreement (together with any documents referred to herein)
constitutes the whole agreement between the parties hereto and it is
expressly declared that no variations hereof shall be effective
unless made in writing and executed by the parties hereto or their
duly authorised representatives.
18.2 This Agreement shall be governed by English law and the parties hereby
submit to the jurisdiction of the English Courts.
18.3 In consideration of the Vendors entering into this Agreement and the
Deed of Indemnity, the Guarantor hereby covenants with the Vendors and
each of them as primary obligations of the Guarantor : -
18.3.1 to procure that the Purchaser shall duly perform all its respective
obligations under this Agreement and the Deed of Indemnity (including
all variations, extensions and renewals thereof);
18.3.2 if and whenever the Purchaser shall be in default in the payment when
due of any amount payable under any such Agreement, within 5 days
after being given notice to that effect by the Vendors to pay all
amounts then payable by the Purchaser as though the Guarantor instead
of the Purchaser was expressed to be principal debtor; and
18.3.3 to indemnify the Vendors and each of them against all costs and
expenses (including legal fees) which they or either of them may pay
or incur in collecting any amounts payable by the Purchsaer or the
Guarantor and referred to in sub-clause 18.3.2 above.
18.4 Where the Purchaser has failed to pay any amounts due and owing under
this Agreement and/or the Deed of Indemnity but the Vendors are unable
to recover the same under the Guarantee by reason of any legal
limitation, disability or incapacity or any other matter or thing
whether known to the Vendors or not, the Vendors shall nevertheless be
entitled to recover such amounts from the Guarantor on the basis of an
indemnity.
18.5 The Guarantor acknowledges that the liability of the Guarantor under
this clause shall not be discharged or affected in any way by time
being given to the Purchaser or by any other indulgence or concession
being granted to the Purchaser, or by any variation, extension or
renewal of this Agreement or the Deed of Indemnity or by any other
act, omission, dealing, matter or thing whatsoever (including,
without limitation, any change in the Memorandum or Articles of
Association of the Purchaser of the Guarantor or the liquidation,
dissolution, reconstruction or amalgamation of the Purchaser or the
Guarantor) which but for this provision might operate to release the
Guarantor from its obligations under this clause.
18.6 This Guarantee is a continuing guarantee and shall remain in force
until all obligations of the Purchaser hereby guaranteed have been
discharged in full. It is in addition to and and shall not prejudice
nor be prejudiced by any other guarantee, indemnity or other security
or a right against any third party which the Vendors or either of them
may have for the due performance of the obligations concerned provided
always that the Vendors will use all reasonable efforts to mitigate
their losses and in no circumstances shall they be entitled to recover
more than once in respect of the same claim or loss.
SIGNED by HOWARD THOMAS GIBSON in the /s/ Howard Thomas Gibson
presence of: -------------------------
SIGNED by JOAN GIBSON /s/ Joan Gibson
in the presence of: ---------------------------
SIGNED by
for and on behalf of
CHEMFAB HOLDINGS U.K. LIMITED
in the presence of:
SIGNED by /s/ Gay O'Gara
for and on behalf of ----------------------------
CHEMICAL FABRICS EUROPE
LIMITED in the presence of:
SCHEDULE 1
----------
THE VENDORS
------------
(1) (2)
Names and Addresses
of Vendors Shares
- ------------------- ------
Howard Thomas Gibson 5,000
of Aireville, Greenhead Lane,
Utley, Keighley,
Yorkshire
Joan Gibson 5,000
(as above)
---------
10,000
SCHEDULE 2
----------
DEFINITIONS
------------
"the Accounting Date" means 31st October 1990;
"the Accounts" means the audited balance sheets of the Company as at
the Accounting Date and the audited profit and loss
account of the Company for the year ending on the
Accounting Date and any notes, reports and documents
contained therein or annexed thereto;
"CGTA 1979" means the Capital Gains Tax Act 1979;
"the Company" means Fluorocarbon Fabrications Limited a company
registered in England under number 1300643 and
incorporated on 4th April 1977 as a private company
limited by shares under the Companies Acts 1948 to
1967;
"Completion" means completion of the sale and purchase of the
Shares;
"the Completion has the meaning given in Clause 4.1.1;
Accounts"
"the Deed of Indemnity" means a deed of today's date in the form set out in
Schedule 5;
"the Directors" means the persons listed in Schedule 3;
"the Disclosure Letter" means the letter including all attachments thereto and
documents expressly referred to therein of even date
herewith from the Vendors' Solicitors to the
Purchaser's Solicitors;
"the Indemnities" the indemnities contained in the Deed of Indemnity;
"the Net Asset Value" the aggregate of the capital and reserves of the
Company as at Completion as shown by the Completion
Accounts including Fixed Assets as defined in Clause
4.4 but excluding any prepaid rent or insurance
premiums;
"the Obligations" means each of the obligations, warranties and
undertakings undertaken or given by the Vendors or
either of them in or pursuant to this Agreement;
"the Purchase Price" means the consideration for the Shares determined in
accordance with Clauses 3.1, 3.2 and 4;
"the Purchaser's means Messrs Ernst & Young
Accountants" of Commercial Union House, Albert Square,
Manchester M2 6LP
"the Purchaser's means Messrs Withers of 20 Essex Street,
Solicitors" London, WC2R 3AL Reference PWD/CAS;
"the Records" means all lists of customers, books, accounts,
ledgers, financial and other records and other
documents of whatever kind relating to the Company
and whether electronically or magnetically or otherwise
stored or recorded;
"the Shares" means the shares to be bought and sold pursuant to
Clause 2.1;
"the Supply Agreement" means the supply agreement of even date herewith
relating to PTFE glass cloth, skived PTFE film
products and all other fluoro-polymer containing
products supplied by Chemical Fabrics Europe to Aerovac
Systems (Keighley) Limited
"Tax" includes all forms of tax, charge, impost, duty,
levy, liability or sum of whatever kind payable in
respect of income, profits, distributions, assets,
gains and receipts of all kinds or otherwise at the
instance of the Revenue, Customs, fiscal, governmental
or local authorities of the United Kingdom or elsewhere
and all penalties, charges and interest relating to any
claim for taxation, including (without limitation)
income tax, the investment income surcharge,
corporation tax, capital gains tax, development land
tax, rates, value added tax, customs and other import
duties, stamp duty, stamp duty reserve tax, estate
duty, capital transfer tax, inheritance tax, capital
duty, the special charge, petroleum revenue tax, poll
tax, payments to be made by the Company under the Pay
As You Earn system, National Insurance Contributions
and any interest penalty or fine in connection
therewith;
"the Taxes Act" means the Income and Corporation Taxes Act 1988;
"the Taxes Act 1970" means the Income and Corporation Taxes Act 1970;
"the Vendors means Clark Whitehill Josolyne of Holly House, Spring
Accountants" Gardens Lane, Keighley, West York BD2O 6LE
"the Vendors' means Hammond Suddards of Empire House, 10
Solicitors" Piccadilly, Bradford BDl 3LR (ref: SXK/RMS);
"the VATA 1983" means the Value Added Tax Act 1983;
"the Warranties" means the warranties set out in Schedule 4 given by the
Vendors under sub-clauses 9.1, 9.5 and 9.6;
SCHEDULE 3
----------
THE DIRECTORS
--------------
Name of Director
- ----------------
Howard Thomas Gibson
Joan Gibson
SCHEDULE 4
----------
THE WARRANTIES
--------------
1. Accuracy of Information
-----------------------
The facts set out in the recitals B and C and schedules 1 and 3 to
this Agreement are true and accurate in all respects.
2. Ownership of the Shares
-----------------------
There is no option, right to acquire, right of first refusal, right of
pre- emption other than in the Company's articles of association,
mortgage, charge, pledge, lien or other form of security or
encumbrance on over or affecting any shares in the capital of the
Company and there is no agreement or commitment to give or create any
of the foregoing and no claim has been made by any person to be
entitled to any of the foregoing, and the Vendors are entitled to sell
and transfer the full legal and beneficial ownership in the whole of
the issued share capital of the Company to the Purchaser on the terms
set out in this Agreement nor do any circumstances exist whereby any
third party may properly claim entitlement or possession of any of the
Shares.
3. No Subsidiaries, Associations or Branches
-----------------------------------------
3.1 The Company:
3.1.1 is not the holder or beneficial owner of any class of any shares or
other securities of any other company (whether incorporated in the
United Kingdom or elsewhere);
3.1.2 is not a member of any partnership or other unincorporated association
(other than recognised trade associations); and
3.1.3 has no branch or permanent establishment outside the United Kingdom;
3.1.4 does not control (within the meaning of Section 840 Taxes Act) any
company.
