<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1997
REGISTRATION NO. 333-40527
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
FIBERMARK, INC.
(Exact name of Registrant as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 161 WELLINGTON ROAD 82-0429330
(State or other jurisdiction of P.O. BOX 498 (I.R.S. Employer
incorporation or organization) BRATTLEBORO, VT 05302 Identification No.)
(802) 257-0365
</TABLE>
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
MR. BRUCE MOORE
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
FIBERMARK, INC.
161 WELLINGTON ROAD
P.O. BOX 498
BRATTLEBORO, VT 05302
(802) 257-0365
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
FRANK L. SCHIFF, ESQ. WILLIAM M. HARTNETT, ESQ.
WHITE & CASE CAHILL GORDON & REINDEL
1155 AVENUE OF THE AMERICAS 80 PINE STREET
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10005
(212) 819-8200 (212) 701-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- ------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
DECEMBER 15, 1997
1,500,000 SHARES
[LOGO]
COMMON STOCK
---------
FiberMark, Inc. (the "Company") is offering (the "Offering") hereby
1,500,000 shares of its common stock, $.001 par value (the "Common Stock"). The
Common Stock is listed on the New York Stock Exchange (the "NYSE") under the
symbol FMK. On December 12, 1997, the last reported sale price of the Common
Stock on the NYSE was $20 15/16 per share.
--------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR INFORMATION THAT SHOULD BE
CONSIDERED IN CONNECTION WITH THE COMMON STOCK.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS PROCEEDS
TO AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................................... $ $ $
Total(3)............................................ $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
225,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares to the public at the Price to Public shown
above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
--------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as, and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares will be made at the offices of BT Alex.
Brown Incorporated, Baltimore, Maryland, on or about , 1997.
<PAGE>
BT ALEX. BROWN PAINEWEBBER INCORPORATED
THE DATE OF THIS PROSPECTUS IS DECEMBER , 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK IN
CONNECTION WITH THE OFFERING, INCLUDING OVER-ALLOTMENT, STABILIZING, AND
SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF PENALTY
BIDS.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the following regional
offices of the Commission: Seven World Trade Center, Suite 1300, New York, New
York 10048; Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained at prescribed
rates by writing to the Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549. Such material can also be inspected at the offices
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005
on which exchange the Common Stock of the Company is listed. Electronic filings
filed through the Commission's Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR") are publicly available through the Commission's home page on
the Internet at http://www.sec.gov.
This Prospectus constitutes part of a registration statement (the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus omits certain of the information contained in
the Registration Statement, and reference is hereby made to the Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and the Common Stock offered hereby. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
The Company will provide without charge to each person, including beneficial
owners, to whom a copy of this Prospectus has been delivered, on the request of
any such person, a copy of any or all of the documents referred to above which
have been or may be incorporated in this Prospectus by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Request for such copies should be directed to
the Office of the Vice President and Chief Financial Officer, FiberMark, Inc.,
161 Wellington Road, P.O. Box 498, Brattleboro, Vermont 05302, telephone number
(802) 257-0365.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996, the Company's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997 and September 30, 1997 and the Company's Current Reports
on Form 8-K dated January 14, 1997, January 23, 1997, April 3, 1997 and May 5,
1997, all of which have been filed with the Commission. The consolidated balance
sheets of CPG Investors Inc. as of October 31, 1996 and December 31, 1995 and
1994 and the related consolidated statements of income, stockholders' equity and
cash flows for the respective periods then ended and the consolidated balance
sheets of Arcon Holdings Corp. and subsidiary as of October 31, 1996, 1995 and
1994 and the related consolidated statements of income, retained earnings and
cash flows for the years ended October 31, 1996 and 1995 and the period from
April 14, 1994 (inception) through October 31, 1994 are incorporated by
reference to the Company's Current Report on Form 8-K dated January 14, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Common Stock offered hereby shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof from
the date of filing of such documents. Any statement contained herein or in a
document all or a portion of which is incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
FORWARD LOOKING STATEMENTS
Except for historical information contained herein, the following contains
forward-looking statements that involve risks and uncertainties. The actual
results of the Company could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to: failure to sustain future sales growth; failure to identify or carry
out suitable strategic acquisitions; the loss of certain major customers;
increases in the price of raw materials under market conditions which preclude
passing such increases on to customers; increased competition (especially from
competitors with access to substantially greater resources); failure to renew
certain labor agreements; and overall economic conditions in the United States
and Europe. Each of the foregoing factors is discussed in greater detail in this
Prospectus.
3
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL DATA, INCLUDING
THE FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS. ALL REFERENCES TO "DOLLARS" AND "$" REFER TO
U.S. DOLLARS. ALL REFERENCES TO "DM" REFER TO DEUTSCHE MARKS. EXCEPT WHERE
OTHERWISE NOTED, ALL CONVERSIONS OF DEUTSCHE MARKS TO U.S. DOLLARS ARE BASED ON
A CONVERSION RATE OF DM1.75 TO $1.00 (WHICH WAS THE RATE IN EFFECT AS OF
SEPTEMBER 30, 1997). UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS
PROSPECTUS ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED
AND THAT NO OUTSTANDING OPTIONS WILL BE EXERCISED. UNLESS OTHERWISE STATED IN
THIS PROSPECTUS, REFERENCES TO THE "COMPANY" SHALL MEAN FIBERMARK, INC. AND ITS
SUBSIDIARIES.
THE COMPANY
The Company is a leading manufacturer and converter of specialty fiber-based
materials with a wide range of consumer and industrial end-uses. Through its
nine United States production facilities, the Company has focused on niche
markets where it can provide high value-added specialty paper products which
meet rigorous technical specifications and customer service requirements. The
Company has also focused on growth through strategic acquisitions. The
acquisition of Steinbeis Gessner GmbH ("Gessner") will represent the third
significant acquisition since October 1996. The Company's products are sold
worldwide, serving four distinct markets which represented the following
percentages of total net sales for the nine months ended September 30, 1997:
office products (24%); technical specialties (33%); durable specialties (25%);
and filter products (18%). Net sales for the nine months ended September 30,
1997, totaled $176.7 million as compared to $77.7 million for the corresponding
period in 1996. Between 1993 and 1996, net sales grew at a compound annual
growth rate of 16.0% from $80.0 million to $124.8 million while earnings per
share (as adjusted for a 3-for-2 split of the Common Stock effective May 13,
1997) grew at a compound annual growth rate of 38.1% from $0.45 per share to
$1.19 per share during the same period.
OFFICE PRODUCTS. The Company manufactures a wide range of materials used in
the manufacture of office products. The Company believes that it is the largest
domestic supplier of pressboard, which is converted into data binders, notebook
covers, report covers, ring binders, and file and index guides. Other products
manufactured for the office supplies market include lightweight filing and cover
materials. The Company believes that its capabilities and customer relationships
give it a competitive advantage in meeting customer specifications.
TECHNICAL SPECIALTIES. The Company manufactures specialty fiber-based
materials customized to meet the unique performance characteristics required by
specific customers and end-use markets. The Company believes that it is the U.S.
market leader in many of its markets, including electrical transformer papers,
acid-free picture mounting board, wet-strength tag and heavyweight industrial
abrasive backing materials. In addition, the Company is a leading producer of
saturating base paper for the manufacture of printed circuit boards. The Company
also believes that it is one of the two leading domestic producers of latex-
reinforced material used in book covers and related products.
DURABLE SPECIALTIES. The Company is one of the largest producers of
specialty tape substrates and a broad range of saturated, coated and non-woven
materials. The Company's tape substrates are used in the manufacture of
industrial and consumer masking tapes, barrier tapes, other pressure-sensitive
tapes and bandoliering tapes. The Company also converts specialty paper into
endsheets and spine reinforcement materials for use in the bookbinding industry
and provides specialty tapes for use in binding materials for checkbooks and
deposit books. The Company believes that it also is the leading provider of tape
and edge covering materials converted from Tyvek-Registered Trademark- and other
materials, used to strengthen and reinforce various office supply products,
including checkbooks, note pads, legal pads, composition books, file folders and
red wallet expansion folders.
- ------------------------
- -Registered Trademark-DuPont registered trademark.
5
<PAGE>
FILTER PRODUCTS. The Company is a major supplier of saturated and
non-saturated filter papers used in air and fluid filters for the automotive,
heavy-duty truck and equipment industries. The Company also manufactures filter
papers used in various industrial applications, including fruit juice
processing, the manufacture of paints and lacquers and hot oil filters for the
fast-food industry. The Company pursues niche markets in the filter products
market where its manufacturing and technical capabilities give it a competitive
advantage in meeting customer specifications.
THE GESSNER ACQUISITION
Pursuant to a Share Purchase Agreement, dated as of November 18, 1997 (the
"Gessner Stock Purchase Agreement"), the Company has agreed to purchase all of
the outstanding capital stock of Gessner for a purchase price of approximately
$43.0 million, subject to certain post-closing adjustments (the "Gessner
Acquisition"). The Company intends to finance the Gessner Acquisition with a
portion of the proceeds of the Offering, along with borrowings of up to DM54.0
million (approximately $30.9 million) under a bank facility to be provided by
Bayerische Vereinsbank AG and an unsecured note issued by Gessner and guaranteed
by the Company to Gessner's former stockholders in the amount of DM8.0 million
(approximately $4.6 million) (the "Steinbeis Note"). The consummation of the
Gessner Acquisition is subject to certain conditions. See "The Gessner
Acquisition" and "Risk Factors -- Possible Non-Consummation of the Gessner
Acquisition."
Gessner is a leading European producer of technical and filter paper located
near Munich, Germany. Gessner manufactures crepe masking and specialty tape
materials, wet and dry abrasive papers, filter media for automotive air, oil and
gasoline filters and filter media for automobile cabins and vacuum cleaner bags.
Gessner's products are sold worldwide, serving three distinct markets. Gessner's
net sales for the nine months ended September 30, 1997 were DM108.7 million
(approximately $62.1 million). Gessner is the leading worldwide producer of
vacuum filter media and the number two European producer of automotive filter
paper. Gessner is also one of two leading European producers of masking tape
base and impregnated abrasive paper. Gessner operates two production facilities
located in Bruckmuhl and Feldkirchen in the State of Bavaria, which include
three paper machines, three saturators, one meltblown production unit and one
methanol recycling unit. Total paper production capacity is approximately 38,500
metric tons per year and total saturation capacity is approximately 26,000
metric tons per year.
The Company believes that the Gessner Acquisition offers the Company a
number of opportunities for synergies. First, technology transfer opportunities
should advance the Company's papermaking and converting capabilities. Second,
the Gessner Acquisition offers the Company the opportunity to increase its
position in key market segments. Third, the Company's product line breadth would
be enhanced in three of the Company's four core businesses. Finally, with
manufacturing facilities in Europe, and the market position gained through the
Gessner Acquisition, the Company believes it will be better positioned to
compete for the business of key global customers that want suppliers to meet
their needs worldwide with global production capacity and a demonstrated
commitment to supporting their product and service needs.
BUSINESS STRATEGY
The Company's strategy is to increase sales and earnings by pursuing
selected strategic acquisitions, rationalizing production capacity and building
a global customer-focused company. The following are the key elements of this
strategy:
- STRATEGIC ACQUISITIONS. The Company intends to continue pursuing growth
through strategic acquisitions that complement the Company's core markets,
provide distribution or sales and marketing efficiencies or provide
opportunities for technology gains or other operating efficiencies.
- STRENGTHEN INTERNATIONAL PRESENCE IN SPECIALTY FIBER-BASED
MATERIALS. Historically, the Company has devoted significant resources to
its international marketing efforts which were intended to create export
markets for the Company's products. The Gessner Acquisition will
strengthen the Company's international presence and allow it to capitalize
on Gessner's extensive sales and marketing capabilities to further
increase sales of the Company's products to international customers.
6
<PAGE>
- BUSINESS RATIONALIZATION. The Company continually evaluates its
organizational structure and manufacturing operations to identify
opportunities to more effectively meet its customers' requirements and to
reduce costs. As a result, the Company may reconfigure its manufacturing
operations, including the number of facilities operated and the locations
at which products are manufactured.
- INVEST IN TECHNOLOGY AND CAPITAL IMPROVEMENTS. The Company seeks to reduce
costs, increase capacity where needed, enhance manufacturing capabilities
and improve product quality through selected capital investments. The
Company invested approximately $8.5 million in new equipment, technology
and leasehold improvements at its facilities during the fiscal year ended
December 31, 1996 and $9.7 million during the nine months ended September
30, 1997. The Company intends to continue to upgrade its facilities and
equipment to achieve further operating efficiencies and, in particular, to
take advantage of the technology transfer opportunities it expects to
realize from the Gessner Acquisition.
- EFFECTIVE UTILIZATION OF DIVERSE FIBERS, INCLUDING RECYCLED MATERIALS. The
Company intends to continue to capitalize on its position as a leading
manufacturer of specialty fiber-based materials. In order to meet customer
demand for recycled content and high performance, as well as to achieve
greater cost controls, the Company seeks to leverage its investments in
fiber-cleaning technology and maximize its use of recycled materials. The
Company is actively pursuing new product development projects with
existing and potential new customers. See "Business of the Company --
Manufacturing -- Use of Recycled Fiber."
RECENT DEVELOPMENTS
On November 18, 1997, as part of its ongoing strategy of business
rationalization, the Company announced plans to cease operations at its
Owensboro, Kentucky facility by the first quarter of 1998. Production at this
facility will be moved into certain of the Company's other operations.
Management currently estimates that the closing of this facility will result in
a one-time pre-tax charge of approximately $10.0 million during the fourth
quarter of 1997, however, it expects that the resulting cost reductions will
result in annual net savings of approximately $1.5 million beginning in 1998.
The Owensboro facility currently employs 41 people.
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered (1)........ 1,500,000 shares
Common Stock Outstanding:
Before the Offering (at
October 31, 1997) (2)....... 6,076,181 shares
After the Offering (1)........ 7,576,181 shares
Dividends....................... For historical information related to dividends declared
and the Company's future dividend policy see "Price Range
of Common Stock and Dividend Policy."
Use of Proceeds................. The Company intends to use approximately $15.0 million of
the net proceeds of the Offering to pay a portion of the
purchase price of the Gessner Acquisition and related fees
and expenses. The Company intends to use the remainder of
the net proceeds to fund certain capital expenditures
related to technology transfer projects resulting from the
Gessner Acquisition and for general corporate purposes,
including future acquisitions and reduction of the
Company's debt. In the event that the Gessner Acquisition
is not consummated, the Company expects to use the
proceeds of the Offering for general corporate purposes,
which may include future acquisitions and reduction of the
Company's debt. See "Risk Factors -- Possible
Non-Consummation of the Gessner Acquisition" and "Use of
Proceeds."
NYSE Symbol..................... FMK
</TABLE>
- ------------------------
(1) Does not include up to 225,000 shares of Common Stock subject to the
over-allotment option granted by the Company to the Underwriters.
(2) Does not include options to purchase 736,984 shares of Common Stock at a
weighted average exercise price of $7.87.
RISK FACTORS
An investment in the Common Stock involves certain risks that a prospective
investor should carefully consider before investing in the Common Stock. See
"Risk Factors."
8
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
THE COMPANY
The following summary historical consolidated financial data for each of the
years in the three-year period ended December 31, 1996 have been derived from,
and are qualified by reference to, the audited consolidated financial statements
of the Company included elsewhere in this Prospectus. The selected historical
consolidated financial data for the fiscal year ended December 31, 1993 have
been derived from the audited consolidated financial statements of the Company.
The summary historical consolidated unaudited PRO FORMA financial data set forth
below for the year ended December 31, 1996 and the nine months ended September
30, 1997 have been derived from, and are qualified by reference to, the
Company's consolidated unaudited financial statements included elsewhere herein.
The unaudited financial data gives PRO FORMA effect, in the manner described
under "Unaudited Pro Forma Consolidated Financial Data" and the notes thereto,
to the Gessner Acquisition, the Offering (collectively with the Gessner
Acquisition, the "Transactions") and the acquisitions of CPG Investors Inc.
("CPG") and Arcon Holdings Corp. ("Arcon"), each of which occurred on October
31, 1996 (collectively, the "Prior Acquisitions"), as if (i) the Transactions
and the Prior Acquisitions had occurred on January 1, 1996, in the case of
Income Statement Data for the year ended December 31, 1996 and (ii) the
Transactions had occurred on January 1, 1997, in the case of Income Statement
Data for the nine months ended September 30, 1997. The Income Statement Data do
not purport to represent what the Company's results of operations actually would
have been if the Prior Acquisitions and the Transactions had occurred as of such
dates or what such results will be for any future periods. The final allocation
of purchase price and the resulting amortization expenses in the Income
Statement Data will differ from the preliminary estimates for the reasons
described in more detail in "Unaudited Pro Forma Consolidated Financial Data."
The information contained in this table should be read in conjunction with "Risk
Factors -- Possible Non-Consummation of the Gessner Acquisition," "Selected
Historical Consolidated Financial Data -- The Company," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of the Company and accompanying notes thereto.
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA NINE MONTHS
YEAR ENDED DECEMBER 31, YEAR ENDED ENDED
----------------------------------------------- DECEMBER 31, SEPTEMBER 30,
1993 1994 1995 1996 1996 1997
-------- --------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales.................................... $ 79,982 $ 105,416 $ 117,516 $ 124,771 $313,534 $240,051
Cost of sales................................ 66,360 88,138 100,106 101,981 249,328 188,013
-------- --------- --------- --------- ------------ -------------
Gross profit............................. 13,622 17,278 17,410 22,790 64,206 52,038
Selling, general and administrative
expenses................................... 7,881 8,584 8,397 9,908 32,742 23,330
-------- --------- --------- --------- ------------ -------------
Income from operations................... 5,741 8,694 9,013 12,882 31,464 28,708
Other (income) expenses, net................. 374 (658) (1,198) (1,030) (1,739) (32)
Loss on sale of assets....................... -- -- 8,302 -- -- --
Cogeneration income (a)...................... (4,404) -- (6,512) (97) (97) --
Interest expense............................. 3,137 1,356 892 1,798 12,103 8,718
-------- --------- --------- --------- ------------ -------------
Income before income taxes and
extraordinary item..................... 6,634 7,996 7,529 12,211 21,197 20,022
Income tax (benefit) expense................. 1,921 2,768 (424) 4,697 8,164 7,747
-------- --------- --------- --------- ------------ -------------
Income before extraordinary item......... 4,713 5,228 7,953 7,514 13,033 12,275
Extraordinary item........................... (2,103) (149) -- (297) -- --
-------- --------- --------- --------- ------------ -------------
Net income............................. $ 2,610 $ 5,079 $ 7,953 $ 7,217 $ 13,033 $ 12,275
-------- --------- --------- --------- ------------ -------------
-------- --------- --------- --------- ------------ -------------
Earnings per common and common equivalent
share (b).................................. $ 0.45 $ 0.84 $ 1.31 $ 1.19 $ 1.73(c) $ 1.58(d)
-------- --------- --------- --------- ------------ -------------
-------- --------- --------- --------- ------------ -------------
Weighted average number of common and common
equivalent shares outstanding (b).......... 4,985 6,032 6,050 6,054 7,554 7,775
-------- --------- --------- --------- ------------ -------------
-------- --------- --------- --------- ------------ -------------
</TABLE>
9
<PAGE>
- ------------------------
(a) The Company has entered into an agreement with Kamine/Besicorp Beaver Falls
L.P. ("Kamine") pursuant to which the Company is the host to a cogeneration
facility developed by Kamine at the Company's Beaver Falls mill, in
consideration of which the Company received an initial cash payment of $4.4
million in 1993 and received deferred cash payments totaling $7.0 million
from Kamine between May 1995 and May 1997. The present value of these
deferred cash payments, in the amount of $6.5 million, was recorded as
income in the first quarter of 1995. Cash payments of $3.0 million, $2.0
million and $2.0 million, respectively, were received in May 1995, May 1996
and May 1997. The payment received in May 1997 was the last payment due
under this agreement.
(b) Weighted average number of common and common equivalent shares outstanding
and earnings per common and common equivalent share have been restated to
give effect to a 3-for-2 stock split effective May 13, 1997. Weighted
average number of common and common equivalent shares outstanding and
earnings per common and common equivalent share for the nine months ended
September 30, 1997 reflect common stock equivalents which were excluded in
previous periods due to immateriality.
(c) If the Gessner Acquisition is not consummated, the Company's earnings per
share for the year ended December 31, 1996, giving PRO FORMA effect to the
Offering and to the Prior Acquisitions, would be $1.42.
