U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 20, 1997
PTI HOLDING INC.
(Exact Name of Registrant as Specified in its charter)
Delaware 1-11586 13-3590980
(State or jurisdiction Commission (I.R.S.Employer
of incorporation or file number Identification No.)
organization)
c/o 15 East North Street, Dover, DE 19901
(Address of principal executive offices) (Zip Code)
(302) 678-0855
(Registrant's Telephone Number, Including Area Code)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On August 5, 1997, the Company consummated the merger (the "Merger") of
Flents Products Co., Inc., a New York corporation ("Flents"), which is
principally engaged in the business of the manufacture of wax earplugs and the
marketing and sale of earplugs and other safety and medical supplies, such as an
eye drop delivery system, styptic devices, and air-filter masks (the
"Business"), with and into the Company's wholly owned subsidiary, Flents
Products Co., Inc., a Delaware corporation ("Merger Sub"), pursuant to an
Agreement and Plan of Merger among the Company, Merger Sub and Flents. From and
after August 5, 1997, Flents had no separate or independent existence, having
been merged into Merger Sub. For purposes of financial accounting and income
tax, the Merger was deemed to have occurred as of the opening of business on
June 1, 1997 (the "Effective Date").
The principal assets of Flents as of the Effective Date of the Merger
consisted of: approximately $1,024,364 of accounts receivable; approximately
$806,465 of inventory; certain proprietary information (including molds, vendor
contacts and customer information) and various registered trademarks used in the
Business.
Merger Sub delivered at the closing (the "Closing") of the Merger $27.46
and 3.47 shares of the common stock, par value $.01 per share of the Company
(the "Company's Common Stock") (with associated convertible value rights
described below) to the shareholders of Flents in respect of each of the 77,756
issued and outstanding shares of the common stock of Flents, or total merger
consideration of $4,837,085. The merger consideration was paid $2,135,435 in
cash, and $2,701,650 in units consisting of 270,165 shares of the Company's
Common Stock and 270,165 Convertible Value Rights ("CVRs"). For purposes of the
Merger, the Units were valued at $10 per Unit. Each CVR entitles the original
holder to up to $4.00 of additional Common Stock of the Company to the extent
that the market value of the Company's Common Stock is less than $10.00 per
share on the one-year anniversary of the Closing.
In addition, at the Closing, Closing, Merger Sub entered into
noncompetition agreements with Stuart M. Lowe, Chairman of the Board of
Directors of Flents ("Low"), W. Thomas Davies, President of Flents ("Davies")
and James E. Dunn, Vice President of sales of Flents ("Dunn"), all of whom were
also shareholders of Flents, restricting them from, among other activities,
competing with Merger Sub for a period of five years (or four years, in the case
of Davies) from the Closing.
At the Closing, Merger Sub also entered into a ten-year consulting
agreement with Low, commencing on the Closing whereby he will receive $12,000
annually for the term of the agreement and health insurance for the first four
years of the term. Merger Sub also entered into a four-year employment agreement
with Davies, commencing as of June 1, 1997, providing for an initial starting
salary of $180,000 per annum and options ("Options") for the purchase of 10,000
shares of the Company's Common Stock per year for the term of the employment
agreement. Davies will also receive additional Options based on Merger Sub's
performance. In addition, Merger Sub entered into a five-year employment
agreement with Dunn, commencing as of June 1, 1997, providing for an initial
starting salary of $108,000 per annum and a bonus based on the increase in
Merger Sub's net revenues.
The amount of consideration paid by Merger Sub as set forth above was
determined by arms-length negotiations between the parties involved. Woodbridge
Group Inc. received a fee for its advice rendered to Company and for arranging
the Merger, however, no opinion was provided as to the fairness of the merger
consideration in the transaction. The Company's evaluation of the merger
consideration paid in the Merger was based upon the book value of Flents, its
revenues and profits during its 1996 fiscal year, and its sales prospects. The
Company incurred acquisition costs in connection with the merger totaling
approximately $412,000.
The three major shareholders of Flents prior to the Merger were all members
of the Low family. Four of the other five shareholders were all employees of
Flents at the time of the Closing who had received their shares as stock bonuses
from Flents, and the fifth shareholder was Flents' attorney. No relation existed
prior to the Merger between any of such persons or Flents, on the one hand, and
the Company, any of its affiliates, any director or officer of the Company, or
any associates of any such director or officer, on the other hand.
The source of funds used to capitalize Merger Sub and to effect the Merger
was the Company's cash reserves. Merger Sub intends to continue to use the
assets of Flents in the Business.
<PAGE>
(a) Financial Statements of Business Acquired.
To be filed by amendment.
(b) Pro-Forma Financial Information.
To be filed by amendment.
(c) Exhibits.
Exhibit No. Description
1 Agreement and Plan of Merger, dated July 25, 1997, among PTI Holding Inc.,
Flents Product Co., Inc. (a Delaware corporation) and Flents Product Co.,
Inc. (a New York corporation)
2 Amendment to Agreement and Plan of Merger, dated July 25, 1997, among PTI
Holding Inc., Flents Product Co., Inc. (a Delaware corporation), Flents
Product Co., Inc. (a New York corporation), W. Thomas Davies, James E.
Dunn, Stuart M. Low, Robert A. Low, Doris L. Hirsch, Lester C. Migdal,
Peter C. Kohn and Mary Lou Secchi
3 Certificates of Merger for the State of New York and the State of Delaware,
each dated August 5, 1997, of Flents Products Co., Inc. (a New York
corporation) into Flents Product Co., Inc. (a Delaware corporation)
4 Noncompetition Agreement, dated August 5, 1997, among PTI Holding Inc.,
Flents Products Co., Inc. (a Delaware corporation) and Stuart M. Low
5 Noncompetition Agreement, dated August 5, 1997, among PTI Holding Inc.,
Flents Products Co., Inc. (a Delaware corporation), W. Thomas Davies, and
James E. Dunn
6 Consulting Agreement, dated August 5, 1997, between Flents Products Co.,
Inc. (a Delaware corporation) and Stuart M. Low
7 Employment Agreement, dated August 5, 1997, between Flents Products Co.,
Inc. (a Delaware corporation) and W. Thomas Davies
8 Employment Agreement, dated August 5, 1997, between Flents Products Co.,
Inc. (a Delaware corporation) and James E. Dunn
9 Convertible Value and Registration Rights Agreement, dated August 5, 1997,
among PTI Holding Inc., W. Thomas Davies, James E. Dunn, Stuart M. Low,
Doris L. Hirsch, Peter C. Kohn, Robert A. Low, Lester C. Migdal, and Mary
Lou Secchi
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 20, 1997
PTI HOLDING INC.
By/s/ Meredith W. Birrittella
Meredith W. Birrittella,
Chief Executive Officer
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 20, 1997
PTI HOLDING INC.
By
Meredith W. Birrittella,
Chief Executive Officer
<PAGE>
EXHIBIT 1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of July 25, 1997,
by and among PTI HOLDING INC., a Delaware corporation, having an address c/o
Protective Technologies International, Inc., One River Street,
Hastings-on-Hudson, New York 10706 ("PTI"), FLENTS PRODUCTS CO., INC., a
Delaware corporation and a wholly-owned subsidiary of PTI, having an address at
c/o Akabas & Cohen, 488 Madison Avenue, New York, NY 10022 ("Merger Sub"), and
FLENTS PRODUCTS CO., INC., a New York corporation having an address at 258 Dr.
Martin Luther King Drive, Norwalk, Connecticut 06854 ("Flents" or the
"Company").
WHEREAS, Merger Sub is a wholly-owned subsidiary of PTI and has an
authorized capital stock consisting of 200 shares of common stock, par value
$.01 per share (the "Merger Sub Stock"), of which 100 shares are issued and
outstanding and owned by PTI;
WHEREAS, the respective Boards of Directors of PTI, Merger Sub and Flents
have each approved the acquisition of Flents by PTI pursuant to a merger of
Flents into Merger Sub (the "Merger") in accordance with Section 368 (a)(1)(A)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the
provisions of this Agreement, with the result that 77,756 aggregate shares of
common stock, par value $.02 per share, of Flents (the "Flents Shares" or a
"Flents Share") shall be canceled in exchange for $4,912,085 (the "Merger
Consideration") consisting of $2,210,435 in cash (the "Cash Consideration") and
not less than 270,165 units consisting of 270,165 shares of common stock (the
"Merger Stock"), par value $.01 per share, of PTI (the "PTI Common Stock") and
convertible value rights (as described in Section 3 herein), which together
shall have a value of $2,701,650 at $10 per unit, subject to adjustment as
provided herein; and
WHEREAS, it is intended that the Merger will create economies of scale and
cross-marketing benefits that will enhance the value of PTI, Merger Sub and
Flents in a consolidated group,
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, PTI, Merger Sub and Flents hereby agree as follows:
Section 1. The Merger
1.1. Surviving Corporation. At the Closing (as defined in Section 4
herein), in accordance with the Code and this Agreement, Flents shall be merged
with and into Merger Sub, and the separate existence of Flents (except as may be
continued by operation of law) shall cease, and Merger Sub shall continue as the
surviving corporation (Merger Sub hereinafter sometimes shall be referred to as
the "Surviving Corporation").
1.2. Effect of the Merger. At the Effective Time (hereinafter defined) of
the Merger, in addition to any other purposes and powers set forth in the
Certificate of Merger (as defined in Section 1.3(b) herein), the Surviving
Corporation shall have the rights and powers of Merger Sub and Flents
(collectively referred to as the "Constituent Corporations"). The assets of each
Constituent Corporation, including any legacies that each would have been
capable of taking, shall transfer to, vest in and devolve on, the Surviving
Corporation without further act or deed. Confirmatory deeds, assignments or
similar instruments to evidence the transfer may be executed and delivered at
any time in the name of Flents by its last acting officers or by the appropriate
officers of the Surviving Corporation. The Surviving Corporation shall be liable
for all the debts and obligations of Flents. An existing claim, action or
proceeding pending by or against Flents may be prosecuted to judgment as if the
Merger had not taken place, or, on motion of the Surviving corporation or any
party, the surviving Corporation may be substituted as a party, and a judgment
against Flents shall constitute a lien on the property of the surviving
corporation. The Merger shall not impair the rights of creditors or any liens on
the property of a Constituent Corporation.
1.3. Consummation of the Merger.
(a) This Agreement has been submitted to and approved by the
stockholders of Flents and Merger Sub and the board of directors of PTI. PTI
represents that it is authorized to enter into this Agreement without
shareholder approval.
(b) On the date of the Closing, the appropriate parties hereto shall
execute and file with the State Department of the State of New York (the
"Department") a Certificate of Merger substantially in the form of Exhibit A
annexed hereto (the "Certificate of Merger"). Merger Sub shall also file
appropriate documents in such other Jurisdictions as may be required by law.
1.4. Charter; By-Laws; Directors and Officers. The Charter of Merger Sub,
as in effect immediately prior to the date and time when the Merger shall become
effective (the "Effective Time"), shall be further amended as provided in the
Certificate of Merger, and, as so amended, shall be the Charter of the Surviving
Corporation. The By-Laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the By-Laws of the Surviving Corporation. The officers
of Merger Sub shall be the officers of Surviving Corporation, in each case until
an officer's successor is elected and qualified or until an officer's earlier
death, resignation or removal. The directors of Merger Sub shall be the
directors of the surviving corporation, until their successors are elected and
qualified or until a director's earlier death, resignation or removal.
1.5. Taking of Necessary Action; Further Action. Subject to the fiduciary
obligations of their respective Boards of Directors and the terms hereof, PTI,
Merger Sub and Flents shall each use its best efforts to take all such action as
may be necessary or appropriate in order to effectuate the Merger under New York
and Delaware law as promptly as possible. If at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers, and franchises
of either of the Constituent Corporations, the officers of such corporations are
fully authorized in the name of their corporation or otherwise to take, and
shall take, all such lawful and necessary action.
Section 2. Status and Conversion of Securities.
2.1. Conversion of Shares.
(a) Flents Shares. Each Flents Share issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive a pro rata share of the Merger Consideration, which, based on
77,756 shares of the common stock of Flents outstanding, consists of, (i) $28.43
in cash, and (ii) 3.47 shares of PTI Common Stock and convertible value rights,
as described in Section 3 herein, subject to the payment of expenses to the
Exchange Agent. This conversion shall be subject to equitable adjustment in the
event of any stock split, stock dividend, reverse stock split, or other similar
proportional change in the number of shares of PTI Common Stock outstanding. No
Flents Shares shall be deemed to be outstanding or to have any right other than
those set forth in this Agreement after the Effective Time. The Merger Stock has
not been, and will not be, registered under the Securities Act of 1933, as
amended (the "Act"), or under any state securities laws, except as shall be
provided in the Convertible Value and Registration Rights Agreement described in
Section 7.9 herein. The Merger Stock will constitute restricted securities and
may not be sold or disposed of by Flents or stockholders of Flents, unless so
registered or an exemption from such registration is available, as evidenced by
an opinion of counsel to the Surviving Corporation. Upon the request of a Flents
stockholder or his/her successors or assigns receiving PTI shares pursuant to
this Agreement, counsel to the surviving corporation will promptly and without
charge furnish an opinion in respect of the lawful sale or transfer of the
Merger Stock to the extent such counsel believes that such shareholder's Merger
Stock may be sold pursuant to an effective registration under the Act or Rule
144 thereunder.
(b) Merger Sub Stock. Immediately following the Effective Time, each
of the outstanding shares of Merger Sub Common Stock, issued and outstanding
immediately prior to the Effective Time, shall remain outstanding as shares of
the surviving Corporation, and no payment shall be made with respect thereto.
2.2. Exchange.
(a) Exchange Agent. At Closing, PTI and Merger Sub shall transfer to
Migdal, Pollack, Rosenkrantz & Sherman, as exchange agent (the "Exchange
Agent"), in a liquidating trust for the benefit of the stockholders of Flents
("Flents stockholders"), the Merger Consideration. The Exchange Agent shall hold
the Merger consideration the cash portion of which shall be by certified or bank
check or by wire transfer of good funds in trust on behalf of Flents
stockholders pending the cancellation of the certificates evidencing the Flents
Shares (the "Certificates"). Upon cancellation of the Certificates, the Exchange
Agent shall distribute the Merger Consideration to the Flents stockholders as
promptly as practicable following the date of the Closing, subject to the escrow
created under Section 10.6 herein. The investment powers of the Exchange Agent
are to be limited to investments in obligations of or guaranteed by the United
States of America, or temporary investments in certificates of deposit or in
demand or time deposits in commercial banks with capital exceeding
$1,000,000,000 (collectively "Permitted Investments"). Any income earned on
Permitted Investments shall be distributed pro rata to Flents stockholders
entitled thereto. The maturities of the Permitted Investments shall be such as
to permit the Exchange Agent to make prompt payment of the Cash Consideration to
Flents stockholders entitled thereto. The Exchange Agent shall be paid from the
Merger Consideration, except as provided under Section 14 herein.
(b) Exchange Procedure. At or before the closing, each Flents
stockholder shall deliver to the Exchange Agent all of his or her Certificates,
endorsed in blank. The Exchange Agent upon receipt of the Merger Consideration
at the closing shall cancel the Certificates and thereafter distribute the
Merger Consideration including the convertible value rights, together with
interest on the cash portion of the Consideration, subject to the escrow
provisions of Section 10.6, to each of the Flents stockholders upon the
surrender of the Certificates to the Exchange Agent. The Exchange Agent shall
send a notice to each holder of the Certificates informing such holder of the
effectiveness of the Merger. Until surrendered, each such Certificate shall be
deemed for all purposes to evidence only the right to receive such Merger
Consideration.
(c) Transfer of Merger Consideration. If the Merger Consideration (or
any portion thereof) is to be delivered to a person other than the person in
whose name the Certificates surrendered in exchange therefor are registered, it
shall be a condition to the payment of the Merger Consideration that (i) the
Certificates so surrendered shall be properly endorsed or accompanied by
appropriate stock powers and otherwise in proper form for transfer, (ii) such
transfer otherwise be proper, and (iii) that the person requesting such transfer
pay to the Exchange Agent any transfer or other taxes payable by reason of the
foregoing or establish to the satisfaction of the Exchange Agent that such taxes
have been paid or are not required to be paid.
(d) Lost Certificates. In the event any Certificate shall have been
lost, stolen or destroyed, the beneficial owner of such Certificate shall sign
and deliver to Merger Sub an affidavit of loss in the form of Exhibit B annexed
hereto, attesting to such loss, theft or destruction, and indemnifying Merger
Sub for all loss or damages incurred in connection therewith, and the Exchange
Agent shall issue or cause to be issued in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration deliverable in respect thereof in
accordance with this Agreement. When authorizing such issue of the Merger
Consideration in exchange therefor, the Exchange Agent may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Certificate to give the Exchange Agent a bond in such
sum as the Exchange Agent may direct as indemnity against any claim that may be
made against the Exchange Agent with respect to the Certificate alleged to have
been lost, stolen or destroyed.
2.3. Acquired Assets. Flents represents and warrants to Merger Sub and
acknowledges and confirms that each such representation and warranty shall be
deemed to be material and that Merger Sub is relying upon such representations
and warranties in connection with the execution, delivery and performance of
this Agreement, any investigation made by Merger Sub or on its behalf
notwithstanding, except as otherwise specifically set forth herein and in the
Schedules hereto: Flents owns all of the business, properties and assets of
Flents or used by Flents, real, personal or mixed, tangible or intangible, other
than the Excluded Assets (as defined in Section 2.4 herein), together with the
goodwill of Flents, all as the same existed on November 30, 1996, except for
those assets disposed of in the ordinary course of business consistent with past
practice in arms-length transactions with unaffiliated parties (except salaries
and benefits to employees who are affiliated individuals consistent with past
practice and other payments expressly permitted herein), together with any
additions thereto after such date, (hereinafter sometimes together referred to
as the "Acquired Assets") including without limitation, the following assets:
(i) all machines, equipment, tools, dies, product tooling, molds,
furniture, fixtures, trucks, automobiles, other vehicles, office supplies,
including without limitation that property (A) described on the Depreciation
Expense Report included herein as Schedule 2.3(i) hereto or otherwise listed on
Schedule 2.3(i), (B) used or held for use on the date hereof or acquired for use
after the date hereof by Flents; or (C) located at any premises operated by
Flents;
(ii) all contracts, promissory notes, leases of personal property and
agreements listed on Schedule 2.3(ii) hereto, and all other contracts, leases,
agreements, promissory notes and other evidences of indebtedness to Flents;
(iii) all intangible assets and all rights, interests and claims of
Flents in, to or under all intangible assets used, held for use or acquired for
use by Flents (including without limitation the names "Flents" and all other
trademarks, trade names or service marks under which Flents has operated, any
copyrighted or copyrightable material, patents, drawings, designs, formulas,
customers' records, customer lists, supplier lists, employee records, choses in
action, claims, computer software, programming and applications used, held for
use or acquired for use by Flents, together with any goodwill associated with
any of the foregoing);
(iv) all inventories, raw materials (including inventories and raw
materials on order but not received as of the Closing Date), and
work-in-progress, used, held for use or acquired for use by Flents;
(v) all claims, demands, judgments, rights, choses in action, accounts
receivable, bills and notes receivable, documents, instruments, credits and
deferred items, arising in connection with Flents' business, except that as to
all such assets, Flents makes no representation that valid defenses may not be
asserted against them, but Flents is unaware of any such defenses or a
reasonable basis for any such defenses, and accounts receivable and bills and
notes receivable may be subject to claims, but Flents is unaware of any such
claims or a reasonable basis for any such claims;
(vi) all supplies, marketing and sales literature
(including catalogs) that are related to Flents;
(vii) all rights and interests under or pursuant to warranties and/or
guaranties of suppliers of Flents relating to the Acquired Assets or Flents;
(viii) all licenses, franchises, permits, privileges, immunities,
approvals and authorizations from a governmental or regulatory body
("Governmental Permits") that are necessary to entitle Flents to own or lease,
operate and use its assets and to conduct its business substantially as
historically conducted by Flents, and, to the best knowledge of Flents, Flents
is in compliance with Federal Food and Drug Administration ("FDA") requirements
regarding the marketing of Seal-Rite and Silaflex 2 silicone ear plugs (except
Flents in the current year first elected to identify itself as a "manufacturer"
in addition to its identification as a repacker and labeler, which additional
identification Flents has provided on its annual registration application), and
in compliance with the labeling requirements of the Federal Environmental
Protection Agency to indicate noise reduction in decibels for anti-noise
products and in compliance with FDA registration requirements for Maxi-Mask dust
masks;
(ix) all telephone, telex, and telephone facsimile numbers, computer
online addresses, other communication media designations and directory listings
utilized in connection with Flents' business, subject to the confidentiality
provisions of the license agreement with Wal-Mart Stores, Inc. with regard to
its software system known as Retail LinkTM;
(x) all cash, marketable securities and other liquid
assets; and
(xi) all books, records and files of Flents for all
periods.
2.4. Excluded Assets. The Acquired Assets do not include
the assets (herein collectively referred to as the "Excluded
Assets") of Flents as follows:
(a) counterclaims and cross claims to the extent
relating to any liability against which Flents indemnities Merger
Sub hereunder;
(b) insurance claims and rights under insurance policies to the extent
relating to any liability against which Flents indemnities Merger Sub hereunder;
and
(c) rights under this Agreement,
in each case, to the extent not reflected as an asset on any
balance sheet of Flents.
Section 3. Convertible Value Rights.
(a) As of the first anniversary of the Effective Time, PTI will
transfer to each Flents stockholder PTI Common Stock equal in value to the
product of (a) the positive difference of $10.00 minus the greater of (i) the
average of the median closing sale prices of the PTI Common Stock during the
immediately preceding twenty (20) consecutive trading days, and (ii) $6.00,
multiplied by (b) the number of shares of Merger Stock held beneficially and of
record by such stockholder on such first anniversary (the right to receive such
distribution shall be referred to as a "Convertible Value Right").
(b) The value of any PTI Common Stock shall be the average of the
median closing sale prices of the PTI Common Stock during the immediately
preceding twenty (20) consecutive trading days prior to its issuance. The
Convertible Value Rights shall be subject to equitable adjustment in the event
of any stock split, stock dividend or reverse stock split resulting in a change
in the number of shares of PTI Common Stock outstanding prior to the one year
anniversary of the Effective Time. During the 30 trading days prior to such
one-year anniversary, the Flents stockholders shall not engage in any trades,
directly or indirectly, in the securities of PTI.
Section 4. Closing. Provided that the conditions in Sections 8 and 9 hereof
have been satisfied or waived, the Merger contemplated by this Agreement (the
"Closing") shall, unless another date or place is agreed to in writing by Flents
and Merger Sub, take place at the offices of Migdal Pollack, Rosenkrantz &
Sherman on August 5, 1997, or earlier upon satisfaction of all the conditions in
Sections 8 and 9, (the "Closing Date"), provided, however, that such date may be
adjourned by a party hereto if the other party hereto shall not have satisfied
all of the conditions to be satisfied by such other party on or before the
Closing.
Section 5. Representations and Warranties of Flents. Flents represents and
warrants to Merger Sub as follows, and acknowledges and confirms that each such
representation and warranty shall be deemed to be material and that Merger Sub
is relying upon such representations and warranties in connection with the
execution, delivery and performance of this Agreement, notwithstanding any
investigation made by, or on behalf of, Merger Sub. PTI acknowledges that it has
had an opportunity to ask questions about the disclosures in this Agreement and
its schedules and has discussed such questions with Flents to PTI's
satisfaction. Flents' representations and warranties expressed in this Agreement
are qualified by the specific disclosures made by Flents in respect of its
purchases, sales, inventory, returns policy or any other matter concerning the
Breast Comfort Pack. Flents makes no representation that its accounting in
respect of the Breast Comfort Pack are in accordance with generally accepted
accounting principles. Where, however, Flents establishes to the satisfaction of
a court or arbitration tribunal that PTI or Merger Sub was apprised of a fact or
facts prior to Closing that do not appear on the Schedules hereto, then Flents
shall not be deemed to be in violation of its representations and warranties and
said fact or facts shall be treated as if they were included in the Schedules
hereto, provided, however, Flents shall have the burden of establishing beyond a
reasonable doubt that Merger Sub was apprised of the fact or facts in question.
5.1. Organization and Good Standing.
(a) Flents is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and is qualified
to transact business and is in good standing as a foreign corporation in the
jurisdictions where it is required to qualify (such jurisdictions with respect
to Flents being set forth in Schedule 5.1 hereto).
(b) Flents has the power and authority (corporate and otherwise) to
own, lease and operate its properties and to carry on its business as now
conducted and as conducted during the periods covered by the Financial
Statements (as defined in Section 5.4 herein).
(c) Flents has no subsidiaries or equity investments in any entity and
is not involved in a partnership or joint venture. Flents is not owned by any
other entity, except for the Flents stockholders.
(d) Intentionally omitted.
(e) Schedule 5.1(e) hereto sets forth documents reflecting each bank,
savings and loan, trust company, brokerage house or other financial institution
in which an account used by Flents is maintained on the date hereof.
5.2. Consents, Authorizations and Binding Effect.
(a) Flents may execute, deliver and perform this Agreement without the
necessity of obtaining any consent, approval, authorization or waiver or giving
any notice or otherwise, except for such consents, approvals, authorizations,
waivers and notices set forth on contracts, documents and the lease listed in
the Schedules hereto, some of which may impose obligations on Flents where a
third party is entitled to give consent to an assignment, or where a notice may
be appropriate to inform a third party of a change of address, such as
Medela/Prism Settlement Agreement. Merger Sub acknowledges that it has notice of
the terms of the documents listed in the Schedules hereto, and the failure of
Flents to receive such consents, approvals, authorizations or waivers shall not
constitute a misrepresentation or give rise to any claim on the part of Merger
Sub or PTI.
(b) This Agreement has been duly authorized, executed and delivered by
Flents and constitutes the legal, valid and binding obligation of Flents,
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement will not:
(i) constitute a violation of the Certificate or
Articles of Incorporation or the ByLaws, as amended, of Flents;
or
(ii) constitute a violation of any statute, judgment, order, decree or
regulation or rule of any court, governmental authority or arbitrator applicable
or relating to Flents, or the Acquired Assets; or
(iii) except as set forth in Schedule 5.2(b)(iii), result in the
acceleration of any debt or other obligation of Flents or the creation of any
Lien (as defined in Section 5.5(a) herein) upon any of the Acquired Assets.
5.3. Title to Shares.
The Flents Shares are the only securities of Flents issued or outstanding,
front and back copies of which have previously been submitted to PTI, together
with the names and the number of Flents Shares owned for each Flents
Stockholder. Each of the record stockholders of Flents has represented that he
or she has good and marketable title to the Flents Shares free and clear of all
Liens, and Schedule 5.3 sets forth the names and the number of Flents Shares
owned for each Flents Stockholder. Each of the record stockholders of Flents has
good and marketable title to the Flents Shares free and clear of all Liens, and
the cancellation of the Flents Shares in the Merger shall be free and clear of
Liens. No subscription, option, warrant, right, call, contract, commitment,
understanding, right of first refusal, right of first offer, or agreement (other
than this Agreement) relates to the Flents Shares or any capital stock of
Flents, or the issuance, sale or transfer of such Flents Shares or capital
stock, except as set forth in certificates issued to employees of Flents or set
forth in agreements with said employees, which are listed in the Schedules
hereto. The Flents Shares were acquired by the Flents stockholders in compliance
with all applicable laws, including federal and state securities laws. Flents is
not required by any agreement, arrangement or understanding to issue any
additional securities, except with respect to bonus shares that may be issued to
Davies, which are included in Schedule 5.3.
5.4. Financial Statements and Financial Condition.
(a) Flents has, except as specifically set forth herein, maintained
its books of account in accordance with applicable laws, rules and regulations,
and such books and records are and, during the periods covered by the Financial
Statements (as described in Section 5.4(b) herein, the "Financial Statements"),
were maintained in such fashion as to accurately reflect the transactions of
Flents and the income, expenses, assets and liabilities of Flents, including the
nature thereof and the transactions giving rise thereto to the extent that the
same would ordinarily be reflected in such books and records. The February 28,
1997 interim financial computer printouts described in Section 5.4(b) herein
(the "February Printouts") were prepared from the books and records maintained
by the Company, which were maintained in a manner not inconsistent with the
prior periods.
(b) Included in Schedule 5.4 are the reviewed balance sheets of Flents
as of November 30, 1995 and 1996, and the related reviewed statements of income
and of cash flows for the fiscal years then ended, reported on by Schwartz &
Hofflich, and the unaudited unreviewed balance sheet of Flents as of February,
28, 1997 and the related statement of income for the three months then ended
(collectively, all documents included in Schedule 5.4 shall be referred to as
the "Financial Statements").