4. Corporate Organisation
----------------------
4.1 The register of members of the Company contains complete and accurate
records of the members of the Company from time to time and the
Company has not received any notice or application or notice of any
intended application for the rectification thereof.
4.2 The statutory books of the Company are written up to date to the day
before Completion and share certificates have been properly issued to
the Vendors and the Company has recorded in duly signed minutes all
resolutions and proceedings which ought to be so recorded.
4.3 All returns, particulars, resolutions and other documents required to
be filed with the Registrar of Companies have been filed by the
Company and the Company has not materially breached any provisions of
the Companies Act 1985.
4.4 The Company has not exercised or purported to exercise or claimed any
liens over any of its issued shares and no call on any shares is
outstanding and all such shares are fully paid up or credited as fully
paid up.
4.5 The Company has not at any time capitalised or agreed to capitalise
(in the form of shares, debentures or other securities or in paying up
any amounts unpaid on any shares, debentures or other securities) any
profits or reserves of any class or description or passed or agreed to
pass any resolution to do so.
4.6 No person has the right to call for the issue of any share or loan
capital of the Company by reason of any conversion rights or under any
option or other agreement.
4.7 The copy of the memorandum and articles of association of the Company
which is annexed to the Disclosure Letter is true and up to date and
incorporates all documents and information required to be annexed
thereto or embodied therein and the Company has complied with all the
provisions of its memorandum and articles of association and in
particular (but without prejudice to the generality of the foregoing)
has not entered into any ultra vires transaction.
4.8 As far as the Vendors are aware, all necessary records, deeds,
agreements and documents relating to the Company, its assets and its
business have been fully, properly and accurately prepared and
maintained in accordance with the Companies Act 1985. All such
records are in the possession of the Company or under its control.
5. Accounts
--------
5.1 The Accounts and the audited balance sheet and profit and loss account
of the Company for the financial years ended 31st October 1988, 1989
and 1990:
5.1.1 have been prepared in accordance with the Companies Act 1985 and other
applicable statutes and regulations and statements of standard
accounting practice and show a true and fair view of the affairs of
the Company as at the respective dates to which they have been drawn
up and of the results of the Company for the accounting reference
periods ended on each of those dates and are not affected by any
exceptional or extraordinary items; and
5.1.2 fully disclose all income and assets and make provision or reserve or
disclosure for all its known liabilities (whether of a capital or
income nature and whether or not quantified or disputed) and fully
disclose by way of note any known prospective or contingent liability
of the Company at the Accounting Date.
5.2 Book Debts
---------
So far as the Vendors are aware (having made enquiries only of the
Company's employees and those responsible for its credit control
function) the debts included in the Accounts owed to the Company
(except as provided in the bad debt reserve) will be recoverable in
full within six months of the date hereof.
5.3 The bases and policies of accounting of the Company adopted for the
purpose of preparing the Accounts are the same as those adopted for
the purpose of preparing the audited accounts for the last three
accounting periods.
5.4 There were no commitments of a capital nature outstanding at the
Accounting Date (save as disclosed in the Accounts) and since the
Accounting Date the Company has not entered into nor agreed to enter
into any such commitments in excess of Pounds 500.
6. Dividends or Distributions
--------------------------
Other than the dividends referred to in the Disclosure Letter, no
dividends or other distributions of profits or management charges or
special bonuses have been or will be declared, made or paid by the
Company after the Accounting Date and prior to Completion and all
dividends or distributions of profits declared, made or paid since the
date of incorporation of the Company have been declared, made or paid
in accordance with law and its articles of association.
7. Borrowings
----------
7.1 The total amount borrowed by the Company from its bankers does not
exceed its overdraft facilities and the total amount borrowed by the
Company from whatsoever source does not EXCEED any limitation on its
borrowing contained in its articles of association or in any debenture
stock deed or other deed or document executed by it.
7.2 The Company does not have any outstanding loan capital, nor has it
factored its debts or borrowed (otherwise than from banks) any money
which it has not repaid.
7.3 The Company has not lent any money which has not been repaid to it nor
does it own the benefit of any debt (whether present or future) other
than debts accrued to it in the ordinary course of its business.
8. Bank Accounts and Borrowing Facilities
--------------------------------------
8.1 A statement of all the bank and other money accounts of the Company
and of the credit or debit balances thereon as at a date not more than
two working days prior to the date hereof has been supplied to the
Purchaser and the Company has no other bank or deposit accounts
(whether in credit or overdrawn) not included in such statement.
8.2 In relation to such encumbrances (if any) as have been disclosed and
in relation to such bank overdraft, borrowing or other financial
facilities as are available to the Company:
8.2.1 the Vendors have supplied to the Purchaser full details thereof and
true copies of all documents relating thereto;
8.2.2 there has been no contravention of or non-compliance with any
provision of any such document;
8.2.3 no steps for the enforcement of any encumbrances have been taken or
threatened;
8.2.4 there has not been any alteration in the terms and conditions of any
of the said arrangements;
8.2.5 the Vendors and the Company have not done anything (including,
without limitation, entering into this Agreement) whereby the
continuance of the said arrangements and facilities in full force and
effect might be affected or prejudiced; and
8.2.6 none of the said arrangements is dependent on the guarantee of or on
any security provided by the Vendors or a third party.
9. Tax Provisions
--------------
9.1 Full provision or reserve has been made in the Accounts (other than
any amount of corporation tax wholly attributable to an increase in
the rate of corporation tax made after the date thereof) for all Tax
liable to be assessed on the Company or for which it is accountable or
which is likely to be claimed in respect of income, profits or gains
earned, accrued or received, or deemed to have been earned, accrued or
received on or before the Accounting Date or any event or deemed event
on or before the Accounting Date including distributions made down to
such date or provided for in the Accounts and proper provision has
been made in the Accounts for deferred Tax in accordance with
generally accepted accountancy principles.
9.2 Returns
-------
The Company has properly and punctually made in all material respects
all computations, payments and returns and provided all notices,
accounts and information required for Tax purposes and all of such
computations, payments and such notices, accounts, information and
returns were when made (or subsequently amended) correct and made on a
proper basis and none is or is known by the Vendors to be likely to be
disputed by the Inland Revenue or any other authority concerned.
9.3 Payment of Tax
--------------
The Company has duly and punctually paid all Tax which it has become
liable to pay and is under no liability to pay any penalty or interest
in connection with any claim for Tax.
9.4 PAYE
----
The Company has properly operated the Pay As You Earn system,
deducting Tax as required by law from all payments to or treated as
made to employees and ex-employees of the Company and accounting to
the Inland Revenue for all Tax so deducted and all Tax chargeable on
benefits provided for directors and employees of the Company.
9.5 Payments Under Deduction
------------------------
All payments by the Company to any person which ought to have been
made under deduction of Tax have been so made and the Company has (if
required by law to do so) accounted to the appropriate Tax authorities
for the Tax so deducted.
9.6 Group Income
------------
The Company has at no time been a member of a group of companies (as
defined in Section 272 Taxes Act 1970 or Section 29 VATA 1983) nor
been owned by a consortium within the meaning of Section 247 (group
income) or Section 413(6) (group relief) Taxes Act.
9.7 Advance Corporation Tax
-----------------------
9.7.1 The Disclosure Letter contains particulars of all arrangements and
agreements to which the Company is or has been a party relating to the
surrender of advance corporation tax made or received by the Company
under Section 240 Taxes Act (setting off company's surplus advance
corporation tax against subsidiary's liabilities) and:
9.7.2 the Company has not paid nor is liable to pay for the benefit of any
advance corporation tax which is now known to be or may become
incapable of set off against the Company's present or future
anticipated liabilities to corporation tax; and
9.7.3 The Company has not made or received nor purported or agreed
to make or receive any surrender of the benefit of advance corporation
tax under Section 240 Taxes Act (setting off company's surplus advance
corporation tax against subsidiary's liability).
9.7.4 The Company has no surplus advance corporation tax
9.7.5 Section 245 Taxes Act (treatment of Act on change of ownership of
company) does not apply to the surplus advance corporation tax of the
Company.
9.8 Close Company
-------------
The Company is a close company within the meaning of Section
414 Taxes Act.
9.9 Capital Assets
-------------
9.9.1 If each of the Fixed Assets were disposed of for a consideration equal
to the book value of that asset in or adopted for the purpose of the
Accounts no liability to corporation tax on chargeable gains or
balancing charge under the Capital Allowances Act 1968 or Finance Act
1971 would arise in excess of the deferred tax provision made or to be
made in the Completion Accounts.
9.9.2 The Company has not appropriated any capital item to trading stock.
9.9.3 The Company has made no claim under Sections 115, 116 cr lllA CGTA
1979 (roll-over relief).