(d) If the Gessner Acquisition is not consummated, the Company's earnings per
share for the nine months ended September 30, 1997, giving PRO FORMA effect
to the Offering, would be $1.16.
10
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS IN SHARES OF THE COMMON STOCK OFFERED HEREBY SHOULD
CAREFULLY READ THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN. IN DETERMINING WHETHER TO PURCHASE THE SHARES OF COMMON STOCK BEING
OFFERED HEREBY, PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE FOLLOWING
FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS OR
INCORPORATED BY REFERENCE HEREIN.
EXPOSURE TO FLUCTUATIONS IN RAW MATERIALS COSTS AND SUPPLY
The Company's principal raw materials are hardwood and softwood pulp and
secondary fiber, which are cyclical in both price and supply. The cyclical
nature of pulp pricing presents a risk to the Company's gross profit margins to
the extent that the Company is unable to pass along price increases to its
customers on a timely basis. The Company is also subject to the risk that it
will be unable to purchase sufficient quantities of pulp to meet its production
requirements during times of tight supply. In addition, customer perception that
prices are low in relation to anticipated future prices for the Company's
products may result in customers accumulating substantial inventories of
products of the type produced by the Company. To the extent that, as a response
to subsequent price increases or the accumulation of excess inventories, such
customers choose to fill their raw materials needs out of supplies on hand, the
Company's sales of such products may be materially adversely affected until such
inventories are reduced.
The Company's sole source of Tyvek-Registered Trademark- is DuPont. Although
management believes it has a good relationship with DuPont, there can be no
assurances that the Company will be able to continually purchase adequate
supplies of Tyvek-Registered Trademark-. Any material limitation or interruption
in the Company's supply of Tyvek-Registered Trademark- could have a material
adverse effect on the financial condition and results of operations of the
Company. Furthermore, significant increases in the price of
Tyvek-Registered Trademark-, if not offset by product price increases, could
have a material adverse effect on the financial condition and results of
operations of the Company. There can be no assurances that the Company will be
able to pass any future increases in the price of Tyvek-Registered Trademark- on
to its customers in the form of price increases.
SPECIALTY PAPER MARKET
The Company's competition within the specific markets in which it operates
comes primarily from a number of other specialty paper producers, as well as
from producers of vinyl, plastic, fiberglass and other materials. Some of these
producers have substantially greater resources than the Company. Competition in
the Company's markets is based principally on quality, product performance and
characteristics, service and price as they relate to the specific needs of the
customer. Competitors with like materials, and different competitive materials,
could displace the Company's materials and adversely affect the Company's
financial condition and results of operations.
In recent years there has been some consolidation among participants in the
Company's markets and some vertical integration by the Company's customers. To
the extent that consolidations in the Company's markets continue and result in
the purchase of one or more of the Company's customers by the Company's
competitors or a decision by one of the Company's customers to manufacture or
convert products that were previously purchased from the Company in its own
facilities, the Company's financial condition and results of operations may be
materially adversely affected.
IMPACT OF ENVIRONMENTAL REGULATION; GOVERNMENTAL REGULATION
Like similar companies, the Company's operations and properties are subject
to a wide variety of federal, state and local laws and regulations, including
those governing the use, storage, handling, generation, treatment, emission,
release, discharge and disposal of certain materials, substances and wastes, the
remediation of contaminated soil and groundwater, and the health and safety of
employees (collectively, "Environmental Laws"). As such, the nature of the
Company's operations exposes it to the risk of claims with respect to
environmental protection and health and safety matters and there can be no
11
<PAGE>
assurance that material costs or liabilities will not be incurred in connection
with such claims. Based upon its experience to date, management of the Company
believes that the future costs of compliance with existing Environmental Laws,
and liability for known claims of this type, will not have a material adverse
effect on the Company's financial condition and results of operations. However,
future events, such as new information, changes in existing Environmental Laws
or their interpretation, and more vigorous enforcement policies of regulatory
agencies, may give rise to additional expenditures or liabilities that could be
material to the Company's financial condition and results of operations. See
"Business of the Company -- Environmental Regulation and Compliance."
HIGH LEVERAGE AND DEBT SERVICE
Upon completion of the Offering, the Company will continue to have
substantial indebtedness. As of September 30, 1997, the Company's total
outstanding indebtedness on a pro forma basis for the Gessner Acquisition was
$135.4 million. The Company's leverage poses certain risks, including the risk
that the Company may not generate sufficient cash flow to service its
indebtedness; that the Company may not be able to renegotiate the terms of its
indebtedness; that the Company may be unable to obtain additional financing in
the future; that, to the extent it is more leveraged than its competitors, the
Company may be placed at a competitive disadvantage; and that the Company's
ability to borrow to the extent necessary to respond to market conditions and
other factors may be adversely affected. The Company's ability to service or
refinance its debt will depend on its future performance, which will be subject
to prevailing economic and competitive conditions and other specific factors
discussed herein, as well as developments in capital markets generally. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The indenture for the Company's outstanding senior notes restricts, among
other things, the Company's ability to incur additional indebtedness, incur
liens, pay dividends or make certain other restricted payments, consummate
certain asset sales, enter into certain transactions with affiliates, impose
restrictions on the ability of a subsidiary to pay dividends or make certain
payments to the Company, merge or consolidate with any other person or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of the assets of the Company. In addition, the Company's existing credit
facility and the operating lease entered into in connection with the
sale-leaseback of substantially all of the equipment at the Brattleboro mill
contain other and more restrictive covenants customary for transactions of these
types.
ACQUISITION STRATEGY
The Company intends to continue to grow through selected strategic
acquisitions of businesses in specialty markets. See "Business of the Company --
Business Strategy." There can be no assurance that the Company will be able to
locate suitable acquisition candidates, consummate acquisitions on favorable
terms or successfully integrate newly acquired businesses with the Company's
operations.
INTERNATIONAL OPERATIONS
Upon consummation of the Gessner Acqusition, the Company's financial results
will be dependent in part on its international operations. The Company will
operate two facilities in Germany and sell its products in approximately 50
countries. For the nine months ended September 30, 1997, PRO FORMA for the
Gessner Acquisition, net sales of the Company's products outside the United
States will total approximately $72.0 million, representing approximately 30% of
the Company's PRO FORMA net sales for the same period. As a result, the Company
will be subject to risks associated with operating in foreign countries,
including imposition of limitations on conversion of foreign currencies into
U.S. dollars or remittance of dividends and other payments by foreign
subsidiaries, imposition or increase of withholding and other taxes on
remittances and other payments by foreign subsidiaries and exchange rate
fluctuations. The
12
<PAGE>
occurrence of any one or more of such events could have a material adverse
effect on the Company's financial condition and results of operations.
DIVIDEND POLICY; LIMITATIONS IMPOSED BY LENDERS
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future. The terms of the
Company's existing credit facility and outstanding senior notes contain
restrictive covenants, including limitations on the payment by the Company of
cash dividends on the Common Stock.
DEPENDENCE ON KEY MANAGEMENT
The Company's success will continue to depend to a significant extent on its
executive officers and other key management personnel. There can be no assurance
that the Company will be able to retain its executive officers and key personnel
or attract additional qualified management in the future. In addition, the
success of certain of the Company's acquisitions may depend, in part, on the
Company's ability to retain management personnel of the acquired companies.
There can be no assurance that the Company will be able to retain such
management personnel.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND DELAWARE LAW
The Board of Directors has authority to issue up to 2,000,000 shares of
Preferred Stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The rights of the holders of the Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no present plan to issue shares of Preferred Stock.
Furthermore, certain provisions of the Company's Restated Certificate of
Incorporation and By-laws and of Delaware law could delay or make more difficult
a merger, tender offer or proxy contest involving the Company. See "Description
of Capital Stock."
POSSIBLE NON-CONSUMMATION OF THE GESSNER ACQUISITION
While the Company expects that the closing of the Gessner Acquisition will
occur on or prior to December 31, 1997, such closing is subject to various
conditions, including the approval of the Board of Directors of the Company,
which approval will be significantly influenced by the consummation of the
Offering and the receipt of certain financing from Bayerische Vereinsbank AG on
terms acceptable to the Company. In addition, Gessner may elect to terminate the
transaction if the ongoing environmental due diligence reveals environmental
liabilities in excess of DM5.0 million (approximately $2.9 million). As a
result, no assurance can be given that the Gessner Acquisition will occur on or
prior to December 31, 1997, if at all. If the closing of the Gessner Acquisition
does not occur (or is materially delayed), the Company may not realize any or
all of the benefits of the Gessner Acquisition described elsewhere in this
Prospectus, and the Company's future per share earnings may be adversely
affected. See Note (h) to the Unaudited Pro Forma Combined Consolidated
Statements of Income for the Year Ended December 31, 1996, and Note (g) to the
Unaudited Pro Forma Consolidated Statements of Income for the Nine Months Ended
September 30, 1997. In the event that the Gessner Acquisition is not
consummated, the Company expects to use the proceeds of the Offering for general
corporate purposes, which may include future acquisitions and reduction of the
Company's debt.
13
<PAGE>
STOCK PRICE VOLATILITY
From time to time, there may be significant volatility in the market price
of the Common Stock. Factors such as announcements of fluctuations in the
Company's or its competitors' operating results, pulp and fiber costs, market
conditions for paper industry stocks or manufacturing stocks in general, changes
in general conditions in the economy or financial markets or other developments
could cause the market price of the Common Stock to fluctuate substantially. In
addition, the stock market in general in recent years has experienced
substantial price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of affected companies. These broad
fluctuations may adversely affect the market price of the Common Stock.
SEASONALITY AND CYCLICALITY
The Company's business is mildly seasonal in nature with the third quarter
of each year having the lowest level of net sales and operating income. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality." In addition, sales of specialty fiber-based
materials historically have been cyclical, fluctuating with general economic
cycles. During economic downturns, the Company tends to experience similar
periods of decline and recession as the general economy. There can be no
assurance that the industry will not experience sustained periods of decline in
sales in the future, and that such decline would not have a material adverse
effect on the Company's financial condition and results of operations.
LABOR RELATIONS
A substantial portion of the Company's employees are unionized. While the
Company believes that, in general, it has good relations with its employees,
there can be no assurance that a labor dispute or disturbance will not occur in
the future, which could have a material adverse effect on the Company. The
Company currently is subject to nine collective bargaining agreements, all of
which expire on or before August 31, 2002. There can be no assurance that new
agreements will be reached on terms satisfactory to the Company or that labor
costs will not increase, perhaps substantially, as a result thereof. See
"Business of the Company -- Employees."
14
<PAGE>
USE OF PROCEEDS
The Company intends to use approximately $15.0 million of the net proceeds
of the Offering to pay a portion of the purchase price of the Gessner
Acquisition and related fees and expenses. The Company intends to use the
remainder of the net proceeds to fund certain capital expenditures related to
the Gessner Acquisition. These capital expenditures are expected to be related
to technology transfer projects between Gessner and the Company, which the
Company believes will provide quality improvements, cost reductions, product
performance enhancements and the ability to produce a broader range of products.
The Company currently anticipates that the implementation of these projects can
be accomplished over a two to three year period, at a cost of $20 to $25
million. See "Risk Factors -- Possible Non-Consummation of the Gessner
Acquisition." Any remaining proceeds from the Offering will be used for general
corporate purposes, including future acquisitions and reduction of the Company's
debt. In the event that the Gessner Acquisition is not consummated, the Company
expects to use the proceeds of the Offering for general corporate purposes,
including future acquisitions and reduction of the Company's debt.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock was first traded on the NASDAQ National Market System
("NASDAQ") under the symbol "SPBI". As of the close of business on April 8,
1997, the Common Stock ceased trading on NASDAQ and on April 9, 1997 was listed
on the NYSE under the symbol "FMK". The following table sets forth the high and
low sale prices per share of the Common Stock as reported on NASDAQ and on the
NYSE Composite Transactions Tape, as the case may be. The high and low sales
prices for the first quarter of 1995 through the first quarter of 1997 have been
adjusted to give effect to a 3-for-2 stock split in the form of a dividend which
was announced on April 24, 1997, and was effective May 13, 1997, for
shareholders of record at the close of business on May 6, 1997 (the "Stock
Split").
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995
First Quarter................................................................................ $ 8.17 $ 6.67
Second Quarter............................................................................... 9.00 7.67
Third Quarter................................................................................ 8.67 6.67
Fourth Quarter............................................................................... 9.00 7.17
1996
First Quarter................................................................................ 10.00 7.83
Second Quarter............................................................................... 10.17 8.50
Third Quarter................................................................................ 13.00 8.67
Fourth Quarter............................................................................... 14.17 10.83
1997
First Quarter................................................................................ 18.00 13.33
Second Quarter............................................................................... 21.38 15.25
Third Quarter................................................................................ 22.50 19.00
Fourth Quarter (through December 12, 1997)................................................... $ 22.19 $ 19.13
</TABLE>
The last reported sale price of the Common Stock on the NYSE Composite
Transactions Tape on December 12, 1997, was $20.94 per share, and there were in
excess of 2,200 beneficial owners of the Common Stock.
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future.
15
<PAGE>
CAPITALIZATION
(UNAUDITED)
The following table sets forth the capitalization of the Company giving
effect to the Transactions as if they had occurred on September 30, 1997. This
table should be read in conjunction with the "Selected Historical Consolidated
Financial Data" and "Unaudited Pro Forma Consolidated Financial Data" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
ACTUAL PRO FORMA
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash.................................................................... $ 9,075 $ 30,399
Revolving Credit Facilities(a).......................................... $ -- $ --
German Bank Facility.................................................... -- 30,857
Steinbeis Note.......................................................... -- 4,571
Senior Notes............................................................ 100,000 100,000
--------- -----------
Total Debt.......................................................... $ 100,000 $ 135,428
Stockholders' Equity:
Preferred Stock, $.001 par value; 2,000,000 shares
authorized and none outstanding................................... $ -- $ --
Common Stock, $.001 par value; 20,000,000 shares
authorized; 7,576,181 shares issued and outstanding, as
adjusted(b)....................................................... 6 8
Additional Paid-in Capital.......................................... 44,802 73,975
Retained Earnings................................................... 12,342 12,342
--------- -----------
Total Stockholders' Equity.......................................... 57,150 86,325
--------- -----------
Total Capitalization................................................ $ 157,150 $ 221,753
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(a) The Company is party to a revolving credit facility with The CIT
Group/Business Credit Corp., (the "U.S. Lender") pursuant to which the U.S.
Lender has agreed to make revolving credit loans, subject to the terms and
conditions of such credit facility, in an amount not to exceed $20.0
million. The Company currently has no borrowings outstanding and an
availability of $20.0 million under such credit facility. In addition, upon
consummation of the Gessner Acquisition, Gessner will enter into two DM15.0
million (each approximately $8.6 million) revolving credit facilities with
Bayerische Vereins-bank AG, under which Gessner will have, subject to the
terms and conditions of such facilities, an availability of DM30.0 million
(approximately $17.1 million) at the consummation of the Gessner
Acquisition.
(b) Does not include, as of September 30, 1997, options to purchase 736,984
shares of Common Stock at a weighted average exercise price of $7.87.
16
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Combined Consolidated Statements of Income
give effect to the Transactions and the Prior Acquisitions as if they had
occurred on January 1, 1996, in the case of the Income Statement Data for the
year ended December 31, 1996, and give effect to the Transactions as if they had
occurred on January 1, 1997, in the case of the Income Statement Data for the
nine months ended September 30, 1997. The unaudited PRO FORMA financial data are
based on the historical consolidated financial statements of the Company, CPG,
Arcon and Gessner and the assumptions and adjustments described in the
accompanying notes. The Unaudited Pro Forma Combined Consolidated Statements of
Income do not (a) purport to represent what the Company's results of operations
actually would have been if the Transactions and the Prior Acquisitions had
occurred as of the dates indicated or what such results will be for any future
periods or (b) give effect to certain non-recurring charges expected to result
from the Transactions and Prior Acquisitions.
The following Unaudited Pro Forma Combined Consolidated Balance Sheet as of
September 30, 1997, was prepared as if the Transactions had occurred on such
date. The Unaudited Pro Forma Combined Consolidated Balance Sheet reflects the
preliminary allocation of the Gessner Acquisition purchase price to the
Company's tangible and intangible assets and liabilities. The final allocation
of such purchase prices, and the resulting amortization expense in the
accompanying Unaudited Pro Forma Combined Consolidated Statements of Income,
will differ from the preliminary estimates due to the final allocation being
based on: (a) actual closing date amounts of assets and liabilities, and (b)
actual values of property, plant and equipment and any identifiable intangible
assets.
The unaudited PRO FORMA financial data are based upon assumptions that the
Company believes are reasonable and should be read in conjunction with the
consolidated financial statements of the Company and the accompanying notes
thereto, the consolidated financial statements of CPG and the accompanying notes
thereto, the consolidated financial statements of Arcon and the accompanying
notes thereto and the consolidated financial statements of Gessner and the
accompanying notes thereto included elsewhere or incorporated by reference in
this Prospectus.
The CPG and Arcon acquisitions took place on October 31, 1996, and,
accordingly, the results of operations for CPG and Arcon are included in the
Company's results of operations subsequent to that date.
17
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
GESSNER
OFFERING ACQUISITION COMPANY
COMPANY GESSNER ADJUSTMENTS ADJUSTMENTS PRO FORMA
-------- ------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash............................................... $ 9,075 $ 258 $ 29,175(a) $ (8,109)(b)(c) $ 30,399
Accounts receivable................................ 24,645 11,058 -- -- 35,703
Inventories........................................ 34,358 9,225 -- -- 43,583
Deferred income taxes.............................. 2,090 -- -- -- 2,090
Other.............................................. 2,862 26 -- -- 2,888
-------- ------- ----------- ----------- ----------
Total current assets........................... 73,030 20,567 29,175 (8,109) 114,663
Property, plant and equipment, net................. 95,730 32,017 -- 12,983(e) 140,730
Organizational, financing and other costs.......... 5,614 346 -- 500(b) 6,460
Goodwill........................................... 45,761 -- -- 5,144(e) 50,905
-------- ------- ----------- ----------- ----------
Total assets................................... $220,135 $52,930 $ 29,175 $ 10,518 $312,758
-------- ------- ----------- ----------- ----------
-------- ------- ----------- ----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.................. $ -- $ 1,569 $ -- $ (1,569)(e) $ --
Accounts payable................................... 16,315 2,343 -- -- 18,658
Accrued liabilities................................ 23,846 5,315 -- -- 29,161
Accounts payable--affiliates....................... -- 6,945 -- (6,945)(e) --
-------- ------- ----------- ----------- ----------
Total current liabilities...................... 40,161 16,172 -- (8,514) 47,819
Senior Notes....................................... 100,000 -- -- -- 100,000
Long-term debt..................................... -- 1,714 -- 33,714(b)(c)(d)(e) 35,428
Deferred gain...................................... 11,314 -- -- -- 11,314
Deferred income taxes.............................. 11,510 9,420 -- -- 20,930
Other long-term liabilities........................ -- 9,228 -- 1,714(e) 10,942
-------- ------- ----------- ----------- ----------
Total liabilities.............................. 162,985 36,534 -- 26,914 226,433
Minority interest.................................. -- 57 -- (57)(f) --
Stockholders' Equity:
Common stock....................................... 6 4,278 2(a) (4,278)(f) 8
Preferred stock.................................... -- -- -- -- --
Additional paid in capital......................... 44,802 -- 29,173(a) -- 73,975
Retained earnings.................................. 12,342 12,827 -- (12,827)(f) 12,342
Translation adjustment............................. -- (766) -- 766(f) --
-------- ------- ----------- ----------- ----------
Total stockholders' equity..................... 57,150 16,339 29,175 (16,339) 86,325
-------- ------- ----------- ----------- ----------
Total liabilities and stockholders' equity..... $220,135 $52,930 $ 29,175 $ 10,518 $312,758
-------- ------- ----------- ----------- ----------
-------- ------- ----------- ----------- ----------
</TABLE>
See accompanying notes.
18
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
The Pro Forma Combined Consolidated Balance Sheet reflects the Transactions
as if they had occurred as of September 30, 1997 as follows (the Gessner
Acquisition is expected to occur in December 1997; actual amounts will differ
from amounts estimated below):
(a) Reflects the issuance of the Common Stock in the Offering:
<TABLE>
<C> <S> <C>
Issuance of the Common Stock in the Offering.................................. $31,500
Expenses for issuance of the Common Stock in the Offering..................... (2,325)
---------
$29,175
---------
---------
(b) Reflects the following:
Issuance of German bank debt and application of the proceeds therefrom........ $30,857
Debt issuance costs........................................................... 500
---------
$30,357
---------
---------
(c) Represents the cash payment to Gessner's former stockholders.................. $38,466
---------
---------
(d) Reflects the Steinbeis Note................................................... $4,571
---------
---------
</TABLE>
(e) The Gessner Acquisition will be accounted for as a purchase in accordance
with Accounting Principles Based Opinion No. 16, "Business Combinations."