(c) The Financial Statements have been prepared from the books of
account of Flents. The Financial Statements, except for the February Printouts,
present fairly the financial position of Flents as of the respective date of
such statements and the results of operations of Flents for the periods covered
thereby. The February Printouts were prepared on a basis consistent with past
practice for the preparation of Flents' financial statements. The Financial
Statements reflect all necessary adjustments and reserves for losses and
contingencies, except as the same may relate to the Breast Comfort Pack or are
otherwise disclosed to PTI herein.
(d) Flents has no liabilities (including, without limitation,
unasserted claims, matured or unmatured, absolute, contingent or otherwise),
except as otherwise set forth in this Agreement, that, in accordance with
Flents' prior practice are required to be reflected and are not reflected, or
are in excess of the amount reflected, in the balance sheet included in the
February Printouts except (i) those incurred since the date of the February
Printouts in the ordinary course of business, consistent with past practice, in
arms-length transactions with unrelated parties, and which do not have and
cannot reasonably be expected to have, in the aggregate, a material adverse
effect on the business, financial condition or prospects of Flents (a "Material
Adverse Effect") and (ii) those specifically described on Schedule 5.4(d)
hereto. All liabilities reflected on the February Printouts were incurred in the
ordinary course of business, consistent with past practice, except up to $7,000
of legal fees payable to Migdal, Pollack, Rosenkrantz & Sherman.
(e) Since November 30, 1996, Flents has not suffered any material
adverse change in its business, operations, financial condition or prospects,
except as disclosed in Schedule 5.4(e).
5.5. Title and Condition of Assets.
(a) Flents has and will retain after Closing good and marketable title
to the Acquired Assets, free and clear of liens, encumbrances, claims of third
parties, security interests, mortgages, pledges, agreements, options and rights
of others of any kind whatsoever, whether or not filed, recorded or perfected,
and including, without limitation, any conditional sale or title retention
agreement or lease in the nature thereof or any financing statements filed in
any jurisdiction or any agreement to give any such financing statements
(hereinafter collectively referred to as "Liens"), other than possible liens for
taxes of which Flents has not been advised or possible mechanics liens held by
firms providing services to Flents on Flents' property which liens have not been
asserted.
(b) Schedule 2.3 (i) hereto includes a depreciation expense report
consisting of a correct list and a summary description of all material tangible
personal property in the nature of machinery and equipment owned or leased by
Flents and used or held for use in the Business. Since November 30, 1996, none
of the Acquired Assets has been affected by any fire, accident, act of God or
any other casualty that materially and adversely impairs its function in the
business of Flents. The business of Flents is not conducted under any
restriction imposed upon Flents (such as a consent decree, easement, judgment or
zoning variance), but not imposed upon other similar businesses in the locality
where its business is located, except as disclosed in Schedule 5.5(b).
(c) True and correct copies of the lease identified on Schedule
2.3(ii) and all amendments thereto have been delivered to PTI. Such lease,
amendment and leasehold interest represent valid and binding rights and/or
obligations of Flents, are in full force and effect and are enforceable by
Flents in accordance with their respective terms. Flents has no accrued
obligation as lessee thereunder or under any other lease that it has not fully
performed; and Flents has not received any notice of default under any such
lease. Flents enjoys peaceful and undisturbed possession under all leases to
which it is a party as lessee. The lease is not in default and no event has
occurred or is continuing that, with proper notice and/or the passage of time,
would constitute an event of default thereunder. Except for such lease, Flents
does not lease any real property.
(d) Flents does not own or have any equity interest in
any real property.
5.6. Inventories. Except as set forth in Schedule 5.6, the inventories of
Flents reflected on the February Printouts and those observed by PTI in the
review on June 2, 1997, have been valued, at the lower of cost or market value
in accordance with generally accepted accounting principles, and the value of
obsolete materials and materials of below standard quality has been written down
as set forth in the February Printouts, which has been submitted to PTI, and
which PTI acknowledges to have received and examined; and the inventories of
Flents contain no material amount of obsolete or damaged items, are of good
useable or merchantable quality, and are saleable or usable in the ordinary
course of business at present levels of business operation. PTI and Merger Sub
shall be entitled to no adjustment in the purchase price on account of the
Breast Comfort Pack inventory or the depreciation of dies, plates and molds, nor
on account of any returns, charge-offs or credits granted or claimed on account
of Breast Comfort Pack goods shipped in the ordinary course of business. The
Company has not materially increased its work-in-progress and/or finished goods
inventory in the 12 months preceding the date hereof.
5.7. Receivables. The trade accounts and other receivables of Flents are
bona fide receivables and arose out of arms-length transactions, are recorded
correctly on the books and records of Flents, consistent with prior practice,
except as otherwise expressly noted herein or on the Schedules annexed hereto.
5.8. Insurance.
(a) Schedule 5.8(a) hereto sets forth (i) a list of all policies of
insurance maintained by Flents, and all programs of selfinsurance covering risks
or contingencies customarily covered by insurance in connection with the
business of Flents, including insurance providing benefits for employees, in
effect on the date hereof, (ii) a description of the coverage of such policies;
and (iii) the annual premiums therefor and the underwriter and expiration dates
thereof.
(b) Flents has made all premium payments currently due (accounting for
all installment payments) on the policies listed on Schedule 5.8(a), and all
such policies are in full force and effect in accordance with their respective
terms. There are no outstanding claims or liabilities, whether matured or
unmatured, fixed or contingent, under any medical reimbursement plan or any
other plan, policy or arrangement under which Flents acts or acted as a
self-insured.
(c) Schedule 5.8(c) sets forth all claims pending and, to the
knowledge of Flents, threatened under any of the casualty or liability (other
than products liability) insurance policies or self insurance programs set forth
in Schedule 5.8 (a), and all claims made thereunder during the three years
preceding the date hereof.
(d) There are no claims pending and, to the knowledge of Flents,
threatened in writing under any of the errors and omissions, product liability
or similar insurance policies or selfinsurance programs set forth in Schedule
5.8(a), and all material claims made thereunder during the three years preceding
the date hereof are described on Schedule 5.8(d).
5.9. Litigation and Compliance.
(a) Except for circumstances described on Schedule 5.9(a), there are
no actions, suits, claims or proceedings or governmental or administrative
investigations pending nor has Flents received any written communication
regarding any reasonable basis for any such action, suit, claim, proceeding or
investigation (i) by, against or otherwise involving Flents, or, in connection
with their relationship with Flents, any of Flents' officers, directors,
employees or agents, or any of the Acquired Assets or any asset or property of
others leased or used by Flents or (ii) that questions or challenges the
validity of this Agreement or any action taken or to be taken pursuant to this
Agreement. Schedule 5.9(a) also sets forth all lawsuits, arbitrations and
similar proceedings commenced during the five years before the date hereof
involving allegations of product liability and/or defective design or
manufacture of any product of Flents manufactured, distributed or sold by
Flents.
(b) Flents is in substantial compliance with, is not in default or
violation in any material respect under, and has not been charged with or
received any notice at any time during the past five (5) years, except as may be
otherwise expressly disclosed herein or in the Schedules annexed hereto, of any
violation by them of, any statute, law, ordinance, regulation, decree or order
applicable to Flents or the Acquired Assets.
(c) None of Flents, or any of Flents' officers, directors, employees
or agents is subject to any judgment, order or decree entered in any lawsuit or
proceeding, in connection with any of the Acquired Assets or any of the
transactions contemplated under this Agreement.
(d) Within the five years immediately prior to the date hereof, Flents
has duly filed all reports and returns required to be filed by it with
governmental authorities and has obtained all material Governmental Permits (a
complete list of which Governmental Permits is set forth on Schedule 5.9(d)
hereto) that are required. Flents has fulfilled all of its obligations under
such Governmental Permits. All of such Governmental Permits are in full force
and effect, no notice has been received by Flents during the past three years
questioning the validity thereof or declaring any defect or default relating
thereto. To Flents' best knowledge, no event has occurred that, with notice
and/or the passage of time, might result in a default or grounds for suspension
or cancellation under any of such Governmental Permits or might adversely affect
the validity thereof, and no proceedings for the suspension or cancellation of
any of them, and no investigation relating to any of them, is pending.
(e) Flents has operated, and will through the Closing Date operate, in
material compliance with all laws, rules, statutes, ordinances, orders and
regulations, including, without limitation, those applicable under the
Occupational Safety and Health Act of 1970, as amended ("OSHA"), or any
equivalent state law. Flents has not received any notice of any violation
thereof within the five years immediately prior to the date hereof.
5.10. Taxes.
(a) Flents has, or on or before the Closing Date will have, duly filed
all tax reports and returns required to be filed in respect of the business of
Flents and the Acquired Assets as of such date. All such tax reports and returns
are or will be complete, accurate and in compliance with all relevant laws and
regulations in all material respects, and, except as described in Schedule
5.10(a) hereto, none has been audited by any governmental authority. Flents has,
or on or before the Closing Date will have, paid and discharged all federal,
state, local and foreign taxes, interest, penalties or other payments required,
as the case may be, to be paid and then currently due as shown on such tax
reports and returns or otherwise, including, without limitation, taxes arising
out of the operations and employees of Flents as of such date. To the knowledge
of Flents, no audit of Flents is planned or threatened. Flents has withheld
proper and accurate amounts from its employees' compensation and either paid
such amounts to the appropriate taxing authorities or set aside such amounts in
accounts for such purpose in substantial compliance with all withholding and
similar provisions of the Code and any other applicable law.
(b) Flents has not received notice of any tax deficiency outstanding,
proposed or assessed against it or the Acquired Assets, nor does Flents have any
knowledge of any basis for any tax deficiency or assessment, nor has Flents
executed any waiver of any statute of limitations on the assessment or
collection of any tax. There are no tax liens upon, pending against or, to the
best knowledge of Flents, threatened against any Acquired Assets.
5.11. Intangible Assets.
(a) Flents' right, title and interest in the following property used,
held for use or licensed for use by Flents (collectively, the "Intellectual
Property") is described in Schedule 5.11(a) annexed hereto:
(i) all existing patents, patent applications, trademarks, trademark
registrations, applications for trademark registrations, trade names and
copyrights owned by Flents or in which Flents has any proprietary interest;
(ii) all computer software, programs, and applications owned, licensed
by or used or held by Flents other than commercially available software
subject only to a "shrinkwrap" agreement;
(iii) all material copyrightable property that is published or
distributed (such as brochures or catalogs) and patentable ideas,
inventions, discoveries (on which patent applications have been prepared or
filed or evaluated in writing) and designs used or held by Flents; and
(iv) all material trade secrets used or held by Flents, including,
without limitation, designs, inventions, discoveries, methods of production
and formulas.
All license, sublicense and other agreements with respect to any of the
foregoing intellectual property rights as to which Flents is a licensor or
licensee are listed on the other schedules hereto.
Except as specifically disclosed in the Schedules hereto, Flents owns the entire
right, title and interest in and to the Intellectual Property described in
Schedule 5.11(a) or included in the Acquired Assets in the United States free
and clear of Liens and Flents has received no written communication that the
Intellectual Property developed by Flents infringes the intellectual property
rights of others, or contains libelous information.
(b) No material Intellectual Property other than as described on
Schedule 5.11(a) is used or necessary in connection with the conduct of Flents.
5.12. Employees. Schedule 5.12 hereto contains a list of all persons
performing employment services for Flents and a description of all compensation
arrangements (including without limitation salaries and bonus compensation)
affecting them, including all active employees and all employees on leave of
absence, on workers' compensation, disability leave, military leave, lay-off
(with recall rights), or on other approved leave of absence, as of February 28,
1997. Each such employee is active.
5.13. ERISA.
(a) Included on Schedule 5.13 is a list of each employee benefit plan
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), written or oral employment or consulting
agreement, severance pay plan, employee relations policy, practice or
arrangement, agreements with respect to leased or temporary employees, vacation
plan or arrangement, sick plan, stock purchase plan, stock option plan, fringe
benefit plan, bonus plan and any deferred compensation agreement, plan or
program covering any present or former employee of Flents and which is, or at
any time was, sponsored or maintained by (or to which contributions are, were,
or at any time were required to have been, made by) Flents or any other
organization which is a member of a controlled group of organizations (within
the meaning of Sections 414 (b), (c), (m) or (o) of the Code) of which Flents is
a member (the "Controlled Group"). Each and every such plan, program and
agreement included on the list set forth under Schedule 5.13 is hereinafter
referred to as an "Employee Benefit Plan".
(b) A true, correct and complete copy of each Employee Benefit Plan,
as amended, has been delivered to the PTI. With respect to each such Employee
Benefit Plan, Flents has previously delivered to PTI true and correct copies of
the following documents, as applicable: (i) the trust agreement, as amended,
(ii) the most recent summary plan description, (iii) the most recent annual
report (Form 5500 series), (iv) the most recent actuarial report, (v) insurance
contracts, (vi) policy statements and (vii) the most recent Internal Revenue
Service determination letter. The information supplied to the pension
consultant, a copy of which is annexed hereto in Schedule 5.13, is true and
correct in all material respects.
(c) Except as set forth in Schedule 5.13 attached hereto, each
"employee pension benefit plan" (as defined in Section 3(2) of ERISA) listed in
Schedule 5.13 that is intended to be qualified under Section 401 (a) of the IRS
Code ("Pension Plan"), pursuant to the national Internal Revenue Service ("IRS")
determination letter, is qualified. Except as disclosed in Schedule 5.13(b),
with respect to any Pension Plan: (i) each Pension Plan has been administered
and operated in all material respects in accordance with its terms and the
provisions of ERISA and the Code (including regulations issued thereunder) and
other applicable laws; (ii) no determination letter has been revoked or
threatened to be revoked, (iii) no Pension Plan has been amended in any respect
that could adversely affect its qualification or could materially affect the
cost of maintaining the Pension Plan; and (iv) other than claims for benefits
arising in the ordinary course of the administration and operation of any
Pension Plan, there are no claims, investigations, suits, audits or arbitrations
which are pending or, Flent's knowledge, threatened, against any Pension Plan or
any fiduciary of any Pension Plan. Except as disclosed on Schedule 5.13, with
respect to any Pension Plan: (i) neither such Pension Plan nor any person acting
as a fiduciary with respect to such Plan has engaged in a transaction prohibited
under Section 406 or 407 of ERISA or Section 4975 of the Code, which could
subject any Pension Plan, fiduciary or Flents to any material tax or Penalty
imposed by Section 4975 of the Code or Section 502 of ERISA; (ii) to Flents'
knowledge, no person acting as a fiduciary with respect to a Pension Plan has
participated in or is aware of a breach of fiduciary duty which could subject
any fiduciary to any material liability or penalty under ERISA; (iii) no Pension
Plan has incurred any accumulated funding deficiency (whether or not waived), as
that term is defined in Section 302 of ERISA or Section 412 of the Code; and
(iv) all contributions required to be made to each Pension Plan prior to the
Closing have been made on a timely basis.
(d) Except as disclosed on Schedule 5.13, with respect to each Pension
Plan that is subject to Title IV of ERISA: (i) no reportable event under Section
4043 of ERISA has occurred (other than a reportable event for which the notice
requirement has been waived by the PBGC); (ii) all PBGC premiums due to date
have been paid; (iii) the Company has not filed a notice of intent to terminate
any such Pension Plan and has not adopted any amendment to treat any Pension
Plan as terminated; and (iv) the PBGC has not instituted proceedings to
terminate any such Pension Plan.
(e) No Pension Plan is a multiemployer plan, within the meaning of
Section 3 (37) or 4001 (a) (3) of ERISA, or a multiple employer plan within the
meaning of Sections 4063 and 4064 of ERISA, and the Company has not had an
obligation to contribute to any multi-employer or multiple employer plan during
the preceding six (6) years.
5.14. Labor Relations.
(a) No employee of Flents has been, and no employee is,
covered by any collective bargaining agreement.
(b) Flents has not received any written notice of any unfair labor
practice complaint, or any claim for discrimination or harassment related to
Flents, within the five years immediately prior to the date hereof, except for
the matter set forth in Schedule 5.9(a).
5.15. Contracts, Etc.
(a) All contracts, leases, agreements, licenses, and commitments to
which Flents is a party or by which Flents or any of its assets is bound
("Contracts") are listed on Schedule 2.3(ii), except for sales representative(s)
agreements that are terminable without penalty or premium by the Company within
90 days or involve payments of less than $5,000 per year, provided that all
contracts excluded under this exception do not in the aggregate involve payments
of greater than $100,000 per year. Flents has not disclosed and is not required
to disclose consumer pricing letters of the type similar to the example included
in Schedule 2.3(ii)(H).
(b) To the best of Flents knowledge, all of the Contracts, are valid
and in full force and effect and constitute the legal, valid and binding
obligations of Flents and the other parties thereto, and there are no existing
defaults by Flents (except as set forth in Schedule 5.9(a)), or, to the
knowledge of Flents, by any other party thereto, no party has accrued any
entitlement to indemnification under any of the Contracts whether based on a
default or otherwise, and, to the knowledge of Flents, no event, act or omission
has occurred that (with or without notice, lapse of time and/or the happening or
occurrence of any other event) would result in a material default thereunder.
None of the Contracts is being or has been proposed to be renegotiated (except
as disclosed in Schedule 5.15(b)), and no party under any of them is paying
liquidated damages in lieu of performance.
(c) Flents has heretofore delivered to Merger Sub or its counsel true,
correct and complete copies of all of the Contracts.
5.16. Customers and Suppliers.
(a) Except as disclosed in Schedule 5.17, Flents is not aware of any loss
of any business from any material customer, supplier or account or of the
interruption of supply or loss of business with any of the suppliers of Flents.
PTI acknowledges having received the schedule and having examined it. No
adjustment in the purchase price shall be made on account of any loss of
business, returns or unused boxes regarding the Breast Comfort Pack. Flents has
not received in writing any material complaint from, and is not engaged in any
material dispute with, any customer or supplier.
(b) Set forth on Schedule 5.16(b) is a list of the names and addresses
of the ten largest customers of the consumer accounts and the industrial
accounts of Flents and the dollar volume of orders shipped to each during the
fiscal years ended November 30, 1995, 1996 and the three months ended February
28, 1996 and 1997.
(c) Nothing has come to the attention of Flents that would reasonably
lead it to believe that any of the customers listed on Schedule 5.16(b) or any
supplier of Flents has terminated or will terminate or curtail its business
relationship with Flents or with the Surviving Corporation as a result of the
Closing.
(d) Flents has not experienced any work stoppage resulting from a
shortage of supply of any raw material during the three years immediately prior
to the date hereof.
5.17. Absence of Certain Changes, Etc. Since November 30, 1996, Flents is
not aware of any event or other development that has occurred that could cause a
material loss or decline in sales of Flents (except as disclosed in Schedule
5.17); Flents has not experienced any material increase in the cost of, or
difficulty in obtaining, raw materials or components, replacement parts or any
other supplies (except as disclosed in Schedule 5.17); no compensation increase
for any employee working for Flents outside of the ordinary course or in excess
of 9% on an annual basis has been granted or promised (except as disclosed in
Schedule 5.17); no new employees have been retained (except as disclosed in
Schedule 5.17); nothing has come to the attention of Flents that would lead it
to believe that any material adverse change in its business or operations or
prospects of the business of Flents or in the condition of any of the Acquired
Assets, or the assets or properties of others leased or used in the business of
Flents has occurred; no material damage, destruction or loss to any of the
Acquired Assets has occurred; Flents has not entered into any transaction or
contract, or amended any contract, which might have a Material Adverse Effect;
Flents has not incurred any material indebtedness for borrowed funds or entered
into any material capitalized lease obligation (except as disclosed in Schedule
5.17); Flents has not canceled any claim or right of material value or sold,
leased, transferred, suffered any Lien to arise upon, or otherwise disposed of
any assets except in arms-length transactions with unrelated parties for fair
consideration in the ordinary course of business; Flents has not paid any
dividend or distributed any property in respect of its corporate stock except as
disclosed in the Financial Statements (except as disclosed in Schedule 5.17);
Flents has not taken any action that would if taken between the date hereof and
the Closing Date constitute a breach of Section 7.2 hereof.
5.18. Environmental Matters.
(a) The Company is not required to obtain any Governmental Permits for
discharges, pollution and other environmental matters (whether relating to land,
air, water, noise. odor or other matters) necessary to conduct the business of
Flents as it has been conducted. To the Company's knowledge, no investigation
into environmental matters in connection with Flents or any real property used
by Flents has been conducted during the past three years, or is currently being
conducted, by any governmental authority.
(b) To the best knowledge of Flents, no facts, events or conditions
existing on the date hereof (including without limitation the generation,
treatment, transport, storage, emission, disposal, release or other placement,
deposit or location of any substance) interfere with or prevent continued
compliance by Flents with any statute, law, regulation, ordinance or
Governmental Permit relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling, emission, discharge,
release or threatened release into the environment, of any pollutant,
contaminant, hazardous waste, hazardous substance, toxic substance or toxic
waste.
(c) Flents is not aware of any pollutants, contaminants, hazardous
wastes, hazardous substances, toxic substances, toxic wastes, petroleum products
or non-biodegradable substances ("Contaminants") produced, used or disposed of
by Flents, except wax used to produce earplugs which is not considered a toxic
substance and substantially all of which is used and incorporated into the final
products of Flents.
(d) Flents has not received or produced any written reports or notices
of releases, leakings, injections, dispersals, leachings, or migrations of a
Contaminant, or any written notices of the generation of any hazardous waste, in
connection with Flents.
(e) There has not occurred any leaks, spills or discharges of any
Contaminant by Flents (i) onto the land of property on which Flents conducts or
has conducted business, or (ii) into any waterway or body of water or any
sewerage or septic system that is part of, adjacent to or connected with any
such property or (iii) otherwise in connection with the business of Flents, and
there has not been any other environmental degradation, damage, pollution or
contamination by Flents of any property on which either Flents conducts or has
conducted business that might result in any material liability.
5.19. Other Information. The Schedules annexed hereto and the documents and
information with respect to Flents and the Acquired Assets that are required to
be supplied to Merger Sub pursuant to this Agreement or have been supplied to
Merger Sub at its request by Flents or on its behalf do not contain any
statement that is false or misleading with respect to a material fact, and do
not omit to state a material fact necessary in order to make the statements
therein under the circumstance in which they are made not false or misleading in
any material respect.
5.20. Investment Intent. Flents is acquiring the Merger Stock for the
account of the Flents Stockholders, for investment only, and not with any view
to the sale or distribution thereof. Flents acknowledges that sale of the Merger
Stock by the Flents Stockholders is not registered under the Act or under any
state securities law.
Section 6. Representations and Warranties of Merger Sub. PTI and Merger Sub
represent and warrant to Flents as follows, and acknowledge that Flents is
relying upon such representations and warranties in connection with the
execution, delivery and performance of this Agreement, notwithstanding any
investigation made by Flents or on its behalf:
6.1. Authorizations and Binding Effect.
(a) Each of Merger Sub and PTI is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation and is qualified to transact business and is in good standing as a
foreign corporation in the jurisdictions where it is required to qualify.
(b) This Agreement has been duly executed and delivered by Merger Sub
and PTI and constitutes the legal, valid and binding obligation of Merger Sub
and PTI, enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement does not and will not:
(i) conflict with, result in the breach of, constitute a default (with
or without notice and/or lapse of time) under, result in being declared
void or voidable any provision of, or result in any right to terminate or
cancel, any contract, lease or agreement to which Merger Sub or PTI or any
of their properties is bound;
(ii) constitute a violation of any statute, judgment, order, decree or
regulation or rule of any court, governmental authority or arbitrator
applicable or relating to Merger Sub or PTI; or
(iii) result in the acceleration of any debt
or other obligation of PTI or Merger Sub.
(c) PTI and Merger Sub jointly and severally acknowledge that Flents
makes no representations or warranties except as set forth in this Agreement and
the attached schedules.
6.2. Judgments. Except as set forth in the PTI Reports
(hereinafter defined), no material judgments or Liens exist
against Merger Sub PTI or any of Merger Sub's or PTI's assets.
6.3. Litigation. Except as disclosed in PTI's Reports (as defined in
Section 6.4 herein), or have come to PTI's attention subsequent thereto, no
material actions, suits, claims, proceedings or investigations (whether or not
purportedly on behalf of or against PTI), are pending or threatened against PTI
at law or in equity, including without limit, that relate to the transactions
contemplated by this Agreement or that will prohibit PTI or Merger Sub from
performing the obligations to be performed by it hereunder.
6.4. Other Information. PTI's annual financial statements for the years
1995 and 1996, recorded on PTI's Form 10-K for the year ended December 31, 1996,
and PTI's Form SB-2 dated January 27, 1997, as filed with the Securities and
Exchange Commission, and PTI's reports to stockholders (collectively, the "PTI
Reports") do not contain any statement that is false or misleading with respect
to a material fact, and do not omit to state a material fact necessary in order
to make the statements therein under the circumstance in which they are made not
false or misleading in any material respect, except as set forth on Schedule
6.4.
6.5. Capitalization. PTI represents and warrants that its annual report on
Form 10-K for 1996 fairly and accurately discloses the capitalization of PTI.
Since December 31, 1996 there has been no material change in PTI's
capitalization, except as set forth on Schedule 6.4 and that PTI has called for
redemption all of its issued and outstanding Public Redeemable Warrants, and
this representation will be true at the effective time.
6.6 Environmental Representations.
(a) PTI is not required to obtain any Governmental Permits for
discharges, pollution and other environmental matters (whether relating to land,
air, water, noise. odor or other matters) necessary to conduct the business of
PTI as it has been conducted. To PTI's knowledge, no investigation into
environmental matters in connection with PTI or any real property used by PTI
has been conducted during the past three years, or is currently being conducted,
by any governmental authority, except as set forth in Schedule 6.6 annexed
hereto.
(b) To the best knowledge of PTI, no facts, events or conditions
existing on the date hereof (including without limitation the generation,
treatment, transport, storage, emission, disposal, release or other placement,
deposit or location of any substance) interfere with or prevent continued
compliance by PTI with any statute, law, regulation, ordinance or Governmental
Permit relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant,
hazardous waste, hazardous substance, toxic substance or toxic waste.
(c) PTI is not aware of any Contaminants produced, used or disposed of
by PTI, except nonmaterial amounts from ordinary maintenance of PTI's
facilities.
(d) PTI has not received or produced any written reports or notices of
releases, leakings, injections, dispersals, leachings, or migrations of a
Contaminant, or any written notices of the generation of any hazardous waste, in
connection with PTI.
(e) There has not occurred any leaks, spills or discharges of any
Contaminant by PTI (i) onto the land of property on which PTI conducts or has
conducted business, or (ii) into any waterway or body of water or any sewerage
or septic system that is part of, adjacent to or connected with any such
property or (iii) otherwise in connection with the business of PTI, and there
has not been any other environmental degradation, damage, pollution or
contamination by PTI of any property on which either PTI conducts or has
conducted business that might result in any material liability, except the PTI's
facility in Hastings-on-Hudson is part of a contaminated site that is undergoing
extensive environmental remediation.
Section 7. Covenants.
7.1. Access to Records and Properties of Flents.
(a) Between the date of this Agreement and the Closing Date, Flents
shall give to Merger Sub such access to the premises, books and records of
Flents, and such copies thereof, as Merger Sub may from time to time reasonably
request. Any investigation pursuant to this Section 7.1 shall be conducted in
such manner as not to interfere unreasonably with the operation of the business
of Flents. Representatives and officers of Flents shall be available to
representatives of Merger Sub to have questions asked of them and to give
answers.
(b) Merger Sub shall not dispose of or destroy any business records
and personnel records and files of Flents for periods prior to the Closing Date
for seven years, and thereafter shall not dispose of or destroy same, without
first offering to turn over possession thereof to Stuart M. Low or his
successors, executors, administrators or assigns ("Low") by written notice to
Low at least ninety (90) days prior to the proposed dates of such disposition or
destruction. All records retained by Merger Sub shall be so retained at Merger
Sub's expense.
(c) To the extent reasonably required by the Flents stockholders,
Merger Sub shall allow a Flents stockholder and his or her agents access to all
business records and files (including appropriate personnel records and medical
records) of Flents related to the business of Flents that relate to periods
prior to the Closing Date, upon reasonable advance notice during normal working
hours at any location where such records are stored, and the Flents stockholders
shall have the right, at their own expense, to make copies of any such records
and files, provided, however, that any such access or copying shall be had or
done in such a manner so as not to unreasonably interfere with the normal
conduct of the business of the Surviving Corporation.
(d) After the Closing, Merger Sub shall make available to the Flents
stockholders, upon written request, personnel of Merger Sub to assist the Flents
stockholders in locating and obtaining records and files maintained by Flents
for periods prior to the Closing Date, and the Flents stockholders shall
reimburse Merger Sub for the actual cost thereof.