9.9.4 The Company has not made a claim pursuant to Section 21 CGTA 1979
(compensation and insurance money).
9.9.5 No asset owned by the Company is subject to a deemed disposal and re-
acquisition under Schedule 5 paragraphs 11, 14 or 16 CGTA 1979 (rules
for assets acquired prior to 6th April 1965).
9.9.6 No gain chargeable to corporation tax will accrue to the Company on
the disposal of any debt owing to the Company not being a debt on a
security.
9.9.7 The Company has not acquired benefits under any policy of insurance or
assurance otherwise than as original beneficial owner.
9.10 The Company is not entitled to any allowable losses (in accordance
with the provisions of Section 345(1) Taxes Act(definition of
chargeable gains)) to reduce any chargeable gains for corporation tax
purposes accruing the Company upon disposals by the Company which take
place at any time after Completion.
9.11 Capital Allowances
------------------
So far as the Vendors are aware (having made no enquiry) the Company
has not engaged in any transaction to which Sections 157 and 75 of the
Capital Allowances Act 1990 (anti avoidance provisions) applies.
9.12 Transaction not at Arm's Length
-------------------------------
The Company has not disposed of nor acquired any asset in
circumstances such that the provisions of Section 29A CGTA 1979
(disposals and acquisitions treated as made at market value) could
apply to such disposal or acquisition, nor entered into any
transaction at an undervalue (as defined by Section 238 Insolvency
Act 1986, or otherwise than by way of bargain at arm's length, nor
given a preference (as defined by Section 239 Insolvency Act 1986)
nor entered into any material transaction with a connected person (as
defined by section 63 Capital Gains Tax Act 1979).
9.13 Trading Losses
--------------
9.13.1 There are no trading losses brought forward at the Accounting Date.
9.13.2 Any losses to which the Company claims entitlement in accordance with
the provisions of Sections 338 (allowance of charges on income) and
393(9) (certain charges treated as losses) Taxes Act are in respect of
payments made wholly and exclusively for the purpose of the trade of
the Company.
9.13.3 Within the period of three years ended with the date hereof there has
been no major change in the nature or conduct of any trade now carried
on by the Company or change of ownership of the Company (within the
meaning of Section 768 Taxes Act (disallowance of trading losses)) and
the Company has not during that period taken over or acquired a trade
or part of a trade hitherto carried on by some other person.
9.13.4 No trade of the Company has ceased or become small or negligible.
9.13.5 No government investment in the Company has been written-off in
circumstances such that Section 48 Finance Act 1981 or Section 400
Taxes Act (restriction of tax losses) will apply.
9.14 Withdrawal of Relief
--------------------
The Company is not liable so far as the Vendors are aware to the
withdrawal of any form of relief against Tax and there is no
information available to the Vendors from which it appears that the
Company may be liable to such withdrawal.
9.15 Annual Payments
---------------
All interest, rent, service charges, royalties, annuities and other
annual payments paid or payable by the Company under any loan, lease,
contract, agreement, covenant or other commitment or arrangement is
or are or will be deductible for corporation tax purposes, whether in
computing income from a particular source or in computing total
profits or otherwise.
9.16 Gifts
-----
The Company is not liable to be assessed to corporation tax on
chargeable gains or to inheritance tax or capital transfer tax as
donor or donee of any gift or transferor or transferee of value.
9.17 Distributions
-------------
9.17.1 No distribution within the meaning of Sections 209, 210 or 418
Taxes Act (transactions amounting to distributions) has been made by
the Company since 5th April 1965, except dividends shown in its
audited accounts, nor is the Company bound to make any such
distribution.
9.17.2 No security within the meaning of Section 254(1) Taxes Act issued by
the Company and outstanding at the date hereof was issued in such
circumstances or is of such a character that interest payable thereon
falls to be treated as a distribution under Section 209 Taxes Act
(transactions amounting to distributions).
9.17.3 The Company has not at any time after the 6th April 1965 repaid or
agreed to repay any share capital or otherwise reduced or agreed to
reduce its share capital or issued or agreed to issue any share
capital or paid up or agreed to pay up any share capital otherwise
than by the receipt of new consideration (as defined in Section
254(1) and (5) Taxes Act).
9.18 Payment to Employees
--------------------
9.18.1 The Company has not made any payment whether gratuitous or otherwise
to or provided any benefit for any officer or employee or ex-officer
or ex-employee of the Company which is not allowable in full as a
deduction in calculating the profits of the Company for taxation
purposes.
9.18.2 The Company has not issued any shares in the circumstances described
in Section 138 Taxes Act or Section 77(1) Finance Act 1988 (share
incentive schemes).
9.19 National Insurance etc.
----------------------
The Company has paid all national insurance and graduated pension
contributions for which it is liable and has properly accounted for
all national insurance contributions deductible out of employees'
remuneration and has kept proper books, records, invoices and other
documents relating to the same and has available for reference all
such records, invoices and other documents.
9.20 Pension Scheme
--------------
The Company is not required to contribute to any pension scheme or
insurance scheme and has no outstanding liabilities from any such
schemes in place prior to Completion.
9.21 Value Added Tax
---------------
9.21.1 The Company has VAT Registration Number 287435621 and has complied
with all statutory provisions and regulations relating to value
added tax and has not been requested to give security under such
legislation and has duly paid or provided for or will in the
Completion Accounts provide for all amounts of value added tax for
which the Company is liable.
9.21.2 All supplies made by the Company are taxable supplies or are exempt
supplies within the applicable de minimis limits and the Company is
not and will not be denied credit for any input tax by reason of the
operation of Section 15(l)(b) or (c) VATA 1983 (input tax allowable)
and regulations made thereunder.
9.21.3 No supplies have been made to the Company to which the provisions of
Section 7 VATA 1983 (reverse charge on supplies received from abroad)
apply.
9.22 Stamp Duty and Capital Duty
---------------------------
9.22.1 All documents in the enforcement of which the Company may be
interested have been properly stamped in accordance with applicable
stamp duty legislation
9.22.2 The Company has complied with the provisions of the Finance Act 1973
relating to capital duty and has duly paid all capital duty which it
is liable to pay and has not made any claim for relief or exemption
under Section 55 Finance Act 1927, Section 27 Finance Act 1967,
Schedule 19 Finance Act 1973, Section 78 Finance Act 1985 or Sections
75, 76 or 77 Finance Act 1986 (provisions for relief from stamp
and capital duty for companies).
9.22.3 The Company has not made any claim for relief or exemption under
Section 42 Finance Act 1930 (relief from stamp duty for associated
companies).
9.23 Tax Avoidance
-------------
The Company has not been a party to or otherwise involved in any tax
avoidance transaction scheme or arrangement whose principal purpose
was tax avoidance and which had limited or no commercial benefit.
9.24 Share Capital
-------------
The Company has not since its incorporation purchased or redeemed or
agreed to purchase or redeem any of its share capital; or provided any
financial assistance or, in breach of the Companies Act 1985, agreed
(whether contingently or otherwise)to provide any financial assistance
for the purchase, subscription or other acquisition of its own
shares.
9.25 Overseas Provisions
-------------------
9.25.1 The Company has never been the legal or beneficial owner or controller
(whether directly or indirectly through another company) of any share
capital or securities in another company resident outside the UK for
UK tax purposes.
9.25.2 The Company has not transferred a trade carried on by it outside the
United Kingdom through a branch or agency to a company not resident in
the UK for UK tax purposes in such circumstances that a chargeable
gain may be deemed to arise at a date after such transfer under
Sections 268 or 268A Taxes Act 1970 (postponement of charge on
transfer of assets to non-resident company).
9.25.3 The Company does not own and has never owned a material interest in an
offshore fund which is or has ever been a non-qualifying offshore fund
as defined by Section 760 Taxes Act.
9.26 Corporation Tax Falling on Shareholder
--------------------------------------
The Company has not received any capital distribution to which
the provisions of Section 346 Taxes Act (recovery of corporation tax
from shareholder) could apply.
10. Trading Matters
---------------
10.1 Since the Accounting Date:
10.1.1 the business of the Company has been continued in the ordinary and
proper course;
10.1.2 the turnover, the financial and trading position of the Company has
not deteriorated;
10.1.3 the average period of credit given by the Company has not been longer
than that shown by the Accounts;
10.1.4 no asset has been acquired by the Company on deferred payment terms in
respect of which any part of the purchase price remains outstanding.
10.2 Since the Accounting Date as far as the Vendors are aware:
10.2.1 no supplier of the Company has ceased supplying the Company or
substantially reduced its supplies to the Company; and
10.2.2 no customer of the Company has terminated any contract with the
Company or ceased or materially reduced its business with it;
and to the best of the Vendors' knowledge information and belief
(having made no external enquiries) after the date hereof, no supplier
or customer will do so.