The purchase price is being allocated first to the tangible and
identifiable assets and liabilities of Gessner based upon preliminary
estimates of their fair market values, with the remainder allocated to
goodwill.
<TABLE>
<C> <S> <C> <C>
Purchase price........................................................ $43,037
Book value of net assets as of September 30, 1997..................... 16,396
Net liabilities excluded or eliminated at acquisition:
Land.................................................................. (2,171)
Current portion of long-term debt..................................... 1,569
Accounts payable-affiliated........................................... 6,945
Long-term debt........................................................ 1,714
---------
Book value of net assets acquired..................................... 24,453 (24,453)
--------- ---------
Increase in basis..................................................... $18,584
---------
---------
Allocation of increase in basis:
Increase in fair value of property, plant and equipment............... $15,154
Increase in other long-term liabilities............................... (1,714)
Increase in goodwill.................................................. 5,144
---------
$18,584
---------
---------
</TABLE>
(f) Reflects the elimination of Gessner equity balances, minority interest and
translation adjustment.
19
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
FOR PRIOR ACQUISITION COMPANY
ACQUISITIONS(A) GESSNER(B) ADJUSTMENTS PRO FORMA
---------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales..................... $227,822 $85,712 $-- $313,534
Cost of sales................. 186,504 65,292 (2,468)(c) 249,328
-------- ---------- ----------- ---------
Gross profit................ 41,318 20,420 2,468 64,206
Selling, general and
administrative expenses..... 15,225 17,620 (103)(d) 32,742
-------- ---------- ----------- ---------
Income from operations...... 26,093 2,800 2,571 31,464
Other (income) expenses,
net......................... (1,030) (709) -- (1,739)
Cogeneration income........... (97) -- -- (97)
Interest expense.............. 9,680 709 1,714(e) 12,103
-------- ---------- ----------- ---------
Income before income
taxes..................... 17,540 2,800 857 21,197
Income tax provision
(benefit)................... 6,831 990 343(f) 8,164
-------- ---------- ----------- ---------
Net income before minority
interest.................. 10,709 1,810 514 13,033
Minority interest............. -- 66 (66)(g) --
-------- ---------- ----------- ---------
Net income................ $ 10,709 $ 1,744 $ 580 $ 13,033
-------- ---------- ----------- ---------
-------- ---------- ----------- ---------
Pro forma earnings per common
and common equivalent
share....................... $ 1.73(h)
---------
---------
Weighted average number of
common and common equivalent
shares outstanding.......... 7,554
---------
---------
</TABLE>
See accompanying notes.
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The Pro Forma Combined Consolidated Statements of Income for the year ended
December 31, 1996 reflects the Transactions as if they had occurred on January
1, 1996 as follows (the Gessner Acquisition is expected to occur in December
1997; actual amounts will differ from amounts estimated below):
<TABLE>
<C> <S> <C>
(a) The following Pro Forma Combined Consolidated Statements of
Income give effect to the Prior Acquisitions as if they had
occurred on January 1, 1996:
</TABLE>
<TABLE>
<CAPTION>
TEN MONTHS TEN MONTHS
ENDED ENDED
YEAR ENDED OCTOBER 31, OCTOBER
DECEMBER 31, 1996 31, 1996 TOTAL PRO FORMA COMPANY
1996 COMPANY CPG ARCON HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $124,771 $78,875 $ 24,176 $ 227,822 $-- $ 227,822
Cost of sales........................... 101,981 65,662 17,493 185,136 1,368(i) 186,504
------------ ----------- ---------- ---------- ----------- ---------
Gross profit.......................... 22,790 13,213 6,683 42,686 (1,368) 41,318
Selling, general and administrative
expenses.............................. 9,908 5,125 2,600 17,633 (2,408)(ii) 15,225
------------ ----------- ---------- ---------- ----------- ---------
Income from operations................ 12,882 8,088 4,083 25,053 1,040 26,093
Other (income) expenses, net............ (1,030) -- -- (1,030) -- (1,030)
Cogeneration income..................... (97) -- -- (97) -- (97)
Interest expense........................ 1,798 891 1,747 4,436 5,244 (iii 9,680
------------ ----------- ---------- ---------- ----------- ---------
Income before income taxes............ 12,211 7,197 2,336 21,744 (4,204) 17,540
Income tax provision (benefit).......... 4,697 2,873 1,121 8,691 (1,860)(iv) 6,831
------------ ----------- ---------- ---------- ----------- ---------
Net income before extraordinary
item................................ 7,514 4,324 1,215 13,053 (2,344) 10,709
Extraordinary item...................... (297) -- -- (297) 297(v) --
------------ ----------- ---------- ---------- ----------- ---------
Net income.......................... $ 7,217 $ 4,324 $ 1,215 $ 12,756 $(2,047) $ 10,709
------------ ----------- ---------- ---------- ----------- ---------
------------ ----------- ---------- ---------- ----------- ---------
</TABLE>
- ------------------------
<TABLE>
<C> <S> <C>
(i) Reflects the following:
Conversion of CPG inventory from LIFO to fair value........................ $ 1,177
Additional depreciation expense on increased property basis due to purchase
accounting adjustment...................................................... 1,253
Reduction in headcount and operational expenses due to integration of
Arcon...................................................................... (1,062)
---------
$ 1,368
---------
---------
(ii) Reflects the following:
Reversal of amortization of prior goodwill................................. $ (680)
Reversal of amortization of financing costs relating to debt to be
retired.................................................................... (320)
Reversal of management fees................................................ (84)
Amortization of goodwill acquired.......................................... 1,072
Reversal of deferred compensation expense.................................. (42)
Reduction of headcount and operational expense due to integration of CPG
and Arcon.................................................................. (2,354)
---------
$ (2,408)
---------
---------
</TABLE>
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<C> <S> <C>
(iii) Reflects the following:
Interest costs on the Senior Notes due 2006.............................. $ 7,808
Reversal of interest expense............................................. (1,986)
Reversal of warrant accretion............................................ (838)
Reversal of amortization of financing costs relating to debt to be
retired................................................................ (157)
Amortization of financing costs relating to the issuance of the Senior
Notes due 2006......................................................... 417
---------
$ 5,244
---------
---------
(iv) Reflects the net additional income tax provision (benefit) as a result of
the above adjustments, except the goodwill amortization and warrant
accretion adjustments, at an effective tax rate of 40%..................... $ (1,860)
---------
---------
(v) Reflects the reversal of loss on extinguishment of debt.................... $ 297
---------
---------
</TABLE>
<TABLE>
<C> <S> <C>
(b) All income statement amounts are based on a conversion rate of DM1.50 to $1.00
(which was the average rate in effect for the year ended December 31, 1996).
(c) Reflects a reduction in depreciation expense.
(d) Reflects the following:
$ 171
Amortization of goodwill acquired..............................................
(345)
Reversal of management fee.....................................................
71
Amortization of financing costs relating to German bank debt...................
---------
$ (103)
---------
---------
(e) Reflects the following:
$ 2,157
Interest cost on the German bank debt..........................................
266
Interest cost on the Steinebeis Note...........................................
(709)
Reversal of interest expense...................................................
---------
$ 1,714
---------
---------
(f) Reflects the net additional income tax provision as a result of the above
adjustments at an effective tax rate of 40%.
(g) Reflects the elimination of minority interest.
(h) If the Gessner Acquisition is not consummated, the Company's earnings per share
for the year ended December 31, 1996, giving PRO FORMA effect to the Offering
and to the Prior Acquisitions, would be $1.42.
</TABLE>
22
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITION COMPANY PRO
COMPANY GESSNER(A) ADJUSTMENTS FORMA
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................................................. $ 176,659 $ 63,392 $ -- $ 240,051
Cost of sales............................................. 142,559 46,953 (1,499)(b) 188,013
---------- ----------- ----------- -----------
Gross profit............................................ 34,100 16,439 1,499 52,038
Selling, general and administrative expenses.............. 12,234 11,173 (77)(c) 23,330
---------- ----------- ----------- -----------
Income from operations.................................. 21,866 5,266 1,576 28,708
Other (income) expenses, net.............................. 218 (250) -- (32)
Interest expense.......................................... 6,900 330 1,488(d) 8,718
---------- ----------- ----------- -----------
Income before income taxes.............................. 14,748 5,186 88 20,022
Income tax provision (benefit)............................ 5,762 1,950 35(e) 7,747
---------- ----------- ----------- -----------
Net income before minority interest..................... 8,986 3,236 53 12,275
Minority interest......................................... -- 43 (43)(f) --
---------- ----------- ----------- -----------
Net income............................................ $ 8,986 $ 3,193 $ 96 $ 12,275
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Pro forma earnings per common and common equivalent
share................................................... $ 1.58(g)
-----------
-----------
Weighted average number of common and common equivalent
shares outstanding...................................... 7,775
-----------
-----------
</TABLE>
See accompanying notes.
23
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The Pro Forma Combined Consolidated Statement of Income for the nine months
ended September 30, 1997 reflects the Transactions as if they had occurred on
January 1, 1997 as follows (the Gessner Acquisition is expected to occur in
December 1997; actual amounts will differ from amounts estimated below):
<TABLE>
<C> <S> <C>
(a) All income statement amounts are based on a conversion rate of DM1.71 to $1.00
(which was the average rate in effect for the nine months ended September 30,
1997).
(b) Reflects a reduction in depreciation expense.
(c) Reflects the following:
Amortization of goodwill acquired.............................................. $ 128
Reversal of management fee..................................................... (259)
Amortization of financing costs relating to German bank debt................... 54
---------
$ (77)
---------
---------
(d) Reflects the following:
Interest cost on the German bank debt.......................................... $1,618
Interest cost on the Steinbeis Note............................................ 200
Reversal of interest expense................................................... (330)
---------
$1,488
---------
---------
(e) Reflects the net additional income tax provisions as a result of the above
adjustments at an effective tax rate of 40%.
(f) Reflects the elimination of minority interest.
(g) If the Gessner Acquisition is not consummated, the Company's earnings per
share, giving PRO FORMA effect to the Offering, would be $1.16.
</TABLE>
24
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data for each of
the years in the three-year period ended December 31, 1996 have been derived
from, and are qualified by reference to the audited consolidated financial
statements of the Company included elsewhere or incorporated by reference in
this Prospectus. The selected historical consolidated financial data for each of
the years in the two year period ended December 31, 1993, have been derived from
the audited consolidated financial statements of the Company. The selected
historical consolidated unaudited financial data set forth below for the nine
month periods ended September 30, 1996 and 1997, have been derived from, and are
qualified by reference to, the Company's consolidated unaudited financial
statements included elsewhere or incorporated by reference in this Prospectus
and include all adjustments, consisting of normal recurring adjustments, which
management considers necessary for a fair presentation of the results of the
Company for such periods. Results for the interim periods are not necessarily
indicative of the results for the full year. The selected historical
consolidated financial data set forth below should be read in conjunction with,
and are qualified by reference to, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company and accompanying notes thereto included elsewhere or
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales............................................ $ 84,219 $ 79,982 $ 105,416 $ 117,516 $ 124,771 $ 77,734 $ 176,659
Cost of sales........................................ 68,614 66,360 88,138 100,106 101,981 64,105 142,559
--------- --------- --------- --------- --------- --------- ---------
Gross profit....................................... 15,605 13,622 17,278 17,410 22,790 13,629 34,100
Selling, general and administrative expenses......... 5,955 7,881 8,584 8,397 9,908 6,316 12,234
--------- --------- --------- --------- --------- --------- ---------
Income from operations............................. 9,650 5,741 8,694 9,013 12,882 7,313 21,866
Loss on sale of assets, net.......................... -- -- -- 8,302 -- -- --
Other (income) expenses, net......................... 464 374 (658) (1,198) (1,030) (991) 218
Cogeneration income (a).............................. -- (4,404) -- (6,512) (97) -- --
Interest expense..................................... 7,752 3,137 1,356 892 1,798 310 6,900
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and extraordinary
items............................................ 1,434 6,634 7,996 7,529 12,211 7,994 14,748
Income tax (benefit) expense......................... 583 1,921 2,768 (424) 4,697 3,037 5,762
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary items.................. 851 4,713 5,228 7,953 7,514 4,957 8,986
Extraordinary items.................................. 573 (2,103) (149) -- (297) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income....................................... $ 1,424 $ 2,610 $ 5,079 $ 7,953 $ 7,217 $ 4,957 $ 8,986
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings per common and common equivalent share
(b)................................................ $ 0.60 $ 0.45 $ 0.84 $ 1.31 $ 1.19 $ 0.82 $ 1.43
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average number of common and common
equivalent shares outstanding (b).................. 509 4,985 6,032 6,050 6,054 6,053 6,275
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
BALANCE SHEET DATA:
Working capital.................................................................................... $ 32,869
Total assets....................................................................................... 220,135
Long-term debt, less current maturities............................................................ 100,000
Stockholders' equity............................................................................... 57,150
</TABLE>
- ------------------------
(a) The Company has entered into an agreement with Kamine pursuant to which the
Company is the host to a cogeneration facility developed by Kamine at the
Company's Beaver Falls mill, in consideration of which the Company received
an initial cash payment of $4.4 million in 1993 and received deferred cash
payments totaling $7.0 million from Kamine between May 1995 and May 1997.
The present value of these deferred cash payments, in the amount of $6.5
million, was recorded as income in the first quarter of 1995. Cash payments
of $3.0 million, $2.0 million and $2.0 million, respectively, were received
in May 1995, May 1996 and May 1997. The payment received in May 1997 was the
last payment due under this agreement.
(b) Weighted average number of common and common equivalent shares outstanding
and earnings per common and common equivalent share have been restated to
give effect to a 3-for-2 stock split effective May 13, 1997. Weighted
average number of common and common equivalent shares outstanding and
earnings per common and common equivalent share for the nine months ended
September 30, 1997 reflect common stock equivalents which were excluded in
previous periods due to immateriality.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading manufacturer and converter of specialty fiber-based
materials with a wide range of consumer and industrial end-uses.
ACQUISITIONS AND DISPOSITION. On October 31, 1996, the Company completed
the acquisitions of CPG and Arcon for an aggregate purchase price of
approximately $91.5 million. These acquisitions were accounted for on the
purchase method which resulted in goodwill of approximately $46.7 million, which
is being amortized over 30 years. On June 30, 1994, the Company completed the
acquisition of the Endura Products Division ("Endura") of W.R. Grace & Co. (the
"Endura Acquisition") for a total purchase price of approximately $26.4 million
plus approximately $1.0 million in expenses paid. The Endura Acquisition was
accounted for on the purchase method which resulted in goodwill of approximately
$526,000, which is being amortized over 30 years. On March 22, 1995, the Company
sold the assets of its Lewis mill and gasket business to Armstrong World
Industries, Inc. ("Armstrong") for $12.9 million, together with $1.1 million of
inventory, which was sold to Armstrong at book value. This transaction resulted
in a loss of $8.3 million before taxes.
PURCHASE ACCOUNTING. The Gessner Acquisition will be accounted for as a
purchase of Gessner by the Company. As a result, the assets and liabilities of
Gessner will be recorded at their estimated fair market value. An amount equal
to the excess of the purchase price over the fair value of assumed liabilities
will be allocated to inventories, property and equipment, identifiable
intangible assets and goodwill. Goodwill will be amortized over 30 years.
Consequently, the post-Gessner Acquisition statements of income will be affected
by the amortization of such excess purchase price. See "Unaudited Pro Forma
Consolidated Financial Data."
RAW MATERIALS. Hardwood and softwood pulp and secondary fiber are the
Company's primary raw material requirements. These materials are cyclical in
both price and supply with the cyclic trends generally coinciding with the
strength of the overall economy and therefore the overall demand level for the
Company's products. Historically, there have been periods of significant and
rapid short-term pulp price changes, both up and down, with a concurrent
short-term impact on the Company's operating margins. However, over the full
cycle of the pulp market, the Company generally has been able in the past to
maintain margin stability with the larger impact to earnings coming from the
overall level of demand for the Company's products.
26
<PAGE>
RESULTS OF OPERATIONS
THE COMPANY
The Company has four principal product lines: office products, technical
specialties, durable specialties and filter products. These four product lines
were established in January 1997, as a result of the reconfiguration of the
Company's business following the Prior Acquisitions. The following table
summarizes the Company's historical net sales by product line.
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 (1) 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Office Products........................... $ 54,874 $ 57,326 $ 54,436 $ 39,420 $ 41,633
Technical Specialties (2)................. 35,132 30,565 31,077 16,909 58,190
Durable Specialties....................... 15,410 29,625 32,216 21,405 44,103
Filter Products (3)....................... -- -- 7,042 -- 32,733
--------- --------- --------- --------- ---------
$ 105,416 $ 117,516 $ 124,771 $ 77,734 $ 176,659
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Includes two months of results of CPG and Arcon following their acquisition.
(2) Net sales of Technical Specialties for the fiscal year ended December 31,
1994, and during the first three months of the fiscal year ended December
31, 1995, include net sales from the Company's former gasket business, which
was sold in March 1995.
(3) The Company entered this market in October 1996, upon consummation of the
Prior Acquisitions.
NINE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996.
Net sales increased 127.3% to $176.7 million in the first nine months of
1997 from $77.7 million in the comparable period in 1996.
The Prior Acquisitions added $95.4 million in sales revenue for the first
nine months of 1997. For the balance of the company's markets, net sales
increased 4.5% to $81.3 million in the first nine months of 1997 from $77.7
million in the comparable period in 1996. Office products net sales increased by
5.6% or $2.2 million to $41.6 million for the first nine months of 1997 as
compared to $39.4 million in the comparable period in 1996. Durable specialty
net sales increased by 106.0% or $22.7 million to $44.1 million for the first
nine months of 1997 as compared to $21.4 million in the comparable period in
1996. The book cover component of technical specialties net sales was $11.6
million in the first nine months of 1997 as compared to $11.8 million for the
comparable period in 1996.
Gross profit margin increased to 19.3% in the first nine months of 1997 as
compared to 17.5% for the comparable period in 1996. Current year margins were
impacted positively by lower fiber prices and productivity gains at the
Brattleboro, Vermont mill. These benefits were partially offset by reduced
selling prices to customers with whom the Company has cost-indexed supply
contracts. The cost-indexed customers account for approximately 15% of the
Company's sales. The new product mix within the Company due to the Prior
Acquisitions slightly reduced margins.
General and administrative expenses increased 94% to $12.2 (6.9% of net
sales) million in the first nine months of 1997 as compared to $6.3 million
(8.1% of net sales) for the comparable period in 1996. This increase was
primarily due to the impact of the Prior Acquisitions. Additional expenses were
also incurred relating to the change of the Company's name and the switching of
the Company's listing from NASDAQ to the NYSE.
27
<PAGE>
Income from operations increased $14.6 million to $21.9 million (12.4% of
net sales) in 1997 as compared to $7.3 million (9.4% of net sales) in the
comparable period in 1996. This increase was primarily due to the impact of the
Prior Acquisitions.
Other expenses increased by $1.2 million in the first nine months of 1997 to
$0.2 million as compared to ($1.0) million of other income for the comparable
period in 1996. This increase was due to higher levels of amortization related
to the Prior Acquisitions.
Interest expense increased to $6.9 million in the first nine months of 1997
as compared to $0.3 million for the comparable period in 1996. This increase was
due to the debt incurred to finance the Prior Acquisitions.
Net income for the first nine months of 1997 was $9.0 million or $1.43 per
share as compared to $5.0 million or $0.82 per share for the comparable period
in 1996.
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales increased 6.2% to $124.8 million in 1996 from $117.5 million in
1995.
The Prior Acquisitions added $20.2 million in sales revenue over the final
two months of 1996. In March 1995 the Company sold its gasket business to
Armstrong. This caused its gasket product revenue, part of technical
specialties, to decline by $6.7 million in 1996 as compared to 1995.
For the balance of the Company's markets, office products sales declined by
5.1% or $2.9 million to $54.4 million in 1996 from $57.3 million in 1995. This
decline in sales for office products was due to the capacity loss associated
with the sale of Lewis mill to Armstrong in March 1995, predominantly in the
lightweight cover and filing grades. Technical specialties net sales increased
by 1.6% or $0.5 million to $31.1 million in 1996 from $30.6 million in 1995 due
to the impact of the Prior Acquisitions in the last two months of 1996, offset
by the capacity loss associated with the sale of the Lewis mill. Durable
specialties net sales increased by 8.8% or $2.6 million to $32.2 million in 1996
from $29.6 million in 1995. Filter products net sales increased from $0.0 in
1995 to $7.0 million in 1996, due to the impact of the acquisition of CPG.