7.2. Operation of the Business. From and after the date hereof until the
Closing Date, Flents shall:
(a) Operate diligently and only in the usual, ordinary manner and, to
the extent consistent with such operation, (i) use its best efforts to preserve
its current business organization intact, (ii) use its best efforts to preserve
its current relationships with employees, customers, suppliers and all other
persons having business dealings with them, (iii) offer no discounts on goods
sold, outside of the ordinary course of business, (iv) maintain in force the
insurance policies referred to in Section 5.8 hereof, (v) maintain in good
working order and repair all tangible personal property and all improvements on
real property (and all fixtures and systems therein) included in the Acquired
Assets, ordinary wear and tear excepted; and (vi) not amend or modify its
certificate of incorporation or by-laws, except as may be required to effectuate
this Agreement.
(b) Maintain Flents' books, accounts and records in the usual and
ordinary manner, and in a manner that fairly and correctly reflects the income,
expenses, assets and liabilities of Flents on a basis consistent with prior
years.
(c) Comply with all Federal, state, local and other governmental
(domestic or foreign) laws, statutes, ordinances, rules, regulations, orders,
writs, injunctions, decrees, awards or other requirements of any court or other
governmental or other authority applicable to Flents or its assets or to the
conduct of its business, and use best efforts to perform all obligations under
all contracts, agreements, licenses, permits and undertakings without default.
(d) Make no modification or change in any existing right, concession,
license, lease, contract, commitment or agreement, and no sale or other
disposition of any right or privilege accruing to them, except in the ordinary
course of business consistent with past practice, and except as set forth in
other sections of this Agreement.
(e) Intentionally omitted.
(f) Make no change in the compensation payable or to become payable to
any present or former director, employee, salesman, consultant or other agent,
except as required by existing contracts to which Flents is bound; make no
change in any existing, and enter into no new, arrangement or contract relating
to management, executive or clerical services or relating to the sharing of
administrative or other overhead or any management or supervisory fee, except
for the hiring and firing of clerical employees as may be required by sound
business practice; establish or make no bonus, stock option, profit sharing,
retirement or other similar payment, plan or arrangement or institute any
increase therein, except as otherwise provided herein or in the ordinary course
of the administration of existing incentive, welfare, retirement or other
similar plans or arrangements hereinabove referred to; and enter into no union
contract and no employment agreement; and enter into no agreement with any
salesperson or sales agent or any franchise agreement, independent
dealer/distributor agreement or other contract or arrangement with respect to
the performance of services for Flents, except for agreements terminable within
six months or less as may be required by sound business practice.
(g) Not sell, lease or dispose of, or allow any Lien to arise upon,
any of the Acquired Assets and not acquire or commit to acquire any material
capital assets except for fair market price, in the ordinary course of business,
consistent with prior practice, in arms-length transactions with unaffiliated
parties.
(h) Not pay, satisfy or discharge in any other way any account
payable, indebtedness, claim or liability of any kind, except for the current
payment of liabilities reflected on the balance sheet of the February Printouts
at no more than the book amount thereof and except for payments for inventory
and supplies and services at fair market value ordered in the ordinary course of
business consistent with prior practice and payments for legal and accounting
services in the aggregate amount of $50,000 incurred or to be incurred in
connection with this transaction and the closing contemplated herein; and not
delay or accelerate the payment of any account payable or indebtedness beyond
the usual and customary period therefor or the legal maturity thereof, except
insofar as insurance premiums have been made on the installment basis.
(i) Not delay or accelerate collection of any note or receivable
beyond the usual and customary period therefor or the legal maturity thereof.
(j) Not allow levels of raw materials, supplies, work-in-process, or
inventories to vary materially from the levels customarily maintained by Flents.
(k) Not create, incur or assume, or agree to create, incur or assume,
any indebtedness, or enter into any capitalized lease obligation, other than
those incurred in the usual and ordinary course of business, or subject to
Section 7.2(h) above, incurred in connection with this Agreement and the
contemplated Closing.
(l) Not enter into any contract for the purchase of real property or
exercise any option to extend or terminate any lease of real property, except
for the lease extension disclosed in the schedules hereto.
(m) Not declare or pay any dividend or distribute any asset in respect
of any security, whether as a distribution, repurchase, redemption or otherwise;
and not issue, sell, grant options, warrants or rights to purchase or subscribe
to, or enter into any arrangement or contract with respect to the issuance or
sale of any of its capital stock or any securities or obligations convertible
into or exchangeable for any of its capital stock, or make any changes in its
capital structure, in all cases, except as disclosed in Schedule 5.17 hereto.
(n) Not lend any money or make any financial accommodation except for
trade credit in the ordinary course of business, consistent with prior practice;
and not organize any subsidiary, acquire any capital stock or other equity
securities of any other corporation, or acquire any equity or ownership interest
in any business, and not merge with, liquidate into or otherwise combine with
any other business, person or entity.
(o) Not make any agreement, commitment or arrangement to take any
action that is inconsistent with the obligations under, or prohibited by, this
Section 7.2.
7.3. Competing Transactions. Flents, PTI and Merger Sub shall not take any
action, directly or indirectly, to negotiate, cause, promote, authorize or agree
to any transaction competing or interfering with any of the transactions
contemplated by this Agreement.
7.4. Best Efforts to Satisfy Conditions. Flents, PTI and Merger Sub shall
each use its best efforts to cause the conditions to the obligations of the
other party to be satisfied to the extent that the satisfaction of such
conditions is in its control, including obtaining any necessary consents,
authorizations, and approvals. Each of the parties hereto shall refrain from
taking any action, and shall notify the other parties promptly of any event,
occurrence or circumstances, that might render any of its representations and
warranties inaccurate as of the Closing Date.
7.5. Noncompete and Employment Agreements. W. Thomas Davies ("Davies"),
James Dunn ("Dunn"), and Low shall enter into noncompete agreements with Merger
Sub and PTI substantially in the form of Exhibits C1 and C2 annexed hereto. Low
shall enter into a consulting agreement with Merger Sub substantially in the
form of Exhibit D annexed hereto. Davies and Dunn shall enter into employment
agreements with Merger Sub substantially in the form of Exhibits El and 2
annexed hereto. Flents shall have no liability for a default by Davies and/or
Dunn in complying with his/their obligations hereunder to enter into such
agreements with Merger Sub and PTI.
7.6. Transfer Taxes. The Flents stockholders shall pay any income,
recapture or similar tax that becomes payable as a result of the payments made
to the Flents stockholders hereunder.
7.7. Confidentiality. All parties hereto shall keep in strict confidence
all information pertaining to the business of Flents, Merger Sub and PTI as well
as the terms of the transactions contemplated hereby, except as the parties
hereto mutually agree and except as disclosure shall be required by law, in
which case, to the extent possible, the party required to make any such
disclosure shall provide notice thereof at least three business days prior to
such disclosure and shall work in good faith with the other parties hereto to
make a mutually acceptable disclosure. Each party shall use its best efforts to
prevent its employees, officers, directors, shareholders, agents and
representatives from divulging any such confidential information or taking any
action that would be prohibited by such party hereunder. The parties hereto may
disclose such information to their employees, agents, affiliates, shareholders,
lenders and professionals on a need-to-know basis, provided the party to whom
such information is disclosed agrees to keep such information confidential.
7.8. Benefit of Contracts.
(a) Flents shall use its best efforts, subject to this Section 7.8, to
secure all consents, approvals, novations and authorizations from third parties
(including a government or governmental unit) as shall be required in order to
enable Flents to effect the transactions contemplated by this Agreement, and the
parties will otherwise use all reasonable efforts to cause the consummation of
the transactions contemplated hereby in accordance with the terms and conditions
hereof.
(b) To the extent that the Merger would result in a breach or a right
to terminate or any other right adverse to Flents, without the consent or waiver
of any third person (including a government or governmental unit), or if the
Merger would constitute a breach thereof or a violation of any law, decree,
order, regulation or other governmental edict, Flents shall use all reasonable
efforts, and PTI and Merger Sub shall cooperate with Flents, to obtain all
necessary consents, waivers and novations and to resolve the impediments and to
obtain any other consents, waivers and novations necessary to the Merger.
7.9. Convertible Value and Registration Rights Agreement. PTI will enter
into a convertible value and registration rights agreement, substantially in the
form of Exhibit F annexed hereto, with each of the Flents stockholders upon
execution of such agreement by such Flents stockholder.
7.10. Continuity of Business Enterprise. It is the present intention of
Merger Sub to continue at least one significant historic business line of
Flents, or to use a significant portion of Flents' historic business assets in a
business, in each case within the meaning of Treasury Regulation S 1.368-1(d),
promulgated by the Treasury Department of the United States, and Merger Sub will
do so for at least one year after the Closing.
Section 8. Conditions of Obligations of Merger Sub and PTI. The obligations
of Merger Sub and PTI to consummate the Merger under this Agreement are subject
to the satisfaction of the following conditions by or on behalf of Flents, each
of which may be waived by Merger Sub and PTI. Any such waiver by Merger Sub and
PTI shall not reduce or impair Merger Sub's or PTI's right to seek
indemnification hereunder in respect of the failure to meet the condition that
shall have been waived.
8.1. Representations and Warranties, Performance of Obligations.
(a) The representations and warranties of Flents set forth in Section
5 hereof and in all agreements, documents and instruments executed and delivered
pursuant hereto or in connection with the Closing shall be true and correct in
all respects at times commencing with the date of this Agreement and through the
Closing Date as though made on and as of the Closing Date.
(b) Flents shall have performed the agreements and obligations
necessary to be performed by it under this Agreement prior to the Closing Date.
Without limiting the generality of the foregoing, Flents shall have obtained all
consents, waivers, approvals and authorizations or have made reasonable
arrangements in accordance with Section 7.8 hereof, except as may be required
under the Wal-Mart License Agreement described in Schedule 2.3(ii)(L), and shall
have given notices to third parties, and discharged in full any Liens of record,
necessary so that upon the Merger, the Surviving Corporation shall have good and
marketable title to all of the Acquired Assets and all right, title, interest
and claims of Flents in, to, relating to or arising under the Acquired Assets
free and clear of any Liens.
8.2. Certificates of Merger. Flents shall have delivered to Merger Sub
executed Certificates of Merger.
8.3. Flents' Goodstanding. Flents shall have provided to Merger Sub a copy
of a long-form goodstanding certificate for Flents from the state of its
incorporation, and a good standing certificate from each state in which it is
authorized to do business, together with a copy of its charter and bylaws, as
amended, and certified copies of the minutes of its board and shareholder's
meeting (or, if applicable, executed consent of its directors and shareholders)
approving this Agreement, each of the documents referred to herein and the
consummation of the transactions contemplated hereby in form reasonably
satisfactory to Merger Sub.
8.4. Noncompete and Employment Agreements. Low, Davies and Dunn shall each
have entered into the agreements described in Section 7.5 herein.
8.5. Pending Matters. No claim, action, suit, investigation or other
proceeding shall be pending before any court or governmental agency or by an
unaffiliated third party which presents a substantial risk of the restraint or
prohibition of the transactions contemplated by this Agreement or the obtaining
of material damages in connection therewith. If PTI or Merger Sub elects not to
close the Merger because the condition in this Section 8.5 is not met, then
Flents shall have no liability whatsoever to PTI or Merger Sub in connection
with the failure to meet such condition.
8.6. Due Diligence. Flents shall have satisfied Merger Sub, or a designee,
as to the due diligence investigation of the business operations and financial
condition and all business records, accounting records and files relating to
Flents. If PTI or Merger Sub elects not to close the Merger because the
condition in this Section 8.6 is not met, then Flents shall have no liability
whatsoever to PTI or Merger Sub in connection with the failure to meet such
condition.
8.7. Other Matters. Flents shall have furnished, or caused to be furnished,
to Merger Sub, in form and substance satisfactory to Merger Sub, such
certificates and other evidence as Merger Sub may have reasonably requested on
reasonable notice as to the satisfaction of the conditions contained in this
Section 8 and as to such other matters as Merger Sub may reasonably request.
Section 9. Conditions of Obligations of Flents. The obligations of Flents
to consummate the Merger under this Agreement are subject to the satisfaction of
the following conditions by or on behalf of Merger Sub, each of which may be
waived by Flents. Any such waiver by Flents shall not reduce or impair Flents's
right to seek indemnification hereunder in respect of the failure to meet the
condition that shall have been waived.
9.1. Representations and Warranties, Performance of Obligations.
(a) The representations and warranties of PTI and Merger Sub set forth
in Section 6 hereof and in all agreements, documents and instruments executed
and delivered pursuant hereto or in connection with the Closing shall be true
and correct in all respects at times commencing with the date of this Agreement
and ending with and on the Closing Date as though made on and as of the Closing
Date.
(b) Merger Sub and PTI shall have performed the agreements and obligations
necessary to be performed by them under this Agreement prior to the Closing
Date.
9.2. Delivery of the Merger Consideration. PTI and/or Merger Sub shall have
delivered to the Exchange Agent the Merger Consideration.
9.3. Merger Sub's Goodstanding. Merger Sub shall have provided Flents with
a copy of a long-form good-standing certificate of the state of its
incorporation, and, at or promptly after Closing, each state in which it has
authority to do business, together with a copy of its charter and by-laws, as
amended, and the minutes of its board and shareholder meeting and those of PTI
(or, if applicable, executed consent of its directors) approving this Agreement,
each of the documents referred to herein and the consummation of the
transactions contemplated hereby.
9.4. Pending Matters. No claim, action, suit, investigation or other
proceeding involving PTI or Merger Sub shall be pending before any court or
governmental agency or by an unaffiliated third party which presents a
substantial risk of the restraint or prohibition of the transactions
contemplated by this Agreement or the obtaining of material damages in
connection therewith.
9.5. Other Matters. PTI and Merger Sub shall have furnished, or caused to
be furnished, to Flents, in form and substance satisfactory to Flents, such
certificates and other evidence as Flents may have reasonably requested on
reasonable notice as to the satisfaction of the conditions contained in this
Section 9 and as to such other matters as Flents may reasonably request.
9.6. No Change. There shall have been no substantial change in PTI's or
Merger Sub's business that would have a material negative impact on its
financial condition or the outlook of its business or the value of the shares
offered for exchange in this transaction, PTI and Merger Sub shall not have
notice or knowledge, written or oral, that it has lost or may lose any customer
or customers contributing individually or collectively 25% or more to its gross
revenue, PTI and Merger Sub shall have maintained product liability insurance in
an amount consistent with prior practice and shall have provided certificates
and other evidence of such insurance as Flents may have reasonably requested.
Section 10. Survival of Representations and Warranties; Indemnifications.
10.1. Survival. The representations, warranties and agreements made in
Sections 5 and 6 hereof and in the Schedules hereto by Merger Sub, PTI and
Flents shall remain operative and in full force as of the date made through
February 28, 1999, except with respect to Section 5.3, as to which such
representations and warranties shall continue to survive for a period of the
applicable statute of limitations for breach of contract, as appropriate,
regardless of any investigation made by, or on behalf of, any party. Flents
stockholders shall remain liable for misrepresentations of Flents in Section
5.3, pro rata to the extent of the Merger Consideration actually received by
each such stockholder
10.2. Indemnification by Flents Stockholders. The Flents stockholders (on a
non-recourse basis and only up to the limits of the escrow described in Section
10.6 herein) shall defend, hold harmless and indemnify Merger Sub from any and
all losses, liabilities, proceedings, claims, settlements, judgments, fines,
assessments, damages and expenses (including reasonable attorneys' fees and
investigation and litigation expenses, whether arising out of a third party
claim or relating to recovering indemnifiable damages) (collectively, the
"indemnifiable damages") that Merger Sub may suffer or incur in whole or in part
by reason of, or which may arise out of:
(a) the inaccuracy or breach of any of the
representations and warranties of Flents in this Agreement;
(b) the breach by Flents of any of the covenants or
warranties herein;
(c) liabilities for any civil or criminal penalties (including
interest) or any payments in the nature thereof, imposed upon, or sought to be
imposed upon Flents or Merger Sub (or any of the officers, directors or
shareholders of Merger Sub), on account of any fraudulent, criminal,
intentional, or willful act or omission, or any such act or omission of Flents
or any of the directors, officers, employees or agents of Flents occurring prior
to the Closing Date;
(d) any present or potential obligation to remediate or take other
action or any present or potential liability (including with respect to past
activities occurring prior to the Closing Date), whether criminal or civil, and
whether to any governmental entity or private party, under, any statute, law,
regulation, ordinance or Governmental Permit or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, emission, discharge, release or threatened release into
the environment by Flents, of any pollutant, contaminant, hazardous waste,
hazardous substance, toxic substance or toxic waste that are related to facts,
events, circumstances or conditions (including without limitation the
generation, treatment, transport, storage, emission, disposal, release or other
placement, deposit or location of any substance) existing or occurring on or
prior to the Closing Date;
provided, however, except as expressly set forth herein, any matter
accurately disclosed in the Schedules hereto shall not result in any liability
to Flents or the Flents stockholders, or any right to indemnification under this
Section 10.
10.3. Indemnification by Surviving Corp. Surviving Corp. and PTI shall
defend, hold harmless and indemnify the Flents stockholders from any and all
indemnifiable damages that the Flents stockholders may suffer or incur by reason
of: (a) the inaccuracy or breach of any of the representations and warranties of
Merger Sub and PTI herein; (b) the breach by Merger Sub and PTI of any of the
covenants or warranties herein; and (c) any claim for payment of any liability
or performance of any obligation assumed by the Surviving Corporation, provided
that, other than for a breach of Section 7.10, the Flents stockholders shall be
deemed to have suffered no indemnifiable damages so long as the Flents
stockholders receive shares of Merger Stock with a value greater than $6.00 per
share one (1) year from the date hereof.
10.4. Assumed Liabilities. Surviving Corp. shall assume
on the Closing Date and, effective as of the Closing and
contingent upon the occurrence of the Closing, shall discharge in
accordance with its terms (subject to any defenses or claimed
offsets asserted in good faith against the obligee to whom such
liabilities, payments and obligations are owed), subject to any
contrary provision herein, the liabilities, set forth in this
Section 10.4:
(a) the accrued liabilities of Flents to the extent of the amount
thereof correctly stated on the balance sheet included in the February
Printouts, to the extent not paid, performed, satisfied, discharged or released
prior to the Effective Time;
(b) liabilities of Flents incurred on or prior to the Effective Time
and subsequent to the date of the February Printouts incurred in the ordinary
course of business in arms-length transactions with unrelated parties if such
liabilities are consistent with past practices of Flents and not expressly
prohibited hereunder, to the extent not paid, performed, satisfied, discharged
or released prior to the Effective Time;
(c) the continuing obligations arising or continuing
subsequent to the Effective Time under the contracts:
(i) listed on Schedule 2.3(ii) hereto; or
(ii) entered into or made by Flents in the ordinary course of business
consistent with past practices of Flents on commercially reasonable terms
and which, pursuant to Section 5.15 hereof, are not material enough to be
listed on Schedule 2.3(ii) hereto or shall have been entered into after the
date hereof in accordance with Section 7.2;
(d) liabilities of Flents resulting from facts and circumstances
occurring and arising after the Effective Time.
10.5. Notice and Right to Defend Third Party Claims and
Perform Remediation.
(a) Promptly upon receipt of notice of any third party claim, demand
or assessment or the commencement of any suit, action or proceeding in respect
of which indemnity may be sought on account of an indemnity agreement contained
in this Section 10, the party seeking indemnification (the "Indemnitee") shall
notify in writing, within sufficient time to respond to such claim or answer or
otherwise plead in such action, the party from whom indemnification is sought
(the "Indemnitor") thereof; provided, however, that failure or delay to supply
such notice shall not relieve Indemnitor of its indemnification obligation
hereunder except to the extent that Indemnitor is actually prejudiced by such
failure or delay.
(b) In case any claim, demand or assessment is asserted or suit,
action or proceeding commenced against an Indemnitee (collectively a "Claim")
and it notifies the Indemnitor of the commencement thereof, if the Indemnitor
acknowledges its indemnification obligations therefor hereunder, then, the
Indemnitor shall be entitled to participate therein, and, to the extent that it
may wish, to assume the defense, conduct or settlement thereof, with counsel
satisfactory to the Indemnitee whose consent to the selection of counsel shall
not unreasonably be withheld. After notice from the Indemnitor to the Indemnitee
of its election so to assume the defense, conduct or settlement thereof, the
Indemnitor shall not be liable to the Indemnitee for any legal or other expenses
subsequently incurred by the Indemnitee in connection with the defense, conduct
or settlement thereof; provided, however, that if the Indemnitee has any
separate defense from those of the Indemnitor, the Indemnitee shall have the
right to be represented by its own counsel at the Indemnitor's expense. The
Indemnitee shall have the right in any event to participate in any such defense
with its own counsel at its own expense. The Indemnitee will cooperate with the
Indemnitor in connection with any such Claim and make personnel, books and
records relevant to the Claim available to the Indemnitor at Indemnitor's
expense. In the event that the Indemnitor fails timely to defend, contest or
otherwise protect against any such Claim, the Indemnitee shall have the right to
defend, contest or otherwise protect against the same and may make any
compromise or settlement thereof and recover the entire cost thereof from the
Indemnitor, including, without limitation, reasonable attorneys' fees,
disbursements and all amounts paid as a result of such Claim or compromise or
settlement thereof.
(c) Anything in this Agreement to the contrary notwithstanding, prior
to finally settling any such Claim, the Indemnitor shall give to the Indemnitee
prompt notice of its intention to settle same and the terms of such proposed
settlement and acknowledging its indemnification responsibility therefor
hereunder. If the Indemnitee shall object to such proposed settlement within 10
days, then the Indemnitee shall thereafter, at its sole expense, assume the
control and defense of such claim suit, action, investigation or proceeding and
in such event the liability of the Indemnitor shall be limited to the amount for
which the same could have been settled as proposed by the Indemnitor. If the
Indemnitee does not object to the terms of the proposed settlement within the
aforesaid 10-day period, then the Indemnitor shall have the right to consummate
such proposed settlement upon the terms set forth in the aforesaid notice. If
Indemnitor acknowledges in writing its obligation to indemnify Indemnitee with
respect to a Claim, then Indemnitee shall not settle such Claim without
Indemnitor's prior written consent.
10.6. Payment of Amounts Due. The amount of any indemnifiable damages
conceded or determined to be due from Flents to Merger Sub not in excess of the
amount in the escrow account described below, pursuant to any of the provisions
of this Section 10, shall be paid from the escrow to Merger Sub within 20
business days from the date so conceded or determined. The amount of any
indemnifiable damages conceded or determined to be due from PTI or Merger Sub to
Flents, pursuant to any of the provisions of this Section 10, shall be paid to
the Exchange Agent by Merger Sub or PTI within 20 business days from the date so
conceded or determined. The Flents stockholders shall not be required to pay to
Merger Sub or PTI under this Section 10.6, other than for fraud or wilful breach
any amounts, except as specifically provided in this Section 10. The final
40,000 shares of Merger Stock shall be held in escrow jointly by Lester Migdal,
Esq. and Robert Low, Esq., or the survivor, as escrow agent, pursuant to the
Escrow Agreement in the form attached hereto, to satisfy obligations of the
Flents stockholders under the indemnification provisions of this Section 10
until February 28, 1999 and thereafter, if a claim is brought under this Section
10 during the period through February 28, 1999, in which case the Escrow Agent
shall retain an amount necessary to satisfy such claim until final resolution
thereof. In satisfaction of claims of Merger Sub and PTI, the Units, prior to
the date payment has been set on the Convertible Value Rights included in such
Units on the first anniversary of the Closing Date, shall have a value of the
greater of $10.00 or the Market Value of PTI shares based upon the median
closing sale price of PTI shares on the 20 trading days preceding the delivery
of the shares by the Exchange Agent in satisfaction of the claim.
10.7 Basket for Claims. PTI and Merger Sub shall have no right to
indemnification until their aggregate claims under this Section 10 exceed
$25,000, and then may only claim for indemnification of amounts in excess of
such $25,000; provided, however, that this Section 10.7 shall not apply to
claims based on knowing misrepresentations or to claims under Sections 5.3,
5.4(d), 5.7 (except as relate to amounts disputed by the Customer) and 5.10 and
to a breach of Sections 7.2(h), (m) or (n) or 14.
Section 11. Termination and Liquidated Damages. Promptly after any party
becomes aware that any of the conditions precedent to such party's Closing has
not been, and is likely not to be, fulfilled, such party (the "Delayed Party")
shall notify the other party (the "Delaying Party"), and the Delaying Party
shall have the right by written notice to the Delayed Party to adjourn the date
for Closing, for up to 30 business days, to satisfy such condition precedent. If
all such conditions to the Delayed Party's obligations are not satisfied, the
Delayed Party may either (i) waive any such condition and proceed to Closing, in
which case the Delayed Party shall be entitled to a credit or debit, as the case
may be, to the Cash Consideration equal to the reasonable estimated cost to
satisfy such condition (other than the failure of the conditions contained in
Sections 8.4, 8.5 and 9.4 herein by action of third parties), but without any
other liability on the part of the Delaying Party, or (ii) terminate this
Agreement, in which case (other than the failure of the conditions contained in
Sections 8.4, 8.5 and 9.4 herein by action of third parties) the Delayed Party
shall be reimbursed by the Delaying Party for the Delayed Party's costs
reasonably incurred in connection with the investigation of the Delayed Party
and the consummation of the transaction contemplated by this Agreement, and the
parties hereto shall have no further liability or obligation hereunder.
Section 12. Further Actions. From time to time, prior to the Closing, as
and when requested by Merger Sub, on reasonable notice, Flents shall execute and
deliver such documents and instruments and shall take such further or other
actions as Merger Sub may reasonably deem necessary to carry out the intent and
purposes of this Agreement, to convey, transfer, assign and deliver to Merger
Sub, and its successors and assigns, the Flents Shares, and to vest in Flents
all right, title and interest in and to Acquired Assets free and clear of Liens
except as described in Schedule 5.5 (or to evidence any of the foregoing) and to
consummate and give effect to the other transactions contemplated hereby. If, as
a result of a request of Merger Sub under this Section 12 for delivery of
documents or the transfer of Flents' shares prior to Closing, taxes of any kind
are imposed on Flents or its stockholders that would not have been imposed had
they been delivered at the Closing, then, at the Closing, Merger Sub shall
reimburse Flents or its stockholders the amount of such tax.
Section 13. Broker's Fees. Each of Flents, PTI and Merger Sub represents
that it has not used or retained any broker or finder in connection with the
transactions contemplated hereby, other than the Woodbridge Group, Inc., the
fees of which shall be paid by Merger Sub.
Section 14. Expenses. Except as otherwise specifically provided herein, the
stockholders of Flents and Merger Sub shall each bear their and its own legal
fees and other costs and expenses with respect to the negotiation, execution and
the delivery of this Agreement and the consummation of the transactions
hereunder, and the Acquired Assets shall not be reduced or impaired by the
payment or accrual of any such costs and expenses of Flents; provided, however,
Flents shall pay for transaction expenses with regard to the Merger, including
legal and accounting fees up to an amount of $50,000 plus up to $7,000 accrued
as an expense on the balance sheet included in the February Printouts, without
adjustment, and amounts, if any, in excess of $50,000 plus such unpaid accruals
on the balance sheet included in the February Printouts shall be adjusted by a
reduction, dollar for dollar, in the cash portion of the Merger Consideration.
Section 15. Entire Agreement. This Agreement, which includes the Schedules
and Exhibits hereto and the other documents, agreements and instruments executed
and delivered pursuant to or in connection with this Agreement, contains the
entire agreement among Flents, Merger Sub and PTI with respect to the
transactions contemplated by this Agreement and supersedes all prior
arrangements or understandings with respect thereto, whether written or oral.
Section 16. Construction.
(a) The descriptive headings of this Agreement are for convenience
only and shall not control or affect the meaning or construction of any
provision of this Agreement.
(b) Except as otherwise expressly set forth in this Agreement, any
representation or warranty made to the knowledge of any parties hereto, or as to
what any such party is aware of, or statements of similar purport, shall mean
that such party has made a reasonable and diligent investigation of the facts in
connection therewith and is making such representation or warranty based upon
the results of such investigation.
(c) Each of the parties to this Agreement participated in the drafting
of this Agreement and the interpretation of any ambiguity contained in this
Agreement will not be affected by the claim that a particular party drafted any
provision hereof.
(d) Any pronoun herein shall include all genders and/or the plural or
singular as appropriate from the context.
Section 17. Notices. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient when delivered
personally or telecopied by facsimile and confirmed orally or by return
facsimile, or three (3) business days after mailing with an affidavit of mailing
produced upon request, or the next business day if sent by nationally recognized
overnight courier providing for a return receipt, in each case postage prepaid,
addressed as follows:
If to PTI or Merger Sub:
c/o Protective Technologies International, Inc.
One River Street
Hastings-on-Hudson, NY 10706
Attn: Mr. Meredith W. Birrittella
Facsimile: (914) 478-8298
with a copy to:
Akabas & Cohen
488 Madison Ave.
New York, New York 10022
Attn: Seth A. Akabas, Esq.