11. Licences and Consents
---------------------
The Company has all necessary licences (including statutory licences),
consents and approvals for the proper carrying on of its business and
none of the Vendors knows (having made no enquiries) of any factors
that might in any way prejudice the continuance or renewal of any of
those licences, consents or approvals and the Company is not
restricted by contract from carrying on its present activities in any
part of the world.
12. Material Contracts
------------------
12.1 All contracts which are material (which shall mean contracts of kinds
referred to in the following sub-paragraph) have been disclosed in the
Disclosure Letter.
12.2 The Company is not a party to any contract, transaction, obligation,
commitment, arrangement or liability which:
12.2.1 is of an onerous nature; or
12.2.2 is for a fixed term of more than 6 months; or
12.2.3 is incapable of complete performance in accordance with its terms
within 6 months after the date on which it was entered into or
undertaken; or
12.2.4 not being for a fixed term is incapable of termination in accordance
with its terms by the Company on 60 days' notice or less; or
12.2.5 is known will result in a loss to the Company on completion of
performance; or
12.2.6 cannot readily be fulfilled or performed by the Company on time and
without undue or unusual expenditure of money and effort; or
12.2.7 involves or will involve obligations, expenditure or receipts of an
unusual or exceptional nature and not in the ordinary and proper
course of the Company's business; or
12.2.8 involves payment by the Company by reference to fluctuations in the
index of retail prices published by the Department of Employment or
any other similar index; or
12.2.9 requires an aggregate consideration payable by the Company in excess
of Pounds 10,000; or
12.2.10 involves the supply of goods the aggregate sale value of which will be
in excess of 10 per cent of the turnover for the current financial
year of the Company; or
12.2.11 contains currency or commodity re-negotiation or re-determination
clauses; or
12.2.12 is so far as the Vendors are aware (having made no enquiry) in any way
otherwise than in the ordinary and proper course of the Company's
business; or
12.2.13 is in breach of any statutory or delegated legislative provision; or
12.2.14 is a contract by which the obligations of the Company to a party are
sub-contracted to a third party.
13. Other Contracts
---------------
13.1 Compliance with the terms of this Agreement does not and will not:
13.1.1 conflict with or result in the breach of or constitute a default under
any of the terms, conditions or provisions of:
13.1.1.1 any agreement or instrument to which the Company is now a party; or
13.1.1.2 the Company's memorandum or articles of association; or
13.1.1.3 any loan to or mortgage, guarantee or charge created or entered into
by the Company or any lien, lease, order, judgment, award, injunction,
decree, ordinance or regulation or any other restriction of any kind
or character to which any property of the Company is subject or by
which the Company is bound; or
13.1.2 relieve any other party to a contract with the Company of its
obligations thereunder, or enable it to terminate its obligations
thereunder; or
13.1.3 result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever on any of the Company's property
or assets.
14. Outstanding Offers
------------------
Save in the ordinary course of the Company's business no offer,
tender or the like is outstanding which is capable of being converted
into an obligation of the Company by an acceptance or other act of
some other person.
15. Defective Products
------------------
So far as the Vendors are aware (having made no enquiry), the Company
has not prior to the date hereof manufactured or sold products which
are or have or will become in any material respect faulty or defective
or which do not comply in any material respect with any warranties
or representations expressly or impliedly made by the Company nor has
the Company expressly accepted any liability or obligation to service,
repair, maintain, take back or otherwise do or not do anything in
respect of any articles or stock that would apply after any such
article or stock has been delivered by it.
16. Other Parties' Defaults
-----------------------
No person with whom the Company has entered into any contract is known
to be in material default thereunder.
17. Ownership of Assets
-------------------
17.1 The Company owned at the Accounting Date and (except for current
assets subsequently sold or realised in the ordinary and proper course
of business) still owns at the date hereof all the assets included in
the Accounts and none of such assets is the subject of an
agreement for payment on deferred terms or has been acquired by the
Company in circumstances which render such asset liable to
cancellation or avoidance under any statute or other rule of law.
17.2 The Company has not disposed of or agreed to dispose of, or granted or
agreed to grant any option, right of pre-emption or right of first
refusal in respect of, or offered for sale, its estate or interest in
any of the Fixed Assets.
17.3 None of the property, assets, undertaking, goodwill or uncalled
capital of or used by the Company is subject to any debentures,
mortgages, charges, liens, deposits by way of security, bills of
sale, hire purchase, credit or conditional sale or other
agreements for payment on deferred terms or any other encumbrance of
any nature or any agreement or commitment to give or create any of the
foregoing but the same are the sole, unencumbered absolute property of
the Company free from encumbrances.
17.4 No charge of any description by the Company has crystallised, nor has
any event occurred which, with the passage of time, will or could
cause any charge to crystallise, over all or any of the assets or
property (including, without limitation, the Properties) of the
Company.
18. Plant in Working Order
----------------------
18.1 The Fixed Assets are, having regard to their values, age and
condition, capable, and will (having regard as aforesaid and subject
to fair wear and tear) be capable, over the period of time during
which they will be written down to a nil value in the accounts of the
Company, of doing the work for which they were purchased.
18.2 do not (if correctly used) contravene any law or requirement or
restriction having the force of law.
19. Compliance with Laws
--------------------
As far as the Vendors are aware (having made no enquiry), neither the
Company nor any of its officers, agents or employees (during the
course of their duties in relation to the Company) has committed or
omitted to do any act or thing the commission or omission of which is
in contravention of any Act, order, regulation, decree, judgment,
ruling, law (whether created by statute or otherwise) or the like made
in any country by any government, government agency, court or other
body giving rise to any fine, penalty, default proceedings or other
liability on the part of, or which could have a material adverse
effect upon the assets or business of, the Company including, without
limitation, such legislation or regulations relating to the
administration of companies, employment, health and safety,
environmental protection, pollution.
20. Insurance
---------
Brief details of all the Company's insurance policies have been
disclosed to the Purchaser and all such insurance is currently in full
force and effect and nothing has been done or omitted to be done which
could make any policy of insurance void or voidable and there are no
claims outstanding, pending or threatened against the Company by any
employee or third party in respect of any accident or injury which are
not fully covered by insurance.
21. No Bonus Schemes
----------------
There are no schemes in operation whereunder any employee of the
Company or so far as the Vendors are aware any other person is
entitled to a commission or remuneration of any other sort calculated
by reference to the whole or part of the turnover profits or sales of
the Company.
22. Remuneration of Senior Executives
---------------------------------
22.1 Since the Accounting Date no change has been made in the rate of
remuneration or the emoluments or pension or other benefits of any
director, ex-director or senior executive of the Company (a senior
executive being a person in receipt of remuneration in excess of
Pounds 30,000 per annum) and no change has been made in the terms of
the engagement of any director or senior executive of the Company
and no additional directors have been appointed.
22.2 No money other than in respect of remuneration or emoluments for
employment is payable to or for the benefit of any director or senior
executive of the Company.
23. Contracts of Service Terminable on Three Months' Notice
-------------------------------------------------------
All subsisting contracts of service to which the Company is a party
are terminable on three months' notice or less without compensation
(other than compensation in accordance with the Employment Protection
(Consolidation) Act 1978).
24. Directors
---------
No person other than the Directors is a director or shadow director of
the Company. No director is or has been disqualified from acting as a
company director under any rule of law.
25. Particulars of Employees
-------------------------
The particulars shown in the schedule of employees annexed to the
Disclosure Letter are true and complete and show all remuneration
payable and other benefits provided and which the Company is bound to
provide (whether now or in the future) together with the dates of
birth and commencement of employment with the Company of each officer
and employee of the Company.
26. Future Pay Increases
--------------------
The Company is not under any obligation to increase the remuneration
of or to make any bonus or incentive payments to any of its employees
or officers at any future date.
27. Special Arrangements
--------------------
The Company is not a party to (i) any consultancy or management
agreements; or (ii) any arrangement or contract with a trade union,
or other body representing employees of the Company or any trade
organisation of employers.
28. Insider Contracts
-----------------
28.1 There is not outstanding and there has not at any time during the
last six years been outstanding any contract or legally binding
arrangement to which the Company is a party and in which either of
the Vendors or any director or employee of the Company is or has been
interested, whether directly or indirectly, and the Company is not a
party to, nor have its profits or financial position during such
period been affected by, any contract or arrangement which is not of
an entirely arm's length nature.
28.2 There are no agreements or understandings (whether legally enforceable
or not) between (i) the Company and (ii) any person who is a
shareholder or the beneficial owner of any interest in the Company or
any company in which such a person is interested relating to (a) the
management of the Company's business; or (b) the appointment or
removal of its directors; or (c) the ownership or transfer of
ownership or the letting or possession of any of its assets; or (d)
the provision of finance, goods, services or other facilities to or by
the Company; or (e) otherwise howsoever relating to the Company or
its affairs.