Gross profit margin increased to 18.3% in 1996 from 14.8% in 1995. This
improvement was primarily due to lower prices for pulp and recycled fiber and to
improved manufacturing efficiencies resulting from equipment upgrades.
General and administrative expenses increased 17.9% to $9.9 million (7.9% of
sales) in 1996 from $8.4 million (7.1% of sales) in 1995. This increase was
primarily due to expenses incurred in connection with the Prior Acquisitions.
Income from operations increased 43.3% to $12.9 million (10.3% of sales) in
1996 from $9.0 million (7.7% of sales) in 1995.
Other income decreased 14.0% to $1.0 million in 1996 as compared to $1.2
million in 1995. On April 29, 1994, the Company sold and leased back certain
operating assets at the Brattleboro, Vermont mill. The sale of these assets
resulted in a deferred gain of $17.2 million which is being amortized at the
rate of $1.7 million per year. This income was offset by amortization of
organizational and financing costs and goodwill.
Interest expense increased to $1.8 million in 1996 as compared to $0.9
million in 1995. This increase is due to the debt incurred to fund the Prior
Acquisitions.
Income taxes before extraordinary item were $4.7 million or 38.5% of income
before income taxes and extraordinary item in 1996.
Net income in 1996 was $7.2 million or $1.19 per share compared to $8.0
million or $1.31 per share in 1995, in each case, adjusted to give effect to the
Stock Split.
28
<PAGE>
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales increased 11.5% to $117.5 million from $105.4 million in 1994. Net
sales for 1995 included the first full year of sales from Endura which was
acquired by the Company on June 30, 1994.
Office products net sales increased by 4.5% or $2.4 million to $57.3 million
in 1995 from $54.9 million in 1994. This increase was primarily due to strong
order levels that the Company believes were principally related to positive
economic conditions during the first half of 1995, offset by the capacity loss
associated with the sale of the Lewis mill to Armstrong in March 1995,
predominantly in the lightweight cover and filing grades. Technical specialties
net sales decreased by 13.0% or $4.5 million to $30.6 million in 1995 from $35.1
million in 1994. This decrease was due to the sale of the Lewis mill and gasket
business to Armstrong in 1995, offset by an increase in book cover sales of 5.3%
or $0.8 million to $15.8 million in 1995 from $15.0 million in 1994 and the
addition of technical specialties from the Endura Acquisition. The largest
portion of this decrease resulted from the sale of the gasket business which
represented $9.1 million in net sales. Durable specialties net sales increased
92.0% or $14.2 million to $29.6 million in 1995 from $15.4 million in 1994 due
to the full year impact of the Endura Acquisition.
Gross profit margin decreased to 14.8% in 1995 from 16.4% in 1994. This
decline was primarily due to higher prices for pulp and recycled fiber and
higher lease expenses related to sale-leaseback financing entered into in April
1994. These increased costs were offset in part by higher selling prices.
General and administrative expenses decreased to $8.4 million (7.1% of net
sales) in 1995 from $8.6 million (8.2% of net sales) in 1994. This decrease
resulted from reduced levels of expenses due to the sale of the Company's gasket
business and lower premiums for directors' and officers' insurance.
Income from operations increased 3.7% to $9.0 million (7.7% of net sales) in
1995 from $8.7 million (8.2% of net sales) in 1994. This increase resulted
primarily from lower levels of general and administrative expenses described
above, offset in part by higher costs for pulp and secondary fiber.
Other income increased 82.1% to $1.2 million in 1995 as compared to $0.7
million in 1994. Other income in 1995 was positively impacted by the
amortization of $1.7 million in deferred gain on the sale-leaseback transaction.
On April 29, 1994, the Company sold and leased back certain operating assets at
the Brattleboro, Vermont mill. The sale of these assets resulted in a deferred
gain of $17.2 million which is being amortized over the ten-year life of the
lease.
Interest expense decreased 34.2% to $0.9 million in 1995 from $1.4 million
in 1994. This decrease was due to lower levels of debt resulting primarily from
debt repayment using proceeds from the Lewis mill sale.
Income tax benefit was $0.4 million in 1995. This represents an effective
tax rate of (5.6%) and reflects the reversal of a $3.0 million valuation
allowance. Income tax expense was $2.8 million in 1994 which represented an
effective tax rate of 34.6% and reflects utilization of $21.4 million of net
operating loss carry-forwards.
Net income in 1995 was $8.0 million or $1.31 per share compared to $5.1
million or $0.84 per share in 1994, in each case, adjusted to give effect to the
Stock Split.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had outstanding $100.0 million of
Senior Notes. The notes have a ten-year term, are non-amortizing and carry a
fixed interest rate of 9.375%. Additionally, the Company had available to it a
$20.0 million revolving credit facility as of September 30, 1997. As of such
date, no advances were outstanding under such credit facility.
The Company's historical requirements for capital have been primarily for
servicing debt, capital expenditures, working capital and acquisitions. Cash
flows from operating activities were $3.3 million and
29
<PAGE>
$8.8 million for the nine month periods ended September 30, 1997, and September
30, 1996, respectively. During these periods additions to property, plant and
equipment were $9.7 million and $4.3 million, respectively. In addition, the
Company expects to fund certain expenditures related to technology transfer
projects between Gessner and the Company, which the Company believes will
provide quality improvements, cost reductions, product performance enhancements
and the ability to produce a broader range of products. The Company currently
anticipates that the implementation of these projects can be accomplished over a
two to three year period, at a cost of $20 to $25 million. The Company believes
that cash flow from operations, together with the net proceeds of the Offering
plus amounts available under credit facilities, will be sufficient to fund its
capital requirements, debt service and working capital requirements for the
foreseeable future.
The Company intends to pursue strategic acquisitions that will enhance its
range of products, complement the Company's core markets, provide distribution
or sales and marketing efficiencies or provide opportunities for technology
gains or other operating efficiencies. Any such acquisition could require the
Company to secure independent debt or equity financing to complete such
transaction. See "The Gessner Acquisition."
INFLATION
During the past several years, the rate of general inflation has been
relatively low and has not had a significant impact on the Company's results of
operations. The Company purchases raw materials which are subject to cyclical
changes in costs that may not reflect the rate of general inflation.
SEASONALITY
The Company's business is mildly seasonal, with the third quarter of each
year typically having the lowest level of net sales and operating income. This
seasonality is the result of a lower level of purchasing activity in the third
quarter, since many converters shut down their operations during portions of
July.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." This statement
is effective for periods ending after December 31, 1997. The Company has yet to
analyze the potential impact on its financial statements upon adoption of this
pronouncement.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
statement is effective for periods beginning after December 15, 1997. The
Company has yet to analyze the potential impact on its financial statements upon
adoption of this pronouncement.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement is effective for periods
beginning after December 15, 1997. The Company has yet to analyze the potential
impact on its financial statements upon adoption of this pronouncement.
30
<PAGE>
BUSINESS OF THE COMPANY
HISTORY
The Company is a leading manufacturer and converter of specialty fiber-based
materials with a wide range of consumer and industrial end-uses. Through its
nine United States paper mills and converting facilities, the Company has
focused on niche markets where it can provide high value-added products which
meet rigorous technical specifications and customer service requirements. See "
- -- Manufacturing -- Mills and Converting Facilities." The Company's products
serve four distinct markets and are sold for worldwide distribution to customers
who manufacture end-use products.
The Company was created in 1989 when Boise Cascade Corporation sold certain
assets and liabilities of its Specialty Paperboard division to a group of
investors which included the Company's management and McCown De Leeuw & Co.
("MDC"), a private investment firm. The Company completed an initial public
offering of its common stock in early 1993 and is currently traded on the NYSE
under the symbol "FMK".
Since its inception, the Company has pursued a strategy of establishing
itself as a leading manufacturer and converter of specialty paper products for
markets where its manufacturing expertise, proprietary production methods and
customer relationships provide a competitive advantage. Prior to 1994, the
Company focused on two primary market areas, office products and technical
specialties. Office products primarily consisted of pressboard products made
into products for filing, binding and storage of documents. Technical
specialties primarily consisted of latex saturated and coated book cover
materials and gasket materials. In 1994, through the Endura Acquisition, the
Company broadened its product offerings to include durable specialties, such as
industrial and consumer masking tape substrates and printed circuit board
substrates. In 1995, the Company sold its automotive gasket business to
Armstrong. In 1996, the Company acquired CPG, an acquisition which gave the
Company strong positions in markets for the automotive fuel and oil filtration
materials and technical specialties including electrical transformer paper and
acid-free picture mounting art board. These products, together with the
saturated and coated book cover materials and other technical specialty products
manufactured by the Company prior to the acquisition of CPG, form the core of
the technical specialties division. Also in 1996, the Company acquired Arcon,
which led the industry in pioneering the use and treatment of
Tyvek-Registered Trademark- as a low cost, durable binding alternative for books
and a wide range of edge binding and reinforcing for products such as pressboard
folders, memo pads and checkbooks. The products formerly manufactured by Arcon
were incorporated into the product offerings of the durable specialties
division. The Company's headquarters is located at 161 Wellington Road, P.O. Box
498, Brattleboro, Vermont 05302. The Company's home page on the Internet is
located at http://www.fibermark.com.
- ------------------------
- -Registered Trademark- DuPont registered trademark.
31
<PAGE>
OVERVIEW
The Company has four distinctive categories of products. The table below
provides an overview of the Company's primary product lines and facilities:
<TABLE>
<CAPTION>
TECHNICAL DURABLE
OFFICE PRODUCTS SPECIALTIES SPECIALTIES
<S> <C> <C> <C> <C> <C> <C> <C>
PRIMARY - Pressboard - Electrical - Tape substrates -
PRODUCTS: filing, cover and transformer paper
binder materials
- Lightweight - Acid-free board - Binding tapes -
filing and cover
materials
- Premium cover - Abrasive backing - Hinge and -
papers paper reinforcing tapes
- Premium cover
papers
- Printed circuit
board base paper
- Photographic
packaging paper
and board
- Wet-strength tag
- Heavyweight book
cover
- Lightweight book
cover
FACILITIES(a): Brattleboro, Fitchburg, MA(b) Quakertown, PA(b)
VT(b) Warren Glen, NJ Owensboro, KY(c)
Warren Glen, NJ Hughesville, NJ
Hughesville, NJ Owensboro, KY(c)
Beaver Falls, NY
Richmond, VA
<CAPTION>
FILTER PRODUCTS
<S> <C>
PRIMARY Saturated filter
PRODUCTS: paper
Non-saturated
filter paper
Industrial
filter paper
FACILITIES(a): Richmond, VA(b)
Rochester, MI
Fitchburg, MA
</TABLE>
- ------------------------
(a) The Company also has sales offices in Annecy, France; Hong Kong, People's
Republic of China; and Tokyo, Japan.
(b) Division Headquarters.
(c) The Company has decided to cease operations at this facility during the
first quarter of 1998. The Company intends to transfer the production of
this facility to certain of its other facilities.
32
<PAGE>
BUSINESS STRATEGY
The Company's strategy is to increase sales and earnings by pursuing
selected strategic acquisitions, rationalizing production capacity and building
a global customer-focused company. The following are the key elements of this
strategy:
- STRATEGIC ACQUISITIONS. The Company intends to continue pursuing growth
through strategic acquisitions that complement the Company's core markets,
provide distribution or sales and marketing efficiencies or provide
opportunities for technology gains or other operating efficiencies.
- STRENGTHEN INTERNATIONAL PRESENCE IN SPECIALTY FIBER-BASED
MATERIALS. Historically, the Company has devoted significant resources to
its international marketing efforts which were intended to create export
markets for the Company's products. The Gessner Acquisition will
strengthen the Company's international presence and allow it to capitalize
on Gessner's extensive sales and marketing capabilities to further
increase sales of the Company's products to international customers.
- BUSINESS RATIONALIZATION. The Company continually evaluates its
organizational structure and manufacturing operations to identify
opportunities to more effectively meet its customers' requirements and to
reduce costs. As a result, the Company may reconfigure its manufacturing
operations, including the number of facilities operated and the locations
at which products are manufactured.
- INVEST IN TECHNOLOGY AND CAPITAL IMPROVEMENTS. The Company seeks to reduce
costs, increase capacity where needed, enhance manufacturing capabilities
and improve product quality through selected capital investments. The
Company invested approximately $8.5 million in new equipment, technology
and leasehold improvements at its facilities during the fiscal year ended
December 31, 1996, and $9.7 million during the nine months ended September
30, 1997. The Company intends to continue to upgrade its facilities and
equipment to achieve further operating efficiencies and, in particular, to
take advantage of the technology transfer opportunities it expects to
realize from the Gessner Acquisition.
- EFFECTIVE UTILIZATION OF DIVERSE FIBERS, INCLUDING RECYCLED MATERIALS. The
Company intends to continue to capitalize on its position as a leading
manufacturer of specialty fiber-based materials. In order to meet customer
demand for recycled content and high performance, as well as to achieve
greater cost controls, the Company seeks to leverage its investments in
fiber-cleaning technology and maximize its use of recycled materials. The
Company is actively pursuing new product development projects with
existing and potential new customers. See " -- Manufacturing -- Use of
Recycled Fiber."
OFFICE PRODUCTS
MARKET. The Company manufactures a wide range of materials used in the
manufacture of office products. The Company believes that it is the largest
domestic supplier of pressboard, which is converted into data binders, notebook
covers, report covers, ring binders, and file and index guides. The Company also
pursues niche markets within the office supplies market where its capabilities
and customer relationships give it a competitive advantage.
33
<PAGE>
PRODUCTS. The table below sets forth the Company's primary office products
materials.
OFFICE PRODUCTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRODUCT TYPE CHARACTERISTICS TYPICAL END USES
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Pressboard filing cover and High density paperboard Data binders; ring binders;
binder material designed for strength, report covers; notebook
rigidity, durability and covers
appearance; may be embossed
or acrylic coated; high
recycled content
Lightweight filing and cover Lighter weight paperboard, Filing products; portfolios;
materials designed for decorative report covers; document
embellishments and less covers; presentation covers
demanding end-uses than
pressboard
Premium cover papers Well-formed papers with good Printed report covers;
strength, color/texture and promotional and advertising
printable surfaces materials
</TABLE>
The largest component of the office products division's net sales is a
heavyweight paperboard (pressboard) which is densified through a proprietary
manufacturing process developed by the Company. This densification process
provides pressboard with the strength, rigidity, durability and appearance
required for data binders, ring binders, notebook covers and report covers. The
Company and its predecessors have offered their pressboard line of products for
more than 100 years and believes it has established significant brand awareness
and loyalty among its customers.
The Company produces certain types of lightweight filing and cover materials
for conversion into file folders, expanding wallets, notebook covers and report
covers. The Company is continuing its focus on certain products for the
lightweight filing and cover material market, such as colored file folder and
report covers for the growing on-demand document printing market, with specific
emphasis on products meeting the market's recycled content requirements. The
Company's lightweight filing and cover materials are generally manufactured
using similar equipment and processes and are sold to many of the same customers
as the Company's heavyweight office products. The Company continues to
experience the benefits of the Brattleboro paper machine upgrade, completed in
October 1995, which increased capacity by 25%. With the added capacity, the
Company is working to build this lightweight business through the strength of
its relationships with office products converters. These lightweight materials,
manufactured to meet consumer and government demand for recycled paper products,
provide an opportunity for the Company to increase its penetration in the office
products market.
The Company manufactures a line of premium cover stocks sold through paper
distributors to commercial printers. These papers have good strength and may
have colored or textured surfaces and are typically used for printed report
covers and promotional and advertising materials.
The Company offers many of its products in acrylic coated and embossed form,
providing additional durability and stain resistance. The Company has the
capability to custom manufacture materials in a variety of colors and can finish
its products to customer specifications, including glazing (densification),
coating, embossing, laminating, sheeting, slitting and rewinding.
CUSTOMERS. The Company sells its office products through its own sales
representatives to major domestic office products converters, including: Acco
World Corporation, a division of American Brands Inc.; Smead Manufacturing
Company and Esselte Pendaflex Corp. The Company has long-term relationships with
all of its major customers in this market. The Company's customers produce
office products
34
<PAGE>
from the Company's paper-based materials and sell end-use products through
contract stationers, paper merchants, office products wholesalers, buying
groups, warehouse clubs, catalog sales, office products superstores, retail
office supply stores and other outlets. The Company also markets its materials
through direct sales representatives or manufacturer's representatives in Asia,
Canada, Mexico, Central and South America and Europe.
COMPETITION. In the office products supply market, the Company competes
with a number of other producers of heavyweight pressboard, colored file folder
paper and lightweight filing and cover materials, including International Paper
Company, Temple-Inland Inc., Brownville Specialty Products and Merrimac Paper
Co., Inc. ("Merrimac"). The Company believes it holds a leading position in the
domestic market for pressboard and a growing presence in the lightweight filing
and cover materials market. In markets that use pressboard, the Company also
competes with producers of vinyl and plastic office products materials. In the
premium cover and text market, the Company also competes against divisions of
Georgia Pacific Corp., Fox River Paper Co., Crown Vantage Inc. and a number of
other manufacturers.
TECHNICAL SPECIALTIES
MARKET. The Company manufactures specialty fiber-based materials customized
to meet the unique performance characteristics required by specific customers
and end-use markets. Technical specialties include paper used as insulation
material in electrical transformer coils, acid-free board used for archival
quality picture mounting and records storage applications, photographic
packaging paper and board, printed circuit board base papers, wet-strength tag
used primarily in the laundry and dry-cleaning industries and paper backings for
sandpaper and other abrasives. The Company has been able to successfully enter
niche markets in the technical specialties area in which it believes its
manufacturing flexibility and technical expertise give it a competitive
advantage in meeting rigorous customer requirements. The Company believes that
it is the U.S. market leader in many of its markets, including electrical
transformer papers, acid-free board, wet-strength tag and heavyweight industrial
abrasive backing materials. In addition, the Company is a leading producer of
saturating base paper for the manufacture of printed circuit boards. Many of the
Company's technical specialties have been used in their current applications for
many years and have proven to be cost-effective in meeting the performance
requirements for which they are utilized. To supplement these products, the
Company works to develop new products that have the potential to experience
positive growth due to superior performance, lower cost or both.
The Company is one of the two leading domestic producers of latex-reinforced
material used in book covers and related products. These materials are used by
customers in applications where durability and distinctive appearance are
important, such as flexible covers for books, menus, photo albums, desktop
calendars, appointment books and reports.
35
<PAGE>
PRODUCTS. The table below sets forth the Company's primary technical
specialties:
TECHNICAL SPECIALTIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRODUCT TYPE CHARACTERISTICS TYPICAL END USES
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Electrical transformer paper High dielectric strength Power transformer coil
insulation
Acid-free board High pH (acid-free), Archival quality picture
exceptional cleanliness mounting and document storage
Abrasive backing paper High-tear strength, smooth Heavyweight sandpaper and
surfaces and controlled other commercial abrasives
electrostatic properties
Printed circuit board base Low density; uniform high Interior of printed circuit
paper bulk boards
Photographic packaging paper Totally opaque; high-strength Photographic film protection
and board
Wet-strength tag High-strength saturated Laundry and dry-cleaning
sheet; moisture and solvent labels
resistant
Heavyweight book cover Strong cotton fiber base Flexible covers for softbound
sheets latex-reinforced and books, menus, photo albums,
leather-texture desktop calendars and
accessories, appointment
books and reports
Lightweight book cover Latex-reinforced base sheets Exterior cover material for
of higher bulk and lower hardbound books; photo
weight albums, report covers
Premium cover papers Well-formed papers with good Printed report covers;
strength, color/texture and promotional and advertising
printable surfaces materials
</TABLE>
The Company supplies electrical transformer papers with high dielectric
strength which are wrapped around individual electrical transformer coils as
insulating material. The Company is the major supplier of such paper to Bedford
Materials, Inc., which operates the transformer insulation business formerly
owned by Westinghouse Electrical Corp., and is one of two major suppliers to the
other major U.S. manufacturer of electrical transformers.
The Company manufactures acid-free board used as picture mounting art board
and archival storage media. Acid-free picture mounting art board and storage
media are designed to prevent the degradation and discoloration of artwork and
documents caused by acidic exposure. The Company believes that its acid-free
products have superior performance characteristics which have resulted in their
wide acceptance in the marketplace.