Facsimile: (212) 308-8582
If to Flents:
Flents Products Co., Inc.
258 Dr. Martin Luther King Drive
Norwalk, CT 06954
Attn: Mr. Stuart M. Low
Facsimile: (203) 854-9322
with a copy to:
Migdal, Pollack, Rosenkrantz & Sherman
41 East 57th Street
New York, NY 10022
Attn: Lester C. Migdal, Esq.
Facsimile: (212) 759-5422
If to the Exchange Agent or the Flents stockholders:
Migdal, Pollack, Rosenkrantz & Sherman
41 East 57th Street
New York, NY 10022
Attn: Lester C. Migdal, Esq.
Facsimile: (212) 759-5422
Any party may by notice change the address to which notice or other
communications to it are to be delivered or mailed, effective 10 business days
after receipt.
Section 18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts entered into, executed and to be performed wholly in such state,
except for its conflict of laws provisions.
Section 19. Assignability. This Agreement shall not be assignable otherwise
than by operation of law by any party hereto without the prior written consent
of the other parties, and any purported assignment without such prior written
consent shall be void, except that Merger Sub may assign this Agreement to a
corporation controlling, controlled by or under common control with Merger Sub.
Section 20. Waivers and Amendments. Any waiver of any term or condition of
this Agreement, or any amendment or supplementation of this Agreement, shall be
effective only if in writing executed by the party against whom such waiver,
amendment or supplementation is sought to be charged. A waiver of any breach or
failure to enforce any of the terms or conditions of this Agreement shall not in
any way affect, limit or waive a party's rights hereunder at any time to enforce
strict compliance thereafter with every term or condition of this Agreement.
Section 21. Third Party Rights. Any other provision of this Agreement to
the contrary notwithstanding, this Agreement shall not create benefits for any
third party, including, without limitation, any employees of Flents or Merger
Sub, provided, however, that Merger Sub shall assume all Assumed Liabilities (as
defined in Section 10.4), including the obligations to Low, Davies and Dunn
disclosed or created in this Agreement.
Section 22. Illegalities. In the event that any provision contained in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and the remaining provisions of this Agreement
shall not, at the election of the party for whose benefit the provision exists,
be in any way impaired.
Section 23. Counterparts. This Agreement may be executed
in multiple counterparts all of which taken together shall
constitute one and the same instrument.
Section 24. Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending terms or provision in any other
situation or in any other jurisdiction.
Section 25. Press Release and Public Announcement. No party to this
Agreement shall issue any press release or public statement or make any public
announcement relating to the subject matter of this Agreement without the prior
written approval of the other parties; provided, however. that any party may
make any public disclosures it believes in good faith is required by applicable
law or any listing or trading agreement concerning its publicly-traded
securities in which case the disclosing party shall use its reasonable efforts
to advise the other party at least three days prior to making the disclosure.
Section 26. Arbitration. Any controversy, dispute or claim arising under or
relating to the provisions of this Agreement, or the breach thereof, shall be
determined by arbitration in New York, New York in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA")
then in effect, except that the arbitrator shall be required to set forth in
reasonable detail the basis for his determination as well as the method of
calculating any monetary award. However, where the parties hereto agree on
alternate dispute resolution proceedings, utilization of the facilities of the
AAA shall not be required. The decision and award in any such arbitration
proceeding shall be binding and final on the parties, and judgment upon the
award rendered by the arbitrator(s) may be entered in any court of competent
jurisdiction.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, each of the undersigned corporations has caused this
Agreement to be executed by its duly authorized officer, and each individual has
signed this Agreement, as of the date first above written.
FLENTS PRODUCTS CO., INC. PTI HOLDING INC.
(a New York corporation)
By: /s/ W. Thomas Davies By:/s/ Meredith W. Birrittella
Name: W. Thomas Davies Name: Meredith W. Birrittella
Title: President Title: Chief Executive Officer
FLENTS PRODUCTS CO., INC.
(a Delaware corporation)
By: /s/ Meredith W. Birrittella
Name: Meredith W. Birrittella
Title: Secretary
Agreed as to Sections 7.5, 7.9 and 8.4:
/s/ W. Thomas Davies
W. THOMAS DAVIES
/s/ James Dunn
JAMES DUNN
/s/ Stuart M. Low
STUART M. LOW
Agreed to as to Sections 2.2:
MIGDAL, POLLACK, ROSENKRANTZ & SHERMAN, as Exchange Agent
By: /s/ Lester C. Migdal
Name: Lester C. Migdal
Title: Partner
<PAGE>
LIST OF EXHIBITS, SCHEDULES AND OTHER DOCUMENTS
Exhibits
A: Certificates of Merger
B: Affidavit of Loss
C1: Noncompete Agreement Form w/ S. Low
C2: Noncompete Agreement Form w/ W.T. Davies and J. Dunn
D: Consulting Agreement Form
E1: Employment Agreement Form w/ W.T. Davies
E2: Employment Agreement Form w/ J. Dunn
F: Convertible Value and Registration Rights Agreement Form
Schedules
2.3(i): tangible personal property
(ii): contracts, agreements, etc.
5.1: foreign jurisdictions
5.1(e): bank accounts
5.2(b)(iii): acceleration of debt
5.3: capitalization/shareholders
5.4(b): financial statements
5.4(d): additional liabilities
5.4(e): material adverse changes since 11/30/96
5.5(b): business restrictions
5.6: inventory
5.8(a): list of insurance policies
5.8(c): pending and threatened casualty or liability claims
5.8(d): insurance claims
5.9(a): claims, lawsuits, proceedings
5.9(d) government permits
5.10(a): taxes
5.11(a): intangible assets
5.11(a)(1): royalties and limits of intellectual property
rights
5.12: employees, compensation and status
5.13: employee benefit plans
5.15(b): contract renegotiation
5.16(b): lists of customers
5.17: changes since 11/30/96
6.4: changes since PTI Reports
6.6: environmental investigations
Closing Documents
Flents' long-form good standing certificate Flents' certificate as to compliance
with closing conditions Flents' secretary's certificate as to charter, Bylaws,
Board resolutions and shareholder resolutions
PTI's long-form good standing certificate PTI's certificate as to compliance
with closing conditions PTI's secretary's certificate as to charter, Bylaws, and
Board resolutions Merger Sub's long-form good standing certificate Merger Sub's
certificate as to compliance with closing conditions Merger Sub's secretary's
certificate as to charter, Bylaws, and Board resolutions
<PAGE>
EXHIBIT 2
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT, dated as of the date of Closing, by and among the parties
to the AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of July 25, 1997
and the stockholders of Flents,
W I T N E S S E T H :
WHEREAS, PTI Holding Inc. ("PTI"), Flents Products Co., Inc., a Delaware
corporation ("Merger Sub"), and Flents Products Co., Inc., a New York
corporation ("Flents") have entered into the Agreement; and
WHEREAS, Flents paid $75,000 of legal and accounting expenses in excess of
the $50,000 of such expenses stated in Section 7.2(h) of the Agreement, in
connection with the sale of the business, and the parties hereto wish to adjust
the Cash Consideration accordingly,
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, PTI, Merger Sub, Flents and the stockholders of Flents hereby
agree as follows:
This Amendment modifies the Agreement as set forth herein. Each capitalized
term used and not defined herein shall have the meaning ascribed to it in the
Agreement.
The date of the Merger for financial accounting and for income tax purposes
shall be deemed to be May 31, 1997.
The second clause of the preamble to the Agreement, is modified to change
the Merger Consideration to consist of $4,837,085 and the Cash Consideration to
consist of $2,135,435.
The amount stated in Section 7(h) of the agreement, previously stated as
$50,000, is modified to read $125,000.
Except as amended hereby, the Agreement remains unmodified, unamended, and
in full force and effect.
This Agreement may be executed in multiple counterparts all of which taken
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, each of the undersigned corporations has caused this
Agreement to be executed by its duly authorized officer, and each individual has
signed this Agreement, as of the date first above written.
FLENTS PRODUCTS CO., INC. PTI HOLDING INC.
(a New York corporation)
By: /s/ W. Thomas Davies By: /s/ Meredith W. Birrittella
W. Thomas Davies Meredith W. Birrittella
President Chief Executive Officer
FLENTS PRODUCTS CO., INC.
(a Delaware corporation)
By: /s/ Meredith W. Birrittella
Meredith W. Birrittella
Secretary
/s/ W. Thomas Davies /s/ James E. Dunn
W. THOMAS DAVIES JAMES E. DUNN
/s/ Stuart M. Low /s/ Robert A. Low
STUART M. LOW ROBERT A. LOW
/s/ Doris L. Hirsch /s/ Lester C. Migdal
DORIS L. HIRSCH LESTER C. MIGDAL
/s/ Peter C. Kohn /s/ Mary Lou Secchi
PETER C. KOHN MARY LOU SECCHI
<PAGE>
EXHIBIT 3
CERTIFICATE OF MERGER
OF FLENTS PRODUCTS CO., INC., A NEW YORK CORPORATION,
INTO FLENTS PRODUCTS CO., INC., A DELAWARE CORPORATION
The undersigned corporations do hereby certify in accordance with Section 252 of
the General Corporation Law of the State of Delaware (the "Law"):
FIRST: The names of the constituent corporations and their states of
incorporation are as follows:
FLENTS PRODUCTS CO., INC., a New York corporation ("Flents")
FLENTS PRODUCTS CO., INC., a Delaware corporation ("New Flents")
SECOND: The proposed merger has been approved, adopted, certified, executed
and acknowledged by Flents in accordance with the laws of the State of New York
and by New Flents in accordance with Section 252 of the Law.
THIRD: The name of the surviving corporation is Flents Products Co., Inc.,
a Delaware corporation.
FOURTH: The Certificate of Incorporation of New Flents shall be the
Certificate of Incorporation of the surviving entity. No changes shall be made
to the certificate of incorporation of the surviving corporation upon the
effective date of the merger.
FIFTH: A copy of the Agreement and Plan of Merger (the "Plan") is on file
at the principal place of business of New Flents is 258 Dr. Martin Luther King
Drive, Norwalk, CT 06854. A copy of the Plan shall be furnished by New Flents,
upon request and at no cost, to any stockholder of either Flents or New Flents.
SIXTH: The authorized capital stock of Flents is as follows:
Number Voting
Class Designation Authorized Outstanding Par Value Rights
Common N/A 125,000 77,756 $.02 Full
<PAGE>
SEVENTH: This Certificate of Merger shall be effective on its filing date.
DATED: August 5, 1997
ATTEST: FLENTS PRODUCTS CO., INC., a
New York corporation
By: /s/ Mary Lou Secchi By: /s/ W. Thomas Davies
Mary Lou Secchi W. Thomas Davies
Secretary President
ATTEST: FLENTS PRODUCTS CO., INC., a
Delaware corporation
By: /s/ Meredith W. Birrittella By: /s/ W. Thomas Davies
Meredith W. Birrittella W. Thomas Davies
Secretary President
<PAGE>
CERTIFICATE OF MERGER
OF
FLENTS PRODUCTS CO., INC.
(a New York corporation)
INTO
FLENTS PRODUCTS CO., INC.
(a Delaware corporation)
UNDER SECTION 907 OF THE BUSINESS CORPORATION
LAW OF THE STATE OF NEW YORK (the "BCL")
The undersigned, W. Thomas Davies and Mary Lou Secchi, being the President and
the Secretary, respectively, of Flents Products Co., Inc., a domestic
corporation duly organized and existing under and by virtue of the laws of the
State of New York ("Flents"), and W. Thomas Davies and Meredith W. Birrittella,
being the President and the Secretary, respectively, of Flents Products Co.,
Inc., a foreign corporation duly organized and existing under and by virtue of
the laws of the State of Delaware ("New Flents"), do hereby certify and set
forth that an Agreement and Plan of Merger (the "Plan") has been adopted by the
board of directors of each of said constituent corporation, and that:
(1) The name of each constituent corporation is as follows:
Flents Products Co., Inc., a New York corporation
Flents Products Co., Inc., a Delaware corporation
(2) The jurisdiction and date of incorporation of the foreign constituent
corporation, New Flents, is set forth below:
Jurisdiction Date of Incorporation
Delaware July 16, 1997
(3) The name of the surviving corporation is Flents Products Co., Inc., a
Delaware corporation
(4) The designation, number, and voting rights of the outstanding shares of
each class and series of Flents are as follows:
Class Designation Number Authorized Outstanding Voting Rights
Common N/A 125,000 77,756 Full
The designation, number, and voting rights of the outstanding shares of
each class and series of New Flents are as follows:
Class Designation Number Authorized Outstanding Voting Rights
Common N/A 200 100 Full
(5) The effective date of the merger of Flents and New Flents into New
Flents shall be upon the filing of this Certificate by the Department of State.
(6) The manner in which the Plan was authorized by each of the constituent
corporations is set forth below:
With respect to the constituent domestic corporation, Flents, the Plan was
unanimously approved and adopted by the Board of Directors on July 15, 1997, and
authorized and approved in a meeting of the holders of the outstanding shares of
such corporation on July 15, 1997 in accordance with the applicable statutes of
the State of New York. With respect to the constituent foreign corporation, New
Flents, the Plan was unanimously approved and adopted by the Board of Directors
on July 16, 1997, and authorized and approved by the unanimous written consent
of the holders of the outstanding shares of such corporation on July 16, 1997,
in accordance with the applicable statues of its jurisdiction of incorporation.
The merger of Flents with and into New Flents is permitted by the laws of
Delaware and is in compliance therewith.
(7) The date when the certificate of incorporation of New Flents was filed
by the Department of State of Delaware was the 16th day of July, 1997.
An application of authority to do business in the State of New York has not
been filed by New Flents. New Flents shall do no business in the state of New
York until such an application of authority has been filed.
(8) The date when the original certificate of incorporation of Flents was
filed by the Department of State of New York was the 4th day of November, 1935.
(9) New Flents may be served with process in the State of New York in any
action or special proceeding for the enforcement of any liability or obligation
of any domestic corporation or of any foreign corporation, previously amenable
to suit in the State of New York, which is a constituent corporation in this
merger.
(10) Subject to the provisions of Section 623 of the BCL, New Flents shall
promptly pay to the shareholders of the constituent domestic corporation the
amount, if any, to which they shall be entitled under the provisions of the BCL
relating to the rights of shareholders to receive payment for their shares.
(11) The secretary of state is hereby designated as agent upon whom process
against Flents Products Co., Inc., a Delaware corporation, may be served in the
manner set forth in paragraph (b) of Section 306 of the BCL, in any action or
special proceeding. The secretary of state shall mail a copy of any process
against Flents Products Co., Inc., a Delaware corporation, served upon the
secretary of state to Flents Products Co., Inc., c/o Akabas & Cohen, 488 Madison
Avenue, New York, NY 10022.
IN WITNESS WHEREOF, the undersigned have executed and signed this
certificate, under penalties of perjury, as of this 5th day of August, 1997.
FLENTS PRODUCTS CO., INC., FLENTS PRODUCTS CO., INC.,
a New York corporation a Delaware corporation
By: /s/ W. Thomas Davies By: /s/ W. Thomas Davies
W. Thomas Davies, President W. Thomas Davies, President
By: /s/ Mary Lou Secchi By: /s/ Meredith W. Birrittella
Mary Lou Secchi, Secretary Meredith W. Birrittella, Secretary
<PAGE>
EXHIBIT 4
NONCOMPETITION AGREEMENT
AGREEMENT dated as of August 5, 1997, by and among Stuart M. Low, an
individual, having an address at 29 Grove Hill Road, Guilford, CT 06437 ("Low"),
PTI Holding Inc., a Delaware corporation, having an office at c/o Protective
Technologies International Inc., One River Street, Hastings-on-Hudson, NY 10706
("PTI"), and Flents Products Co., Inc., a Delaware corporation having an office
at 258 Dr. Martin Luther King Drive, Norwalk, CT 06854 (the "Company") (PTI and
the Company, together with other corporate affiliates, shall be referred to
herein as the "PTI Companies").
W I T N E S S E T H :
WHEREAS, PTI, the Company and Flents Products Co., Inc., a New York
corporation, ("Old Flents") have entered into a Agreement and Plan of Merger
dated as of July 25,1997, (the "Merger Agreement") pursuant to which the Company
shall acquire from the shareholders of Old Flents all of the outstanding stock
of Old Flents in exchange for cash and common stock of PTI and the Company shall
assume the operations of Old Flents, as described in the Merger Agreement; and
WHEREAS, pursuant to the Merger Agreement, the Company shall retain Low as
a consultant to the Company; and
WHEREAS, in order to preserve for the Company the goodwill of Old Flents to
be acquired by the Company pursuant to the Merger Agreement, and Low has agreed
not to compete with the Company, as described more fully herein,
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the adequacy and sufficiency of which are hereby acknowledged,
the parties hereto agree hereby as follows:
Section 1. Restrictions. (a) The parties hereto confirm that Low is aware
of important business information (i) relating to the products, processes,
designs and/or systems used by Old Flents and (ii) relating to the customers
(including, without limitation, customer lists, call lists, prices and all data
about customers) and employees, consultants, independent contractors and
suppliers of Old Flents, which together constitutes the substantial portion of
the goodwill of Old Flents acquired by the Company under the Merger Agreement.
The parties hereto further confirm that it is reasonably necessary to protect
and maintain Flents' goodwill, which the Company acquired pursuant to the Merger
Agreement, and to prevent the usurpation by Low (or any Person (hereinafter
defined) employing Low at a later date) of all or any portion of such goodwill,
which was purchased by the Company, that Low agrees, and accordingly he does
agree, that he will not directly or indirectly, for or on behalf of himself or
any Person (hereinafter defined) at any time for a period of five years from the
date hereof:
(i) employ or otherwise obtain services from, or solicit or otherwise
attempt to employ or otherwise obtain services from, or assist any Person
in employing or otherwise obtaining services from or attempting to employ
or otherwise obtain services from, any person who is then, or at any time
during the preceding twelve months shall have been, in the employ of or
otherwise retained by Old Flents; or
(ii) solicit any individual who was a customer of Old Flents at any time
during the two years prior to the date hereof to supply any product or
service that was supplied by Old Flents or shall hereafter have been
supplied by the PTI Companies, or to reduce, or cease to receive, the level
of products or services that such customer had been receiving from Old
Flents or that such customer shall have been receiving from the PTI
Companies; or
(iii) open or operate any business or assist in any way, directly or
indirectly (as consultant, broker, officer, director, employee, independent
contractor, financier, investor, or otherwise), any other Person in opening
or operating any business that provides any product or service that was
supplied by Old Flents at any time prior to the date hereof; or
(iv) at any time negotiate for or enter into an agreement, understanding or
arrangement, or otherwise cause or authorize any Person, to take any of the
actions prohibited by clauses (i) through (iii) above.
As used herein, the term "Person" means any person, corporation, limited
liability company, partnership or other entity.
(b) Low acknowledges that he has been informed that it is the policy
of the PTI Companies to maintain as secret and confidential all information (i)
relating to the products, pro-
cesses, designs and/or systems used by the PTI Companies and (ii) relating to
the customers (including, without limitation, customer lists, call lists, prices
and all data about customers) and employees, consultants, independent
contractors and suppliers of the PTI Companies (all such information hereafter
referred to as "Confidential Information"). Low further acknowledges that such
Confidential Information has been acquired pursuant to the Merger Agreement or
assembled by the PTI Companies at great cost to the PTI Companies, through the
expenditure of extensive resources of the PTI Companies over a long period and
is of great value to the PTI Companies. The parties hereto recognize that the
services to be performed by Low under a consulting agreement dated as of the
date hereof, are special and unique, and that by reason of his involvement in
Old Flents and his rendering services to the PTI Companies, he has and will
acquire Confidential Information as aforesaid. The parties hereto confirm that
it is reasonably necessary to protect the PTI Companies' goodwill that Low
agrees, and accordingly he does agree, that he will not, directly or indirectly
(except where authorized by either of the Board of Directors of the PTI
Companies, for the benefit of either of the PTI Companies), for or on behalf of
Low or any Person, at any time: (i) divulge to any Person other than the PTI
Companies (hereinafter referred to collectively as a "third party"), or use or
cause to authorize any third parties to use, any such Confidential Information,
or any other information regarded as confidential and valuable by the PTI
Companies that he knows or should know is regarded as confidential and valuable
by the PTI Companies (whether or not any of the foregoing information is
actually novel or unique or is actually known to others and whether or not the
Confidential Information is labeled as confidential or secret); or (ii)
negotiate for or enter into any arrangement, contract or commitment to do any of
the foregoing prohibited acts.
Section 2. Injunctive Relief. Low acknowledges that any breach or
threatened breach by him of any provision of this Agreement will, because of the
unique nature of the transaction which will take place pursuant to the Merger
Agreement, cause irreparable harm to the PTI Companies and leave the PTI
Companies without any adequate remedy at law and shall entitle the PTI
Companies, in addition to any other legal remedies available to the PTI
Companies, including offset for damages of any amounts owing from the PTI
Companies to Low, to apply to any court of competent jurisdiction to enjoin such
breach or threatened breach without the need to specifically prove irreparable
harm or the inadequacy of legal remedies.
Section 3. Acknowledgement of Reasonableness. Low and the PTI Companies
each acknowledges that the type and periods of restriction imposed herein are
fair and reasonable and are reasonably required for the protection of the PTI
Companies and the goodwill associated with the business of Old Flents and are
given as an integral part of the acquisition by the PTI Companies of the
business and goodwill of Old Flents.
Section 4. Severability. The parties hereto understand and intend that: (a)
each restriction agreed to by Low hereinabove shall be construed as separable
and divisible from every other restriction; (b) the unenforceability, in whole
or in part, of any such restriction in any one or more jurisdictions, shall not
affect the enforceability of the remaining restrictions in such jurisdiction or
jurisdictions or the enforceability of any restriction in other jurisdictions
and this Agreement shall be construed in such jurisdiction in all respects as if
such invalid or unenforceable provisions were omitted; and (c) one or more or
all of such restrictions may be enforced in whole or in part as the
circumstances warrant.
Section 5. Entire Agreement. This Agreement, together with the documents
referred to herein and in the Merger Agreement, contains the entire agreement
among the parties hereto and supersedes all prior arrangements or
understandings.
Section 6. Construction. The descriptive headings of this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement. Each of the parties to this Agreement
participated in the drafting of this Agreement and the interpretation of any
ambiguity contained in this Agreement will not be affected by the claim that a
particular party drafted any provision hereof. Any pronoun herein shall include
all genders and/or the plural or singular as appropriate from the context.
Section 7. Notices. All notices or other communications that are required
or permitted hereunder shall be in writing and sufficient when delivered in
accordance with the notice provisions under the Merger Agreement.
Section 8. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
entered into, executed and to be performed wholly in such state.
Section 9. Assignability. This Agreement shall not be assignable otherwise
than by operation of law by any party hereto without the prior written consent
of the other parties, and any purported assignment without such prior written
consent shall be void, except that the PTI Companies may assign this Agreement
to an affiliate or an entity purchasing all, or substantially all, of its
assets.
Section 10. Waivers and Amendments. Any waiver of any term or condition of
this Agreement, or any amendment or supplementation of this Agreement, shall be
effective only if in writing executed by the party against whom such waiver,
amendment or supplementation is sought to be charged. A waiver of any breach or
failure to enforce any of the terms or conditions of this Agreement shall not in
any way affect, limit or waive a party's rights hereunder at any time to enforce
strict compliance thereafter with every term or condition of this Agreement.
Section 11. Illegalities. In the event that any provision contained in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and the remaining provisions of this Agreement
shall not, at the election of the party for whose benefit the provision exists,
be in any way impaired, and in lieu of such provision determined to be invalid,
illegal or unenforceable a new provision shall be automatically and without
further action of the parties hereto substituted that is as similar as possible
to such invalid, illegal or unenforceable provision to accomplish the intent and
purpose thereof and still be valid, legal and enforceable. More particularly, if
any provision hereof is determined by any court or other tribunal having
jurisdiction thereof to be unenforceable because of the duration or scope
thereof, then the duration or scope of such provision shall be automatically and
without further action of the parties hereto reduced to the extent that in the
judgment of such court or other tribunal would be necessary to render it
enforceable.
<PAGE>
Section 12. Counterparts. This Agreement may be executed in multiple
counterparts all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, each of the undersigned corporations has caused this
Agreement to be executed by its duly authorized officer, and Low has executed
this Agreement as of the date first above written.
PTI HOLDING INC. FLENTS PRODUCTS CO., INC., a
Delaware corporation
By: /s/ Meredith W. Birrittella By: /s/ W. Thomas Davies
Meredith W. Birrittella W. Thomas Davies
Chief Executive Officer President
/s/ Stuart M. Low
STUART M. LOW
<PAGE>
EXHIBIT 5
NONCOMPETITION AGREEMENT
AGREEMENT dated as of August 5, 1997, by and among W. Thomas Davies, an
individual, having an address at 27 Quaker Ridge Road, Bethel, CT 06801
("Davies"), James E. Dunn, an individual, having an address at 88 Hillcrest
Avenue, Hawthorne, NJ 07506 ("Dunn"), (Davies and Dunn shall be referred to
collectively herein as the "Flents stockholders"), PTI Holding Inc., a Delaware
corporation, having an address c/o Protective Technologies International, Inc.,
One River Street, Hastings-on-Hudson, NY 10706 ("PTI"), and Flents Products Co.,
Inc., a Delaware corporation having an address c/o Protective Technologies
International, Inc., One River Street, Hastings-on-Hudson, NY 10706 (the
"Company") (PTI and the Company, together with other corporate affiliates, shall
be referred to herein as the "PTI Companies").
W I T N E S S E T H :
WHEREAS, PTI, the Company and Flents Products Co., Inc., a New York
corporation, ("Flents") have entered into a Agreement and Plan of Merger dated
as of July 25, 1997 (the "Merger Agreement"), pursuant to which the Company
shall acquire from the shareholders of Flents all of the outstanding stock of
Flents in exchange for cash and common stock of PTI and the Company shall assume
the operations of Flents, as described in the Merger Agreement; and
WHEREAS, pursuant to the Merger Agreement, the Company shall employ Davies
and Dunn as executives of the Company; and
WHEREAS, in order to preserve for the Company the goodwill of Flents to be
acquired by the Company pursuant to the Merger Agreement, and the Flents
stockholders have agreed not to compete with the Company, as described more
fully herein,
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the adequacy and sufficiency of which are hereby acknowledged,
the parties hereto agree hereby as follows:
Section 1. Restrictions. (a) The parties hereto confirm that the Flents
stockholders are each aware of important business information (i) relating to
the products, processes, designs and/or systems used by Flents and (ii) relating
to the customers (including, without limitation, customer lists, call lists,
prices and all data about customers) and employees, consultants, independent
contractors and suppliers of Flents, which together constitutes the substantial
portion of the goodwill of Flents acquired by the Company under the Merger
Agreement. The parties hereto further confirm that it is reasonably necessary to
protect and maintain Flent's goodwill, which the Company acquired pursuant to
the Merger Agreement, and to prevent the usurpation by any of the Flents
stockholders (or any Person (hereinafter defined) employing any of the Flents
stockholders at a later date) of all or any portion of such goodwill, which was
purchased by the Company, that Flents stockholders each agree, and accordingly
each of the Flents stockholders does agree, that he will not directly or
indirectly, for or on behalf of himself or any Person (hereinafter defined) at
any time for a period of four year, in the case of Davies, and five years, in
the case of Dunn, from the date hereof:
(i) employ or otherwise obtain services from, or solicit or otherwise
attempt to employ or otherwise obtain services from, or assist any Person
in employing or otherwise obtaining services from or attempting to employ
or otherwise obtain services from, any person who is then, or at any time
during the preceding twelve months shall have been, in the employ of or
otherwise retained by Flents; or
(ii) solicit any individual who was a customer of Flents at any time during
the two years prior to the date hereof to supply any product or service
that was supplied by Flents or shall hereafter have been supplied by the
PTI Companies, or to reduce, or cease to receive, the level of products or
services that such customer had been receiving from Flents or that such
customer shall have been receiving from the PTI Companies; or
(iii) open or operate any business or assist in any way, directly or
indirectly (as consultant, broker, officer, director, employee, independent
contractor, financier, investor, or otherwise), any other Person in opening
or operating any business that provides any product or service that was
supplied by Flents at any time prior to the date hereof; or
(iv) at any time negotiate for or enter into an agreement, understanding or
arrangement, or otherwise cause or authorize any Person, to take any of the
actions prohibited by clauses (i) through (iii) above.
As used herein, the term "Person" means any person, corporation, limited
liability company, partnership or other entity.