29. Litigation
----------
29.1 The Company is not engaged in or threatened by any litigation or
arbitration proceedings (save for routine debt collection) as
plaintiff, defendant or third party.
29.2 The Company is not involved in any industrial or trade dispute or any
other dispute regarding any claim with any of its employees or any
trade union or trade organisation and to the best of the knowledge,
information and belief of the Vendors there are no facts or
circumstances which might give rise to such industrial action or
dispute.
29.3 The Company is not a party to any collective agreement, dismissal
procedures agreement or union membership agreement whether such
agreement is binding in law or not.
30. Agencies, Licences, etc.
------------------------
The Company is not a party to any agency, distributorship, marketing,
purchasing, manufacturing or licensing agreement or any restrictive
trading or other agreement pursuant to which any part of its business
is carried on, or which in any way restricts its freedom to carry on
the whole or any part of its business in any part of the world, in
such manner as it thinks fit or which in any way infringes, or which
has or should have been registered or notified under, the Restrictive
Trade Practices Acts, the Monopolies and Mergers Acts, the Fair
Trading Act 1973, Articles 85 or 86 Treaty of Rome or any other anti-
trust, anti-monopoly or anti-cartel legislation and the Company has
not pursued and is not pursuing any course of conduct which amounts to
an anticompetitive practice within the meaning of Section 2(l)
Competition Act 1980.
31. No Disclosure of Trade Secrets
------------------------------
No disclosure has been made by the Company or the Vendors to any
person other than the Purchaser and its advisers of any of the
industrial know-how or the financial or trade secrets of the Company
save in the ordinary and proper course of business of the Company and
upon the Company having secured as far as practicable the confidential
nature of any such disclosure.
32. Know-how Patents etc.
--------------------
32.1 Full details of all know-how, patents, trade marks (whether registered
or not), registered and unregistered designs, or other industrial or
commercial monopoly rights used by the Company in its business in the
2 years prior to Completion ("the Intellectual Property Rights") have
been disclosed in the Disclosure Letter to the Purchaser's Solicitors
32.2 The Company is the sole registered proprietor and is entitled
beneficially to the Intellectual Property Rights and the applications
made respectively therefor.
32.3 The Vendors have received no written notice that any goods or articles
manufactured by the Company or method or process employed by the
Company (or by any licensees under any licence granted by the Company)
infringe any patents, trade marks, registered or unregistered designs
or other industrial or commercial monopoly rights or rights relating
to confidentiality of information of any third party or that any claim
has been made against the Company or any such licensee in respect
of such infringement.
32.4 Full details of all licence agreements relating to the Intellectual
Property Rights confidential information or the like to which the
Company is a party (whether as licensor or licensee) have been
disclosed to the Purchaser in the Disclosure Letter and all such
agreements are valid and subsisting and nothing has been done or
omitted to be done by the Company which would enable any such
agreement to be terminated or which would in any way constitute a
breach of the terms of any such agreement.
33. Business Names
--------------
The Company does not carry on nor has carried on business under or
used a name other than its corporate name.
34. Fees
----
No one is entitled to receive any finders' fee, brokerage or other
commission from the Company nor has the Company paid or promised to
pay any fees incurred in connection with this transaction.
35. No Powers of Attorney
--------------------
There are no powers of attorney in force given by the Company nor have
the directors of the Company given any express or implied authority
to any person to act on behalf of or represent the Company.
36. Investment Grants
-----------------
The Company has not done or failed to do any act or thing which could
result in all or any part of an investment grant or other similar
payment or allowance made or due to be made to it becoming repayable
or being forfeited by it and full particulars of all claims by the
Company to any investment grant or other similar payment or allowance
which have been made during the past 6 years have been disclosed in
the Disclosure Letter to the Purchaser.
37. Guarantees, Joint Ventures etc.
------------------------------
The Company is not a party to any contract for guarantee, indemnity or
suretyship or any partnership, joint venture or consortium agreement.
38. Properties
----------
There are no outstanding liabilities or residual obligations under any
agreements relating to freehold or leasehold property held by the
Company prior to Completion and the Company holds no current interest
in any such property.
39. Environmental Matters
---------------------
The Company itself has complied with and the Vendors are aware of no
previous breach of any legislation (including regulations, codes of
practice, circulars and guidance notes made thereunder) relating to
environmental matters, including (but without limitation) waste,
contaminated land, discharges to land, ground and surface water and
sewers, emissions to air, noise, dangerous, hazardous or toxic
substances and materials, nuisance, health and safety and neither the
Company nor the Vendors is aware of any action, claims or
proceedings (whether actual or potential) nor has any other reason to
believe that the Company has or is likely to have any liability in
relation to such matters.
40. Inter-company sales
-------------------
The value of inter-company sales between the Company and Aerovac
Systems (Keighley) Limited in the periods ended 31 October 1988, 1989
and 1990 have been Pounds 86,316, Pounds 148,970 and Pounds 73,522
respectively.
41. Shipments
---------
The Company has shipped goods since the Accounting Date in accordance
with normal or requested delivery dates from customers.
SCHEDULE 5
----------
DEED OF INDEMNITY
----------------
THIS DEED is made the [ ] day of [ ]
19[ ]
PARTIES : -
(1) HOWARD THOMAS GIBSON and JOAN GIBSON (together "the Covenantors");
(2) FLUOROCARBON FABRICATIONS LIMITED ("the Company")
incorporated in England with registered number 1306643 whose
registered office is at Bradford Road, Sandbeds, Keighley, West Yorkshire;
and
(3) CHEMFAB HOLDINGS U.K. LIMITED ("the Purchaser")
RECITALS:-
This Deed is entered into pursuant to an Agreement of even date herewith ("the
Agreement") and made between the Covenantors of the one part and the Purchaser
of the other part whereby the Purchaser has agreed to purchase the whole of the
issued share capital of the Company.
NOW THIS DEED WITNESSES AND IT IS HEREBY AGREED AND DECLARED as follows: -
1. Interpretation
--------------
1.1 In this Deed unless the context otherwise requires:
1.1.1 words and expressions defined in the Agreement shall have the same
meaning herein and any provisions in the Agreement concerning matters
of construction or interpretation shall also apply in this Deed;
1.2 For the purposes of this Deed a payment of Tax shall be deemed to have
been made by the Company if a payment of Tax would properly have been
made by it but for the utilization of any losses, allowances, credits,
reliefs, deductions or set-offs by the Company for its own benefit
(other than losses, allowances, credits, reliefs, deductions or set-
offs which relate to any period or arose to the benefit of the Company
prior to Completion and without prejudice to the generality of the
foregoing, and by way of example only, a payment of Tax shall be
deemed to have been made if such a payment would have been made but
for the availability to the Company of losses arising after
Completion and carried back to a period ending on or before that date
under the provisions of Section 393(2) Taxes Act (losses other than
terminal losses).
1.3 For the purposes of this Deed a payment of Tax deemed to have been
made in accordance with the provisions of subclause l.2 hereof shall
be deemed to have been made on the date on which such payment of Tax
would have been made (assuming that no appeal had been made against
the assessment or other notification in respect of any such Tax) but
for the availability of the losses, allowances, credits, reliefs,
deductions or set-offs concerned.
2. Indemnity
---------
2.1 The Covenantors (for themselves and their respective estates and
personal representatives) hereby jointly and severally covenant with
the Purchaser and persons to whom the Purchaser has assigned or may
assign the benefit of the Purchaser's rights under this Deed and (as a
separate covenant) with the Company that subject as herein and in
Clause 10 of the Agreement provided the Covenantors will, as directed
by the Purchaser, pay to the Purchaser or to the Company an amount
equal to:
2.1.1 any payment of Tax made or hereunder deemed to be made by the Company
as a direct or indirect result of any act, omission, event,
transaction or series of transactions (excluding the entering
into and/or completion of the Agreement or any transactions
contemplated thereby) occurring wholly or partly on or before the
date hereof
2.1.2 any Tax the right to a repayment of which has been taken into account
in the Accounts and which right is lost or cancelled, in whole or in
part;
2.1.3 any payment of Tax or deemed payment of Tax by the Company resulting
from the receipt by the Purchaser or the Company of any payment under
the provisions of this Deed provided that if it shall be finally
determined (whether by agreement or on appeal) that any payment ("the
original payment") made under this sub-clause is itself liable to Tax
such payment shall be increased to such sum as after allowing for Tax
or deemed payment of Tax thereon is equal to the original payment; and
2.1.4 any reasonable costs or expenses reasonably incurred by the Company
in connection with any such payment or deemed payment of Tax or loss
or cancellation of a right to a repayment of Tax as is referred to in
sub-clauses 2.1.1, 2.1.2 or 2.1.3 hereof or in connection with any
action reasonably taken in avoiding, resisting or settling any
such payment or claim for payment or in connection with the recovery
of payment from the Covenantors under this Deed,
such payment to be made, where the same relates to a payment of Tax by
the Company, on the day on which such payment of Tax is due and
payable, where the same relates to a deemed payment of Tax, on the
date on which such payment is deemed to have been made under the
provisions of sub-clause 1.3 hereof and where the same relates to a
lost right of repayment under sub-clause 2.1.2 above on the date of
notification to the Company that such repayment shall not be made or,
if later, the date on which such repayment was due for the purpose of
being taken into account in the Accounts.