The Company's photographic packaging paper is primarily dual composition
paper used by Eastman Kodak Company ("Kodak") and Polaroid Corp. ("Polaroid") to
package certain films. Such products must meet demanding standards for opacity
in order to prevent premature exposure of the film. The Company's strong
position in the market for photographic packaging paper is based in part upon
the Company's ability to manufacture multi-ply paper.
The Company also manufactures printed circuit board base papers which are
used in the manufacture of circuit boards for remote control devices and other
electrical components. The Company's printed
36
<PAGE>
circuit board base papers have the advantage of low density and high bulk,
allowing circuit board manufacturers to lower their costs and increase their
output by processing fewer sheets than they would with competing materials.
The Company's wet-strength papers are primarily used as tags in the laundry
and dry cleaning industries to identify clothing as it is processed through
washing machines and dry cleaning equipment.
These products, in addition to withstanding physically and chemically harsh
processes, are manufactured in multiple colors that must not be transferred onto
the clothing to which they are attached. The Company is a major producer of this
paper in the United States and is now exporting to the United Kingdom, with
opportunities to expand into other European markets.
Sandpaper and other abrasive backing papers are used in the manufacture of
heavyweight sandpaper and other commercial abrasives. The Company's sandpaper
and other abrasive backing papers are designed to meet customers' exacting
specifications for tear strength, smooth surfaces and controlled electrostatic
properties.
Using proprietary manufacturing processes, the Company combines pulp, latex,
recycled rag fiber and other materials to produce flexible and durable specialty
materials for use in a variety of book cover applications. The Company sells its
book cover materials directly to customers in this market, who in turn coat,
emboss and decorate the material and sell it to manufacturers of end-use
products.
The Company's primary latex product is manufactured using recycled rag
fibers, resulting in increased durability and a leather-like texture and
appearance. These products are used for day books, diaries, menu covers and
softcover books. The Company is also a leading supplier of light-weight
materials used in covering hardbound books.
CUSTOMERS. The Company sells its technical specialties through its own
sales force to a variety of customers. Major customers include: Bedford
Materials, Inc. and the TMC division of Avery Dennison Corp. (electrical
transformer paper); the Nielsen and Bainbridge division of Esselte Corp. and the
Crescent Cardboard division of Potomac Corp. (acid-free paper); Kodak
(photographic packaging paper); Pajco-Holliston (coating base for book covers).
The Company works with its customers to develop new products and to provide
technical support for existing products.
COMPETITION. The Company's competitors in technical specialties vary by
product type. Generally, the Company faces competition from both foreign and
domestic specialty manufacturers. The Company's focus is to compete in products
and markets which require manufacturing flexibility, product properties and
quality levels not provided by integrated paper mills. The Company's key
competitors include Kimberly-Clark Corporation ("Kimberly-Clark"), Sorg Paper
Co., a subsidiary of Mosinee Paper Corp., Arjo Wiggins USA, Inc., Robert Cordier
AG and Merrimac. In the latex-reinforced book cover market, the Company
primarily competes with Rexam DSI, Inc. and, to a lesser degree, with products
of plastic-coated and coated cloth book cover materials.
37
<PAGE>
DURABLE SPECIALTIES
MARKET. The Company is one of the largest producers of specialty tape
substrates and a broad range of saturated, coated and non-woven materials. The
primary markets for the Company's durable specialties are tape substrates
(primarily industrial and consumer masking tapes), binding tapes and hinge and
reinforcing tapes, and book cover materials. There are seven major North
American producers of pressure sensitive tape, who, together, account for the
majority of the industry's total sales. Most of these producers have
self-saturating capabilities for general purpose tapes and look to suppliers
like the Company for specialty paper backings.
The Company believes it is a leading supplier of binding tapes and hinge and
reinforcing tapes converted from specialty papers and substitutes for the
manufacture of notepads, books, expandable file folders and checkbooks.
The Company has also sought out niche markets in which it believes it can
have a competitive advantage for its durable specialties. The Company produces
high strength materials used in the apparel industry as blue jean tags and for
various other tag and label applications.
PRODUCTS. The table below sets forth the Company's primary durable
specialties.
<TABLE>
<CAPTION>
DURABLE SPECIALTIES
- -------------------------------------------------------------------------------------------
<S> <C> <C>
PRODUCT TYPE CHARACTERISTICS TYPICAL END USES
- ----------------------------- ----------------------------- -----------------------------
Tape substrates Enhanced strength, release, Industrial and commercial
impermeability or heat masking tapes; barrier tapes;
resistance pressure-sensitive tapes;
bandolier tapes; packaging
tapes
Binding tapes Tyvek-Registered Trademark- Notepads; composition books;
and latex-impregnated paper checkbooks
tapes
Hinge and reinforcing tapes Durable Expandable file folders
Tyvek-Registered Trademark-
high fold-and tear-strength
reinforcing materials
</TABLE>
- ------------------------
- -Registered Trademark-DuPont registered trademark.
The Company's tape substrates are used in the manufacture of industrial and
consumer masking tapes, barrier tapes, other pressure-sensitive tapes and
bandoliering tapes. The Company's products have the strength and technical
properties to meet various performance demands. These products include
barrier-coated and heat resistant industrial masking tapes for the automotive
paint and aircraft manufacturing industries and packaging tapes which withstand
the rigors of the worldwide shipping. The Company's bandoliering tapes are used
by the electronics industry to carry resistors, capacitators and other items
during high-speed automated assembly of electronic devices.
The Company is a leading producer of high strength binding tapes and hinge
and reinforcing tape using Tyvek-Registered Trademark- as a base material. These
products are primarily used to protect, bind and decorate books and documents,
checkbooks and notepads. The Company's Tyvek-Registered Trademark- tapes,
marketed under the trade name Super ArcoFlex-TM-, are used to decorate pad
bindings and are able to withstand the stress incurred during cutting in high
volume manufacturing. The Company also uses Tyvek-Registered Trademark- in the
manufacture of supported gussets for red wallet expansion folders. Gussets are
the accordion folder material between the two folder side sheets that allow the
folder to expand. The Company has developed a method to strengthen the gussets
by laminating coated Tyvek-Registered Trademark- to the folder material forming
the gusset and sells this material under the name Expanlin. The Company also
sells coated Tyvek-Registered Trademark- to converters who laminate it to the
folder material themselves. The result is a material that is stronger, longer
lasting and more reliable than
38
<PAGE>
unsupported gussets. The Company believes that Expanlin has become the preferred
material used in supported gussets by expansion folder manufacturers.
Other durable specialties include imitation leather stock which is sold to
garment label manufacturers who cut and print the material with various brand
and product information for use as blue jean tags. This material is expected to
maintain its crisp appearance after repeated washing cycles. The Company has
also developed a tag and label product line for manufacturers who require tags
and labels with the strength of Tyvek-Registered Trademark-. These products can
be color-coated and are used as luggage tags by the airline industry, as flame-
retardant labels for the automotive industry and other types of demanding
packaging applications.
CUSTOMERS. The Company offers its customers a broad product line with
flexible product development and manufacturing capabilities. This flexibility
has fostered long-term relationships with its client base. The Company sells its
specialty tape substrates to many of the leading tape manufacturers, including
American Tape Company and 3M. The Company believes that the international
customer base for these products may increase as the Company's sales force is
trained to sell these additional product lines. In the checkbook industry, the
Company's major customer is Deluxe Check Printers, a division of Deluxe Corp.
The Company sells blue jean tags and its other tag and label products to a
variety of converters and end-users.
COMPETITION. For tape backing the Company primarily competes against
Kimberly-Clark. In the binding tape and hinge and reinforcing tape markets, the
Company competes against several smaller competitors including Rexford Paper
Co., Northeast Paper Converting Company and Southern Label Company, Inc. The
Company believes it holds a leading position in the market for
Tyvek-Registered Trademark- based binding tapes and hinge and reinforcing tapes.
In other niche markets, the Company competes with various small competitors,
none of which has a dominant market position.
FILTER PRODUCTS
MARKET. The Company is a major supplier of saturated and non-saturated
filter papers used in fluid and air filters for the automotive and heavy-duty
truck and equipment industries. The Company estimates that the market for both
saturated and non-saturated papers was approximately $170 million in 1996, of
which 80% was utilized in the automotive and heavy-duty truck and equipment
markets. The other major market for these products include dry cleaner solvent
filtration and potable water filtration. The market for automotive and
heavy-duty truck and equipment filters has grown at a compound annual growth
rate of approximately 5.7% over the ten-year period from 1986 to 1996. The
Company also manufactures industrial filter paper used in a variety of
industrial applications and processes.
39
<PAGE>
PRODUCTS. The table below sets forth the Company's primary filter products
materials.
<TABLE>
<CAPTION>
FILTER PRODUCTS
- -------------------------------------------------------------------------------------------
<S> <C> <C>
PRODUCT TYPE CHARACTERISTICS TYPICAL END USES
- ----------------------------- ----------------------------- -----------------------------
Saturated filter paper Controlled porosity; enhanced Air, oil, fuel and hydraulic
strength and rigidity; high filters for heavy and light
temperature and chemical duty trucks and passenger
resistance cars;
dry-cleaning solvent filters
Non-saturated filter paper Controlled porosity; high Oil filters for heavy-duty
density; may be impregnated equipment and diesel trucks;
with activated carbon and home water filters
other fillers
Industrial filter paper Controlled porosity; high Hot oil filters for the
temperature resistance; fast-food industry; paint and
cleanliness lacquer manufacturing; fruit
juice processing
</TABLE>
The Company's major filter product is solvent-based saturated filter paper,
which is controlled porosity paper saturated with phenolic and other resins to
increase its strength and rigidity for use in various high temperature
applications. This product is purchased by filter manufacturers who cut, pleat
and cure the paper for use in oil, fuel and hydraulic fluid filters for heavy
and light duty trucks and passenger cars. These filters are sold primarily to
the replacement market but also to original equipment manufacturers. The Company
manufactures many grades of saturated filter paper to specifications provided by
its customers. The Company believes that it is one of the three largest
producers of saturated filter paper in the United States.
The Company also produces non-saturated filter paper. This category includes
non-saturated paper containing activated carbons and other fillers and edge
filter media. Primary uses of non-saturated filter paper include oil filtration
in heavy equipment and diesel trucks and home water filters. In addition, the
Company produces industrial filter papers for various food service and
industrial applications, including filtration of hot oil used in fast-food
preparation, the manufacture of paints and lacquers and the processing of fruit
juices.
CUSTOMERS. The Company sells its filter products primarily through its own
sales staff directly to its customers. Principal customers for the Company's
saturated filter papers include the Fleetguard Filtration Systems division of
Cummins Engine Co., Inc. ("Fleetguard"), the Delphi Automotive Systems division
of General Motors Corp. ("General Motors"), AlliedSignal, Inc. (Fram filters),
Purolator Products, Inc. and Miki Sangyo U.S.A. Inc., a trading company and the
major supplier of filter paper used in filters supplied to the U.S.
manufacturing sites of Nissan Motor Co., Ltd. and Honda Motor Co., Ltd. The
Company's saturated filter paper is used to make filters which are used on
vehicles manufactured by General Motors, Chrysler Corp. and Ford Motor Corp.
Fleetguard is also the Company's primary customer for non-saturated filter
papers. The Company has long-term relationships with its customers and believes
that these relationships with its customers are based on its ability to provide
superior service and technical support.
The Company's major customers for its industrial filter paper products
include National Filters, Inc. and Lubrizol Corp. for commercial manufacturing
applications, Seneca Foods Corp. for food processing applications and the KFC
North America division of PepsiCo Inc. in the hot oil filter market. In
addition, the Company supplies industrial filter papers to various smaller
manufacturers and users.
40
<PAGE>
COMPETITION. The Company's primary competition in solvent-based saturated
filter papers comes from Ahlstrom Filtration, Inc. ("Ahlstrom"), a division of
A. Ahlstrom Corp. In addition, the Hollingsworth & Vose Company is the dominant
manufacturer of water-based saturated filter papers, a market in which the
Company has a smaller presence. To the extent that industry efforts to develop
water-based alternatives to solvent-based filter papers are successful, the
Company's solvent-based filter papers may face increased competition from such
water-based alternatives.
In the markets for non-saturated filter papers and industrial filter papers,
the Company competes primarily with Ahlstrom, Knowlton Specialty Papers, Inc.
and Lydall, Inc. In each of these markets, producers tend to manufacture custom
designed products on an exclusive basis for their customers.
MANUFACTURING
MILLS AND CONVERTING FACILITIES. The Company currently operates nine
production facilities of which eight are owned and one is leased. The Company
has one additional converting facility located in Oceanside, New York. The
Company is in the process of closing this leased facility and is moving
substantially all of the production from this facility to its Quakertown
facility. The Company believes that the shut-down of the Oceanside facility will
be completed by December 1997. As part of its strategy to reduce costs and more
effectively meet customer requirements, the Company routinely evaluates and
assesses the operations of and product mix manufactured or processed at each of
its facilities. As a result of these routine evaluations, the Company may shift
production to, or reallocate production among, its facilities and change,
decrease or cease operations at certain facilities. In evaluating its
manufacturing facilities, the Company considers a number of factors including
manufacturing effectiveness, productivity, proximity to key customers, operating
efficiency, strategic contribution to the Company and maintenance and capital
expenditure requirements.
On November 18, 1997, as part of its ongoing strategy of business
rationalization, the Company announced plans to cease operations at its
Owensboro, Kentucky facility by the first quarter of 1998. Production at this
facility will be moved into certain of the Company's other operations.
Management currently estimates that the closing of this facility will result in
a one-time pre-tax charge of approximately $10.0 million during the fourth
quarter of 1997, however, it expects that the resulting cost reductions will
result in annual net savings of approximately $1.5 million beginning in 1998.
The Owensboro facility currently employs 41 people.
OFFICE PRODUCTS. The Company's main mill for the production of office
products is located in Brattleboro, Vermont. Mills located at Warren Glen, New
Jersey and Hughesville, New Jersey also produce office products materials.
Recent improvements have included an upgrade to the Brattleboro mill that
significantly increased its capacity and its ability to produce a wider range of
lighter weight products. The Company has also recently completed a series of
capital improvements at its Warren Glen mill, which have increased productivity,
reduced costs and waste and increased the ability of the mill to use a wider
range of pulps and recycled materials.
The cylinder paper machines in use at the Brattleboro and Warren Glen mills
are configured to produce a broad range of specialty materials, including
pressboard, filing and cover materials of various weights, colors and finishes.
The machine in the Brattleboro mill features computer-controlled monitoring of
color, weight, thickness and moisture content. The configuration of the cylinder
machine allows the production of multiple-ply products, resulting in greater
strength and stiffness than a comparable one-ply product made on a Fourdrinier
paper machine. In addition, this process enables the Company to use lower-cost
recycled fiber pulp in the interior layers and higher-cost virgin pulp layers on
the exterior of a product, providing greater strength and the surface appearance
desired by consumers. Finishing capabilities at the Brattleboro mill include
glazing, coating, embossing, rewinding, laminating and sheeting.
TECHNICAL SPECIALTIES. The Company manufactures technical specialties at a
number of its facilities, including its Hughesville, Warren Glen, Richmond,
Fitchburg, Owensboro and Beaver Falls facilities. The
41
<PAGE>
Hughesville mill manufactures primarily technical specialty papers, including
photographic packaging, electrical transformer paper and wet-strength tag. The
Company's mill located in Beaver Falls, New York specializes in the production
of proprietary latex-impregnated materials for use as book covers and similar
products. The stock preparation process at the Beaver Falls mill allows blending
of latex, cork, cotton fiber, pulp and other materials into a variety of
products with specific performance characteristics. The mill has a fiber
reclamation system, enabling it to utilize recycled fiber.
DURABLE SPECIALTIES. Durable specialties are manufactured in the Company's
Owensboro mill and its Quakertown converting facility. The Company's main
converting facility for durable specialties is located at Quakertown,
Pennsylvania. A significant portion of the saturating base paper used in this
facility is provided by the Owensboro mill.
FILTER PRODUCTS. The Company's filter products are produced primarily at
its Richmond, Rochester and Fitchburg mills. The Richmond mill uses a
methanol-based resin saturating process that allows the saturation of base paper
off the paper machine. A recent upgrade of the Richmond mill increased
saturation capacity by 50%. The Rochester mill uses an in-line saturating
process. The Company manufactures its non-saturated filter papers at its
Fitchburg mill.
RAW MATERIALS. The Company uses a wide array of raw materials to formulate
its products, including virgin hardwood and softwood pulp, secondary wood fiber
from pre- and post-consumer waste, secondary cotton fiber from the apparel
industry, synthetic fibers (such as nylon and fiberglass), synthetic latex and a
wide variety of chemicals, pigments and dyes. These materials are procured from
numerous suppliers in the United States and Canada. The Company does not produce
pulp. Pulp and secondary fiber prices are subject to substantial cyclical price
fluctuations. The Company experienced a significant increase in raw material
costs during 1994 and 1995, but was able to partially recover these increases
with selling price increases, cost containment efforts and the early benefits
resulting from the paper machine upgrade performed in 1995. There can be no
assurance that the Company will be able to pass any future increases in the
price of pulp through to its customers in the form of price increases.
The Company's sole source of supply of the Tyvek-Registered Trademark- used
in production of certain of its products is DuPont. The Company has a
long-standing relationship with DuPont as an approved converter of
Tyvek-Registered Trademark- and has never experienced a disruption in supply.
Although management believes that it has a good relationship with DuPont, there
can be no assurance that the Company will be able to continually purchase
adequate supplies of Tyvek-Registered Trademark-. Any material interruption in
the Company's supply of Tyvek-Registered Trademark- could have a material
adverse effect on the results of operations and financial condition of the
Company.
USE OF RECYCLED FIBER. The Company believes that materials with recycled
content continue to grow in consumer acceptance. The Company has made
significant capital investments in recycling equipment and systems. The use of
the Company's cylinder paper machines in the manufacturing process for
pressboard products allows the use of recycled fiber in the product interior,
while virgin pulp is used on the product exterior, providing greater strength as
well as the product appearance desired by customers. Recently completed capital
investments to upgrade Warren Glen's fiber processing facility will enable it to
process fiber for company-wide use. The upgrade enhances the Company's ability
to process a wider range of pulps and recycled materials.
The Company's office products are manufactured with up to 100% recycled
fiber, of which up to 50% may be post-consumer waste. Post-consumer waste refers
to paper waste from end-users of paper products, and is generally considered the
standard by which government agencies and environmentally conscious consumers
evaluate recycled content. The Company presently meets and expects to continue
to meet government and consumer recycled content requirements.
RESEARCH AND DEVELOPMENT. The Company's expenditures on research and
development were $1.1 million, $1.2 million, $1.0 million and $1.1 million in
the nine months ended September 30, 1997, and the fiscal years ended December
31, 1996, 1995 and 1994, respectively. The Company has a research and
42
<PAGE>
development staff with expertise in chemistry, papermaking and materials
science. This staff works closely with the Company's customers to develop, test
and produce new product formulations designed to meet customer specifications.
EMPLOYEES
As of August 31, 1997, the Company employed a total of 1,023 employees, of
which 318 were salaried and 705 were hourly. Of the salaried employees, 120 were
in manufacturing, 62 in sales and marketing, 17 in research and development and
119 in professional or administrative support.
The hourly employees at the Quakertown, Pennsylvania location are non-union.
The remaining hourly employees are members of either the United Paperworkers
International Union, the International Brotherhood of Boilermakers, Iron Ship
Builders, Blacksmiths, Forgers and Helpers or the International Brotherhood of
Electrical Workers. The Company believes that, in general, it has good relations
with its employees and their unions. The table below sets out the expiration
dates of the Company's labor contracts by facility:
<TABLE>
<CAPTION>
FACILITY EXPIRATION DATE
- -------------------------------------------------------------------------- ------------------
<S> <C>
Fitchburg, MA............................................................. April 30, 1998
Owensboro, KY(a).......................................................... May 10, 1999
Warren Glen, NJ(b)........................................................ May 23, 1999
May 25, 1999
Hughesville, NJ(b)........................................................ May 23, 1999
May 25, 1999
Rochester, MI............................................................. May 23, 1999
Richmond, VA.............................................................. April 28, 2000
Beaver Falls, NY.......................................................... June 30, 2000
Brattleboro, VT........................................................... August 31, 2002
</TABLE>
- ------------------------
(a) The Company has decided to cease operations at this facility during the
first quarter of 1998.
(b) Workers at Warren Glen, NJ and Hughesville, NJ are subject to two separate
collective bargaining agreements.