(b) Each of Flents stockholders acknowledges that he has been informed that
it is the policy of the PTI Companies to maintain as secret and confidential all
information (i) relating to the products, processes, designs and/or systems used
by the PTI Companies and (ii) relating to the customers (including, without
limitation, customer lists, call lists, prices and all data about customers) and
employees, consultants, independent contractors and suppliers of the PTI
Companies (all such information hereafter referred to as "Confidential
Information"). Each of the Flents stockholders further acknowledges that such
Confidential Information has been acquired pursuant to the Merger Agreement or
assembled by the PTI Companies at great cost to the PTI Companies, through the
expenditure of extensive resources of the PTI Companies over a long period and
is of great value to the PTI Companies. The parties hereto recognize that the
services to be performed by Davies and Dunn under employment agreements dated as
of the date hereof, and by Low under a consulting agreement dated as of the date
hereof, are special and unique, and that by reason of their involvement in
Flents and their rendering services to the PTI Companies, each has and will
acquire Confidential Information as aforesaid. The parties hereto confirm that
it is reasonably necessary to protect the PTI Companies' goodwill that each of
the Flents stockholders agree, and accordingly each of the Flents stockholders
does agree, that he will not, directly or indirectly (except where authorized by
either of the Board of Directors of the PTI Companies, for the benefit of either
of the PTI Companies), for or on behalf of any of the Flents stockholders or any
Person, at any time: (i) divulge to any Person other than the PTI Companies
(hereinafter referred to collectively as a "third party"), or use or cause to
authorize any third parties to use, any such Confidential Information, or any
other information regarded as confiden-tial and valuable by the PTI Companies
that he knows or should know is regarded as confidential and valuable by the PTI
Companies (whether or not any of the foregoing information is actually novel or
unique or is actually known to others and whether or not the Confidential
Information is labeled as confidential or secret); or (ii) negotiate for or
enter into any arrangement, contract or commitment to do any of the foregoing
prohibited acts.
Section 2. Injunctive Relief. Each of the Flents stockholders acknowledges
that any breach or threatened breach by him of any provision of this Agreement
will, because of the unique nature of the transaction which will take place
pursuant to the Merger Agreement, cause irreparable harm to the PTI Companies
and leave the PTI Companies without any adequate remedy at law and shall entitle
the PTI Companies, in addition to any other legal remedies available to the PTI
Companies, including offset for damages of any amounts owing from the PTI
Companies to any of the Flents stockholders, to apply to any court of competent
jurisdiction to enjoin such breach or threatened breach without the need to
specifically prove irreparable harm or the inadequacy of legal remedies or to
post a bond in connection therewith.
Section 3. Acknowledgement of Reasonableness. The Flents stockholders and
the PTI Companies each acknowledges that the type and periods of restriction
imposed herein are fair and reasonable and are reasonably required for the
protection of the PTI Companies and the goodwill associated with the business of
Flents and are given as an integral part of the acquisition by the PTI Companies
of the business and goodwill of Flents.
Section 4. Severability. The parties hereto understand and intend that: (a)
each restriction agreed to by each of the Flents stockholders hereinabove shall
be construed as separable and divisible from every other restriction; (b) the
unenforceability, in whole or in part, of any such restriction in any one or
more jurisdictions, shall not affect the enforceability of the remaining
restrictions in such jurisdiction or jurisdictions or the enforceability of any
restriction in other jurisdictions and this Agreement shall be construed in such
jurisdiction in all respects as if such invalid or unenforceable provisions were
omitted; and (c) one or more or all of such restrictions may be enforced in
whole or in part as the circumstances warrant.
Section 5. Entire Agreement. This Agreement, together with the documents
referred to herein and in the Merger Agreement, contains the entire agreement
among the parties hereto and supersedes all prior arrangements or
understandings.
Section 6. Construction. The descriptive headings of this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement. Each of the parties to this Agreement
participated in the drafting of this Agreement and the interpretation of any
ambiguity contained in this Agreement will not be affected by the claim that a
particular party drafted any provision hereof. Any pronoun herein shall include
all genders and/or the plural or singular as appropriate from the context.
Section 7. Notices. All notices or other communications that are required
or permitted hereunder shall be in writing and sufficient when delivered in
accordance with the notice provisions under the Merger Agreement.
Section 8. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
entered into, executed and to be performed wholly in such state.
Section 9. Assignability. This Agreement shall not be assignable otherwise
than by operation of law by any party hereto without the prior written consent
of the other parties, and any purported assignment without such prior written
consent shall be void, except that the PTI Companies may assign this Agreement
to an affiliate or an entity purchasing all, or substantially all, of its
assets.
Section 10. Waivers and Amendments. Any waiver of any term or condition of
this Agreement, or any amendment or supplementation of this Agreement, shall be
effective only if in writing executed by the party against whom such waiver,
amendment or supplementation is sought to be charged. A waiver of any breach or
failure to enforce any of the terms or conditions of this Agreement shall not in
any way affect, limit or waive a party's rights hereunder at any time to enforce
strict compliance thereafter with every term or condition of this Agreement.
Section 11. Illegalities. In the event that any provision contained in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and the remaining provisions of this Agreement
shall not, at the election of the party for whose benefit the provision exists,
be in any way impaired, and in lieu of such provision determined to be invalid,
illegal or unenforceable a new provision shall be automatically and without
further action of the parties hereto substituted that is as similar as possible
to such invalid, illegal or unenforceable provision to accomplish the intent and
purpose thereof and still be valid, legal and enforceable. More particularly, if
any provision hereof is determined by any court or other tribunal having
jurisdiction thereof to be unenforceable because of the duration or scope
thereof, then the duration or scope of such provision shall be automatically and
without further action of the parties hereto reduced to the extent that in the
judgment of such court or other tribunal would be necessary to render it
enforceable.
<PAGE>
Section 12. Counterparts. This Agreement may be executed in multiple
counterparts all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, each of the undersigned corporations has caused this
Agreement to be executed by its duly authorized officer, and each of Davies and
Dunn has executed this Agreement as of the date first above written.
PTI HOLDING INC. FLENTS PRODUCTS CO., INC., a
Delaware corporation
By: /s/ Meredith W. Birrittella By: /s/ Meredith W. Birrittella
Meredith W. Birrittella Meredith W. Birrittella
Chief Executive Officer Secretary
/s/ W. Thomas Davies
W. THOMAS DAVIES
/s/ James E. Dunn
JAMES E. DUNN
<PAGE>
EXHIBIT 6
CONSULTING AGREEMENT
AGREEMENT dated as of August 5, 1997 between Flents Products Co., Inc., a
Delaware corporation, having an office c/o 258 Dr. Martin Luther King Drive,
Norwalk, CT 06854 ("the Company") and Stuart M. Low, an individual, with an
address at 29 Grove Hill Road, Guilford, CT 06437 (the "Consultant").
W I T N E S S E T H :
WHEREAS, PTI Holdings Inc., a Delaware corporation ("PTI"), the Company and
Flents Products Co., Inc., a New York corporation, ("Flents") have entered into
a Merger Agreement dated as of July 25, 1997, (the "Merger Agreement") pursuant
to which the Company shall purchase all of the outstanding stock of Flents in
exchange for cash and common stock of PTI and the Company shall assume the
operations of Flents, as described in the Merger Agreement; and
WHEREAS, the Company desires to retain the Consultant and the Consultant
desires to provide his services to the Company, as more fully described herein,
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the adequacy and sufficiency of which are hereby acknowledged,
the parties hereto agree hereby as follows:
1. Retention. The Company hereby retains the Consultant and the Consultant
hereby accepts such engagement, subject to the terms and conditions hereinafter
set forth.
2. Term. The term hereunder shall be ten (10) years from the date hereof,
unless terminated earlier in accordance with the terms hereof.
3. Duties.
(a) The Consultant shall be available to the Company for his advice
and expertise and upon reasonable notice from time to time the Company shall,
when seeking the advice and expertise of the Consultant, put the matters on
which it seeks his advice in writing and provide him with such relevant
information as he may require in order to opine. The Consultant may elect to
provide such advice orally or in writing, by telephone, by mail or in person at
the offices of the Company and the Consultant agrees the Company shall provide
appropriate transportation at its expense. In any event, the Consultant will not
be obliged, except for the first three calendar months after the date hereof, to
respond to requests from the Company for the Consultant's advice and expertise
on more than four occasions in any one calendar month.
(b) The Consultant shall serve the Company loyally, faithfully and to
the best of his abilities, but shall not be required devote his full working
time to the performance of his duties hereunder, provided that the will not,
during the term hereof, engage in any business activity that interferes with the
performance of his obligations under this Agreement.
4. Compensation and Benefits.
(a) In consideration of the services to be rendered by the Consultant
under Section 3 herein, the Company shall pay to the Consultant $12,000
annually, payable in equal monthly installments, subject to Sections 4(b), 4(c)
and 7 and remainder of this Section 4(a) herein and shall provide to him, at the
Company's expense, (i) the medical benefits provided to senior management to the
extent set forth in Section 4(b) below, or (ii) such medical benefits as may be
agreed upon by the Company and the Consultant, or (iii) such medical benefits as
the Consultant specifies, provided that PTI shall pay for such benefits at its
own cost up to the cost of clause 4(a)(i) above and shall pay any additional
cost by reducing the Consultant's cash compensation, if available, and the
Consultant shall himself pay any remaining cost.
Each monthly payment shall be made without regard to the extent, or the
absence, of services rendered by the Consultant, provided that the Consultant is
not in material breach of the terms of this Agreement, and in addition the
Company shall reimburse the Consultant for reasonable out-of-pocket expenses in
connection with his duties, to the extent approved in advance by the Company.
(b) The Consultant shall receive health insurance, as is made
available to senior management-level employees of the Company, for the first
four (4) years of the term hereof. Upon the fourth anniversary hereof, the
Consultant may elect, in writing, to remain on the Company's health plan, but in
such instance, the cost to the Company of the Consultant's health insurance
coverage shall be deducted from the Consultant's compensation hereunder. In such
case, if the cost to the Company of the Consultant's health insurance coverage
is greater than the Consultant's compensation hereunder, the Consultant shall
pay such difference to the Company.
(c) On and after the fourth anniversary hereof, or in the event of his
death before the fourth anniversary hereof, the Consultant or his widow may
elect in writing to remain on the Company's health plan, or such other health
plan as the parties hereto have agreed upon, for as long as the Consultant or
his widow shall bear the cost to the Company for such health insurance. As long
as consulting fees are due to the Consultant after the fourth anniversary
hereof, the Company shall withhold from its payments to the Consultant an amount
equal to the health plan costs. The Consultant hereby acknowledges that the
Company in no way guarantees that Consultant or his widow shall qualify for such
health insurance and the Company's health insurance provider, and not the
Company, may make the final decision on eligibility of health plan participants.
This Section 4(c) shall survive termination hereof.
5. Covenants.
(a) The Consultant agrees that all work produced by him under this
Agreement or otherwise for the Company shall be deemed to be a "work made for
hire" as defined in the federal Copyright Act, Title 17 of the United States
Code. Without further consideration, the Consultant hereby irrevocably assigns,
transfers and sets over to the Company, its successors and assigns, all of the
Consultant's right, title and interest in and to any and all developments,
processes, discoveries, technologies and creations and all copyrightable and
patentable works, materials and ideas (collectively "Inventions") and any
improvement to any Invention, whether or not patentable, copyrightable or
legally protectible or recognized as forms of property, and whether or not
completed or used in practice, together with all information and data relating
thereto (hereinafter "Proprietary Information") (including all designs,
drawings, prints, patterns, sketches, ideas, inventions, improvements, writings
and other works of authorship, theses, books, computer programs, lectures,
illustrations, photographs, scientific and mathematical models, prints and any
other subject matter that is or may become legally protectible or recognized as
a form of property) that have been conceived, made or suggested, or may
hereafter be conceived, made or suggested, either by the Consultant or by others
with the assistance or other participation of the Consultant, and (i) on the
Company's premises or during the Employee's usual working hours, or (ii)
otherwise related to the business of the Company or any affiliate of the
Company.
(b) The Consultant shall disclose promptly to the Company any and all
Inventions and Proprietary Information when conceived or made by the Consultant,
and report promptly to the Company all information of which the Consultant may
become aware during the term of employment with the Company that may be of
benefit to the Company. During the period of his employment hereunder, the
Consultant shall also disclose promptly to the Board of Directors of the Company
all material Inventions relating to the business, products, or projects of the
Company and/or involving the use of the Company's time, materials and/or
facilities.
(c) Upon request by the Company, the Consultant shall, without
compensation other than the Consultant's usual and customary salary, bonus and
benefits hereunder, execute all such assignments and other documents and perform
all such acts necessary to enable the Company to obtain or uphold for its
benefit patents or copyrights for, and other rights to, such Inventions and
Proprietary Information relating thereto, which shall be owned by the Company,
whether or not the Consultant is the inventor thereof.
6. Disability and Death.
(a) If the Consultant shall have been unable fully to perform his
duties hereunder due to disability for any 60 days during any twelve (12)
consecutive months, as determined in good faith by the Board of Directors, then
the Company may terminate the Consultant's engagement hereunder by written
notice to the Consultant or his legal guardian, effective immediately upon
delivery of such notice.
(b) If the Consultant shall die during the term of this Agreement, the
Consultant's engagement hereunder shall terminate immediately upon the
Consultant's death.
7. Termination of Employment. The Company may at any time terminate the
Consultant's engagement hereunder by written notice to the Consultant effective
immediately upon delivery of such notice if:
(i) the Consultant shall commit any act whether or not involving the
Company that constitutes a felony in the jurisdiction involved; or
(ii) the Consultant engages in repeated substance abuse; or
(iii) the Board of Directors, after due inquiry and providing the
Consultant with a reasonable opportunity to be heard, shall have determined
in good faith that the Consultant has committed wilful malfeasance or gross
misconduct in his performance hereunder, or any material act of fraud or
dishonesty against the Company.
8. Non-Disclosure of Confidential
Information and Non-Competition.
(a) The Consultant acknowledges that he has been informed that it is
the policy of the Company to maintain as secret and confidential all information
(i) relating to the products, processes, technologies, inventions, designs
and/or systems used by the Company and (ii) relating to the suppliers, customers
and employees of the Company (all such information hereafter referred to as
"Confidential Information"), and the Consultant further acknowledges that such
Confidential Information is of great value to the Company. The parties hereto
recognize that the services to be performed by the Consultant are special and
unique, and that by reason of his employment by the Company, he has and will
acquire Confidential Information as aforesaid. The parties hereto confirm that
it is reasonably necessary to protect the Company's goodwill that the Consultant
agree, and accordingly the Consultant does agree, that he will not directly or
indirectly (except where authorized by the Board of Directors of the Company for
the benefit of the Company), for or on behalf of himself or any Person
(hereinafter defined):
(i) at any time during his employment by the Company or after he
ceases to be employed by the Company for any reason, divulge to any
Person other than the Company (hereinafter referred to collectively as
a "third party"), or use or cause to authorize any third parties to
use, any such Confidential Information, or any other information
regarded as confidential and valuable by the Company that he knows or
should know is regarded as confidential and valuable by the Company
(whether or not any of the foregoing information is actually novel or
unique or is actually known to others and whether or not the
Confidential Information is labelled as confidential); or
(ii) at any time during his employment by the Company and for a
period of one year after he ceases to be employed by the Company for
any reason, act as or be an officer, director, stockholder, consultant
or advisor, partner or employee of, or render any service for, or have
any profit-sharing or other interest in, or lend money or make any
other financial accommodation for or on behalf of, or undertake any
business transaction with, any Person that engages in or is planning
or preparing to engage in either direct competition with the Company
or any corporate affiliate of the Company, or the business of
providing, in any state where the Company or any corporate affiliate
sells products or performs services, the same products and/or services
as those provided by the Company or any corporate affiliate, except
that he may hold securities that are part of a publicly traded class
of securities (not in excess of 5% of the outstanding total of any
class of such securities) in competitive concerns so long as he
discloses such holding to the Company; or
(iii) at any time during his employment by the Company and for a
period of one year after he ceases to be employed by the Company for
any reason, engage in or plan or prepare to engage in (A) competition
with the Company or any corporate affiliate or (B) the business of
providing, in any state where the Company or any corporate affiliate
sells products or performs services, the same products and/or services
as those provided by the Company or any corporate affiliate; or
(iv) at any time during his employment by the Company and for a
period of two years after he ceases to be employed by the Company for
any reason, (A) attempt in any manner to solicit, or instruct, assist
or provide any services in connection with the solicitation, from any
Person that is, or shall have been after the date hereof, a client of
the Company or PTI International, Inc. or any affiliate of the Company
(a "Client") (except on behalf of the Company), or persuade, or
attempt in any manner to persuade, any Client to cease doing business
or to reduce the amount of business that any such Client has
customarily done or contemplates doing with the Company or any
affiliate of the Company, or (B) serve as an officer, director,
employee, agent or consultant of, or otherwise render services to, or
become or remain a creditor or equity interest holder in, any Person
that accepts business competitive with the business of the Company
from any such Client, whether or not the relationship between the
Company and such Client was originally established in whole or in part
through the efforts of the Consultant; or
(v) at any time during his employment by the Company and for a
period of two years after he ceases to be employed by the Company for
any reason, employ or otherwise obtain services from, or solicit or
otherwise attempt to employ or otherwise obtain services from, or
assist any Person in employing or otherwise obtaining services from,
or attempting to employ or otherwise obtain services from, any person
who is then, or at any time during the preceding twelve months shall
have been, in the employ of or retained by the Company and/or its
affiliates; or
(vi) at any time during his employment by the Company and the
applicable period thereafter specified in each of the clauses above,
negotiate for or enter into an agreement, understanding or
arrangement, or otherwise cause or authorize any Person, to take any
of the actions prohibited by such clause.
As used herein, the term "Person" means any person, corporation, limited
liability company, partnership or other entity and the term "Client" shall mean
(i) anyone who is then a client of the Company or any of its affiliates, (ii)
anyone who was a client of the Company at any time during the two-year period
immediately preceding the alleged prohibited conduct, and (iii) any prospective
client that shall have placed a purchase order with the Company. The expiration
or termination for any reason of the restrictive covenants contained in this
Section 8(a) shall not in any manner modify, terminate or impair the restrictive
covenants contained in the Non- Competition Agreement dated the date hereof
between the Consultant and the Company.
(b) The Consultant shall, upon the expiration of his employment by the
Company for any reason, forthwith deliver up to the Company any and all
drawings, notebooks, keys and other documents and materials, or copies thereof,
in his possession or under his control that relate to any Confidential
Information, including any of same that relate to any Invention relating to the
business of the Company or any affiliate of the Company described in Section
5(a), or that are otherwise the property of the Company. This Section 8 and
Section 5(c) shall survive any expiration or other termination of this
Agreement.
(c) The Consultant agrees that any breach or threatened breach by him
of any provision of this Section 8 will, because of the unique nature of the
Consultant's services and the Confidential Information entrusted to him as
aforesaid, cause irreparable harm to the Company and shall entitle the Company,
in addition to any other legal remedies available to it, to apply to any court
of competent jurisdiction to enjoin such breach or threatened breach, without
the need to show irreparable injury or to post any bond, which are hereby waived
by the Consultant. The parties hereto understand and intend that each
restriction agreed to by the Consultant hereinabove shall be construed as
separable and divisible from every other restriction, and the unenforceability,
in whole or in part, of any such restriction, in any jurisdiction, shall not
affect the enforceability of such restriction in any other jurisdiction or of
the remaining restrictions in any jurisdiction, and that one or more or all of
such restrictions may be enforced in whole or in part as the circumstances
warrant. The Consultant further acknowledges that the Company is relying upon
such covenants as an inducement to provide the Consultant with employment and in
connection therewith to permit the Consultant to have continued access to
Confidential Information.
9. Entire Agreement. This Agreement, together with the Merger Agreement and
the documents and instruments referred to therein, contains the entire
understanding of the parties with respect to the subject matter hereof and
supersedes any prior agreement between the parties. No change, termination or
attempted waiver of any of the provisions hereof shall be binding unless in
writing and signed by the party against whom the same is sought to be enforced.
No action by either party shall be deemed a waiver of any right hereunder, and
no waiver of any right at any time shall operate as a waiver of any other right
or as a waiver of such right at any other time.
10. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the respective heirs, legal representatives, successors
and assigns of the parties hereto, except that this agreement may not be
assigned by the Consultant.
11. Governing Law. All matters concerning the validity and interpretation
of and performance under this Agreement shall be governed by the laws of the
State of New York.
12. Designations and Notices. Whenever notice is required to be given by
any party hereunder, such notice shall be deemed sufficient if given pursuant to
the terms of the Merger Agreement.
13. Severability. The invalidity or unenforceability of any particular
provision of this Agreement in any jurisdiction shall not affect the other
provisions hereof or such provision in other jurisdictions, and this Agreement
shall be construed in such jurisdiction in all respects as if such invalid or
unenforceable provisions were omitted. Furthermore, in lieu of such illegal,
invalid, or unenforceable provision in such jurisdiction there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid and enforceable.
14. Construction. Throughout this Agreement, each pronoun shall be deemed
to include the masculine, the feminine and the neuter, the singular and plural,
and vice versa, where such meanings would be appropriate. The headings herein
are inserted only as a matter of convenience and reference, and they in no way
define, limit or describe the scope of this Agreement or the intent of any
provisions thereof.
15. Further Assurances. Each party shall execute such other documents and
instruments as shall be requested by the other party in order fully to
accomplish the purposes of this Agreement.
16. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF the Consultant has executed this Agreement and the
Company has caused this Agreement to be executed by its duly authorized officer
as of the date first above written.
FLENTS PRODUCTS CO., INC.
/s/ Stuart M. Low By: /s/ W. Thomas Davies
STUART M. LOW W. Thomas Davies, President
<PAGE>
EXHIBIT 7
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of August 5, 1997 between W. Thomas Davies,
an individual, having an address at 27 Quaker Ridge Road, Bethel, CT 06801 (the
"Executive") and Flents Products Co., Inc., a Delaware corporation having an
office at One River Street, Hastings-on-Hudson, NY 10706 (the "Company").
W I T N E S S E T H :
WHEREAS, PTI Holding Inc., a Delaware corporation ("PTI"), the Company and
Flents Products Co., Inc., a New York corporation, ("Flents") have entered into
a Merger Agreement dated as of July 25, 1997, (the "Merger Agreement") pursuant
to which the Company is acquiring all of the outstanding stock of Flents in
exchange for cash and common stock of PTI and the Company shall assume the
operations of Flents, as described in the Merger Agreement; and
WHEREAS, pursuant to the Merger Agreement, the Company shall employ the
Executive to serve as its President, as more fully described herein,
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the adequacy and sufficiency of which are hereby acknowledged,
the parties hereto agree hereby as follows:
1. Employment. The Company hereby employs the Executive as its President,
and the Executive hereby accepts such employment, subject to the terms and
conditions hereinafter set forth, under the direction of the Chief Executive
Officer and the Board of Directors of the Company.
2. Term. The term of the Executive's employment hereunder shall be deemed
to have commenced on June 1, 1997, and shall continue thereafter for a period of
four (4) years, unless terminated earlier in accordance with the terms hereof.
3. Duties.
(a) The duties of the Executive shall be predominantly executive in
nature. The Executive shall serve the Company loyally, faithfully and to the
best of his abilities and shall devote his full working time and efforts to the
performance of his duties hereunder. The Executive shall be available for travel
as the needs of the business of the Company require.
(b) The Executive agrees that he will not, during the term of this
Agreement, engage in any business activity that interferes with the performance
of his obligations under this Agreement.
4. Compensation and Benefits.
(a) In consideration of the services to be rendered by the Executive
hereunder, the Company shall pay to the Executive, and he shall accept, base
salary payable biweekly or monthly in accordance with the Company's standard
practices, at an annual rate of not less than $180,000 plus $12,500. Increases
to the Executive's base salary shall be determined annually by the Board of
Directors of the Company. Within 30 days of the closing of the merger
contemplated under the Merger Agreement (the "Closing"), the Executive shall
receive an amount equal to the difference between his base salary paid by Flents
from June 1, 1997 through the Closing and his base salary payable hereunder. The
Executive hereby acknowledges that he is due no additional compensation by
Flents, except as provided herein.
(b) The Executive shall receive health insurance equal to such
benefits as are made available to management-level employees of PTI. If the
Executive chooses to be included on his spouse's health insurance plan, then the
Company shall pay the Executive the amount it would have paid to include the
Executive on the Company's health plan. The Executive shall be included on PTI's
401(k) pension plan, when and if such plan is adopted by PTI for all employees.
On or about September 1, 1997 and annually thereafter, the Company shall
reimburse the Executive for his costs in maintaining a life insurance policy on
the life of the Executive up to an amount not to exceed $1,000 annually. The
Executive shall receive the number of paid vacation/personal/ sick days
indicated on Exhibit B annexed hereto, based on October 15, 1984 as the date
hired, which days may be taken at any time, subject to the Company's prior
approval, which shall not be unreasonably withheld or delayed.
(c) The Executive shall receive long-term disability insurance of
disability benefits under the Company's disability plan, which shall generally
have the following provisions: 60% of his base salary, as described in Section
4(a) herein commencing 180 days after the onset of the disability, provided,
however, that such payment shall not exceed $5,000 monthly. On condition that
the Executive is an employee of the Company at the time of the onset of
disability, such benefit will continue for the period of time indicated on
Exhibit C annexed hereto, based on the Executive's age when the disability
began. The Company shall reimburse the Executive annually in the amount of
$1,082.00 for his cost to obtain additional disability coverage.
(d) The Executive shall receive $8,400 per year as a cash allowance
for a car or other related expenses.
(e) The Executive shall receive, upon vesting, options to purchase an
aggregate of 40,000 shares of common stock of PTI. Such options shall vest at
the rate of 10,000 per year on the last calendar day of each year beginning
December 31, 1997 and concluding on December 31, 2000, unless the Executive
voluntarily resigns or this Agreement is terminated under Section 6 hereof or
the Executive is terminated for cause under Section 7 herein prior to the date
of vesting. The exercise price of the options to purchase 10,000 shares which
will vest on December 31, 1997 shall be $9.00 per share, the exercise price of
the options to purchase 10,000 shares which will vest on December 31, 1998 shall
be $10.00 per share, the exercise price of the options to purchase 10,000 shares
which will vest on December 31, 1999 shall be $11.00 per share, and the exercise
price of the options to purchase 10,000 shares which will vest on December 31,
2000 shall be $12.00 per share. In the event of a stock dividend, stock
split-up, reverse stock split or share combination after the effective date
hereof, the Board of Directors of PTI shall make a proportionate increase or
decrease in the number of shares and option price, as shall give proper effect
to such event. The Options shall be in the form of the Company's standard
employee stock option as set forth on Exhibit A hereto and shall have a term of
5 years from the date of vesting.
(f) In addition to the options described in Section 4(e) herein, the
Executive shall receive additional options (unless the Executive voluntarily
resigns or this Agreement is terminated under Section 6 hereof or the Executive
is terminated for cause under Section 7 herein prior to the date of vesting),
based on net revenues and income from operations of the Company as follows:
(i) For the Combined Period (as hereinafter defined), the
Executive shall receive options to purchase an aggregate of 5,000
shares of common stock of PTI at an exercise price of $10.00 per share
if the combined Net Revenues (hereinafter defined) exceed $6,400,000
for Flents for the period beginning December 1, 1996 and ending May
31, 1997 and for the Company beginning June 1, 1997 and ending
November 30, 1997 (collectively, the "Combined Period") and the
Company has Income from Operations (hereinafter defined) of 12.9% of
Net Revenues or greater for the Combined Period, provided, however,
that such options shall be reduced equitably by an amount equal to any
cash or other compensation received as a bonus (except for the bonus
received as a Christmas bonus, regularly given the employees of
Flents) for the fiscal year ending November 30, 1997 paid to the
Executive by Flents.
(ii) For the fiscal year ending December 31, 1998, the Executive
shall receive options to purchase an aggregate of 5,000 shares of
common stock of PTI at an exercise price of $11.00 per share if the
Company's Net Revenues exceed $7,000,000 for such fiscal year and the
Company has an Income from Operations of 12.9% of Net Revenues or
greater.
(iii) For the fiscal year ending December 31, 1999, the Executive
shall receive options to purchase an aggregate of 5,000 shares of
common stock of PTI at an exercise price of $12.00 per share if the
Company's Net Revenues exceed $7,700,000 for such fiscal year and the
Company has an Income from Operations of 12.9% of Net Revenues or
greater.
(iv) For the fiscal year ending December 31, 2000, the Executive
shall receive options to purchase an aggregate of 5,000 shares of
common stock of PTI at an exercise price of $13.00 per share if the
Company's Net Revenues exceed $8,500,000 for such fiscal year and the
Company has an Income from Operations of 12.9% of Net Revenues or
greater.
"Net Revenues" shall equal gross revenues less returns, refunds, bad debt,
cooperative advertising, slotting charges, sales allowances and other credits.
"Income from Operations" shall be defined as that term is defined by generally
accepted accounting principles, consistently applied. Net Revenues and Income
from Operations shall be determined finally by the certified public accountants
regularly retained by the Company. The options described in this Section 4(f)
shall be in the same form as the options described in Section 4(e) and shall
vest retroactively as of the last day of each year if the target is achieved as
indicated on the Company's financial statements for such year.