3. Interest
--------
If the Covenantors shall fail to pay any sum due from them hereunder
on the due date for payment in accordance herewith the Covenantors
shall pay interest thereon from such date until payment in full (after
as well as before any judgment) compounded with half yearly rests on
1st January and 1st July of each year such interest being computed at
the rate of four per cent per annum above the base rate for the time
being of National Westminster Bank plc.
4. Limitations
-----------
4.1 The covenants contained in Clause 2 hereof shalt not apply to a
payment or deemed payment of Tax:
4.1.l to the extent to which in calcu1ating the provision for Tax in the
Accounts or the Competion Accounts an amount was included in respect
of that Tax or that payment or discharge of such Tax has specifically
been taken into account in the Accounts; or
4.1.2 which arises as a result of transactions in the ordinary course of
business since the Accounting Date both before and after the Purchaser
has completed the purchase of the Company; or
4.1.3 which arises or to the extent that any such Tax is increased as a
result only of an increase in rates of Tax or change in the law
relating to Tax made after the date hereof with retrospective effect;
or
4.1.4 to the extent that the subject matter of the payment of Tax is
disclosed in the Disclosure Letter as a potential tax liability; or
4.1.5 to the extent that the Covenantors are liable to the Purchaser under
the Warranties in respect of or arising from the same claim for Tax.
4.1.6 in respect of value added tax and duties relating to supplies made and
imports received the liability for which has been incurred in the
ordinary course of business of the Company; or
4.1.7 to the extent that such claim would not have arisen but a cessation of
trading or change in the nature or conduct of the trade carried on by
the Company on or after the date hereof; or
4.1.8 if the Purchaser or the Company fails after due warning to act in
accordance with the reasonable instructions of the Covenantors in
conducting any dispute in respect of that claim as set out in Clause 5
hereof.
5. Claims
-------
5.1 If the Purchaser or the Company receives any notice, demand,
assessment or other document whereby it appears that the Company may
be required to make or suffer an actual or deemed payment of Tax or
loss of a right to the repayment of Tax which may result in the
Purchaser and/or the Company having a claim against the Covenantors
under this Deed (referred to in this clause as a "Tax Claim") the
Purchaser shall give or procure that notice in writing is given to the
Covenantors as soon as is reasonably practicable.
5.2 If the Covenantors shall indemnify and secure the Company and the
Purchaser to their reasonable satisfaction against all losses,
costs, interest, damages and expenses which may be incurred thereby
the Company shall take such action as the Covenantors may reasonably
and promptly by written notice request to avoid, resist, appeal or
compromise any Tax Claim.
5.3 If within 30 days of the receipt by them of the aforesaid notice the
Covenantors fail to notify the Purchaser; in writing of their
intention to request the Company to avoid, resist, appeal or
compromise the Tax Claim and fail to indemnify and secure the Company
to their satisfaction the Purchaser and the Company shall be free to
settle the Tax Claim on such terms as they in their absolute
discretion think fit and without prejudice to their rights and
remedies under this Deed.
5.4 The Company shall make a repayment to the Covenantors to the extent
that and on the date on which the Company receives any repayment of
any amount paid in respect of any claim for Tax pursuant to this Deed.
5.5 For the purpose of this Deed the Company shall be deemed to receive a
payment for any Tax:-
(a) on the date on which the Company receives a repayment of Tax; or
(b) if and when the Company would have received such a repayment but
for a liability to any Tax in respect of which the Company is not
entitled to be indemnified hereunder
5.6 Upon making any repayment to the Covenantors pursuant to this Deed the
Company shall also pay to the Covenantors any repayment supplement
pursuant to Section 825 of the Taxes Act 1988 attributable to that
repayment and any interest (less tax) awarded in respect thereof.
6. Miscellaneous
-------------
6.1 The Purchaser or the Company may release or compromise in whole or in
part the liability of either of the Covenantors under this Deed or
grant any time or other indulgence but any such release, compromise or
grant shall not affect the liability of the other of the Covenantor.
6.2 This Deed shall be governed by and construed in accordance with
English law.
6.3 This Deed shall not be assignable without the consent of all parties
save that the Purchaser shall be entitled to assign this Deed to a
associated company of the Purchaser without consent and to any other
party with the consent of the Covenantors (not to be unreasonably
withheld).
6.4 A claim may only be made pursuant to this Deed by the Company to the
extent that the Purchaser (or its lawful assigns) shall not be
entitled to make a full and effective recovery from the Vendors or
either of them in respect of the claim.
7. Notices
-------
7.1 Any notice or other document to be given hereunder may be
delivered or sent by first class recorded delivery post or telex to
the party to be served at that party's address appearing in this Deed
or at such other address as that party shall notify in
accordance herewith. Any such notice or document shall deemed to have
been served:
7.2 if delivered, at the time of delivery; or
7.3 if posted, at the expiration of 48 hours after the envelope containing
the same shall have be put into the post; or
7.4 if sent by telex at the expiration of 12 hours after the same shall
have been despatched.
In proving such service it shall be sufficient to prove that delivery
was made or that the envelope containing such notice or document was
properly addressed and posted as prepaid first class recorded delivery
letter or that the telex was properly addressed and despatched as the
case may be.
IN WITNESS whereof the parties hereto have executed this Deed the day and year
first above written.
SCHEDULE 6
----------
FIXED ASSETS
------------
Agreed Value
Item Description ( Pounds stg)
- ---- ----------- --------------
1. Rule dies for cut shapes 400
2. Heat sealing press 1,000
3. Heat sealing bar 150
4. 5 of fusion irons 500
5. Clipper joint press 1,972
6. Hayssen belt punch 200
7. Heat sealing bar (cantilevered) 80
8. Press and bar controllers 246
9. Car BXl9 Citroen 7,962
--------
TOTAL Pounds 12,6l0
--------
BANK OF BOSTON
- -------------
March 19, 1997
Mr. Moosa E. Moosa
Chief Financial Officer
Chemfab Corporation
7O1 Daniel Webster Highway
Merrimack, New Hampshire 03054
Dear Mr. Moosa:
We are pleased to confirm that The First National Bank of Boston (the "Bank")
holds available an informal unsecured line of credit in an aggregate amount of
$1,000,000.00 for Chemfab Corporation, a Delaware corporation (the "Company"),
which shall consist of revolving ("Revolving Loans") and Letters of Credit
(hereinafter defined) subject to the terms set herein.
1. Revolving Loans. Each Revolving Loan made under this Agreement must be in a
---------------
minimum amount of $50,000.00 (provided that any request for a Money Market
Loan shall be in a minimum amount of $1,000,000.00) or any larger amount
which is integral multiple of $50,000.00; provided that aggregate loans
outstanding under this Agreement shall not exceed $1,000,000.00 at any
time. Requests by the Company for Revolving Loans must be received by the
Bank no later than 12:00 noon (Boston time) on the day of the requested
loan. Promptly upon receipt of such notice, the Bank may, in its
discretion, make the requested Revolving Loans by crediting the proceeds
thereof to the demand deposit account of the Company maintained with the
Bank.
2. Letters of Credit. Subject to all the terms and conditions of this
-----------------
Agreement, the Bank may, in its discretion, issue for the account of the
Company one or more irrevocable standby letters of credit having expiration
dates not later than 365 days from the date of the issuance (the "Letters
of Credit"). Letter of Credit Exposure plus the aggregate Revolving Loans
----
outstanding shall not at any time exceed $1,000,000.00. "Letter of Credit
Exposure" means, at any date, the sum of (a) the aggregate face amount of
all drafts that may then or thereafter be presented by beneficiaries under
all Letters of Credit then outstanding plus (b) the aggregate face amount
----
of all drafts that the Bank has previously accepted under Letters of Credit
but has not paid.