COGENERATION PROJECT
The Company has entered into an agreement with Kamine, pursuant to which the
Company's Beaver Falls facility is the host for a gas-fired, 79-megawatt
combined-cycle cogeneration facility developed by Kamine at the Company's Beaver
Falls mill. Construction of the facility has been completed, although it is not
currently operational. The Company received an initial cash payment of $4.4
million in 1993 and a series of deferred cash payments from Kamine totaling $7.0
million between May 1995 and May 1997. The present value of these deferred cash
payments, in the amount of $6.5 million, was recorded as income in the first
quarter 1995. The payment received in May 1997 was the last payment due under
this agreement.
ENVIRONMENTAL REGULATION AND COMPLIANCE
Like similar companies, the Company's operations and properties are subject
to a wide variety of federal, state and local laws and regulations, including
those governing the use, storage, handling, generation, treatment, emission,
release, discharge and disposal of certain materials, substances and wastes, the
remediation of contaminated soil and groundwater, and the health and safety of
employees (collectively, "Environmental Laws"). As such, the nature of the
Company's operations exposes it to the risk of claims with respect to
environmental protection and health and safety matters and there can be no
assurance that material costs or liabilities will not be incurred in connection
with such claims.
43
<PAGE>
The Company and its predecessors have made substantial investments in
pollution control facilities to comply with existing Environmental Laws. The
Company made expenditures for environmental purposes of $2.1 million, $1.7
million, $2.5 million and $1.3 million in the nine months ended September 30,
1997,
and the fiscal years ended December 31, 1996, 1995 and 1994, respectively. While
the Company believes that it has made sufficient capital expenditures to
maintain compliance with existing Environmental Laws, any failure by the Company
to comply with present and future Environmental Laws could subject it to future
liability or require the suspension of operations. In addition, such
Environmental Laws could restrict the Company's ability to expand its facilities
or could require the Company to acquire costly equipment or incur significant
expenses to comply with environmental regulations.
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA") and similar state laws provide for responses to, and
liability for, releases of certain hazardous substances from a facility into the
environment. These obligations are imposed on the current owner or operator of a
facility from which there has been a release, the owner or operator of a
facility at the time of the disposal of hazardous substances at the facility, on
any person who arranged for the treatment or disposal of hazardous substances at
the facility, and any person who accepted hazardous substances for transport to
a facility selected by such person. Liability under CERCLA can be strict, joint
and several. Pursuant to the Environmental Laws, there are currently pending
investigations at certain of the Company's plants relating to the release of
hazardous substances, materials and/or wastes. In addition, various predecessors
of the Company have been named as potentially responsible parties ("PRPs") by
the United States Environmental Protection Agency ("EPA") for costs incurred and
to be incurred in responding to the investigation and clean-up of various
third-party sites. The Company has not received any notification or inquiry from
EPA or any other agency concerning these sites. Management believes that the
Company will have no liability in connection with the clean-up of these sites.
However, no assurance can be given that such predecessors will perform their
responsibilities in connection with such sites and, in the event of such
nonperformance, the Company may incur material liabilities in connection with
such sites, and no assurance can be given that the Company will not receive PRP
notices in connection with these or other sites in the future.
In connection with the acquisition of CPG, the former owners of CPG have
agreed to indemnify (subject to certain limitations) the Company for certain
identified and potential environmental liabilities arising from the historical
use of the property acquired in the acquisition of CPG or from CPG's conduct
prior to the acquisition of CPG. Management believes that the amount of the
escrow established as security for these and other indemnity obligations of the
former CPG owners will be sufficient to cover environmental liabilities expected
to be incurred in connection with the acquisition of CPG. However, no assurance
can be given that the limited indemnity provided by the former owners of CPG
will be sufficient to cover all material environmental liabilities associated
with the acquisition of CPG.
Based upon its experience to date, the management of the Company believes
that the future cost of compliance with existing Environmental Laws, and
liability for known environmental claims pursuant to such laws, will not have a
material adverse effect on the Company's financial condition and results of
operation. However, future events, such as new information, changes in existing
Environmental Laws or their interpretation, and more vigorous enforcement
policies of regulatory authorities, may give rise to additional expenditures or
liabilities that could be material to the Company's financial condition and
results of operations.
44
<PAGE>
THE GESSNER ACQUISITION
GENERAL
Gessner is a leading European producer of technical and filter paper located
near Munich, Germany. Gessner manufactures crepe masking and specialty tape
materials, wet and dry abrasive papers, filter media for automotive air, oil and
gasoline filters and filter media for automobile cabins and vacuum cleaner bags.
Gessner's products are sold worldwide, serving three distinct markets. Gessner's
net sales for the nine months ended September 30, 1997 were DM108.7 million
(approximatley $62.1 million). Gessner is the leading worldwide producer of
vacuum filter media and the number two European producer of automotive filter
paper. Gessner is also one of two leading European producers of masking tape
base and impregnated abrasive paper. Gessner operates two production facilities
located in Bruckmuhl and Feldkirchen in the State of Bavaria, which include
three paper machines, three saturators, one meltblown production unit and one
methanol recycling unit. Total paper production capacity is approximately 38,500
metric tons per year and total saturation capacity is approximately 24,000
metric tons per year.
The Company believes that the Gessner Acquisition offers the Company a
number of opportunities for synergies. First, technology transfer opportunities
should advance the Company's papermaking and converting capabilities. Second,
the Gessner Acquisition offers the Company the opportunity to increase its
position in key market segments. Third, the Company's product line breadth would
be enhanced in three of the Company's four core businesses. Finally, with
manufacturing facilities in Europe, and the market position gained through the
Gessner Acquisition, the Company believes it will be better positioned to
compete for the business of key global customers that want suppliers to meet
their needs worldwide with global production capacity and a demonstrated
commitment to supporting their product and service needs.
Pursuant to the Gessner Stock Purchase Agreement, the Company will purchase
through two German subsidiaries all of the outstanding capital stock of Gessner
for a purchase price of $43.0 million, subject to certain post-closing
adjustments. Pursuant to the Gessner Stock Purchase Agreement, the former
stockholders of Gessner will retain certain long-term liabilities of Gessner as
well as certain parcels of real property (which, in certain cases, will be
subject to various rights of purchase and/or first refusal of Gessner). The
Gessner Stock Purchase Agreement contains customary representations and
warranties, including representations and warranties with respect to the absence
of undisclosed liabilities and environmental liabilities and is conditioned upon
the approval of the transactions contemplated by the Gessner Stock Purchase
Agreement by the Board of Directors of the Company. The former stockholders of
Gessner have agreed to indemnify the Company (subject to certain limitations,
including certain deductibles and caps) and Gessner in respect of certain
liabilities, including certain environmental liabilities.
The Company intends to finance the Gessner Acquisition with a portion of the
proceeds of the Offering, along with borrowings of up to DM54.0 million
(approximately $30.9 million) under a bank facility to be provided by Bayerische
Vereinsbank AG and the Steinbeis Note. The bank facility will bear interest at a
rate equal to the rate of interest paid by banks in the inter-bank market, in
London for one, three or six month deposits of Deutsche Marks ("German LIBOR"),
at the Company's option, plus a margin of between 1.5% and 1.75%, which margin
will vary in relation to the Company's leverage ratio. The Gessner Note will
bear interest at a rate equal to 5.0%. Gessner will be entitled to set off any
indemnity claims it may have under the Gessner Stock Purchase Agreement against
amounts owed pursuant to the Steinbeis Note. In addition, upon closing, Gessner
will enter into two DM15.0 million (approximately $8.6 million) revolving credit
facilities with Bayerische Vereinsbank AG, one of which will be available to
fund certain working capital needs and one of which will be available to fund
incremental capital expenditures, including acquisitions. As of the consummation
date of the Gessner Acquisition, the Company estimates that Gessner will have
availability of DM30.0 million (approximately $17.6 million) under such
facilities, none of which will be drawn. The working capital facility and the
capital expenditures
45
<PAGE>
facility will each bear interest at the rate of German LIBOR plus a margin of
1.5% to 1.75%, which margin will vary in relation to the Company's leverage
ratio.
PRODUCTS
Gessner manufactures specialty fiber-based materials in three product
categories: filter products, masking tape, and abrasive papers. These three
product categories fit into three of the Company's four markets. Sales in these
three markets represented the following percentages of total net sales in the
nine months ended September 30, 1997: technical specialties 10%; durable
specialties 23%; and filter products 67%. Gessner's abrasive paper capabilities
center on wet/dry abrasive products, while the Company currently only produces
dry abrasive backing materials. Vacuum filter materials manufactured by Gessner
represent a new market segment for the Company.
Gessner is the leading producer of vacuum bag filter paper worldwide. In
Europe, Gessner is the second largest supplier of automotive filter paper and
masking tape base. Within the filter market, vacuum filters represent a new
market segment for the Company. Gessner holds a smaller presence in the market
for coffee filters and is a leading supplier of wet/dry abrasives.
The table below sets forth the primary materials produced by Gessner for use
in its various markets:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PRODUCT TYPE CHARACTERISTICS TYPICAL END USES
- ----------------------------- ----------------------------- -----------------------------
TECHNICAL SPECIALTIES:
<S> <C> <C>
Abrasives--Wet/Dry Waterproof base paper; Hand sanding (automotive
impregnated and coated; ready repair and manufacture;
for customer application of marine repair; commercial and
abrasive materials home sanding)
Abrasives--Flexible Water resistant saturated Machine sanding (industrial
base paper manufacture--wood/metals)
- -------------------------------------------------------------------------------------------
DURABLE SPECIALTIES:
Masking Tape Base Raw tape base (stretch and Industrial and commercial
smoothness) painting (building, aircraft,
Impregnated tape base: automotive); barrier tapes;
solvent, water or heat pressure sensitive tapes;
resistant; compatible with carrier tapes for electronics
customer adhesive components
formulations
- -------------------------------------------------------------------------------------------
FILTER PRODUCTS:
Filter Media--Automotive Saturated with resins; Automotive fuel, oil and air
controlled porosity; high filters for OEM, OES &
strength aftermarket
Filter Media--Vacuum Bag Controlled porosity; high Home and industrial vacuum
strength; fine particle cleaner bags from standard to
retention; may be laminated micro filters for allergy
with meltblown material for related particle size removal
improved efficiency
Filter Media--Meltblown High efficiency; low pressure Laminated to paper and/or
drop; controlled porosity; non- wovens for passenger car
fine fibers and fine particle cabin filter and vacuum bags
retention
</TABLE>
46
<PAGE>
CUSTOMERS
Gessner sells its products through its own sales representatives and agents
to major European, North American and Asian manufacturers. In the automotive
market, Gessner sells to filter manufacturers for OEM and original equipment
sales, as well as the automotive aftermarket. The material is saturated with
resins for automotive fuel, oil and air filters. Major customers include
Knecht-Filterwerke GmbH, and Filterwerk Mann & Hummel GmbH. In the vacuum bag
filter market, Gessner sells filter media to manufacturers of vacuum cleaner
bags for home and commercial use. Key customers include PVG Papier-Verarbeitungs
Gesellschaft GmbH, Home Care Industries, Inc. and Electrolux, AB.
In the abrasives market, Gessner supplies waterproof base paper (impregnated
and coated) to manufacturers who apply resins and abrasive materials to complete
the manufacture of abrasive products for use in hand and machine sanding
applications. Key customers include 3M and C. Klingspor GmbH.
Masking tape base sales include raw and impregnated tape base. Raw tape base
is designed for further treatment by tape manufacturers, such as impregnation,
coating, and adhesive application, while impregnated tape may only require
adhesive application by tape manufacturers. Typical end uses include barrier
tapes for industrial and commercial painting in the building construction,
aircraft, or automotive industries; pressure sensitive tapes; and carrier tapes
for electronics components. Key customers in these tape segments include 3M and
Sicad S.r.l.
COMPETITION
The Company believes A. Ahlstrom Corp. is the leading filter media
manufacturer worldwide and is the major competitor of Gessner. Other filter
media competitors, comprising automotive, vacuum, and coffee filter, include
Papelera del Besos SA; J.C. Binzer Papierfabrik GmbH & Co.; Devon Valley
Industries (DVI), a division of J. Bibby & Sons plc.; Sorg Paper Co., a division
of Mosinee Paper Corp.; Hollingsworth and Vose Co.; and Melitta
Unternehmensgruppe Bentz KG. In tape base markets, competitors include Binda
S.p.A., Kimberly-Clark, Mosinee Paper Corp., and Bosso, a division of A.
Ahlstrom Corp. Competitors in the abrasives market include Arjo Wiggins Appleton
plc, Kimberly-Clark, and Kammerer, a division of A. Ahlstrom Corp.
MANUFACTURING/TECHNICAL
Gessner owns two production facilities, one in Bruckmuhl/Bavaria consisting
of one paper machine and one converting line with saturation and coating
capabilities. Bruckmuhl's site includes three power generation units and a
sewage disposal plant. The second facility in nearby Feldkirchen includes two
paper machines, two converting lines (saturation units) and one meltblown
non-woven production line.
The Company believes that Gessner's facilities have been well maintained,
with sophisticated equipment and technology. Gessner also holds ISO 9001
certifications.
RAW MATERIALS
Gessner utilizes a wide range of raw materials, including cellulose-based
materials, primarily bleached and unbleached standard and specialty pulps. Other
materials used include polyester, polyethylene, polypropylene,
polybuteneterephtalate and polycarbonate.
LABOR CONTRACTS
As of August 31, 1997, Gessner employed a total of 406 employees of which
146 performed management, administrative and clerical functions, with the
remaining 260 workers performing production and maintenance functions. Pursuant
to the provisions of German labor law, all employees are subject to collective
bargaining and are subject to the collective bargaining agreement for employees
in the paper industry of the Federal Republic of Germany. This agreement became
effective on February 7, 1997 and
47
<PAGE>
cannot be terminated before December 31, 1999. The Company believes that Gessner
has good relations with its employees and the works council for its operations.
ENVIRONMENTAL
Gessner's operations and properties are subject to the environmental laws of
the Federal Republic of Germany and its political subdivisions and the rules and
regulations promulgated thereunder which affect matters similar to those
affected by Environmental Laws in the United States. (collectively "German
Environmental Laws"). As such, the nature of Gessner's operations exposes it to
the risk of claims with respect to environmental protection and health and
safety matters and there can be no assurance that Gessner, and, thus, the
Company, will not incur material costs in connection with such claims. Gessner
has made capital expenditures in relation to environmental matters, the cost of
waste disposal and maintaining environmental facilities. These expenditures
totaled DM1.6 million (approximately $0.9 million), DM2.9 million (approximately
$1.7 million) and DM3.6 million (approximately $2.1 million) for the nine months
ended September 30, 1997 and the fiscal years ended December 31, 1996 and 1995,
respectively.
In connection with the acquisition of Gessner, the former owners of Gessner
have agreed to indemnify (subject to certain limitations) the Company for
certain identified and potential environmental liabilities arising from the
historical use of the property acquired in the acquisition of Gessner or from
Gessner's conduct prior to the acquisition of Gessner. The Gessner Stock
Purchase Agreement provides that the former owners of Gessner will loan DM8.0
million (approximately $4.6 million) to Gessner, against which sum, Gessner will
be able to set off any environmental indemnity obligations pursuant to the
Gessner Stock Purchase Agreement. Management believes that the sums available
under this arrangement will be sufficient to cover environmental liabilities
expected to be incurred in connection with the acquisition of Gessner. However,
no assurance can be given that the limited indemnity provided by the former
owners of Gessner will be sufficient to cover all material environmental
liabilities associated with the acquisition of Gessner.
Based upon its experience to date, the management of the Company believes
that the future cost of compliance with existing German Environmental Laws, and
liability for known environmental claims pursuant to such laws, will not have a
material adverse effect on the Company's financial condition and results of
operation. However, future events, such as new information, changes in existing
Environmental Laws or their interpretation, and more vigorous enforcement
policies of regulatory authorities, may give rise to additional expenditures or
liabilities that could be material to the Company's financial condition and
results of operations.
48
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Directors and Executive Officers are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
K. Peter Norrie...................................... 58 Chairman of the Board of Directors
Alex Kwader.......................................... 55 President, Chief Executive Officer and Director
Brian C. Kerester.................................... 39 Director
Marion A. Keyes, IV.................................. 59 Director
George E. McCown..................................... 62 Director
Glenn S. McKenzie.................................... 45 Director
Jon H. Miller........................................ 59 Director
Fred P. Thompson, Jr. ............................... 70 Director
John D. Weil......................................... 50 Director
Bruce P. Moore....................................... 49 Vice President and Chief Financial Officer
Stephen A. Steidle................................... 52 Vice President and General Sales Manager
</TABLE>
K. PETER NORRIE, age 58, has served as Chairman of the Board of Directors of
the Company since June 1989 and as Chief Executive Officer from the Company's
inception in June 1989 to November 1990. He is also a member of the Compensation
Committee of the Board of Directors. Mr. Norrie is currently the President of
Parma Laboratories, Inc. and has served in such capacity since 1992. From 1976
until June 1989, Mr. Norrie was Senior Vice President and General Manager of
Boise Cascade Corporation's Paper Group. From 1964 to 1976, he was employed by
Boise Cascade Corporation ("BCC") in various management positions, including
Vice President and General Sales Manager of the White Paper Division of the
Paper Group. Mr. Norrie received a B.S. in Civil Engineering from Gonzaga
University and an M.B.A. from Harvard University. Mr. Norrie serves as a
director of Tree-Free Fiber Company, LLC, a private pulp and paper concern and
also serves as a member of the Advisory Board of Compensation Resource Group,
Inc., a management compensation advisory concern.
ALEX KWADER, age 55, has been the President and Chief Executive Officer of
the Company since August 1991 and a Director since November 1991. Since 1970,
Mr. Kwader has been employed by the Company and BCC in various management
positions. He served as Senior Vice President of the Company from March 1990 to
August 1991 and as Vice President from the Company's inception in June 1989
until March 1990. Mr. Kwader was also General Manager of the Pressboard Division
from June 1989 until August 1991, serving in the same capacity for the BCC
Pressboard Division from 1986 until June 1989. From 1980 to 1985, he served as
General Manager of the BCC Latex Fiber Products Division. Mr. Kwader holds a
B.S. in Mechanical Engineering from the University of Massachusetts and an M.S.
from Carnegie Mellon University and attended the Harvard Business School
Executive Program.
BRIAN C. KERESTER, age 39, has been a director of the Company since May 1996
and serves as a member of the Compensation Committee. Mr. Kerester is the Chief
Financial Officer of Distribution Dynamics, Inc. ("DDI") a privately held
company controlled by MDC. DDI is a distribution company of "C" class
components, including fasteners and electronic components, to original equipment
manufacturers. Prior to joining DDI on October 1, 1996, Mr. Kerester had been an
operating affiliate and a Partner with MDC. Prior to joining MDC, Mr. Kerester
worked with The First Boston Corporation in the Venture Capital Group from 1984
through 1986, and Bankers Trust Company in the World Corporate Department from
49
<PAGE>
1981 to 1984. Mr. Kerester holds a B.S. in Economics from The Wharton School,
University of Pennsylvania and an M.B.A. from Columbia Business School.
MARION A. KEYES, IV, age 59, has been a director of the Company since August
1997. Mr. Keyes is currently and has served as Senior Vice President of Emerson
Electric Co. and President of Rosemount Analytical, Inc. since December 1993.
Mr. Keyes served as President of Trice Engineering Inc. and Chairman of DCOM
Corporation from 1991 and 1990, respectively, to 1993. From 1989 to 1995, he
served as Senior Vice President, Group Executive and a member of the Executive
Operating Committee of McDermott International Inc. Mr. Keyes also served as
President and Chief Operating Officer of Bailey Controls from 1980 to 1995. Mr.
Keyes received a B.S. in Chemical Engineering from Stanford University, an M.S.
in Electrical Engineering from the University of Illinois and an M.B.A. from
Baldwin Wallace College.
GEORGE E. MCCOWN, age 62, has been a director of the Company since its
inception in June 1989. Mr. McCown was co-founder and has been a Managing
Partner of MDC Management Company ("MDC Management"), the general partner of
McCown De Leeuw & Co., since 1984. Mr. McCown received a B.S. in Mechanical
Engineering from Stanford University and an M.B.A. from Harvard University. He
currently serves as a director of three publicly held companies: Building
Materials Holding Corporation, a building materials retailer, Nimbus CD
International, Inc., a CD audio and CD ROM manufacturer, and Vans, Inc., a
casual shoe manufacturer. Mr. McCown also serves as a director of several other
McCown De Leeuw & Co. portfolio companies.