(g) Notwithstanding any provision of this Agreement to the contrary,
if the Executive's employment shall terminate for any reason prior to the end of
the term hereof, other than those reason listed in Section 7 herein, the Company
shall pay to the Executive, or the principal beneficiary named in the
Executive's life insurance policy within 30 days after the date of termination,
$1,041.67 for each of the complete months then remaining in the term of this
Agreement.
5. Covenants.
(a) The Executive agrees that all work produced by him under this
Agreement or otherwise for the Company shall be deemed to be a "work made for
hire" as defined in the federal Copyright Act, Title 17 of the United States
Code. Without further consideration, the Executive hereby irrevocably assigns,
transfers and sets over to the Company, its successors and assigns, all of the
Executive's right, title and interest in and to any and all developments,
processes, discoveries, technologies and creations and all copyrightable and
patentable works, materials and ideas (collectively "Inventions") and any
improvement to any Invention, whether or not patentable, copyrightable or
legally protectible or recognized as forms of property, and whether or not
completed or used in practice, together with all information and data relating
thereto (hereinafter "Proprietary Information") (including all designs,
drawings, prints, patterns, sketches, ideas, inventions, improvements, writings
and other works of authorship, theses, books, computer programs, lectures,
illustrations, photographs, scientific and mathematical models, prints and any
other subject matter that is or may become legally protectible or recognized as
a form of property) that have been conceived, made or suggested, or may
hereafter be conceived, made or suggested, either by the Executive or by others
with the assistance or other participation of the Executive, and (i) on the
Company's premises or during the Employee's usual working hours, or (ii)
otherwise related to the business of the Company or any affiliate of the
Company.
(b) The Executive shall disclose promptly to the Company any and all
Inventions and Proprietary Information when conceived or made by the Executive,
and report promptly to the Company all information of which the Executive may
become aware during the term of employment with the Company that may be of
benefit to the Company. During the period of his employment hereunder, the
Executive shall also disclose promptly to the Board of Directors of the Company
all material Inventions relating to the business, products, or projects of the
Company and/or involving the use of the Company's time, materials and/or
facilities.
(c) Upon request by the Company, the Executive shall, without
compensation other than the Executive's usual and customary salary, bonus and
benefits hereunder, execute all such assignments and other documents and perform
all such acts necessary to enable the Company to obtain or uphold for its
benefit patents or copyrights for, and other rights to, such Inventions and
Proprietary Information relating thereto, which shall be owned by the Company,
whether or not the Executive is the inventor thereof.
6. Disability and Death.
(a) If the Executive, due to physical or mental disability or
incapacity, shall have been unable fully to perform his duties hereunder for any
180 days during any twelve (12) consecutive months, as determined in good faith
by the Board of Directors, then the Company may terminate this Agreement and the
Executive's employment hereunder by written notice to the Executive or his legal
guardian, effective immediately upon delivery of such notice.
(b) If the Executive shall die during the term of this Agreement, this
Agreement and the Executive's employment hereunder shall terminate immediately
upon the Executive's death.
7. Termination of Employment For Cause. The Company may at any time
terminate this Agreement and the Executive's employment hereunder by written
notice to the Executive effective immediately upon delivery of such notice if:
(a) the Executive shall commit any act whether or not involving the
Company that constitutes a felony in the jurisdiction involved; or
(b) the Executive engages in repeated substance abuse; or
(c) the Board of Directors, after due inquiry and providing the
Executive with a reasonable opportunity to be heard, shall have determined
in good faith that the Executive committed wilful malfeasance or gross
misconduct in his performance hereunder, or any material act of fraud or
dishonesty against the Company; or
(d) the Executive shall have committed a material breach of this
Agreement; or
(e) the Executive shall have refused to obey a directive of the Board
of Directors to perform an act that the Executive is or should be able to
perform and that is not illegal or unethical for 30 days after receipt of a
written directive to perform such act.
8. Non-Disclosure of Confidential
Information and Non-Competition.
(a) The Executive acknowledges that he has been informed that it is
the policy of the Company to maintain as secret and confidential all information
(i) relating to the products, processes, technologies, inventions, designs
and/or systems used by the Company and (ii) relating to the suppliers, customers
and employees of the Company (all such information hereafter referred to as
"Confidential Information"), and the Executive further acknowledges that such
Confidential Information is of great value to the Company. The parties hereto
recognize that the services to be performed by the Executive are special and
unique, and that by reason of his employment by the Company, he has and will
acquire Confidential Information as aforesaid. The parties hereto confirm that
it is reasonably necessary to protect the Company's goodwill that the Executive
agree, and accordingly the Executive does agree, that he will not directly or
indirectly (except where authorized by the Board of Directors of the Company for
the benefit of the Company), for or on behalf of himself or any Person
(hereinafter defined):
(i) at any time during his employment by the Company or for a
period of five (5) years after he ceases to be employed by the Company
for any reason, divulge to any Person other than the Company
(hereinafter referred to collectively as a "third party"), or use or
cause to authorize any third parties to use, any such Confidential
Information, or any other information regarded as confidential and
valuable by the Company that he knows or should know is regarded as
confidential and valuable by the Company (whether or not any of the
foregoing information is actually novel or unique or is actually known
to others and whether or not the Confidential Information is labelled
as confidential); or
(ii) at any time during his employment by the Company and for a
period of one year after he ceases to be employed by the Company for
any reason, act as or be an officer, director, stockholder, consultant
or advisor, partner or employee of, or render any service for, or have
any profit-sharing or other interest in, or lend money or make any
other financial accommodation for or on behalf of, or undertake any
business transaction with, any Person that engages in or is planning
or preparing to engage in either direct competition with the Company
or any corporate affiliate of the Company, or the business of
providing, in any state where the Company or any corporate affiliate
sells products or performs services, the same products and/or services
as those provided by the Company or any corporate affiliate, except
that he may hold securities that are part of a publicly traded class
of securities (not in excess of 5% of the outstanding total of any
class of such securities) in competitive concerns so long as he
discloses such holding to the Company; or
(iii) at any time during his employment by the Company and for a
period of one year after he ceases to be employed by the Company for
any reason, engage in or plan or prepare to engage in (A) competition
with the Company or any corporate affiliate or (B) the business of
providing, in any state where the Company or any corporate affiliate
sells products or performs services, the same products and/or services
as those provided by the Company or any corporate affiliate; or
(iv) at any time during his employment by the Company and for a
period of two years after he ceases to be employed by the Company for
any reason, (A) attempt in any manner to solicit, or instruct, assist
or provide any services in connection with the solicitation, from any
Person that is, or shall have been after the date hereof, a client of
the Company or Protective Technologies International Inc. or any other
affiliate of the Company (a "Client") (except on behalf of the
Company), or persuade, or attempt in any manner to persuade, any
Client to cease doing business or to reduce the amount of business
that any such Client has customarily done or contemplates doing with
the Company or any affiliate of the Company, or (B) serve as an
officer, director, employee, agent or consultant of, or otherwise
render services to, or become or remain a creditor or equity interest
holder in, any Person that accepts business competitive with the
business of the Company from any such Client, whether or not the
relationship between the Company and such Client was originally
established in whole or in part through the efforts of the Executive;
or
(v) at any time during his employment by the Company and for a
period of two years after he ceases to be employed by the Company for
any reason, employ or otherwise obtain services from, or solicit or
otherwise attempt to employ or otherwise obtain services from, or
assist any Person in employing or otherwise obtaining services from,
or attempting to employ or otherwise obtain services from, any person
who is then, or at any time during the preceding twelve months shall
have been, in the employ of or retained by the Company and/or its
affiliates; or
(vi) at any time during his employment by the Company and the
applicable period thereafter specified in each of the clauses above,
negotiate for or enter into an agreement, understanding or
arrangement, or otherwise cause or authorize any Person, to take any
of the actions prohibited by such clause.
As used herein, the term "Person" means any person, corporation, limited
liability company, partnership or other entity and the term "Client" shall mean
(i) anyone who is then a client of the Company or any of its affiliates, (ii)
anyone who was a client of the Company at any time during the two-year period
immediately preceding the alleged prohibited conduct, and (iii) any prospective
client that shall have placed a purchase order with the Company. The expiration
or termination for any reason of the restrictive covenants contained in this
Section 8(a) shall not in any manner modify, terminate or impair the restrictive
covenants contained in the Non-Competition Agreement dated the date hereof
between the Executive and the Company.
(b) The Executive shall, upon the expiration of his employment by the
Company for any reason, forthwith deliver up to the Company any and all
drawings, notebooks, keys and other documents and materials, or copies thereof,
in his possession or under his control that relate to any Confidential
Information, including any of same that relate to any Invention relating to the
business of the Company or any affiliate of the Company described in Section
5(a), or that are otherwise the property of the Company. In addition, the
Executive shall delete all copies on magnetic disk, computer hard drive or other
electronic or digital medium in his possession and shall supply a certificate
signed by him confirming the destruction of all such files. This Section 8 and
Section 5(c) shall survive any expiration or other termination of this
Agreement.
(c) The Executive agrees that any breach or threatened breach by him
of any provision of this Section 8 will, because of the unique nature of the
Executive's services and the Confidential Information entrusted to him as
aforesaid, cause irreparable harm to the Company and shall entitle the Company,
in addition to any other legal remedies available to it, to apply to any court
of competent jurisdiction to enjoin such breach or threatened breach, without
the need to show irreparable injury or to post any bond, which are hereby waived
by the Executive. The parties hereto understand and intend that each restriction
agreed to by the Executive hereinabove shall be construed as separable and
divisible from every other restriction, and the unenforceability, in whole or in
part, of any such restriction, in any jurisdiction, shall not affect the
enforceability of such restriction in any other jurisdiction or of the remaining
restrictions in any jurisdiction, and that one or more or all of such
restrictions may be enforced in whole or in part as the circumstances warrant.
The Executive further acknowledges that the Company is relying upon such
covenants as an inducement to provide the Executive with employment and in
connection therewith to permit the Executive to have continued access to
Confidential Information.
9. Entire Agreement. This Agreement, together with the Merger Agreement and
the documents and instruments referred to therein, contains the entire
understanding of the parties with respect to the subject matter hereof and
supersedes any prior agreement between the parties, including, without
limitation, the employment agreement dated November 25, 1995 between the
Executive and Flents, containing a stay-put incentive. No change, termination or
attempted waiver of any of the provisions hereof shall be binding unless in
writing and signed by the party against whom the same is sought to be enforced;
provided, however, that the Executive's compensation may be increased at any
time by the Company without in any way affecting any of the other terms and
conditions of this Agreement, which in all other respects shall remain in full
force and effect. No action by either party shall be deemed a waiver of any
right hereunder, and no waiver of any right at any time shall operate as a
waiver of any other right or as a waiver of such right at any other time.
10. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the respective heirs, legal representatives, successors
and assigns of the parties hereto, except that this agreement may not be
assigned by the Executive, or by the Company except to an affiliate of the
Company, in which case the Company shall remain liable for all of its
obligations hereunder.
11. Governing Law. All matters concerning the validity and interpretation
of and performance under this Agreement shall be governed by the laws of the
State of New York, except with respect to its conflict of laws provisions.
12. Designations and Notices. Whenever notice is required to be given by
any party hereunder, such notice shall be deemed sufficient if given pursuant to
the terms of the Merger Agreement.
13. Severability. The invalidity or unenforceability of any particular
provision of this Agreement in any jurisdiction shall not affect the other
provisions hereof or such provision in other jurisdictions, and this Agreement
shall be construed in such jurisdiction in all respects as if such invalid or
unenforceable provisions were omitted. Furthermore, in lieu of such illegal,
invalid, or unenforceable provision in such jurisdiction there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid and enforceable.
14. Construction. Throughout this Agreement, each pronoun shall be deemed
to include the masculine, the feminine and the neuter, the singular and plural,
and vice versa, where such meanings would be appropriate. The headings herein
are inserted only as a matter of convenience and reference, and they in no way
define, limit or describe the scope of this Agreement or the intent of any
provisions thereof.
15. Further Assurances. Each party shall execute such other documents and
instruments as shall be requested by the other party in order fully to
accomplish the purposes of this Agreement.
16. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the Executive has executed this Agreement and the
Company has caused this Agreement to be executed by its duly authorized officer
as of the date first above written.
FLENTS PRODUCTS CO., INC.
/s/ W. Thomas Davies By: /s/ Meredith W. Birrittella
W. THOMAS DAVIES Meredith W.Birrittella, Secretary
Agreed to as to Sections 4(b), (e) and (f):
PTI HOLDING INC.
By: /s/ Meredith W. Birrittella
Meredith W. Birrittella
Chief Executive Officer
<PAGE>
EXHIBIT A to EXHIBIT 7
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT dated , 1997 between PTI Holding Inc., a Delaware
corporation (the "Company"), and W. Thomas Davies, an individual with an address
at 27 Quaker Ridge Road, Bethel, CT 06801 (the "Optionee").
W I T N E S S E T H :
WHEREAS, the Company desires, in connection with the services to be
rendered by the Optionee in connection with his employment at an affiliate of
the Company, to provide the Optionee with an opportunity to acquire Common
Stock, par value $.01 per share ("Common Stock"), of the Company on favorable
terms and thereby increase his proprietary interest in the progress and success
of the business of the Company and its affiliates; and
WHEREAS, on 1997 (the "Date of Grant") the Company authorized the
grant to the Optionee of an option intended to be an incentive stock option
("Incentive Stock Option") as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), to purchase shares of the authorized but
unissued Common Stock, pursuant to the Company's 1994 Joint Incentive and
Non-Qualified Stock Option Plan (the "Plan"), upon the terms and conditions set
forth in this Agreement;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein set forth and other good and valuable consideration, the Company and the
Optionee hereby agree as follows:
1. Confirmation of Grant of Option. Pursuant to a determination by the
Board of Directors of the Company made by unanimous written consent on the Date
of Grant, the Company, subject to the terms of this Agreement, and the
performance by Optionee of Optionee's obligations in accordance with the
Optionee's employment hereby confirms that the Optionee has been granted
effective 1997, as a matter of separate inducement and agreement, and in
addition to and not in lieu of other compensation for services, the right to
purchase (hereinafter referred to as the "Option") a maximum aggregate of ( )
shares (the "Shares") of Common Stock of the Company on the terms and conditions
set forth, subject to adjustment as provided in Section 9 hereof.
2. Vesting of Option. The Option shall vest as follows: on .
3. Purchase Price. The purchase price of the shares of Common Stock covered
by the Option will be $ per share, subject to adjustment as provided in Section
9 hereof.
4. Exercise of Option.
(a) The Option shall become exercisable as and to the extent
vested in accordance with Section 2.
(b) The Option may be exercised in integral multiples of 1,000
shares subject to the Option by notice and payment to the Company as provided in
Sections 11 and 16 hereof.
5. Term of Option.
(a) The term of the Option shall be a period of five (5) years
from the date such Option vested, as provided for in Section 2, subject to
earlier termination or cancellation as provided herein.
(b) The holder of the Option will not have any rights to
dividends or any other rights of a stockholder with respect to any shares of
Common Stock subject to the Option until such shares have been issued to him (as
evidenced by the appropriate entry on the books of a duly authorized transfer
agent of the Company) provided that the date of issuance shall not be earlier
than the Closing Date (as hereinafter defined) with respect to such shares
pursuant to Section 11 hereof, upon purchase of such shares upon exercise of the
Option.
6. Non-transferability of Option. The Option shall not be transferable
otherwise than by will, or by the laws of descent and distribution, and the
Option may be exercised during the lifetime of the Optionee only by him. More
particularly, but without limiting the generality of the foregoing, the Option
may not be assigned, transferred or otherwise disposed of, or pledged or
hypothecated in any way (whether by operation of law or otherwise), and shall
not be subject to execution, attachment or other process. Any assignment,
transfer, pledge, hypothecation or other disposition of the Option attempted
contrary to the provisions of this Agreement, or any levy of execution,
attachment or other process attempted upon the Option, shall be null and void
and without effect. Any attempt to make such assignment, transfer, pledge,
hypothecation or other disposition of the Option or any attempt to make such
levy of execution, attachment or other process shall cause the Option to
terminate immediately upon the happening of any such event if the Board of
Directors of the Company, at any time, should, in its sole discretion, so elect,
by written notice to the Optionee or to the person or persons then entitled to
exercise the Option under the provisions hereof; provided, however, that any
such termination of the Option under the foregoing provisions of this section 6
will not prejudice any rights or remedies that the Company or any affiliate or
subsidiary thereof may have under this Agreement or otherwise.
7. Exercise upon Cessation of Employment.
(a) If the Optionee ceases to serve as an employee or
director of the Company or any affiliate or subsidiary thereof by reason of his
discharge for cause, as determined in good faith by the Board of Directors of
the Company, or by reason of the voluntary resignation of the Optionee, then the
Option shall forthwith terminate. If, however, the Optionee for any other reason
(except disability or death) ceases to serve, then the Option may, subject to
the provisions of Section 6 hereof, be exercised to the same extent the Optionee
would have been entitled under Section 2 hereof to exercise the Option on the
day immediately preceding the date of such cessation, at any time within three
months after such cessation, at the end of which period the Option shall
terminate. In any event the Option may not be exercised after the expiration of
the term provided in Section 5 hereof.
(b) The Option shall not be affected by any change of duties
of the Optionee so long as he continues to serve as an employee or director of
the Company or any affiliated corporation or subsidiary thereof. If the Optionee
is granted a temporary leave of absence, such leave of absence will be deemed a
continuation of his service to the Company or any affiliate or subsidiary
thereof for the purposes of this Agreement only if and so long as the Company in
its sole discretion consents thereto. Retirement, whether or not pursuant to any
retirement or pension plan of the Company or any affiliate or subsidiary
thereof, shall be deemed to be a cessation of service with written consent for
all purposes of this Agreement.
(c) Any termination of this Option by reason of cessation of
service, whether under this Section 7 or Section 8, shall be without prejudice
to any rights or remedies that the Company or any affiliated corporation or
subsidiary thereof may have against the Optionee hereunder or otherwise.
8. Exercise upon Death or Disability.
(a) If the Optionee dies while he is serving as an employee
or director of the Company or any affiliated corporation or any subsidiary
thereof or within three months after he has ceased such service (provided such
cessation was not due to the Optionee's having resigned voluntarily or been
discharged for cause), during which period he would have been entitled to
exercise the Option under the provisions of Section 7 hereof, the Option may,
subject to the provisions of Section 6 hereof, be exercised to the extent the
Optionee would have been entitled under Section 2 hereof to exercise the Option
on the day preceding the date of his death, by the estate of the Optionee or by
the person or persons (including the estate of any such person or persons who
have died) who acquire the right to exercise the Option by bequest or
inheritance at any time within the period ending one year after the death of the
Optionee, at the end of which period the Option shall terminate. In any event
the Option may not be exercised after the expiration of the term provided in
Section 5 hereof.
(b) If the service of the Optionee for the Company or any
affiliated corporation or any subsidiary thereof is terminated by reason of
"disability", the Option may, subject to the provisions of Section 6 hereof, be
exercised to the extent the Optionee would have been entitled under Section 2
hereof to exercise the Option on the day preceding the date of his "disability,"
at any time within the period ending one year after the "disability" of the
Optionee, at the end of which period the Option shall terminate. In any event
the Option may not be exercised after the expiration of the term provided in
Section 5 hereof.
(c) A temporary disability may in the sole discretion of the
Board of Directors or the Committee, as the case may be, be deemed hereunder to
be a continuation of service for the Company or any affiliate or subsidiary
thereof if such disability lasts less than 90 days, or, in the case of a
disability longer than 90 days, if the Company in its sole discretion
contractually guarantees the Optionee's right to return to work after such
disability.
9. Adjustments. In the event of a stock dividend, stock split-up,
share combination, exchange of shares, re-capitalization, merger, consolidation,
acquisition or disposition of property or shares, reorganization, liquidation,
stock sale or option grant below market price or the exercise price hereof, or
other similar changes or transactions of or by the Company after the Date of
Grant, the Board of Directors of the Company shall make (or shall undertake to
have the Board of Directors of any corporation that merges with, or acquires the
assets of, the Company make) such adjustment of the number or class of shares
then covered by the Option, or of the option price, or both, as it shall, in its
sole discretion, deem appropriate to give proper effect to such event; provided,
however, that no such adjustment shall be made so as to constitute a
modification, extension or renewal of the Option within the meaning of Section
424(h) of the Code.
10. Registration. The shares of Common Stock subject hereto and
issuable upon the exercise hereof may not be registered under the Securities Act
of 1933, as amended (the "Act"), and, if required upon the request of counsel to
the Company, the Optionee shall give a representation as to his investment
intent and other matters with respect to such shares prior to their issuance as
set forth in Section 11 hereof.
11. Method of Exercise of Option.
(a) Subject to the terms and conditions of this Agreement, the
Option shall be exercisable by notice and payment to the Company in accordance
with the procedure prescribed herein. Each notice shall:
(i) state the election to exercise the Option and the number of shares in
respect of which it is being exercised;
(ii) contain a representation and agreement as to investment intent and other
matters, if required by counsel to the Company with respect to such shares,
in form satisfactory to counsel for the Company; and
(iii)be signed by the person or persons entitled to exercise the Option and, if
the Option is being exercised by any person or persons other than the
Optionee, be accompanied by proof, satisfactory to counsel of the Company,
of the right of such person or persons to exercise the Option.
(b) Upon receipt of such notice, the Company shall specify, by
written notice to the Optionee, a date and time (such date and time being herein
called the "Closing Date") and place for payment of the full purchase price of
such shares. The closing date shall not be more than fifteen days from the date
the notice of exercise is received by the Company unless another date is agreed
upon by the Company and the Optionee or is required upon advise of counsel of
the Company in order to meet the requirements of Section 12 hereof.
(c) Payment of the purchase price of any shares of Common Stock,
in respect of which the Option shall be exercised, shall be made by the Optionee
at a place specified by the Company on or before the Closing Date by delivering
to the Company a certified or bank cashier's check payable to the order of the
Company. The Option shall be deemed to have been exercised with respect to any
particular shares of Common Stock, if, and only if, the preceding provisions of
this Section 11 and the provisions of Section 12 hereof shall have been complied
with, in which event the Option shall be deemed to have been exercised on the
Closing Date. Anything in this agreement to the contrary notwithstanding, any
notice of exercise given pursuant to the provisions of this Section 11 shall be
void and of no effect if all the preceding provisions of this Section 11 and the
provisions of Section 12 shall not have been complied with. The certificate or
certificates for shares of Common Stock as to which the Option shall be
exercised shall be registered in the name of the Optionee or, if the Optionee so
requests in the notice exercising the Option, shall be registered in the name of
the Optionee and another person jointly, with right of survivorship, and shall
be delivered on the Closing Date to the Optionee at the place specified for the
closing, but only upon compliance with all of the provisions of this Agreement.
If the Optionee fails to accept delivery of and pay for all or any part of the
number of shares specified in such notice upon tender or delivery thereof on the
Closing date, his right to exercise the Option with respect to such undelivered
shares may be terminated in the sole discretion of the Board of Directors of the
Company. The Option may be exercised only with respect to full shares.
12. Approval of Counsel. The exercise of the Option and the issuance
and delivery of shares of Common Stock pursuant thereto shall be subject to
approval by the Company's counsel of all legal matters in connection therewith,
including compliance with the requirements of the Act and the rules and
regulations thereunder, and the requirements of any stock exchange or market
upon which the Common Stock may then be listed.
13. Resale of Common Stock.
(a) Upon any sale or transfer of the Common Stock purchased upon
exercise of the Option, unless such shares are registered under the Act, the
Optionee shall deliver to the Company an opinion of counsel satisfactory to the
Company to the effect that such common stock may be sold without violating
Section 5 of said Act.
(b) Unless registered under the Act, the Common Stock issued upon
exercise of the Option shall bear the following legend if required by counsel
for the Company:
THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS, IN THE
OPINION OF COUNSEL FOR THE COMPANY, SUCH REGISTRATION IS
NOT REQUIRED.
14. Reservation of Shares. The Company shall at all times during the
term of the Option reserve and keep available such number of shares of the class
of stock then subject to the Option as will be sufficient to satisfy the
requirements of this Agreement.
15. Limitation of Action. The Optionee and the Company each
acknowledge that every right of action accruing to him or it, as the case may
be, and arising out of or in connection with this Agreement against the Company
or an affiliated corporation or subsidiary thereof, on the one hand, or the
Optionee, on the other hand, shall, irrespective of the place where an action
may be brought, cease and be barred by the expiration of three years from the
date of the act or omission in respect of which such right of action arises.
16. Notices. Each notice relating to this Agreement shall be in
writing and delivered in person or by certified or registered mail, return
receipt requested, or by nationally recognized overnight courier service
providing for a signed return receipt, to the proper address. All notices to the
Company shall be addressed to it at 1 River Street, Hastings-on-Hudson, NY
10706. All notices to the Optionee shall be addressed to the Optionee at the
Optionee's address above specified. Anyone to whom a notice may be given under
this Agreement may designate a new address by notice to that effect, effective
upon actual receipt thereof.
17. Benefits of Agreement. This Agreement shall inure to the benefit
of and be binding upon each successor and assign of the Company. All obligations
imposed upon the Optionee and all rights granted to the Company under this
Agreement shall be binding upon the Optionee's heirs, legal representatives and
successors.
18. Severability. In the event that any one or more provisions of this
Agreement shall be deemed to be illegal or unenforceable, such illegality or
unenforceability shall not affect the validity and enforceability of the
remaining legal and enforceable provisions hereof, which shall be constructed as
if such illegal or unenforceable provision or provisions had not been inserted.
19. Plan Governs Conflicts.
(a) In the event of a conflict between the provisions of the Plan
and the Provisions of this Agreement, the provisions of the Plan, specifically
provisions governing incentive stock options, shall in all respects be
controlling.
(b) It is the intent of the Company that the Options shall be
treated as incentive stock options as set forth in Section 422 of the Code.
Compliance by the Optionee with the various provisions of Section 422 entitles
the Optionee to tax treatment upon the exercise of Options as set forth in
Section 421 of the Code. If any provision of this Agreement does not comply with
the requirements of Section 422 as then applicable to any transaction, such
provision will be construed or deemed to be amended to the extent necessary to
conform to the applicable requirements of Section 422 so that the Optionee will
be entitled to tax treatment in accordance with Section 421 of the Code.
20. Governing Law. This Agreement will be construed and governed in
accordance with the laws of the State of New York.
21. No Implied Employment Agreement. Neither the Plan nor this
Agreement shall be construed as giving the Optionee any right to be employed by
the Company or any of its subsidiaries or affiliates or interfering in any way
with the right of the Company or any of its subsidiaries or affiliates from
terminating the employment of the Optionee.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date and year first above written.
PTI HOLDING INC.
By:
Meredith Birrittella, President
Name: W. THOMAS DAVIES
<PAGE>
EXHIBIT B to EXHIBIT 7
Vacation Eligibility
Length of Service Vacation Days
Less than five years 10 days
Five years to ten years 15 days
Thereafter, accrue one additional day of vacation for each additional year of
service, to a maximum of twenty-five vacation days.
<PAGE>
EXHIBIT C to EXHIBIT 7
Disability Benefit Period
Executive's Age When
Disability Begins Maximum Benefit Period
younger than 60 to age 65
60 five years
61 four years
62 42 months
63 36 months
64 30 months
65 24 months
66 21 months
67 18 months
68 15 months
age 69 and over 12 months
<PAGE>
EXHIBIT 8
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of August 5, 1997 between James E. Dunn, an
individual, having an address at 88 Hillcrest Avenue, Hawthorne, NJ 07506 (the
"Executive") and Flents Products Co., Inc., a Delaware corporation having an
office at One River Street, Hastings-on-Hudson, NY 10706 (the "Company").
W I T N E S S E T H :
WHEREAS, PTI Holding Inc., a Delaware corporation ("PTI"), the Company and
Flents Products Co., Inc., a New York corporation, ("Flents") have entered into
a Merger Agreement dated as of July 25, 1997 (the "Merger Agreement") pursuant
to which the Company is acquiring all of the outstanding stock of Flents in
exchange for cash and common stock of PTI and the Company shall assume the
operations of Flents, as described in the Merger Agreement; and
WHEREAS, pursuant to the Merger Agreement, the Company shall employ the
Executive to serve as its Vice President of Sales, as more fully described
herein,
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the adequacy and sufficiency of which are hereby acknowledged,
the parties hereto agree hereby as follows:
1. Employment. The Company hereby employs the Executive as its Vice
President of Sales, and the Executive hereby accepts such employment, subject to
the terms and conditions hereinafter set forth, under the direction of the Chief
Executive Officer and the Board of Directors of the Company.