THE FIRST NATIONAL BANK OF BOSTON, Boston, Massachusetts 02106
The Company may request a Letter of Credit to be issued by providing to
the Bank a notice which is actually received not less than five days prior
to the requested issuance date for such Letter of Credit specifying (a)
the amount of the requested Letter of Credit, (b) the beneficiary thereof,
(c) the requested closing date and (d) the principal terms of the text for
such Letter of Credit. Each Letter of Credit and each draft accepted under
a Letter of Credit shall be in such form and minimum amount, and shall
contain such terms as the Bank shall request in its sole discretion. As a
condition to the issuance of any Letter of Credit the Company will provide
the Bank with a signed application and such other documents relating to
the issuance of letters of credit as are customarily required by the Bank.
3. Evidence of lndebtedness. All Revolving Loans (each as defined below) will
-----------------------
be evidenced by a promissory note (the "Note") substantially in the form
attached hereto as Exhibit I. The Company hereby authorizes the Bank to
record each loan and the corresponding information on the schedule forming
part of the applicable Note, and, absent manifest error, this record shall
be conclusive and binding.
4. Interest Rates. (a) Subject to the terms and conditions hereof, the Company
---------------
may elect in its request for a Revolving Loan to have interest thereon
accrue at either of the following interest rate options:
(i) a rate per annum equal to the higher of (x) the rate of interest
announced from time to time by the Bank at its head office as its Base
Rate, or (y) the sum of 1/2 % plus the overnight Federal Funds Rate
(an "Alternate Base Rate Loan"); or
(ii) a rate quoted by the Bank in its sole discretion (it being understood
that the Bank is under no obligation to quote such rate) to the
Company as the fixed rate of interest at which it is willing to make a
"money market" advance to the Company in the amount and for the period
of the requested loan (a "Money Market Loan").
Money Market Loans may be requested for interest periods of up to 90 days.
In the event that the Company fails to specify an interest period in its
request for a loan, the interest period for Money Market Loans shall be
deemed to be 30 days. Interest on each loan shall be calculated on the
basis of a 360-day year for the actual number of days elapsed. The Federal
Funds Rate shall mean, for any day (i) the rate equal to the weighted
average of the rates on overnight federal funds transactions with members
of the Federal Reserve Bank arranged by federal funds brokers, as such
weighted average is published for such day (or, if such day is not a
banking day, for the immediately preceding banking day) by the Federal
Reserve Bank of New York or (ii) if such rate is not published for such
banking day, the average of the quotations for such day on such
transactions received by the Bank from three federal funds brokers of
recognized standing selected by the Bank.
(b) Interest on Revolving Loans which are Alternate Base Rate Loans
shall be payable on the last day of each fiscal quarter of the Company.
Interest on Revolving Loans which are Money Market Loans shall be payable
on the same day as the principal amount thereunder is due. The Company will
pay to the Bank, on the date of issuance of each Letter of Credit under
this Agreement, a Letter of Credit fee equal to one percent (1 %) of the
face amount of such Letter of Credit. The Company will pay to the Bank
customary service charges and expenses for its services in connection with
the Letter of Credit at the times and in the amounts from time to time in
effect in accordance with its general rate structure, including fees and
expenses relating to issuance, amendment, negotiation, cancellation and
similar operations.
5. Payments and Repayments. Revolving Loans which are Alternate Base Rate
------------------------
Loans shall be payable on demand by the Bank, and Money Market Loans shall
be payable on the earlier of demand or the last day of the interest period
applicable thereto. The Company may prepay Alternate Base Rate Loans, in
whole or in part, at any time and without prepayment penalties, but
prepayments of Money Market Loans will not be permitted. If the Company for
any reason makes any payment with respect to a Money Market Loan before its
maturity (whether by acceleration or otherwise), or fails to borrow a Money
Market Loan requested by the Company, the Company will be required to pay
any costs, losses (including lost profits) or liabilities incurred by the
Bank as a result thereof, including any losses incurred in obtaining,
liquidating or employing deposits with reference to which the rate of
interest for such loan was determined, upon presentation by the Bank of a
statement in the amount and setting forth the Bank's calculation thereof,
which statement shall be deemed true and correct absent manifest error.
This Agreeenent and the Note evidences your promise to pay all borrowings
hereunder with interest on their respective maturity or due dates.
6. Availability of Loans. The availability of loans under this facility
---------------------
is subject to the discretion of the Bank, and nothing in this Agreement
shall be construed as a commitment of the Bank to lend or to quote rates
on some or all maturities. In addition, the following events shall
constitute a default ("Defaults"): (a) there shall have occurred a
material adverse change in the assets, liabilities, financial condition,
business operations or prospects of the Company since the date, hereof; or
(b) any substantive changes in government regulations or monetary
policies. Upon a Default, all obligations of the Company hereunder shall
become immediately due and payable without notice or demand. All rights
and remedies of the Lender are cumulative and exclusive of any rights or
remedies provided by law or in equity or any other agreement, and may be
exercised separately or concurrently.
If this letter accurately sets forth our understanding with respect to the
subject matter hereof, please indicate that the Company will be bound by
executing and dating (the "Effective Date") this letter in the space provided
and returning it to us.
Sincerely,
The First National Bank of Boston
By: /s/ Andrew T. Fay
-----------------------
Name: Andrew T. Fay
Title: Vice President
Acknowledged and Accepted as of March 19, 1997:
Chemfab Corporation
By: /s/ Moosa E. Moosa
- ----------------------
Name: Moosa E. Moosa
Title: Vice President, Finance and Chief Financial Officer
EXHIBIT 1
FORM OF DEMAND PROMISSORY NOTE
PN- __________________
MARCH 19, 1997
FOR VALUE RECEIVED, the undersigned, Chemfab Corporation, a Delaware
corporation (the "Borrower"), hereby promises to pay to The First National
Bank of Boston (the "Lender") or order, on the earlier of (i) the
occurrence of a Default or (ii) written DEMAND as set forth in the Letter
Agreement (defined below), the aggregate unpaid principal amount of all
loans made by the Lender to the Borrower pursuant to the Letter Agreement.
The Borrower promises to pay daily interest from the date hereof, computed
as provided in such Letter Agreement, on the aggregate principal amount of
such loans from time to time unpaid at the per annum rate applicable to
such unpaid principal amount as provided in such Letter Agreement, such
interest being payable at the times specified in such Letter Agreement,
except that all accrued interest shall be paid at the stated or accelerated
maturity hereof or upon the prepayment in full hereof.
Payments hereunder shall be made to The First National Bank of Boston, 100
Federal Street, Boston, Massachusetts 02110 on or before 2:00 p.m. on the due
date thereof.
All loans made by the Lender pursuant to the Letter Agreement referred to
below and all repayments of the principal thereof shall be recorded by the
Lender and, prior to any transfer hereof, appropriate notations to evidence the
foregoing information with respect to each such loan then outstanding shall be
endorsed by the Lender on the schedule attached hereto or on a continuation of
such schedule attached to and made a part hereof; provided, however, that the
-------- -------
failure of the Lender to make any such recordation or endorsement shall not
affect the obligations of the Borrower under this Note, such Letter Agreement
or under any other related document.
This Note evidences borrowings under, and is entitled to the benefits of, and
is subject to the provisions of, the Letter Agreement dated as of March 19, 1997
as from time to time in effect (the "Letter Agreement"), between the Borrower
and the Lender. The principal of this Note is prepayable in the amounts and
under the circumstances set forth in the Letter Agreement, and may be prepaid in
whole or from time to time in part, all as set forth in the Letter Agreement.
Terms defined in the Letter Agreement and not otherwise defined herein are used
herein with the meanings so defined.
In case a Default shall occur, or upon written DEMAND, the entire principal
of this Note may become or be declared due and payable in the manner and with
the effect provided in the Letter Agreement. To the extent permitted by
applicable law, upon and after the occurrence of a Default, interest on
principal and overdue interest shall, at the option of the Lender, be payable
on demand at a rate per annum equal to 2% above the rate otherwise payable
hereunder.
The Lender is hereby authorized at any time and from time to time, without
notice to the undersigned (any such notice being expressly waived by the
undersigned) and to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
and other sums credited by or due from the Lender to the undersigned or subject
to withdrawal by the undersigned against the obligations of the undersigned,
although such obligations may be contingent or unmatured.
The undersigned agrees to indemnify the Lender and hold it harmless from and
against any transfer taxes, documentary taxes, assessments or charges made by
any governmental authority by reason of the execution, delivery and performance
of this Note.
The undersigned will pay on demand all expenses of the Lender in connection
with the preparation, administration, default, collection, waiver or amendment
of the obligations or in connection with the Lender's exercise, preservation or
enforcement of any of its rights, remedies or options thereunder, including
without limitation, fees of outside legal counsel or the allocation costs of in-
house legal counsel, accounting, consulting, brokerage or other similar
professional fees or expenses, and any fees or expenses associated with any
travel or other costs relating to any appraisals or examinations conducted in
connection with the obligations or any collateral therefor, and the amount of
all such expenses shall, until paid, bear interest at the rate applicable to
principal hereunder (including any default rate) and be obligation secured by
any such collateral.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (OTHER THAN THE CONFLICT OF
LAWS RULES).