GLENN S. MCKENZIE, age 45, has been a director of the Company since January
1994. Since October 1991, Mr. McKenzie has been President of Alpha Investments,
Inc., a management consulting firm. Alpha Investments provides consulting
services to McCown De Leeuw & Co., with which Messrs. McCown, Kerester, and Weil
are affiliated. He holds a B.A. in Economics and an M.B.A. from the University
of North Carolina. Mr. McKenzie currently serves as a director of Nimbus CD
International, Inc. and AmeriComm Holdings, Inc.
JON H. MILLER, age 59, has been a director of the Company since its
inception in June 1989. He is also Chairman of the Compensation Committee of the
Board of Directors. Mr. Miller was President and Chief Operating Officer of BCC
from 1978 until his retirement in 1990. In addition to serving on the Board of
the Company, he is a director of Idaho Power Company. Mr. Miller received a B.A.
in Economics and an M.B.A. from Stanford University.
FRED P. THOMPSON, JR., age 70, has been a director of the Company since
April 1994. He also serves as Chairman of the Audit Committee of the Board of
Directors. Mr. Thompson is currently and has served as President and Chief
Executive Officer of Peregrine Industries, Inc., a cabinet manufacturer,
Executive Management, Inc., a management services firm, and Chairman and Chief
Executive Officer of Powder River, Inc., a livestock handling equipment
manufacturer, since 1972, 1985 and 1990, respectively. From 1984 to 1996, when
the company was sold, he served as Chairman and Chief Executive Officer of
Nelson-Ball Paper Products, Inc., a converter of paper products. Mr. Thompson
received a B.S. from the University of Oregon and attended the Harvard Business
School Advanced Management Program.
JOHN D. WEIL, age 50, has been a director of the Company since May 1996. He
also serves as a member of the Audit Committee of the Board of Directors. Mr.
Weil has over 25 years of experience in national manufacturing and service
organizations. From 1982 to 1994, he served as President and Chief Executive
Officer and as a director of American Envelope Company. In 1995, Mr. Weil joined
the venture banking firm of McCown De Leeuw & Co. as an operating affiliate to
assist in portfolio management. He currently serves as Chairman of the Board of
Directors of AmeriComm Holdings, Inc., a full service direct mail marketing
firm, and as a director of International Data Response Corporation, both McCown
De Leeuw & Co. portfolio companies. Additionally, Mr. Weil serves as a director
of Sage Enterprises, Inc., a food service distributor. Mr. Weil received a B.S.
in Economics from the University of Illinois and an M.B.A. from Northwestern
University's Kellogg School of Business.
50
<PAGE>
BRUCE P. MOORE, age 49, has served as Vice President of the Company since
its inception in June 1989 and as Chief Financial Officer since December 1990.
From 1980 to 1989, Mr. Moore was employed by BCC in various management
positions, including Controller and General Manager of the Latex Fiber Products
Division. Mr. Moore holds a B.A. in Business Administration from Siena College
and attended the Stanford University Executive Program.
STEPHEN A. STEIDLE, age 52, has served as Vice President and General Sales
Manager for the office products business since February 1994. He assumed
international sales responsibility for the Company in January 1997. He has held
sales management positions with the Company and BCC for more than 10 years and
has a total of 25 years of service with the Company and BCC. Mr. Steidle
received a B.A. in Psychology from the University of Maine and an M.B.A. from
the University of Maine.
------------------------
There are no family relationships among any of the directors or executive
officers of the Company.
51
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of October 31, 1997, by: (i) each director;
(ii) all executive officers and directors of the Company as a group; and (iii)
all those known by the Company to be beneficial owners of more than 5% of its
Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
--------------------------------------------------
BEFORE GIVING EFFECT AFTER GIVING EFFECT
TO THE OFFERING TO THE OFFERING
------------------------ ------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL(2) SHARES TOTAL(3)
- ----------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
KPM Investment Management, Inc.(4)................... 837,184 13.8% 837,184 11.1%
10250 Regency Circle, Omaha, NE 68114
Heartland Advisors, Inc.(4).......................... 703,650 11.6 703,650 9.3
790 North Milwaukee St., Milwaukee, WI 53202
Alex Kwader, President, CEO and Director(5).......... 122,005 2.0 122,005 1.5
K. Peter Norrie, Chairman of the Board of 45,537 * 45,537 *
Directors(6).......................................
George E. McCown, Director(7)........................ 95,999 1.6 95,999 1.2
Brian C. Kerester, Director(8)....................... 22,440 * 22,440 *
Marion A. Keyes, IV, Director(9)..................... 16,500 * 16,500 *
Glenn S. McKenzie, Director(10)...................... 25,500 * 25,500 *
Jon H. Miller, Director(11).......................... 21,000 * 21,000 *
Fred P. Thompson, Jr., Director(12).................. 21,150 * 21,150 *
John D. Weil, Director(13)........................... 19,500 * 19,500 *
Bruce P. Moore, Vice President and CFO(14)........... 110,539 1.8 110,539 1.4
Stephen A. Steidle, Vice President and General Sales
Manager(15)........................................ 52,333 * 52,333 *
----------- --- ----------- ---
All executive officers and directors as a group
(11 persons)....................................... 552,503 8.6 552,503 6.8
</TABLE>
- ------------------------
* Represents holdings of less than 1%.
(1) This table is based upon information supplied by executive officers,
directors, and principal stockholders and Schedules 13D and 13G, if any,
filed with the Commission. Unless otherwise indicated in the footnotes to
this table and subject to community property laws, where applicable, each of
the stockholders named in this table has sole voting and investment power
with respect to the shares indicated as beneficially owned.
(2) Applicable percentages of ownership are based on 6,076,181 outstanding
shares of the Company's Common Stock on October 31, 1997, as adjusted as
required by rules promulgated by the Commission.
(3) Assumes the issuance of 1,725,000 additional shares in the Offering
(including shares which the underwriters have the right to purchase pursuant
to the over-allotment option).
(4) Assumes the number of shares owned, to the knowledge of the Company, as of
October 31, 1997.
(5) Mr. Kwader has vested options of 84,398 shares under the 1992 Stock Option
Plan. Under the 1994 Stock Option Plan he has options for 93,750 shares, of
which 25,238 are vested or will vest within the next 60 days. Under the 1997
Stock Option Plan he has options for 30,000 shares, of which 6,000 are
vested or will vest within the next 60 days.
52
<PAGE>
(6) Mr. Norrie has options for 7,500 shares granted under the 1994 Directors
Stock Option Plan (options vest at a rate of 1,500 shares per year), of
which 6,000 are vested. Under the 1996 Amendment to the 1994 Director Stock
Option Plan (options vest over ten (10) years with accelerated vesting if
stock reaches a certain market price over a period of time), he has options
for 15,000 shares, of which 15,000 are vested.
(7) Mr. McCown has options for 7,500 shares under the 1994 Directors Stock
Option Plan (options vest at a rate of 1,500 shares per year), of which
6,000 are vested. Under the 1996 Amendment to the 1994 Director Stock Option
Plan (options vest over ten (10) years with accelerated vesting if stock
reaches a certain market price over a period of time), he has options for
15,000 shares, of which 15,000 are vested.
(8) Mr. Kerester holds sole investment and voting power over 1,500 shares and
shares investment and voting power over 2,940 shares. Mr. Kerester has
options for 7,500 shares under the 1994 Directors Stock Option Plan (options
vest at a rate of 1,500 shares per year), of which 3,000 are vested. Under
the 1996 Amendment to the 1994 Director Stock Option Plan (options vest over
ten (10) years with accelerated vesting if stock reaches a certain market
price over a period of time), he has options for 15,000 shares, of which
15,000 are vested.
(9) Mr. Keyes has options for 7,500 shares under the 1994 Directors Stock Option
Plan (options vest at a rate of 1,500 shares per year), of which 1,500 are
vested. Under the 1996 Amendment to the 1994 Director Stock Option Plan
(options vest over ten (10) years with accelerated vesting if stock reaches
a certain market price over a period of time), he has options for 15,000
shares, of which 15,000 are vested.
(10) Mr. McKenzie has options for 7,500 shares under the 1994 Directors Stock
Option Plan (options vest at a rate of 1,500 shares per year), of which
6,000 are vested. Under the 1996 Amendment to the 1994 Director Stock Option
Plan (options vest over ten (10) years with accelerated vesting if stock
reaches a certain market price over a period of time), he has options for
15,000 shares, of which 15,000 are vested.
(11) Mr. Miller has options for 7,500 shares under the 1994 Directors Stock
Option Plan (options vest at a rate of 1,500 shares per year), of which
6,000 are vested. Under the 1996 Amendment to the 1994 Director Stock Option
Plan (options vest over ten (10) years with accelerated vesting if stock
reaches a certain market price over a period of time), he has options for
15,000 shares, of which 15,000 are vested.
(12) Mr. Thompson has options for 7,500 shares under the 1994 Directors Stock
Option Plan (options vest at a rate of 1,500 shares per year), of which
6,000 are vested. Under the 1996 Amendment to the 1994 Director Stock Option
Plan (options vest over ten (10) years with accelerated vesting if stock
reaches a certain market price over a period of time), he has options for
15,000 shares, of which 15,000 are vested.
(13) Mr. Weil has options for 7,500 shares under the 1994 Directors Stock Option
Plan (options vest at a rate of 1,500 shares per year), of which 3,000 are
vested. Under the 1996 Amendment to the 1994 Director Stock Option Plan
(options vest over ten (10) years with accelerated vesting if stock reaches
a certain market price over a period of time), he has options for 15,000
shares, of which 15,000 are vested.
(14) Mr. Moore has vested options for 42,200 shares under the 1992 Stock Option
Plan. Under the 1994 Stock Option Plan, he has options for 42,750 shares, of
which 12,963 are vested or will vest within the next 60 days. Under the 1997
Stock Option Plan he has options for 15,000 shares, of which 3,000 are
vested or will vest within the next 60 days.
(15) Mr. Steidle has vested options for 30,143 shares under the 1992 Stock
Option Plan. Under the 1994 Stock Option Plan, he has options for 21,000
shares, of which 7,526 are vested or will vest within the next 60 days.
Under the 1997 Stock Option Plan he has options for 5,000 shares, of which
1,000 are vested or will vest within the next 60 days.
53
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ADVISORY SERVICES
The Company paid a fee of $187,500, $500,000, $250,000, $250,000 and
$264,000 for the nine months ended September 30, 1997 and the years ended
December 31, 1996, 1995, 1994 and 1993, respectively, to an affiliate, MDC
Management for certain consulting, financial and managerial services. The
Company's contract with MDC Management expires on December 31, 1997. The payment
of fees related to these services was approved by the members of the Board of
Directors of the Company who do not have a direct financial interest in MDC
Management. The Company believes that the fees received for the professional
services rendered are at least as favorable to the Company as those which could
be negotiated with a third party.
CERTAIN OTHER MATTERS
The Company has engaged Compensation Resource Group, Inc. ("CRG"), a
management compensation advisory concern to review the Company's compensation
practices. Mr. Peter Norrie, the Chairman of the Board of Directors of the
Company, serves as a member of the Advisory Board of CRG. It is anticipated that
Mr. Norrie will receive referral fees of approximately $37,000 in the aggregate
in 1997 from CRG in accordance with CRG's standard practice of paying such fees
to Advisory Board members who successfully refer clients to CRG.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, 6,076,181 shares of which were outstanding as of October 31, 1997,
and held beneficially by in excess of 2,200 stockholders, and 2,000,000 shares
of Preferred Stock, none of which are outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. See
"Price Range of Common Stock and Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding shares of
Preferred Stock. Holders of Common Stock have no preemptive rights and no right
to convert their Common Stock into any other securities. There are no redemption
or sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are, and all shares of Common Stock to be outstanding
upon completion of the Offering will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 2,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series, any or all of which may be greater
than the rights of the Common Stock. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting, conversion and other rights
which could adversely affect the voting power and other rights of the holders of
Common Stock. Preferred Stock could thus be issued quickly with terms calculated
to delay or prevent a change in control of the Company or to make removal of
management more difficult. In certain circumstances, such issuance could have
the effect of decreasing the market price of the Common Stock or discouraging
bids for the Common Stock at a premium to its market price. The issuance of
Preferred Stock may have the effect of delaying, deterring or preventing a
change in control of the Company without any further action by the stockholders.
The Company has no present plan to issue any shares of Preferred Stock.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statute prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to such interested stockholder. An "interested stockholder" is
a person who, together with affiliates and associates, owns (or within three
years prior, did own) 15% or more of the corporation's voting stock.
The Company's Certificate of Incorporation (the "Certificate") also requires
that any action required or permitted to be taken by stockholders of the Company
must be effected at a duly called annual or special meeting of stockholders and
may not be effected by any consent in writing. In addition, special meetings of
the stockholders of the Company may be called only by the Board of Directors.
These provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of the Company.
55
<PAGE>
The Company's Restated By-laws (the "By-laws") provide that the Company will
indemnify its directors and executive officers and may indemnify its other
officers, employees and agents to the fullest extent permitted by Delaware law.
The Company is also empowered under its By-laws to enter into indemnification
agreements with any of such persons and to purchase insurance on behalf of any
person whom it is required or permitted to indemnify. Pursuant to these
provisions, the Company has entered into indemnification agreements with each of
its executive officers and directors and purchased officers and directors
liability insurance.
In addition, the Certificate provides that, pursuant to Delaware law, its
directors shall not be liable for monetary damages for breach of the directors'
fiduciary duty of care to the Company and its stockholders. The provision in the
Certificate does not eliminate the duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the directors'
duty of loyalty to the Company, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect the directors'
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Company as to which
indemnification is being sought nor is the Company aware of any threatened
litigation that may result in claims for indemnification by any director,
officer, employee or other agent.
56
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to the
underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom BT Alex. Brown Incorporated and PaineWebber Incorporated are acting as
representatives (the "Representatives") have severally agreed to purchase from
the Company the aggregate number of shares of Common Stock (the "Shares") set
forth opposite its name below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
BT Alex. Brown Incorporated................................................
PaineWebber Incorporated...................................................
-----------------
Total...................................................................... 1,500,000
-----------------
-----------------
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the shares offered by
this Prospectus (other than those subject to the over-allotment option described
below) if any such Shares are purchased. In the event of a default by the
Underwriters, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
The Company has granted to the Underwriters an option, exercisable by the
Representatives during the 30-day period after the date of this Prospectus, to
purchase up to 225,000 shares of Common Stock at the same price per share as the
initial shares of Common Stock to be purchased by the Underwriters. The
Representatives may exercise such option only to cover over-allotments in the
sale of the shares of Common Stock. To the extent that the Representatives
exercise such option, the Underwriters will have a firm commitment, subject to
certain conditions, to purchase the same proportion of such additional shares of
Common Stock as the number of shares of Common Stock to be purchased and offered
by such Underwriters in the above table bears to the total number of shares in
the above table.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the Shares to the public at the offering price set
forth on the cover page of this Prospectus, and through the Representatives to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the
Offering, the public offering price and other selling terms may be changed.
The Company and stockholders holding in the aggregate approximately of
the shares of Common Stock outstanding after completion of this Offering
(including options and warrants of such persons exercisable during the period of
the agreement), have agreed that they will not offer, sell, contract to sell, or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or any
interests therein, or any securities convertible into, or exchangeable for,
shares of Common stock, or rights to acquire the same, for a period of 90 days
from the date of this Prospectus without the prior written consent of the
Representatives, except pursuant to the Underwriting Agreement.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
In connection with the Offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. Stabilizing transactions consist of
certain bids or purchases made for the purpose of preventing or retarding a
decline in the market price of the Common Stock. Syndicate short positions
involve the sale by the Underwriters of a greater number of
57
<PAGE>
shares of Common Stock than they are required to purchase from the Company in
the Offering. The Underwriters may also impose a penalty bid, whereby the
syndicate may reclaim selling concessions allowed to syndicate members or other
broker dealers in respect of the Common Stock sold in the Offering for their
account if the syndicate repurchases the shares in stabilizing or covering
transactions. These activities may stabilize, maintain, or otherwise affect the
market price of the Common Stock, which may be higher than the price that might
otherwise prevail in the open market. These activities, if commenced, may be
discontinued at any time. These transactions may be effected on the NYSE, in the
over-the-counter market or otherwise.
No action has been or will be taken in any jurisdiction by the Company or
the Representatives that would permit an offering to the general public of the
shares of Common Stock offered by this Prospectus in any jurisdiction other than
the United States.
58
<PAGE>
VALIDITY OF COMMON STOCK
The validity of the Common Stock will be passed upon for the Company by
White & Case, New York, New York, and for the Underwriters by Cahill Gordon &
Reindel (a partnership including a professional corporation), New York, New
York.
EXPERTS
The Company's consolidated balance sheet as of December 31, 1996 and the
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended included in this Prospectus have been audited by KPMG Peat
Marwick LLP ("KPMG"), independent public accountants, as stated in their report
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
The Gessner consolidated balance sheet as of December 31, 1996 and the
consolidated statements of income and retained earnings and cash flows for the
year then ended included in this Prospectus have been audited by
Wollert-Elmendorff Deutsche Industrie-Treuhand GmbH
Wirtschaftsprufungsgesellschaft, independent public accountants, as indicated in
their report thereon and are included in this Prospectus in reliance upon the
authority of said firm as experts in accounting and auditing.
The Company's balance sheet as of December 31, 1995 and the statements of
operations, stockholder's equity and cash flows for each of the two years in the
period ended December 31, 1995 incorporated herein by reference have been
audited by Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), independent
accountants, as stated in their report herein and are incorporated herein by
reference in reliance upon the authority of said firm as experts in accounting
and auditing.
On March 28, 1996, the Audit Committee of the Board of Directors of the
Company (the "Board of Directors") accepted the resignation of Coopers & Lybrand
as the Company's independent auditors and approved the appointment of KPMG to
audit the Company's financial statements for the fiscal year ending December 31,
1996, in place of Coopers & Lybrand. These decisions were authorized by the
Board of Directors. The independent auditor's report of Coopers & Lybrand on the
consolidated financial statements of the Company for the three years ended
December 31, 1995, dated January 26, 1996, included in the Form 10-K filed with
the Commission on March 27, 1996, contained no adverse opinion or disclaimer of
opinion and was not qualified as to audit scope or accounting principles.
In connection with the Company's audits for the fiscal years ended December
31, 1995, and in the subsequent interim period prior to Coopers & Lybrand's
resignation on March 28, 1996, there were no disagreements with Coopers &
Lybrand on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which disagreements, if not resolved
to the satisfaction of Coopers & Lybrand, would have caused Coopers & Lybrand to
make reference to the subject matter of the disagreement in connection with
their report.
The CPG consolidated balance sheet as of October 31, 1996 and the
consolidated statements of income and retained earnings, and cash flows for the
ten months then ended incorporated by reference have been audited by KPMG Peat
Marwick LLP, independent public accountants, as indicated in their report
thereon and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing.
The CPG consolidated balance sheets as of December 31, 1994 and 1995, and
the consolidated statements of income and retained earnings, and cash flows for
the period from November 1, 1993 (commencement of operations) to December 31,
1993 and for the years ended December 31, 1994 and 1995, incorporated by
reference, have been included therein in reliance on the report, which includes
an explanatory paragraph regarding a change by CPG in its method of accounting
for inventories in 1994, of Coopers & Lybrand, independent accountants, given on
the authority of that firm as experts in accounting and auditing.
59
<PAGE>
The Arcon consolidated balance sheet as of October 31, 1996 and the
consolidated statements of income and retained earnings, and cash flows for the
year then ended incorporated by reference have been audited by KPMG Peat Marwick
LLP, independent public accountants, as indicated in their report thereon and
are included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
The Arcon consolidated balance sheets as of October 31, 1995 and 1994 and
the related consolidated statements of income and retained earnings (deficit),
equity and cash flows for the year ended October 31, 1995 and the period from
April 14, 1994 (inception) through October 31, 1994 incorporated by reference
have been audited by Price Waterhouse LLP, independent public accountants, as
indicated in their report thereon and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing. The Arcon Coating
Mills, Inc. statements of income and accumulated deficit and cash flows for the
period from November 1, 1993 to April 14, 1994 have been audited by Price
Waterhouse LLP, independent public accountants, as indicated in their report
thereon and are incorporated by reference herein in reliance upon the authority
of said firm as experts in accounting and auditing.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
FIBERMARK, INC.