2. Term. The term of the Executive's employment hereunder shall be deemed
to have commenced on June 1, 1997, and shall continue thereafter for a period of
five (5) years, unless terminated earlier in accordance with the terms hereof.
3. Duties.
(a) The duties of the Executive shall be predominantly executive in
nature. The Executive shall serve the Company loyally, faithfully and to the
best of his abilities and shall devote his full working time and efforts to the
performance of his duties hereunder. The Executive shall be available for travel
as the needs of the business of the Company require.
(b) The Executive agrees that he will not, during the term of this
Agreement, engage in any business activity that interferes with the performance
of his obligations under this Agreement.
4. Compensation and Benefits.
(a) In consideration of the services to be rendered by the Executive
hereunder, the Company shall pay to the Executive, and he shall accept, base
salary payable biweekly or monthly in accordance with the Company's standard
practices, of not less than $108,000 annually. Increases to the Executive's base
salary shall be determined annually by the Board of Directors of the Company.
The Executive's year-end bonus shall be determined annually by the Board of
Directors of the Company, in accordance with Section 4(e) herein. Within 30 days
of the closing of the merger contemplated under the Merger Agreement (the
"Closing"), the Executive shall receive an amount equal to the difference
between his base salary paid by Flents from June 1, 1997 through the Closing and
his base salary payable hereunder. The Executive hereby acknowledges that he is
due no additional compensation by Flents, except as provided herein.
(b) The Executive shall receive health insurance, equal to such
benefits as are made available to management-level employees of PTI. If the
Executive chooses to be included on his spouse's health insurance plan, then the
Company shall pay the Executive the amount it would have paid to include the
Executive on the Company's health plan. The Executive shall be included on PTI's
401(k) pension plan, when and if such plan is adopted by PTI for all employees.
The Company shall provide, or, in the sole discretion of the Company, shall
reimburse the Executive for, a term life insurance policy in the amount of
$125,000 on the life of the Executive, with the Executive's heirs as the
beneficiaries of such life insurance policy up to an amount not to exceed $300
annually. The Executive shall receive the number of paid vacation/personal/ sick
days indicated on Exhibit A annexed hereto, based on October 1, 1992, as the
date hired, which days may be taken at any time, subject to the Company's prior
approval, which shall not be unreasonably withheld or delayed.
(c) The Executive shall receive long-term disability insurance of
disability benefits under the Company's disability plan, which shall generally
have the following provisions: 60% of his base annual salary, as described in
Section 4(a) herein commencing 180 days after the onset of the disability,
provided, however, that such payment shall not exceed $5,000 monthly. On
condition that the Executive is an employee of the Company at the time of the
onset of disability, such benefit will continue for the period of time indicated
on Exhibit B annexed hereto, based on the Executive's age when the disability
began.
(d) The Executive shall receive $7,200 per year as a cash allowance
for a car or other related expenses.
(e) The Executive shall receive a bonus at the end of the Combined
Period (as hereinafter defined) of 3% of the increase in the Company's Net
Revenues (hereinafter defined) from consumer sales for Flents for the period
beginning December 1, 1996 and ending May 31, 1997 and for the Company beginning
June 1, 1997 and ending November 30, 1997 (collectively, the "Combined Period")
above $5,640,862, which shall be determined finally by the certified public
accountants regularly retained by the Company. Such bonus shall be decreased by
the amount of cash or other compensation received by the Executive from Flents
as a bonus (except for the bonus received as a Christmas bonus, regularly given
the employees of Flents) for the fiscal year ending November 30, 1997. Bonuses
for subsequent years of the term hereof shall be determined by the Board of
Directors of the Company, prior to the end of the applicable fiscal year by
setting targets that reasonably could result in a bonus at least equal to the
dollar amount received by the Executive as a bonus for the Combined Period. "Net
Revenues" shall equal gross revenues less returns, refunds, bad debt,
cooperative advertising, slotting charges, sales allowances and other credits.
5. Covenants.
(a) The Executive agrees that all work produced by him under this
Agreement or otherwise for the Company shall be deemed to be a "work made for
hire" as defined in the federal Copyright Act, Title 17 of the United States
Code. Without further consideration, the Executive hereby irrevocably assigns,
transfers and sets over to the Company, its successors and assigns, all of the
Executive's right, title and interest in and to any and all developments,
processes, discoveries, technologies and creations and all copyrightable and
patentable works, materials and ideas (collectively "Inventions") and any
improvement to any Invention, whether or not patentable, copyrightable or
legally protectible or recognized as forms of property, and whether or not
completed or used in practice, together with all information and data relating
thereto (hereinafter "Proprietary Information") (including all designs,
drawings, prints, patterns, sketches, ideas, inventions, improvements, writings
and other works of authorship, theses, books, computer programs, lectures,
illustrations, photographs, scientific and mathematical models, prints and any
other subject matter that is or may become legally protectible or recognized as
a form of property) that have been conceived, made or suggested, or may
hereafter be conceived, made or suggested, either by the Executive or by others
with the assistance or other participation of the Executive, and (i) on the
Company's premises or during the Employee's usual working hours, or (ii)
otherwise related to the business of the Company or any affiliate of the
Company.
(b) The Executive shall disclose promptly to the Company any and all
Inventions and Proprietary Information when conceived or made by the Executive,
and report promptly to the Company all information of which the Executive may
become aware during the term of employment with the Company that may be of
benefit to the Company. During the period of his employment hereunder, the
Executive shall also disclose promptly to the Board of Directors of the Company
all material Inventions relating to the business, products, or projects of the
Company and/or involving the use of the Company's time, materials and/or
facilities.
(c) Upon request by the Company, the Executive shall, without
compensation other than the Executive's usual and customary salary, bonus and
benefits hereunder, execute all such assignments and other documents and perform
all such acts necessary to enable the Company to obtain or uphold for its
benefit patents or copyrights for, and other rights to, such Inventions and
Proprietary Information relating thereto, which shall be owned by the Company,
whether or not the Executive is the inventor thereof.
6. Disability and Death.
(a) If the Executive, due to physical or mental disability or
incapacity, shall have been unable fully to perform his duties hereunder for any
180 days during any twelve (12) consecutive months, as determined in good faith
by the Board of Directors, then the Company may terminate this Agreement and the
Executive's employment hereunder by written notice to the Executive or his legal
guardian, effective immediately upon delivery of such notice.
(b) If the Executive shall die during the term of this Agreement, this
Agreement and the Executive's employment hereunder shall terminate immediately
upon the Executive's death.
7. Termination of Employment For Cause. The Company may at any time
terminate this Agreement and the Executive's employment hereunder by written
notice to the Executive effective immediately upon delivery of such notice if:
(a) the Executive shall commit any act whether or not involving the
Company that constitutes a felony in the jurisdiction involved; or
(b) the Executive engages in repeated substance abuse; or
(c) the Board of Directors, after due inquiry and providing the
Executive with a reasonable opportunity to be heard, shall have determined
in good faith that the Executive committed wilful malfeasance or gross
misconduct in his performance hereunder, or any material act of fraud or
dishonesty against the Company; or
(d) the Executive shall have committed a material breach of this
Agreement; or
(e) the Executive shall have refused to obey a directive of the Board
of Directors to perform an act that the Executive is or should be able to
perform and that is not illegal or unethical for 30 days after receipt of a
written directive to perform such act.
8. Non-Disclosure of Confidential
Information and Non-Competition.
(a) The Executive acknowledges that he has been informed that it is
the policy of the Company to maintain as secret and confidential all information
(i) relating to the products, processes, technologies, inventions, designs
and/or systems used by the Company and (ii) relating to the suppliers, customers
and employees of the Company (all such information hereafter referred to as
"Confidential Information"), and the Executive further acknowledges that such
Confidential Information is of great value to the Company. The parties hereto
recognize that the services to be performed by the Executive are special and
unique, and that by reason of his employment by the Company, he has and will
acquire Confidential Information as aforesaid. The parties hereto confirm that
it is reasonably necessary to protect the Company's goodwill that the Executive
agree, and accordingly the Executive does agree, that he will not directly or
indirectly (except where authorized by the Board of Directors of the Company for
the benefit of the Company), for or on behalf of himself or any Person
(hereinafter defined):
(i) at any time during his employment by the Company or for a
period of five (5) years after he ceases to be employed by the Company
for any reason, divulge to any Person other than the Company
(hereinafter referred to collectively as a "third party"), or use or
cause to authorize any third parties to use, any such Confidential
Information, or any other information regarded as confidential and
valuable by the Company that he knows or should know is regarded as
confidential and valuable by the Company (whether or not any of the
foregoing information is actually novel or unique or is actually known
to others and whether or not the Confidential Information is labelled
as confidential); or
(ii) at any time during his employment by the Company and for a
period of one year after he ceases to be employed by the Company for
any reason, act as or be an officer, director, stockholder, consultant
or advisor, partner or employee of, or render any service for, or have
any profit-sharing or other interest in, or lend money or make any
other financial accommodation for or on behalf of, or undertake any
business transaction with, any Person that engages in or is planning
or preparing to engage in either direct competition with the Company
or any corporate affiliate of the Company, or the business of
providing, in any state where the Company or any corporate affiliate
sells products or performs services, the same products and/or services
as those provided by the Company or any corporate affiliate, except
that he may hold securities that are part of a publicly traded class
of securities (not in excess of 5% of the outstanding total of any
class of such securities) in competitive concerns so long as he
discloses such holding to the Company; or
(iii) at any time during his employment by the Company and for a
period of one year after he ceases to be employed by the Company for
any reason, engage in or plan or prepare to engage in (A) competition
with the Company or any corporate affiliate or (B) the business of
providing, in any state where the Company or any corporate affiliate
sells products or performs services, the same products and/or services
as those provided by the Company or any corporate affiliate; or
(iv) at any time during his employment by the Company and for a
period of two years after he ceases to be employed by the Company for
any reason, (A) attempt in any manner to solicit, or instruct, assist
or provide any services in connection with the solicitation, from any
Person that is, or shall have been after the date hereof, a client of
the Company or Protective Technologies International Inc. or any other
affiliate of the Company (a "Client") (except on behalf of the
Company), or persuade, or attempt in any manner to persuade, any
Client to cease doing business or to reduce the amount of business
that any such Client has customarily done or contemplates doing with
the Company or any affiliate of the Company, or (B) serve as an
officer, director, employee, agent or consultant of, or otherwise
render services to, or become or remain a creditor or equity interest
holder in, any Person that accepts business competitive with the
business of the Company from any such Client, whether or not the
relationship between the Company and such Client was originally
established in whole or in part through the efforts of the Executive;
or
(v) at any time during his employment by the Company and for a
period of two years after he ceases to be employed by the Company for
any reason, employ or otherwise obtain services from, or solicit or
otherwise attempt to employ or otherwise obtain services from, or
assist any Person in employing or otherwise obtaining services from,
or attempting to employ or otherwise obtain services from, any person
who is then, or at any time during the preceding twelve months shall
have been, in the employ of or retained by the Company and/or its
affiliates; or
(vi) at any time during his employment by the Company and the
applicable period thereafter specified in each of the clauses above,
negotiate for or enter into an agreement, understanding or
arrangement, or otherwise cause or authorize any Person, to take any
of the actions prohibited by such clause.
As used herein, the term "Person" means any person, corporation, limited
liability company, partnership or other entity and the term "Client" shall mean
(i) anyone who is then a client of the Company or any of its affiliates, (ii)
anyone who was a client of the Company at any time during the two-year period
immediately preceding the alleged prohibited conduct, and (iii) any prospective
client that shall have placed a purchase order with the Company. The expiration
or termination for any reason of the restrictive covenants contained in this
Section 8(a) shall not in any manner modify, terminate or impair the restrictive
covenants contained in the Non-Competition Agreement dated the date hereof
between the Executive and the Company.
(b) The Executive shall, upon the expiration of his employment by the
Company for any reason, forthwith deliver up to the Company any and all
drawings, notebooks, keys and other documents and materials, or copies thereof,
in his possession or under his control that relate to any Confidential
Information, including any of same that relate to any Invention relating to the
business of the Company or any affiliate of the Company described in Section
5(a), or that are otherwise the property of the Company. In addition, the
Executive shall delete all copies on magnetic disk, computer hard drive or other
electronic or digital medium in his possession and shall supply a certificate
signed by him confirming the destruction of all such files. This Section 8 and
Section 5(c) shall survive any expiration or other termination of this
Agreement.
(c) The Executive agrees that any breach or threatened breach by him
of any provision of this Section 8 will, because of the unique nature of the
Executive's services and the Confidential Information entrusted to him as
aforesaid, cause irreparable harm to the Company and shall entitle the Company,
in addition to any other legal remedies available to it, to apply to any court
of competent jurisdiction to enjoin such breach or threatened breach, without
the need to show irreparable injury or to post any bond, which are hereby waived
by the Executive. The parties hereto understand and intend that each restriction
agreed to by the Executive hereinabove shall be construed as separable and
divisible from every other restriction, and the unenforceability, in whole or in
part, of any such restriction, in any jurisdiction, shall not affect the
enforceability of such restriction in any other jurisdiction or of the remaining
restrictions in any jurisdiction, and that one or more or all of such
restrictions may be enforced in whole or in part as the circumstances warrant.
The Executive further acknowledges that the Company is relying upon such
covenants as an inducement to provide the Executive with employment and in
connection therewith to permit the Executive to have continued access to
Confidential Information.
9. Entire Agreement. This Agreement, together with the Merger Agreement and
the documents and instruments referred to therein, contains the entire
understanding of the parties with respect to the subject matter hereof and
supersedes any prior agreement between the parties. No change, termination or
attempted waiver of any of the provisions hereof shall be binding unless in
writing and signed by the party against whom the same is sought to be enforced;
provided, however, that the Executive's compensation may be increased at any
time by the Company without in any way affecting any of the other terms and
conditions of this Agreement, which in all other respects shall remain in full
force and effect. No action by either party shall be deemed a waiver of any
right hereunder, and no waiver of any right at any time shall operate as a
waiver of any other right or as a waiver of such right at any other time.
10. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the respective heirs, legal representatives, successors
and assigns of the parties hereto, except that this agreement may not be
assigned by the Executive, or by the Company except to an affiliate of the
Company, in which case the Company shall remain liable for all of its
obligations hereunder.
11. Governing Law. All matters concerning the validity and interpretation
of and performance under this Agreement shall be governed by the laws of the
State of New York, except with respect to its conflict of laws provisions.
12. Designations and Notices. Whenever notice is required to be given by
any party hereunder, such notice shall be deemed sufficient if given pursuant to
the terms of the Merger Agreement.
13. Severability. The invalidity or unenforceability of any particular
provision of this Agreement in any jurisdiction shall not affect the other
provisions hereof or such provision in other jurisdictions, and this Agreement
shall be construed in such jurisdiction in all respects as if such invalid or
unenforceable provisions were omitted. Furthermore, in lieu of such illegal,
invalid, or unenforceable provision in such jurisdiction there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid and enforceable.
14. Construction. Throughout this Agreement, each pronoun shall be deemed
to include the masculine, the feminine and the neuter, the singular and plural,
and vice versa, where such meanings would be appropriate. The headings herein
are inserted only as a matter of convenience and reference, and they in no way
define, limit or describe the scope of this Agreement or the intent of any
provisions thereof.
15. Further Assurances. Each party shall execute such other documents and
instruments as shall be requested by the other party in order fully to
accomplish the purposes of this Agreement.
16. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the Executive has executed this Agreement and the
Company has caused this Agreement to be executed by its duly authorized officer
as of the date first above written.
FLENTS PRODUCTS CO., INC.
/s/ James E. Dunn By: /s/ W. Thomas Davies
JAMES E. DUNN W. Thomas Davies
President
Agreed to as to Section 4(b):
PTI HOLDING INC.
By: /s/ Meredith W. Birrittella
Meredith W. Birrittella
Chief Executive Officer
<PAGE>
EXHIBIT A to EXHIBIT 8
Vacation Eligibility
Length of Service Vacation Days
Less than five years 10 days
Five years to ten years 15 days
Thereafter, accrue one additional day of vacation for each additional year of
service, to a maximum of twenty-five vacation days.
<PAGE>
EXHIBIT B to EXHIBIT 8
Disability Benefit Period
Executive's Age When
Disability Begins Maximum Benefit Period
younger than 60 to age 65
60 five years
61 four years
62 42 months
63 36 months
64 30 months
65 24 months
66 21 months
67 18 months
68 15 months
age 69 and over 12 months
<PAGE>
EXHIBIT 9
CONVERTIBLE VALUE AND REGISTRATION
RIGHTS AGREEMENT
AGREEMENT made as of August 5, 1997, by and among PTI HOLDING INC., a
Delaware corporation having a mailing address at c/o Protective Technologies
International, Inc., One River Street, Hastings-on-Hudson, NY 10706 ("PTI"), W.
Thomas Davies, an individual, having an address at 27 Quaker Ridge Road, Bethel,
CT 06801, James E. Dunn, an individual, having an address at 88 Hillcrest
Avenue, Hawthorne, NJ 07506, Stuart M. Low, an individual, having an address at
29 Grove Hill Road, Guilford, CT 06437 ("S. Low"), Doris L. Hirsch, an
individual having an address at 447 Westover Road, Stamford, CT ("Hirsch"),
Peter C. Kohn, an individual having an address at 33 Ponus Avenue, Norwalk, CT
06850, Robert A. Low, an individual having an address at 527 East 84th Street,
New York, NY 10028 ("R. Low"), Lester C. Migdal, an individual having an address
at 58 East 92nd Street, New York, NY 10028, and Mary Lou Secchi, an individual
having an address at 3 Harvard Street, Norwalk, CT 06851 (collectively, all
individuals shall be referred to herein as the "Flents Stockholders").
WHEREAS, PTI, Flents Products Co., Inc., a Delaware corporation ("Merger
Sub"), and Flents Products Co., Inc., a New York corporation, ("Flents") have
entered into an Agreement and Plan of Merger dated as of July 25, 1997 (the
"Merger Agreement") pursuant to which Flents shall be merged into Merger Sub and
all of the outstanding stock of Flents shall be canceled in exchange for the
Cash Consideration and the Merger Stock and Merger Sub shall assume the
operations, debts and obligations of Flents, as described in the Merger
Agreement, and in accordance with Section 368(a)(1)(A) of the Internal Revenue
Code of 1986, as amended; and
WHEREAS, pursuant to the Merger Agreement, each of the Flents Stockholders
shall receive PTI Common Stock, which stock shall have certain demand
registration, piggyback and convertible value rights, as more fully described
herein,
NOW, THEREFORE, in consideration of the mutual covenants of the parties and
other consideration, the receipt of which is hereby acknowledged by the parties,
the parties hereby agree as follows:
1. Undefined Terms. All terms contained herein and not defined herein shall
have the definitions attributed to them in the Merger Agreement.
2. Demand and Piggyback Rights.
(a) PTI shall on one occasion for each of the Flents Stockholders
other than R. Low, S. Low and Hirsch and on one occasion for R. Low, S. Low and
Hirsch collectively register the sale of the Merger Stock upon the written
request of any of the Flents Stockholders other than R. Low, S. Low and Hirsch
and on the written request of the original holders of the Merger Stock owning a
majority of the original shares of Merger Stock owned by R. Low, S. Low and
Hirsch collectively (the "Demand Right") in accordance with the terms of this
Section 2, and, in addition, so long as the PTI Common Stock held by the Flents
Stockholders remains restricted, PTI shall send written notice to the Flents
Stockholders at least thirty (30) days prior to the filing by PTI of each and
every registration statement or notification to be filed during such period
under the Securities Act of 1933, as amended (the "Securities Act") (other than
a registration relating to employee benefit plans, an acquisition transaction or
similar matters registered on Form S-4), covering the sale of PTI Common Stock,
and give to the Flents Stockholders the right (the "Piggyback Right") to have
the Flents Stockholder's Merger Stock (collectively, the "Registrable Shares")
then held by such Flents Stockholders included in any such registration
statement or pre-effective amendment thereto or notification. If a Flents
Stockholder desires to have Flents Stockholder's Registrable Shares registered,
the Flents Stockholder must deliver a written notice to PTI. Such notice must be
received by PTI within 15 days after the date of PTI's written notice to the
Flents Stockholder and must indicate the full name and address of the Flents
Stockholder and the number of shares to be included for sale in such
registration statement or notification and must include evidence showing that
the shares requested to be registered were issued pursuant to the Merger
Agreement.
(b) The registration rights described in Section 2(a) herein shall be
limited by the following terms and conditions: (i) if the Flents Stockholders
can then sell the number of Registrable Shares requested to be included in any
such registration statement in any three-month period pursuant to Rule 144 (or
any successor rule) under the Securities Act, PTI need not so include such
shares in any registration statement; (ii) with regard only to the Piggyback
Right, in connection with an offering by PTI of any of its securities, if the
managing underwriter or other selling agent shall impose a limitation on the
number of shares of PTI Common Stock and other securities of PTI that may be
included in such registration because, in its reasonable judgment, such
limitation is necessary to effect an orderly public distribution or complete the
offering, such limitation shall be imposed as to all such securities as follows:
(A) all securities, up to such limitation, to be sold by PTI may, at PTI's
option, be included; and then (B) to the extent such limitation has not been
reached, such of the Merger Stock as all of the Flents Stockholders have
requested to be included in such registration shall be included pro rata on the
basis of the total number of shares of PTI Common Stock owned by all holders of
PTI's securities with demand rights similar to Flents Stockholders' Demand Right
who have requested registration of their securities of PTI (it being understood
that the effect of such limitation may be to prevent every holder of PTI's
securities from exercising any demand right at such time), provided, however,
that no such registration shall count as an exercise of the Demand Right; (iii)
if requested by PTI's underwriter in writing, Flents Stockholders shall agree
not to sell any Registrable Shares pursuant to such registration statement prior
to the period ending six months after the effective date of the registration
statement, provided, however, that in such case the effectiveness of the
registration shall be maintained by PTI for a period of at least six months
after the end of such holdback period; (iv) anything herein to the contrary
notwithstanding, PTI may at any time prior to the effective date of any such
registration statement, in its own best judgment, decide to withdraw, or delay
for up to 90 days, such registration or the effective date thereof without any
liability to Flents Stockholders therefor, provided, however, that no withdrawn
registration shall count as an exercise of the Demand Right; and (v) if the
offering made pursuant to such registration statement is to be made by an
underwriter and the underwriter wishes to sell the Registrable Shares in the
underwritten offering, then Flents Stockholders must use the underwriter
selected by PTI for any Registrable Shares sold, and any additional underwriting
commissions or non-accountable expense allowance relating to the size of the
offering shall be deemed Flents Stockholder's selling expenses for the purposes
of Section 4 herein. Nothing herein shall prevent the Flents Stockholders from
selling Registrable Shares under Rule 144 under the Securities Act of 1933, and
counsel for PTI shall provide an opinion as to any such Rule 144 sale if, in the
opinion of such counsel, such sale is permitted under Rule 144.
3. Flents Stockholders' Obligations. ln connection with any registration
statement or notification filed pursuant to the foregoing section:
(a) if the Flents Stockholders have requested that their Registrable
Shares be covered by such registration statement or notification, the
Flents Stockholders shall furnish to PTI in writing such appropriate
information (relating to the intention of the Flents Stockholders as to
proposed methods of sale or other disposition of such shares) and the
identity of and compensation to be paid to any proposed underwriters to be
employed in connection therewith together with such other related
information as PTI, any underwriter, or the Securities and Exchange
Commission ("Commission"), the Nasdaq Stock Market, or any other regulatory
authority may request;
(b) all Flents Stockholders registering Registrable Shares shall agree
that they shall, execute, deliver and/or file with or supply to PTI, any
underwriters, the Commission and/or any state or other regulatory authority
such information, documents, representations, undertakings and/or
agreements reasonably necessary to carry out the provisions of the
registration covenants contained in this Agreement and/or to effect the
registration or qualification of their shares under the Securities Act
and/or of the laws and regulations of any state or governmental
instrumentality where PTI's securities are to be offered;
(c) PTI shall furnish to each Flents Stockholder whose Registrable
Shares are being sold such number of copies of the prospectus or circular
(including each preliminary, amended of supplemental prospectus or
circular) as such Flents Stockholder may reasonably request in order to
facilitate sale of such shares; and
(d) Flents Stockholders shall execute such documents as PTI may
reasonably request confirming the Flents Stockholders' obligations under
Rule 10b-6 promulgated under the Securities Exchange Act of 1934, as
amended, and any other applicable rule or statutory provision.
4. Expenses. With respect to a registration statement or notification filed
pursuant to Section 2(a) above, all of PTI's expenses and disbursements arising
in connection with such registration (other than expenses related to the size of
the offering, such as commissions and non-accountable expenses) shall be paid by
PTI. Each Flents Stockholder shall pay such Flents Stockholder's own selling
expenses and counsel and similar fees.
5. Period of Effectiveness. PTI shall be obligated to keep any registration
statement or notification filed by it under Section 2(a) herein effective for a
period of 180 days after the later of the actual effective date of such
registration statement or the end of any period during which the Flents
Stockholders have refrained from selling Registrable Shares pursuant to a
request from PTI 's underwriter pursuant to Section 2(b) herein, or, if later,
so long as no amendment to the registration statement or supplement to the
prospectus is required.
6. Blue Sky. PTI shall use its best efforts to register or qualify the
shares covered by any registration statement under the Securities Act filed on
behalf of the Flents Stockholders pursuant to this Agreement under such
securities or Blue Sky laws in such jurisdictions within the United States as
each of the Flents Stockholders may reasonably request; provided, however, that
PTI reserves the right not to register or qualify such shares in any
jurisdiction where such shares do not meet the requirements of such jurisdiction
or where PTI is required to qualify as a foreign corporation to do business in
such jurisdiction and is not so qualified therein or where PTI is required to
file any general consent to service of process.
7. Deregistration of Unsold Shares. In the event that a Flents Stockholder
has not sold all the Registrable Shares included in a registration statement
pursuant to this Agreement on or prior to the expiration of the period specified
in Section 5 herein, the Flents Stockholders hereby agrees that PTI may
deregister by post-effective amendment any such shares covered by the
registration statement or notification and not sold on or prior to such date.
PTI shall notify the Flents Stockholders of the filing and effective date of
such post-effective amendment.
8. Revision of Prospectus. Upon notification by PTI that the prospectus in
respect of any public offering covered by the provisions hereof is in need of
revision, the Flents Stockholders shall immediately upon receipt of such
notification (i) cease to offer or sell any securities of PTI that must be
accompanied by such prospectus; (ii) return all such prospectuses to PTI; and
(iii) not offer or sell any securities of PTI until PTI has given the Flents
Stockholders notification permitting them to resume offers and sales. PTI shall
exert its best reasonable efforts to revise such prospectus promptly, file any
post-effective amendment necessary in connection therewith, and supply to the
Flents Stockholders as many copies of the current prospectus as the Flents
Stockholders reasonably requests.
9. Convertible Value Rights.
(a) As of the first anniversary of the Effective Date, PTI will
transfer to each Flents Stockholder PTI Common Stock equal in value to the
product of (i) the difference of $10.00 minus the greater of (A) the average of
the median closing sale prices of the PTI Common Stock during the immediately
preceding twenty (20) consecutive trading days, and (B) $6.00, multiplied by
(ii) the number of Merger Shares held beneficially and of record by such
shareholder; provided, however, the value of PTI Common Stock received by Flents
stockholders under the Merger Agreement and their respective convertible value
and registration rights agreements in no event, subject to Section 9(b) below,
shall amount to less than fifty-five percent (55%) of the total Merger
Consideration, the value of any stock being the last sale price on the trading
day prior to its issuance.
(b) This conversion shall be subject to equitable adjustment in the
event of any stock split, stock dividend or reverse stock split resulting in a
change in the number of shares of PTI Common Stock outstanding prior to the
one-year anniversary Closing. During the 30 trading days prior to such one-year
anniversary, the Flents Stockholders shall not engage in any trading activity,
directly or indirectly, in the securities of PTI.