The Borrower hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note, except as specifically otherwise
provided in the Letter Agreement, and assent to extensions of time of payment,
or forbearance or other indulgence without notice.
JURY WAIVER. THE LENDER (BY ITS ACCEPTANCE OF THIS NOTE) AND
THE UNDERSIGNED AGREE THAT NEITHER OF THEM NOR ANY ASSIGNEE
OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING,
COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS NOTE, ANY
RELATED INSTRUMENTS OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF
THEM OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH
SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE LENDER NOR THE UNDERSIGNED HAS
AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH
WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
CHEMFAB CORPORATION
By: /s/ Moosa E. Moosa
-----------------------
Name:Moosa E. Moosa
Title: Vice President, Finance and
Chief Financial Officer
March 19, 1997
<TABLE>
<S><C>
NOTE SCHEDULE TO PROMISSORY NOTE OF
CHEMFAB CORPORATION
DATED ____________, 1997
Date and Amount
--------------------
Principal Amount of Payment
----------------- ----------
Date of Loan of Loan Maturity Date Interest Rate Received Notation Made By
- ------------- ------- ------------- ------------- -------- ----------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
EXHIBIT 21
CHEMFAB CORPORATION
SUBSIDIARIES
WHOLLY-OWNED SUBSIDIARIES OF CHEMFAB CORPORATION
Hi-Temp Materials, Inc., incorporated under the laws of the state of Illinois.
Birdair Structures, Inc., incorporated under the laws of the state of New York.
Canton Bio-Medical, Inc., incorporated under the laws of the state of New York.
CHEMFAB Overseas Corporation, incorporated under the laws of the state of
Delaware.
CHEMFAB Holdings, organized under the laws of the Republic of Ireland.
Halbert Investments, organized under the laws of the Republic of Ireland.
CHEMFAB Luxembourg S.A.R.L., incorporated under the laws of the Grand-Duchy of
Luxembourg.
CHEMFAB Europe, organized under the laws of the Republic of Ireland.
Chemical Fabrics Ireland, Ltd., organized under the laws of the Republic of
Ireland.
CHEMFAB International Corporation, incorporated under the laws of the state of
Delaware.
CHEMFAB FSC, Inc., incorporated under the laws of Barbados, West Indies.
Advanced Facilities, Inc., incorporated under the laws of the state of New York.
Fluorocarbon Fabrications Ltd., incorporated under the laws of the United
Kingdom.
CHEMFAB Holdings U.K. Ltd., incorporated under the laws of the United Kingdom.
Tygaflor Ltd. (formerly CHEMFAB U.K. Ltd.) incorporated under the laws of the
United Kingdom.
Iberflon, S.A., incorporated under the laws of Spain.
Scanfluor, ApS., incorporated under the laws of Denmark.
Chemfab (Suzhou) Co., Ltd., incorporated under the laws of the People's Republic
of China.
Chemfab do Brasil Industria e Comercio Ltda., incorporated under the laws of
Brazil.
Chemfab Japan, LTD., incorporated under the laws of Japan.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Forms S-8 No. 2-89831, No. 33-61946 and No. 333-07139 and Form S-3
No. 33-18264) pertaining to the 1986 Stock Option Plan, the 1991 Stock Option
Plan and the 1991 Chemfab Employee Stock Option Plan, the Amended and Restated
1991 Stock Option Plan, and the 1986 Stock Option Plan and the 1983 Incentive
Stock Option Plan of our report dated July 29, 1997, with respect to the
consolidated financial statements and schedule of Chemfab Corporation included
in this Annual Report (Form 10-K) for the year ended June 30, 1997.
Boston, Massachusetts
September 15, 1997
POWER OF ATTORNEY
I, the undersigned Director and/or Officer of Chemfab Corporation (the
"Company"), hereby severally constitute and appoint Duane C. Montopoli,
Moosa E. Moosa, and David L. Engel, and each of them, my true and lawfull
attorney and agent to sign for me, and in my name and in the capacity or
capacities indicated below (A) the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997, (B) the Registration Statement on Form
S-8 (the "Proposed Registration Statement") registering under the Securities
Act of 1933, as amended (the "Act") shares of the Company's Common Stock
issuable or transferable on exercise of options under the Company's Second
Amended and Restated 1991 Stock Option Plan, as amended (the "1991 Plan")
and registering under the Act for reoffer certain of such shares, which
Proposed Registration Statement the Company intends to file in the event
that the Company's stockholders approve an amendment to increase to
2,250,000 shares the number of shares of the Company's Common Stock
authorized for issuance pursuant to the 1991 Plan, and (C) any and all
amendments (including supplements and post-effective amendments) to (1) the
Company's Registration Statement on Form S-8 (File No.2-89831), dated as of
March 8, 1984, registering under the Act shares of the Company's Common
Stock issuable or transferable on the exercise of stock options and stock
appreciation rights under the Company's 1983 Incentive Stock Option Plan
(the "1983 Plan") and on the exercise of stock options under the Company's
1981 Incentive Stock Option Plan (the "1981 Plan") and the 1979 Non-
Qualified Stock Option Plan (the "1979 Plan"), (2) the Company's
Registration Statement on Form S-8 (Fi1e No.33-18263), dated as of November
30, 1987, registering under the Act shares of the Company's Common Stock
issuable or transferable on exercise of options under the 1983 Plan, the
1981 Plan and the 1986 Stock Option Plan (the "1986 Plan") (collectively,
with the 1983 Plan, the 1981 Plan, and the 1979 Plan, the "Plans"), (3) the
Company's Registration Statement on Form S-8, dated as of August 2, 1990,
registering under the Act shares of the Company's Common Stock issuable or
transferable on exercise of options under the 1986 Plan, (4) the Company's
Registration Statement on Form S-3 (File No.33-18264) registering under the
Act for reoffer, shares of the Company's Common Stock issuable or
transferable on exercise of options under the Plans or of certain Non-Plan
options, (5) the Company's Registration Statement on Form S-8 (File No.33-
61946), dated as of April 30, 1993, registering under the Act shares of the
Company's Common Stock issuable or transferable on exercise of options under
the 1991 Plan and the Company's 1991 Chemfab Employee Stock Option Plan, and
(6) the Company's Registration Statement on Form S-8 (File No.333-07139),
dated as of June 28, 1996, registering under the Act shares of the Company's
Common Stock issuable or transferable on exercise of options under the 1991
Plan and registering under the Act for reoffer certain of such shares.
Signature Title Date
- --------- ----- -----
/s/ Duane C. Montopoli President, Chief Executive Officer Sept. 18, 1997
- ------------------------ and Director
Duane C. Montopoli (principal executive officer)
/s/ Moosa E. Moosa Vice President - Finance, Sept. 18, 1997
- ------------------------ Chief Financial Officer, and
Moosa E. Moosa Treasurer
(principal financial officer)
/s/ Hilary A. Arwine Corporate Controller Sept. 18, 1997
- ------------------------ (principal accounting officer)
Hilary A. Arwine
/s/ Paul M. Cook Director Sept. 18, 1997
- ------------------------
Paul M. Cook
/s/ Warren C. Cook Director Sept. 18, 1997
- ------------------------
Warren C. Cook
/s/ Robert E. McGill III Director Sept. 18, 1997
- ------------------------
Robert E. McGill III
/s/ James E. McGrath Director Sept. 18, 1997
- -------------------------
James E. McGrath
/s/ Nicholas Pappas Director Sept. 18, 1997
- -------------------------
Nicholas Pappas
<TABLE> <S> <C>
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<CIK> 0000725813
<NAME> YVETTE DESMARAIS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 8055000
<SECURITIES> 0
<RECEIVABLES> 17445000
<ALLOWANCES> 367000
<INVENTORY> 16373000
<CURRENT-ASSETS> 45616000
<PP&E> 43937000
<DEPRECIATION> 22465000
<TOTAL-ASSETS> 21472000
<CURRENT-LIABILITIES> 12390000
<BONDS> 0
0
0
<COMMON> 852000
<OTHER-SE> 65533000
<TOTAL-LIABILITY-AND-EQUITY> 80565000
<SALES> 90783000
<TOTAL-REVENUES> 90783000
<CGS> 59839000
<TOTAL-COSTS> 59839000
<OTHER-EXPENSES> 17904000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (260000)
<INCOME-PRETAX> 13300000
<INCOME-TAX> 4194000
<INCOME-CONTINUING> 9106000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9106000
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
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