10. Indemnification. As a condition to any filing pursuant to this
Agreement:
(a) PTI shall indemnify the Flents Stockholders against any and all
losses, claims, damages, expenses or liabilities (including reasonable
attorneys' fees and other expenses reasonably incurred in defending any claim
covered by this indemnification or enforcing a claim under this indemnification)
to which the Flents Stockholders may become subject under any federal or state
securities law, at common law, or otherwise, insofar as such losses, claims,
damages, expenses or liabilities are incurred in connection with claims by third
parties and arise directly out of any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
notification in which securities issued or issuable pursuant to the Merger
Agreement are included and which is filed pursuant hereto, or in any related
preliminary prospectus, final prospectus or amended prospectus or offering
circular or other written information filed by PTI in any jurisdiction in order
to qualify the securities issuable hereunder under the securities laws thereof
or with the Commission or The Nasdaq Stock Market, or arise directly out of the
omission or alleged omission to state therein any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except to the
extent that as any such statement or omission was made in reliance upon or in
conformity with information furnished or confirmed in writing to PTI by any of
such Flents Stockholder, underwriter(s) or controlling person(s) for use in such
registration statement or notification or prospectus or offering circular; and
(b) each Flents Stockholders, individually and not jointly, shall
indemnify PTI, its representatives, officers and directors, against any and all
losses, claims, damages, expenses or liabilities (including reasonable
attorneys' fees and other expenses reasonably incurred in defending any claim
covered by this indemnification or enforcing a claim under this indemnification)
to which PTI is or may become subject under any federal or state securities law,
at common law, or otherwise, insofar as any such losses, claims, damages,
expenses or liabilities are incurred in connection with claims by third parties
and arise directly out of any untrue statement or alleged untrue statement of a
material fact contained in any such registration statement or notification in
which securities issued or issuable pursuant to the Merger Agreement are
included or in related any preliminary prospectus, final prospectus or amended
prospectus or offering circular or other written information filed by PTI in any
jurisdiction in order to qualify the securities issuable hereunder under the
securities laws thereof or with the Commission or The Nasdaq Stock Market, or
arise directly out of the omission or alleged omission to state therein any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and only to the extent that any such statement or omission was made
in reliance upon or in conformity with information furnished to PTI by such
Flents individually Stockholders for use in such registration statement,
notification or prospectus, but each Flents Stockholders shall be liable only
for his/her direct acts of commission or ommission giving rise to losses or
damages and shall not be liable for the acts of commission or ommission by any
other Flents Stockholder.
11. Notices. Whenever notice is required to be given by any party
hereunder, such notice shall be deemed sufficient if given pursuant to the terms
of the Merger Agreement and, if to Stockholder, at the address listed above.
12. Further Actions. From time to time, as and when requested by PTI, the
Flents Stockholders shall execute and deliver such documents and instruments and
shall take such further or other actions as PTI may reasonably deem necessary to
carry out the intent and purposes of this Agreement and to consummate and give
effect to the other transactions contemplated hereby.
13. Severability. Wherever possible, each provision of this Agreement shall
be interpreted in a manner so as to be effective and valid under applicable law.
If any provision of this Agreement shall be held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such provision and the remaining provisions of this Agreement shall remain
unaffected and in full force and effect.
14. Entire Agreement. This Agreement, and the other documents, agreements
and instruments executed and delivered pursuant thereto or in connection
therewith, contains the entire agreement between PTI and the Flents Stockholders
with respect to the rights conferred by PTI relating to the Merger Stock and, in
conjunction with the Merger Agreement, supersedes all prior arrangements or
understandings with respect thereto, whether written or oral.
15. Termination. This Agreement shall remain in full force and effect until
the later of (i) the first anniversary hereto and (ii) date upon which the
Registrable Shares are no longer owned by the Flents Stockholders. However,
Section 10 shall survive termination of this Agreement.
16. Construction.
(a) The descriptive headings of this Agreement are for convenience
only and shall not control or affect the meaning or construction of any
provision of this Agreement.
(b) Each of the parties to this Agreement participated in the drafting
of this Agreement and the interpretation of any ambiguity contained in this
Agreement will not be affected by the claim that a particular party drafted any
provision hereof.
(c) Any pronoun herein shall include all genders and/or the plural or
singular as appropriate from the context.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts
entered into, executed and to be performed wholly in such state, except for its
conflict of laws provisions.
18. Assignability. This Agreement shall not be assignable otherwise than by
operation of law by any party hereto without the prior written consent of the
other parties, and any purported assignment without such prior written consent
shall be void, except that PTI may assign this Agreement to a corporation
controlling, controlled by or under common control with PTI, provided that such
assignment shall not relieve PTI of its obligations hereunder.
19. Waivers and Amendments. Any waiver of any term or condition of this
Agreement, or any amendment or supplementation of this Agreement, shall be
effective only if in writing executed by the party against whom such waiver,
amendment or supplementation is sought to be charged. A waiver of any breach or
failure to enforce any of the terms or conditions of this Agreement shall not in
any way affect, limit or waive a party's rights hereunder at any time to enforce
strict compliance thereafter with every term or condition of this Agreement.
20. Third Party Rights. Any other provision of this Agreement to the
contrary notwithstanding, this Agreement shall not create benefits for any third
party, including, without limitation, any subsequent holders of Registrable
Shares, except spouses, children and grandchildren of the original holders of
Registrable Shares who acquire Registrable Shares by gift, bequest or intestate
inheritance, who shall have the rights and obligations of the donor hereunder.
21. Illegalities. In the event that any provision contained in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and the remaining provisions of this Agreement
shall not, at the election of the party for whose benefit the provision exists,
be in any way impaired.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
<PAGE>
22. Counterparts. This Agreement may be executed in multiple counterparts
all of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned corporations has caused this
Agreement to be executed by its duly authorized officer, and each individual has
signed this Agreement, as of the date first above written.
FLENTS PRODUCTS CO., INC. PTI HOLDING INC.
(a New York corporation)
By: /s/ W. Thomas Davies By: /s/ Meredith W. Birrittella
Name: W. Thomas Davies Meredith W. Birrittella
Title: President Chief Executive Officer
FLENTS PRODUCTS CO., INC.
(a Delaware corporation)
By: /s/ W. Thomas Davies
W. Thomas Davies
President
/s/ W. Thomas Davies /s/ James E. Dunn
W. THOMAS DAVIES JAMES E. DUNN
/s/ Stuart M. Low /s/ Robert A. Low
STUART M. LOW ROBERT A. LOW
/s/ Doris L. Hirsch /s/ Lester C. Migdal
DORIS L. HIRSCH LESTER C. MIGDAL
/s/ Peter C. Kohn /s/ Mary Lou Secchi
PETER C. KOHN MARY LOU SECCHI
<PAGE>
FLENTS PRODUCTS CO., INC.
FINANCIAL STATEMENTS
<PAGE>
FLENTS PRODUCTS CO., INC.
CONTENTS
Page
Independent auditor's report 1
Financial statements:
Balance sheet 2
Statement of income and retained earnings 3
Statement of cash flows 4
Notes to financial statements 5 -11
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Flents Products Co., Inc.
Norwalk, Connecticut
We have audited the accompanying balance sheet of Flents Products Co., Inc. as
of November 30, 1996 and 1995, and the related statements of income and retained
earnings and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Flents Products Co., Inc. as of
November 30, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
We have compiled the accompanying balance sheet of Flents Products Co., Inc. as
of May 31, 1997, and the related statements of income and retained earnings and
cash flows for the six months then ended, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. A compilation is limited to presenting in the form
of financial statements information that is the representation of management. We
have not audited or reviewed the accompanying May 31, 1997 financial statements
and, accordingly, do not express an opinion or any other form of assurance on
them.
SACHER & CO., PC
Somers, New York
October 15, 1997
<PAGE>
<TABLE>
FLENTS PRODUCTS CO., INC.
BALANCE SHEET
May 31, November 30,
1997 1996 1995
--------- --------- --------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............ $ 811,969 $ 355,340 $ 474,320
Receivables:
Trade .............................. 973,862 886,888 558,014
Other .............................. 125,331 281,653 --
Inventory ............................ 718,373 748,991 805,057
Deferred tax assets .................. 94,523 52,839 33,455
Other current assets ................. 30,578 62,012 171,192
---------- ---------- ----------
Total current assets .................. 2,754,636 2,387,723 2,042,038
Property and equipment, net ............. 183,742 218,962 239,747
Deferred tax assets ..................... - 5,336 14,883
Other assets ............................ 993 2,693 6,093
---------- ---------- ----------
$2,939,371 $2,614,714 $2,302,761
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 524,477 $ 443,885 $ 402,398
Dividends payable .................... 120,000 7,760 7,726
Income taxes payable ................. 66,475 10,996 61,838
---------- ---------- ----------
Total current liabilities ............ 710,952 462,641 471,962
---------- ---------- ----------
Stockholders' equity:
Common stock ......................... 1,555 1,552 1,545
Additional paid-in capital ........... 83,797 79,870 73,134
Retained earnings .................... 2,143,067 2,070,651 1,756,120
---------- ---------- ----------
Total stockholders' equity ........... 2,228,419 2,152,073 1,830,799
---------- ---------- ----------
$2,939,371 $2,614,714 $2,302,761
========== ========== ==========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FLENTS PRODUCTS CO., INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
SIX MONTHS ENDED MAY 31, 1997 AND YEARS ENDED
NOVEMBER 30, 1996 AND 1995
1997 1996 1995
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Net sales ......................... $ 3,196,826 $ 6,309,270 $ 5,446,006
Cost of sales ..................... 1,721,412 3,575,153 2,996,841
----------- ----------- -----------
Gross profit ...................... 1,475,414 2,734,117 2,449,165
Selling, general and
administrative expenses ........ 1,169,801 2,212,787 1,951,781
----------- ----------- -----------
Income from operations ............ 305,613 521,330 497,384
Interest income ................... 12,422 7,953 2,219
----------- ----------- -----------
Income before income taxes ........ 318,035 529,283 499,603
----------- ----------- -----------
Income taxes (benefit):
Current ........................ 161,967 216,829 228,476
Deferred ....................... (36,348) (9,838) (34,275)
----------- ----------- -----------
125,619 206,991 194,201
----------- ----------- -----------
Net income ........................ 192,416 322,292 305,402
Retained earnings, beginning ...... 2,070,651 1,756,120 1,466,603
Dividends ......................... (120,000) (7,761) (15,885)
----------- ----------- -----------
Retained earnings, ending ......... $ 2,143,067 $ 2,070,651 $ 1,756,120
=========== =========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FLENTS PRODUCTS CO., INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED MAY 31, 1997 AND YEARS ENDED
NOVEMBER 30, 1996 AND 1995
1997 1996 1995
---------- ---------- ---------
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 192,416 $ 322,292 $ 305,402
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation 19,332 54,405 42,620
Deferred income tax (benefit) (36,348) (9,837) (34,275)
Stock-based compensation -- 3,930 6,743
Loss on disposal of equipment 17,588 -- --
Increase (decrease) in operating assets:
Receivables 69,348 (610,527) (89,387)
Inventory 30,618 56,066 (220,613)
Other current assets 31,434 109,180 (79,229)
Increase (decrease) in operating
liabilities:
Accounts payable and accrued
expenses 84,522 44,300 231,868
Income taxes payable 55,479 (50,842) 20,513
--------- --------- --------
Net cash provided by operating
activities 464,389 (81,033) 183,642
--------- --------- --------
Cash flows (used in) investing activities:
Purchase of property and equipment -- (30,220) (103,209)
--------- --------- --------
Cash flows from financing activities
Dividends paid (7,760) (7,727) (16,289)
Redemption of common stock -- -- (100,000)
--------- --------- ---------
Net cash (used in) operating activities (7,760) (7,727) (116,289)
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 456,629 (118,980) (35,856)
Cash and cash equivalents, beginning 355,340 474,320 510,176
--------- --------- --------
Cash and cash equivalents, ending $ 811,969 $ 355,340 $ 474,320
========= ========= ========
See notes to financial statements.
</TABLE>
<PAGE>
FLENTS PRODUCTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO MAY 31, 1997 AND THE SIX-MONTH
PERIOD THEN ENDED IS UNAUDITED)
1. Organization and nature of operations:
Organization:
On August 5, 1997, Flents Products Co., Inc., a New York corporation (the
"Company"), was acquired by Flents Products Co., Inc., a Delaware
corporation ("Flents Delaware"). Flents Delaware is a wholly-owned
subsidiary of PTI Holding Inc. ("PTI"). From and after August 5, 1997, the
Company had no separate or independent existence, having been merged into
Flents Delaware. For purposes of financial accounting and income tax, the
acquisition was deemed to have occurred as of the opening of business on
June 1, 1997.
Nature of operations:
The Company manufactures and distributes personal care products sold in the
health and beauty aid departments of major retail food, drug and mass
merchandiser chains. A minor portion of the business pertains to the
distribution of hearing protection products in the industrial safety
market.
2. Summary of significant accounting policies:
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period.
Cash and cash equivalents:
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
The Company is subject to a credit risk resulting from balances in
financial institutions that may at times exceed amounts covered by
insurance provided by the Federal Deposit Insurance Corporation (FDIC). The
Company has not experienced any losses in such accounts and believes its
cash is not exposed to any significant credit risk.
<PAGE>
FLENTS PRODUCTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO MAY 31, 1997 AND THE SIX-MONTH
PERIOD THEN ENDED IS UNAUDITED)
2. Summary of significant accounting policies (continued):
Inventory:
Inventory is stated at the lower of cost or market. Cost is determined by
the average cost method. Inventory consists of the following:
May 31, November 30,
1997 1996 1995
-------- -------- --------
Raw materials $393,332 $350,416 $495,255
Finished goods 325,041 398,575 309,802
-------- -------- --------
$718,373 $748,991 $805,057
======== ======== ========
Property and equipment:
Property and equipment is carried at cost. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of
the assets, or for leasehold improvements, the term of the lease, if
shorter.
Impairment of long-lived assets:
During March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to Be Disposed of." The Statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that full recoverability is
questionable. Management evaluates the recoverability of its intangible
assets and other long-lived assets and several factors are used in the
valuation including, but not limited to, management's plan for future
operations, recent operating results and projected cash flows. The Company
adopted SFAS No.121 in fiscal 1997, the adoption of which did not have a
material adverse effect on the results of operations or financial
condition.
Income taxes:
Income taxes have been provided using the liability method in accordance
with SFAS No. 109 "Accounting for Income Taxes." Under SFAS 109, deferred
tax assets and liabilities are determined based on differences between the
financial reporting and tax basis of assets and liabilities and are
measured by applying estimated tax rates and laws to taxable years in which
such differences are expected to reverse.
<PAGE>
FLENTS PRODUCTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO MAY 31, 1997 AND THE SIX-MONTH
PERIOD THEN ENDED IS UNAUDITED)
2. Summary of significant accounting policies (continued):
Advertising:
The cost of advertising is expensed as incurred. Advertising expense
totaled $10,833 for the six months ended May 31, 1997, $330,570 for the
fiscal year 1996, and $135,391 for fiscal year 1995.
3. Receivables:
Trade:
Trade receivables are net of allowances for returns and doubtful collections
of $20,000 (May 31, 1997), $25,000 (November 30, 1996) and $10,000 (November
30, 1995).
Other:
The other receivable of $125,331 at May 31, 1997 is due from PTI. The
receivable pertains to acquisition costs funded by the Company on behalf of
PTI.
The Company was a defendant in patent infringement litigation. In connection
with the lawsuit, the Company incurred legal fees that were reimbursed by
their insurance carrier. The amount recovered is shown on the November 30,
1996 balance sheet as an other receivable. The patent infringement
litigation was settled in January, 1997 for $20,000. This amount is carried
as an accrued liability as of November 30, 1996.
4. Property and equipment:
May 31, November 30,
1997 1996 1995
--------- -------- ---------
Machinery and equipment $ 264,112 $ 264,112 $ 264,112
Plates, dies and molds 49,429 71,277 71,277
Furniture, fixtures and improvements 354,469 350,209 319,989
--------- --------- ---------
668,010 685,598 655,378
Less accumulated depreciation (484,268) (466,636) (415,631)
--------- --------- ---------
$ 183,742 $ 218,962 $ 239,747
========= ========= =========
<PAGE>
FLENTS PRODUCTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO MAY 31, 1997 AND THE SIX-MONTH
PERIOD THEN ENDED IS UNAUDITED)
5. Common stock:
Stock split:
In September 1995, the Board of Directors authorized a 5 for 1 stock split
of the Company's $.10 par value common stock. As a result of the split,
61,272 shares were issued. All references in the financial statements to
the per share amounts for 1995 have been restated to reflect the stock
split.
Stock redemption:
Also in September 1995, the Company redeemed 1,000 shares of its $.10 par
value common stock at a cost of $100,000 reducing common stock by $100 and
additional paid-in-capital by $99,900. The shares purchased by the Company
were retired.
Common shares:
Common stock information for May 31, 1997, November 30, 1996, and November
30, 1995 is presented below.
Par value $.02
Authorized shares 125,000
Issued and outstanding shares:
May 31, 1997 77,756
November 30, 1996 77,595
November 30, 1995 77,265
Common stock issued to employees:
Key employees have been issued shares of the Company's common stock in
consideration for services rendered to the Company. The shares are
restricted and cannot be pledged, transferred or sold without first being
offered for sale to the Company. If the employee is terminated prior to the
date of expiration of the restriction, the shares are to be returned to the
Company and no payment by the Company is required.
6. Significant customers:
For the six months ended May 31, 1997 and for the years ended November 30,
1996 and 1995, two major retail chain organizations accounted for
approximately 20% to 27% of net sales. A loss of one or both of these
established major customers could cause a significant loss of sales and
affect operating results adversely.
<PAGE>
FLENTS PRODUCTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO MAY 31, 1997 AND THE SIX-MONTH
PERIOD THEN ENDED IS UNAUDITED)
7. Employment agreement:
The Company entered into an employment contract with a key employee which
was effective through fiscal 1996. Annual compensation consists of a base
salary established annually plus a stock bonus based upon meeting certain
pre-tax operating profit goals. The agreement provides that the
additionalcompensation can be paid up to 40% in stock and the balance in
cash. One hundred sixty one (161) shares of restricted stock (see Note 5)
were earned for fiscal 1996 and three hundred thirty (330) shares for
fiscal 1995. The 161 shares were issued during the six months ended May 31,
1997 and the 330 shares were issued in fiscal 1996. Operations were charged
$3,930 in 1996 and $6,743 in 1995 for the compensation expense related to
the stock bonus. At November 30, 1996 and 1995, there were 549 shares and
588 shares respectively issued to the employee, which were subject to
restrictions.
8. Pension plan:
The Company maintains a noncontributory defined benefit plan covering
substantially all of its employees. Plan benefits for most employees are
based on years of service and the highest consecutive five-year average
earnings prior to retirement.
1996 1995
-------- --------
Components of net pension expense:
Service cost (benefits earned during the period) $ 52,426 $ 55,179
Interest cost on the projected benefit obligation 36,017 28,829
Actual loss (return) on assets 9,093 (9,573)
Net amortization and deferral (34,604) (12,390)
--------- ---------
Net pension expense $ 62,932 $ 62,045
Funded status of the plan:
Actuarial present value of benefits:
Vested benefits $ 398,300 $ 345,580
Nonvested benefits 6,520 --
--------- ---------
Accumulated benefit obligation 404,820 345,580
Effect of projected future compensation increases 152,737 109,677
--------- ---------
Projected benefit obligation 557,557 455,257
Fair value of plan assets 420,921 364,703
--------- ---------
Projected benefit obligation in excess of plan assets 136,636 90,554
Unrecognized net losses (90,433) (16,062)
Unrecognized net obligation (56,923) (60,595)
--------- ---------
Accrued pension liability (pension asset) $ (10,720) $ 13,897
========= =========
<PAGE>
FLENTS PRODUCTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO MAY 31, 1997 AND THE SIX-MONTH
PERIOD THEN ENDED IS UNAUDITED)
8. Pension plan (continued):
1996 1995
------ ------
Principal assumptions:
Weighted average discount rate 7.5% 7.5%
Weighted average rate of compensation increase 4.5% 4.5%
Expected long-term rate of return on assets 7.5% 7.5%
9. Rent:
Rent expense totaled $46,852 for the six months ended May 31, 1997, $92,503
for fiscal year 1996, and $92,262 for fiscal year 1995.
10. Income taxes:
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets as of May 31, 1997, November 30, 1996,
and November 30, 1995 are presented as follows:
1997 1996 1995
-------- -------- --------
Accounts receivable due to the allowance
for returns and doubtful collections $ 8,000 $ 6,000 $ 4,000
Inventories due to additional costs
inventoried for tax purposes 33,000 47,000 30,000
Equipment and improvements
due to depreciation (7,000) (6,000) (4,000)
Accounts payable and accrued expenses due
to accrued bonuses and severance costs 61,000 -- --
Common stock restrictions due to stock bonuses -- 11,000 18,000
-------- -------- --------
Total deferred tax assets $ 95,000 $ 58,000 $ 48,000
======== ======== ========
The difference between the actual income tax provision and the income tax
provision computed by applying the statutory federal income tax rate to
income from continuing operations before income taxes is primarily
attributable to state income taxes, allowances for returns and doubtful
collections, inventory costs, depreciation and compensation costs.
<PAGE>
FLENTS PRODUCTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO MAY 31, 1997 AND THE SIX-MONTH
PERIOD THEN ENDED IS UNAUDITED)
11. Prior period adjustments:
The Company has restated its financial statements for the years ended
November 30, 1996 and 1995. The restatements is summarized below.
1996 1995
--------- -----------
Net income, as previously reported $ 335,193 $ 320,998
Cost of sales 8,203 (17,420)
Provision for returns and doubtful collections (15,000) --
Pension expense 6,284 (3,205)
Depreciation (3,454) (4,098)
Provision for compensated absences (111) (4,338)
Income taxes (8,823) 13,465
--------- ----------
Net income, as restated $ 322,292 $ 305,402
========= ==========
As Previously
Reported As Restated
----------- -----------
Retained earnings:
December 1, 1994 $ 1,505,209 $ 1,466,603
November 30, 1995 1,810,321 1,756,120
November 30, 1996 2,137,755 2,070,651
The Company has also reclassified its costs of sales and selling, general
and administrative expenses for the years ended November 30, 1996 and 1995.
12. Statement of cash flows:
1997 1996 1995
-------- -------- --------
Supplemental disclosures:
Income taxes paid ..... $106,488 $267,671 $170,962
<PAGE>
PTI HOLDING INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
On August 5, 1997, Flents Products Co., Inc., a New York corporation
("Flents"), was acquired by Flents Products Co., Inc., a Delaware corporation
("Flents Delaware"). Flents Delaware is a wholly-owned subsidiary of PTI Holding
Inc. From and after August 5, 1997, Flents had no separate or independent
existence, having been merged into Flents Delaware. For purposes of financial
accounting and income tax, the acquisition was deemed to have occurred as of the
opening of business June 1, 1997.
The acquisition is to be accounted for using the purchase method of
accounting whereby assets and liabilities are carried at fair value and the
excess of purchase price over the fair value of the net assets acquired is shown
as goodwill. The following pro forma consolidated balance sheet as of June 30,
1997 presents unaudited pro forma financial information giving effect to the
acquisition as if it occurred on that date. The following pro forma consolidated
statements of income for the six months ended June 30, 1997 and for the year
ended December 31, 1996 presents unaudited pro forma financial information
giving effect to the acquisition as if it occurred on January 1, 1997 and
January 1, 1996, respectively. The objective of this pro forma financial
information is to show what the significant effects on the historical financial
information might have been assuming the acquisition was effective on those
dates. The unaudited pro forma consolidated balance sheet and consolidated
statements of income are not necessarily indicative of the financial position
and results of operations that would have been attained had the acquisition been
effective on those dates, or of the financial position and results of operations
which may exist or occur in the future. The following pro forma financial
information should be read in conjunction with the related historical financial
information.
<PAGE>
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited)
JUNE 30, 1997
PTI Holding Inc.
and Flents Products
Subsidiaries Co., Inc Adjustments Pro forma
--------------- --------------- ------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................... $ 247,000 $ 812,000 (1) $ (120,000) $ 939,000
Receivables .................................. 5,493,000 1,099,000 (2) (125,000) 6,467,000
Inventories .................................. 5,311,000 718,000 6,029,000
Deferred tax asset ........................... 118,000 79,000 197,000
Prepaid expenses and
other current assets ........................ 1,298,000 31,000 (2) (100,000) 1,229,000
------------ ------------ ------------ ------------
Total current assets ............................. 12,467,000 2,739,000 (345,000) 14,861,000
Deferred tax asset ............................... 113,000 16,000 129,000
Equipment and improvements ....................... 670,000 184,000 854,000
Intangible assets ................................ 1,465,000 1,000 (3) 3,020,000 4,486,000
------------ ----------- ------------ ------------
$ 14,715,000 $ 2,940,000 $ 2,675,000 $ 20,330,000
============ =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable, bank ........................... $ 4,128,000 $ -- (4) $2,135,000 $ 6,263,000
Accounts payable and accrued expenses ........ 1,142,000 524,000 (2) 187,000 1,853,000
Income taxes payable ......................... 76,000 67,000 143,000
Dividends payable ............................ -- 120,000 (1) (120,000) --
----------- ----------- ------------ ------------
Total current liabilities ........................ 5,346,000 711,000 2,202,000 8,259,000
Stockholders' equity ............................. 9,369,000 2,229,000 (5) 473,000 12,071,000
----------- ----------- ------------ ------------
$ 14,715,000 $ 2,940,000 $ 2,675,000 $ 20,330,000
=========== =========== ============ ============
In preparing the pro forma unaudited consolidated balance sheet as of June
30, 1997, adjustments were made to the historical financial statements to
reflect:
(1) dividend payments to Flents shareholders at closing ($120,000),
(2) a net increase in accounts payable and accrued expenses ($187,000)
consisting of total acquisition costs ($412,000) less the portion of
acquisition costs advanced by Flents on behalf of PTI ($125,000), and
less the portion of acquisition costs paid through June 30, 1997
($100,000),
(3) goodwill resulting from the acquisition ($3,020,000),
(4) an increase in loan payable, bank ($2,135,000) pertaining to the cash
portion of the purchase price paid at closing, and
(5) a net increase in stockholders' equity ($473,000) consisting of the
270,165 shares of common stock issued at $10 per share ($2,702,000)
less the net assets acquired ($2,229,000).
</TABLE>
<PAGE>
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (Unaudited)
YEAR ENDED DECEMBER 31, 1996
PTI Holding Inc.
and Flents Products
Subsidiaries Co., Inc Adjustments Pro forma
--------------- --------------- ------------- ----------
<S> <C> <C> <C> <C>
Net sales $17,530,000 $ 6,309,000 $ -- $ 23,839,000
Cost of sales 12,141,000 3,575,000 -- 15,716,000
----------- ----------- ----------- -----------
Gross profit 5,389,000 2,734,000 -- 8,123,000
Selling, general and
administative expenses 2,718,000 2,213,000 (1) 75,000 5,006,000
----------- ----------- ----------- -----------
Income from operations 2,671,000 521,000 (75,000) 3,117,000
Interest income, net of
interest expenese -- 8,000 -- 8,000
----------- ----------- ----------- ----------
Income from operations
before income taxes 2,671,000 529,000 (75,000) 3,125,000
Income taxes 980,000 207,000 (2) (25,000) 1,162,000
----------- ----------- ----------- ----------
Net income $ 1,691,000 $ 322,000 $ (50,000) $ 1,963,000
========== =========== =========== ==========
Income per share of
common stock $ 0.43 $ 0.46
========== ==========
Weighted average shares
outstanding 4,103,964 270,165 4,374,129
========== ========== ==========
In preparing the pro forma unaudited consolidated statement of income for
the year ended December 31, 1996, adjustments were made to the historical
financial statements to reflect:
(1) amortization expense ($75,000) resulting from the amortization of
goodwill over 40 years, and
(2) the income tax benefit of the amortization of goodwill ($25,000).
In addition, the pro forma weighted average shares outstanding (4,374,129)
reflect a pro forma common stock issuance (270,165 shares).
</TABLE>
<PAGE>
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (Unaudited)
SIX MONTHS ENDED JUNE 30, 1997
PTI Holding Inc.
and Flents Products
Subsidiaries Co., Inc Adjustments Pro forma
---------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 15,634,000 $ 3,197,000 $ - $ 18,831,000
Cost of sales 10,619,000 1,721,000 - 12,340,000
----------------- ------------------ --------------- ----------------
Gross profit 5,015,000 1,476,000 - 6,491,000
Selling, general and administrative expenses 5,818,000 1,170,000 (1) 38,000 7,026,000
----------------- ------------------ --------------- ----------------
Income (loss) from operations (803,000) 306,000 (38,000) (535,000)
Interest income, net of interest expense (88,000) 12,000 - (76,000)
----------------- ------------------ --------------- ----------------
Income from before income taxes (891,000) 318,000 (38,000) (611,000)
Income taxes 1,222,000 126,000 (2) (13,000) 1,335,000
----------------- ------------------ --------------- ----------------
Net income (loss) $ (2,113,000) $ 192,000 $ (25,000) $ (1,946,000)
================= ================== =============== ================
Income (loss) per share of common stock $ (0.49) $ (0.43)
================= ================
Weighted average shares outstanding 4,152,317 270,165 4,422,482
================= =============== ================
In preparing the pro forma unaudited consolidated statement of income for
the six months ended June 30, 1997, adjustments were made to the historical
financial statements to reflect:
(1) amortization expense ($38,000) resulting from the amortization of
goodwill over 40 years, and
(2) the income tax benefit of the amortization of goodwill ($13,000).
In addition, the pro forma weighted average shares outstanding (4,422,482)
reflect a pro forma common stock issuance (270,165 shares).
</TABLE>