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditor's Report.............................................................................. F-2
Consolidated Balance Sheets at December 31, 1996 and 1995 and September 30, 1997 (unaudited).............. F-3
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 and the nine months
ended September 30, 1997 and 1996 (unaudited)........................................................... F-4
Consolidated Statement of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 and
the nine months ended September 30, 1997 (unaudited).................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 and the nine
months ended September 30, 1997 and 1996 (unaudited).................................................... F-6
Notes to Financial Statements............................................................................. F-7
</TABLE>
STEINBEIS GESSNER GMBH
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report.............................................................................. F-23
Consolidated Balance Sheets at December 31, 1996 and September 30, 1997 (unaudited)....................... F-24
Consolidated Statements of Income and Retained Earnings for the year ended December 31, 1996 and the nine
months ended September 30, 1997 and 1996 (unaudited).................................................... F-26
Consolidated Statements of Cash Flows for the year ended December 31, 1996 and the nine months ended
September 30, 1997 and 1996 (unaudited)................................................................. F-27
Notes to Financial Statements............................................................................. F-28
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
FiberMark, Inc.
We have audited the accompanying consolidated balance sheets of FiberMark,
Inc., as of December 31, 1996 and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The consolidated financial statements of
FiberMark, Inc. as of December 31, 1995 and 1994 were audited by other auditors
whose report dated January 26, 1996 expressed an unqualified opinion on those
financial statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FiberMark,
Inc. as of December 31, 1996, and the results of their operations and their cash
flows for the year then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Burlington, Vermont
January 31, 1997
Vt. Reg. No. 92-0000241
F-2
<PAGE>
FIBERMARK, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---------- --------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................................................... $ 14,342 $ 1,518 $ 9,075
Accounts receivable, net of allowances of $333 in 1996 and $253 in 1995... 20,847 9,406 24,645
Cogen receivable (note 3)................................................. 1,785 1,680 --
Inventories (note 4)...................................................... 29,293 16,856 34,358
Other..................................................................... 1,693 2,948 2,862
Deferred income taxes (note 9)............................................ 2,090 162 2,090
---------- --------- -------------
Total current assets.................................................. 70,050 32,570 73,030
Long-term Cogen receivable (note 3)......................................... -- 1,832 --
Property, plant and equipment, net (note 5)................................. 89,696 33,551 95,730
Goodwill, net............................................................... 46,950 500 45,761
Other intangible assets, net................................................ 5,642 2,199 5,614
Deferred income taxes (note 9).............................................. -- 3,966 --
---------- --------- -------------
Total assets (note 6)................................................. $ 212,338 $ 74,618 $ 220,135
---------- --------- -------------
---------- --------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (note 6)................................ $ -- $ 1,688 $ --
Accounts payable.......................................................... 15,085 7,702 16,315
Accrued liabilities....................................................... 25,047 5,546 23,846
---------- --------- -------------
Total current liabilities............................................. 40,132 14,936 40,161
Long-term debt, less current portion (note 6)............................... 100,000 4,625 100,000
Deferred gain (note 7)...................................................... 12,603 14,322 11,314
Deferred income taxes (note 9).............................................. 11,510 -- 11,510
---------- --------- -------------
Total liabilities..................................................... 164,245 33,883 162,985
Commitments and contingencies (note 18)
Stockholders' Equity (notes 8 and 17):
Preferred stock--par value $.001 per share; 2,000,000 shares authorized
and none issued......................................................... -- -- --
Common stock, par value $.001 per share; 20,000,000 shares authorized
6,058,638 shares issued and outstanding in 1996 and 6,050,148 shares
issued and outstanding in 1995.......................................... 6 6 6
Additional paid-in capital................................................ 44,731 44,711 44,802
Unearned compensation..................................................... -- (121) --
Retained earnings (accumulated deficit)................................... 3,356 (3,861) 12,342
---------- --------- -------------
Total stockholders' equity............................................ 48,093 40,735 57,150
---------- --------- -------------
Total liabilities and stockholders' equity............................ $ 212,338 $ 74,618 $ 220,135
---------- --------- -------------
---------- --------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIBERMARK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1997 1996
---------- ---------- ---------- ---------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................................................... $ 124,771 $ 117,516 $ 105,416 $ 176,659 $ 77,734
Cost of sales................................................ 101,981 100,106 88,138 142,559 64,105
---------- ---------- ---------- ---------- ---------
Gross profit............................................... 22,790 17,410 17,278 34,100 13,629
Selling, general and administrative expenses................. 9,908 8,397 8,584 12,234 6,316
---------- ---------- ---------- ---------- ---------
Income from operations..................................... 12,882 9,013 8,694 21,866 7,313
Other (income) expense, net.................................. (1,030) (1,198) (658) 218 (991)
Loss on sale of assets (note 12)............................. -- 8,302 -- -- --
Cogeneration income (note 3)................................. (97) (6,512) -- -- --
Interest expense............................................. 1,798 892 1,356 6,900 310
---------- ---------- ---------- ---------- ---------
Income before income taxes and extraordinary item.......... 12,211 7,529 7,996 14,748 7,994
Income tax (benefit) expense (note 9)........................ 4,697 (424) 2,768 5,762 3,037
---------- ---------- ---------- ---------- ---------
Income before extraordinary item........................... 7,514 7,953 5,228 8,986 4,957
Extraordinary item:
Loss on early extinguishment of debt (net of income tax
benefit of $198 in 1996 and $99 in 1994) (note 6)........ (297) -- (149) -- --
---------- ---------- ---------- ---------- ---------
Net income............................................... $ 7,217 $ 7,953 $ 5,079 $ 8,986 $ 4,957
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Earnings per common share:
Income before extraordinary item........................... $ 1.24 $ 1.31 $ 0.87 $ 1.43 $ 0.82
Extraordinary item......................................... (0.05) -- (0.03) -- --
---------- ---------- ---------- ---------- ---------
Net income............................................... $ 1.19 $ 1.31 $ 0.84 $ 1.43 $ 0.82
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIBERMARK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS TOTAL
COMMON STOCK PAID-IN UNEARNED ---------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) EQUITY
---------- ------------- ----------- ------------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993..... 6,028,446 $ 6 $ 44,639 $ (362) $ (16,893) $ 27,390
Exercise of stock options...... 21,702 -- 72 -- -- 72
Amortization of unearned
compensation................. -- -- -- 121 -- 121
Net Income..................... -- -- -- -- 5,079 5,079
--
---------- ----------- ----- ---------- ------------
Balance at December 31, 1994..... 6,050,148 6 44,711 (241) (11,814) 32,662
Amortization of unearned
compensation................. -- -- -- 120 -- 120
Net income..................... -- -- -- -- 7,953 7,953
--
---------- ----------- ----- ---------- ------------
Balance at December 31, 1995..... 6,050,148 6 44,711 (121) (3,861) 40,735
Exercise of stock options...... 8,490 -- 20 -- -- 20
Amortization of unearned
compensation................. -- -- -- 121 -- 121
Net income..................... -- -- -- -- 7,217 7,217
--
---------- ----------- ----- ---------- ------------
Balance at December 31, 1996..... 6,058,638 6 44,731 -- 3,356 48,093
Exercise of stock options...... 16,500 -- 71 -- -- 71
Issuance of stock.............. 1,043 -- -- -- -- --
Net income..................... -- -- -- -- 8,986 8,986
--
---------- ----------- ----- ---------- ------------
Balance at September 30, 1997.... 6,076,181 $ 6 $ 44,802 $ -- $ 12,342 $ 57,150
--
--
---------- ----------- ----- ---------- ------------
---------- ----------- ----- ---------- ------------
</TABLE>
F-5
<PAGE>
FIBERMARK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1997 1996
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 7,217 $ 7,953 $ 5,079 $ 8,986 $ 4,957
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 3,651 3,342 4,006 5,592 2,401
Amortization of deferred gain............................ (1,719) (1,718) (1,146) (1,289) (1,289)
Write off of deferred debt costs and other deferred
charges................................................ 495 27 248 -- --
Amortization of unearned compensation.................... 121 120 121 -- 80
Loss on sale of assets................................... -- 8,302 -- -- --
Gain on sale of property, plant and equipment............ -- (8) -- -- --
Cogeneration income...................................... (97) (6,512) -- -- --
Changes in operating assets and liabilities:
Accounts receivable.................................... 1,475 1,821 (1,833) (3,798) (1,872)
Inventories............................................ (1,431) (301) (3,192) (5,065) 454
Other.................................................. 1,022 1,983 (2,812) (1,169) 1,932
Accounts payable....................................... 357 (3,262) 3,907 1,230 (547)
Accrued liabilities.................................... 3,577 96 651 (1,201) 2,629
Deferred taxes......................................... 2,406 (3,724) (862) -- --
--------- --------- --------- --------- ---------
Net cash provided by operating activities.............. 17,074 8,119 4,167 3,286 8,745
--------- --------- --------- --------- ---------
Cash flows used for investing activities:
Cogeneration receipt....................................... 2,000 3,000 -- 1,785 2,000
Cogeneration expenses paid................................. -- -- (27) -- --
Additions to property, plant and equipment................. (8,457) (4,865) (1,603) (9,716) (4,298)
Kobayashi payments......................................... -- (5,000) -- -- --
Additions to organization costs............................ -- (741) -- -- --
Net proceeds from sale of property, plant and equipment.... -- 17 -- -- --
Acquisition of Endurs Products Division.................... -- -- (27,400) -- --
Net proceeds from sale of assets........................... -- 12,933 -- -- --
Expenses paid in connection with sale of assets............ -- (1,744) -- -- --
Payments for businesses acquired........................... (87,000) -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities...... (93,457) 3,600 (29,030) (7,931) (2,298)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from sale-leaseback agreement..................... -- 5,000 25,000 -- --
Exercise of stock options.................................. 20 -- 72 71 35
Increase in revolving credit line.......................... 64,159 133,466 97,861 -- 64,092
Payments on revolving credit line.......................... (64,159) (140,759) (97,522) -- (63,530)
Repayment of senior term debt.............................. (6,313) (9,275) (15,038) -- (5,030)
Borrowing of senior term debt.............................. -- -- 17,000 -- --
Refinancing of expenses paid............................... -- -- (1,581) (693) (358)
Proceeds from issuance of Series B Senior Notes............ 100,000 -- -- -- --
Debt issue costs........................................... (4,500) -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities...... 89,207 (11,568) 25,792 (622) (4,791)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash.......................... 12,824 151 929 (5,267) 1,656
Cash at beginning of year.................................... 1,518 1,367 438 14,342 1,518
--------- --------- --------- --------- ---------
Cash at end of year.......................................... $ 14,342 $ 1,518 $ 1,367 $ 9,075 $ 3,174
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS
Specialty Paperboard, Inc. changed its name to FiberMark, Inc.
("FiberMark"). FiberMark operates in a single segment as a manufacturer and
converter of specialty fiber-based products. The Company's market focus is in
four core product areas: office products, technical specialties, durable
specialties and filter products. FiberMark is headquartered in Brattleboro,
Vermont and operates nine production facilities located in the eastern and
midwestern regions of the United States.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include FiberMark, Inc. and its wholly
owned subsidiaries, Endura Products Division ("Endura") beginning July 1994 and
Arcon Holdings Corporation ("Arcon") and CPG Investors Inc. ("CPG") beginning
November 1996. All significant intercompany transactions and accounts have been
eliminated in consolidation.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to be
cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the average cost method at FiberMark and Endura and the first-in,
first-out ("FIFO") method at Arcon and CPG.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation for
financial reporting purposes is provided using the straight-line method based
upon the useful lives of the assets, generally estimated at 3 to 40 years. When
assets are sold or retired, the cost and accumulated depreciation are removed
from the accounts and any gain or loss is included in income. Improvements are
capitalized and included in property, plant and equipment while expenditures for
maintenance and repairs are charged to expense. Leasehold improvements are
amortized over the shorter of the life of the improvement or the lease term.
OTHER INTANGIBLE ASSETS AND GOODWILL
Intangible assets include organization and debt issue costs and goodwill.
Organization costs of $593,801 and $725,754, net of accumulated amortization of
$310,168 and $178,213 as of December 31, 1996 and 1995, respectively, arose in
conjunction with the acquisition of the Endura Products Division and are
amortized on a straight-line basis over seven years. Debt issue costs of
$4,500,000, net of accumulated amortization of $33,000 as of December 31, 1996
are related to the issuance of the Series B Senior Notes and are amortized using
the interest method over the life of those notes.
Goodwill of $46,950,000 and $500,000, net of accumulated amortization of
$244,000 and $26,000 as of December 31, 1996 and 1995, respectively, represents
the cost in excess of net assets of acquired companies and is amortized on a
straight-line basis over thirty years. Amortization of intangibles, including
goodwill, amounted to $812,000, $576,000 and $712,000 as of December 31, 1996,
1995 and 1994, respectively. The Company periodically evaluates the
recoverability of intangibles resulting from business acquisitions and
F-7
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
measures the amount of impairment, if any, by assessing current and future
levels of income and cash flows as well as other factors, such as business
trends and prospects and market and economic conditions.
DEFERRED GAIN
The deferred gain incurred in connection with the sale-leaseback transaction
is being amortized on a straight-line basis over the life of the lease (see note
7).
RESEARCH AND DEVELOPMENT
The Company expenses research and development costs as incurred. The costs
amounted to $1.2 million, $1.0 million and $1.1 million for the years ended
December 31, 1996, 1995 and 1994, respectively.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Account Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock.
NET EARNINGS PER SHARE
The net earnings per share is computed by dividing earnings available for
common shares by the weighted average number of common shares outstanding during
the year. Common stock equivalents are not included in this calculation as their
inclusion dilutes the computation by less than 3%. Weighted average common stock
outstanding and net income per common share have been restated to give effect to
a 3-for-2 stock split effective May 13, 1997.
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 at the
data of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
F-8
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount of fair value loss costs to
sell. Adoption of the Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
(3) COGENERATION PROJECT
In 1993, the Company entered into agreements with Kamine/Basicorp Beaver
Falls L.P. ("Kamine") pursuant to which the Company's Latex Fiber Products
Division would host a gas-fired, 79-megawatt combined-cycle cogeneration
facility developed by Kamine in Beaver Falls, New York. Construction of the
facility has been completed. The Company received $4.4 million in cash in 1993.
The Company has a firm contract with Kamine to receive a series of cash payments
totaling $7.0 million between May 1995 and May 1997. The present value of these
cash payments, in the amount of $6.5 million, was recorded as income in the
first quarter of 1995. Cash payments of $2 million and $3 million were received
in May 1996 and 1995, respectively.
(4) INVENTORIES
Inventories consists of the following at December 31, 1996 and 1995 (dollars
in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Raw materials.......................................................... $ 11,356 $ 5,248
Work in process........................................................ 6,667 5,788
Finished goods......................................................... 8,783 4,937
Stores inventory....................................................... 1,568 636
Operating supplies..................................................... 919 247
---------- ---------
Total inventories...................................................... $ 29,293 $ 16,856
---------- ---------
---------- ---------
</TABLE>
F-9
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31, 1996
and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Land................................................................... $ 6,816 $ 1,694
Buildings and improvements............................................. 16,666 9,245
Machinery and equipments............................................... 65,995 28,208
Construction in progress............................................... 11,234 2,620
---------- ---------
100,711 41,767
Less accumulation depreciation
and amortization..................................................... (11,015) (8,216)
---------- ---------
Net property, plant and equipment...................................... $ 89,696 $ 33,551
---------- ---------
---------- ---------
</TABLE>
Depreciation expense was $2,839,000, $2,766,000 and $3,294,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
(6) DEBT
The Company's long-term debt is summarized as follows at December 31, 1996
and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Senior term debt from the CIT Group, Inc., ("CIT"), interest at prime plus 1.25% or LIBOR
plus 3.0% (9.0% at December 31, 1995), secured by all tangible and intangible assets of
the Company, due from 1996-2000........................................................... $ -- $ 6,313
Series B senior notes--interest at 9- 3/8%, interest payable semi-annually in arrears on
April 15 and October 15, unsecured, due October 15, 2006.................................. 100,000 --
---------- ---------
100,000 6,313
Less current portion........................................................................ -- 1,688
---------- ---------
Long-term debt, excluding current portion................................................... $ 100,000 $ 4,625
---------- ---------
---------- ---------
</TABLE>
The Series B Senior notes are redeemable at the Company's option in whole or
in part, on or after October 15, 2001 at redemption prices ranging from 100% to
104.688% of face value. Up to 35% of the notes are redeemable at the Company's
option on or prior to October 15, 1999 using the net proceeds of a public equity
offering at a redemption price equal to 109.375% of the principal amount plus
accrued and unpaid interest thereon subject to certain other conditions as
described in the agreement.
In conjunction with the issuance of the Series B Senior Notes, (see note
11), the Company repaid the senior term debt from CIT then outstanding. As a
result, the Company expensed $297,000 of deferred financing costs, net of income
tax expense of $198,000. The loss has been reflected in the consolidated
statements of income as an extraordinary item.
Approximately, $1,796,807, $1,362,000 and $1,060,000 of interest was paid
during the years ended December 31, 1996, 1995 and 1994, respectively.
F-10
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) DEBT (CONTINUED)
The Company has $15,000,000 in available funds through a revolving credit
line with the CIT Group, Inc., at December 31, 1996 and 1995. The revolving
credit line is subject to a commitment fee payable at the rate of 1/2 of 1% per
annum on the daily average unused portion of this line. This fee is payable on a
quarterly basis. In addition, the Company is required to pay an annual
Collateral Management Fee of $35,000 in connection with periodic examinations,
analyzing and evaluating the collateral.
In April 1994, the Company expensed $248,000 or deferred debt financing
costs, upon early retirement of the Senior term debt. This amount has been
treated as an extraordinary item in the consolidated statement of income for the
year ended December 31, 1994.
(7) LEASES
DEFERRED GAIN AND SALE-LEASEBACK
In April 1994, FiberMark entered into a sale-leaseback agreement with the
CIT Group, Inc. ("CIT"), FiberMark sold CIT $7,813,000 in fixed assets for a
purchase price of $25,000,000. As a result FiberMark recorded a deferred gain of
$17,187,000 which is amortized on a straight-line over the life of the ten year
lease. In 1996, 1995 and 1994 the Company amortized $1,719,000, $1,718,000 and
$1,146,000, respectively, of the deferred gain into income. At December 31,
1996, accumulated amortization of deferred gain totaled $4,583,000.
In connection with the sale-leaseback transaction, CIT leased back the fixed
assets to FiberMark utilizing a ten-year operating lease. The lease requires
quarterly payments of $843,000 for the first five years and quarterly payments
of $690,000 for this remaining five years of the lease. Rental expense was
$4,426,189, $3,066,585 and $2,044,930 for the years ending December 31, 1996,
1995 and 1994, respectively.
In December 1995, FiberMark amended the sale-leaseback agreement whereby
FiberMark, sold a newly constructed wet and machine ("Kobayashi") for $10
million. No gain or loss was recorded on the transaction. FiberMark received
$5.0 million of the purchase price from CIT in December 1995, the remaining $5.0
million was placed in escrow and paid during the 1996 when all specifications
were met. CIT leased back the Kobayashi machine to FiberMark using the remaining
8.5 years of the operating lease discussed above. The amended lease required
additional payments including a first quarter payment of $113,000 and quarterly
payments of $339,901 for the next 33 quarters.
F-11
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) LEASES (CONTINUED)
OTHER LEASES
The Company assumed obligations under operating leases for certain
machinery, equipment and facilities purchased from CPG on October 31, 1996.
Rental expense was $150,000 for the two months ended December 31, 1996. As of
December 31, 1996, obligations to make future minimum lease payments were as
follows.
Payments to be made in the years ending December 31 (dollars in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 990
1998................................................................ 735
1999................................................................ 700
2000................................................................ 500
2001................................................................ 1,020
Thereafter.......................................................... 4,245
</TABLE>
(8) PREFERRED STOCK
At December 31, 1996 and 1995, the Company has 2,000,000 shares of preferred
stock authorized with none issued. The Company, without stockholder approval,
can issue preferred stock with voting, conversion and other rights.
(9) INCOME TAXES
The components of the provision for income taxes before extraordinary items
for the years ended December 31, 1996, 1995 and 1994 are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal....................................................... $ 2,548 $ 2,557 $ 2,742
State......................................................... 1,090 743 890
--------- --------- ---------
3,638 3,300 3,632
Deferred........................................................ 1,059 (3,724) (864)
--------- --------- ---------
Provision (benefit) for income taxes............................ $ 4,697 $ (424) $ 2,768
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-12
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995 are presented below (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
------------- ------------
<S> <C> <C>
Accounts receivable............................................... $ 308 $ --
Inventory......................................................... 758 --
Property, plant and equipment..................................... -- 17,684
Payroll related accruals.......................................... 1,672 --
Intangible assets................................................. 282 --
Miscellaneous reserves............................................ 808 --
Deferred gain..................................................... 5,041 --
Cogeneration income............................................... -- 605
------ ------------
$ 8,869 $ 18,289
------ ------------
------ ------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
------------- -------------
<S> <C> <C>
Inventory......................................................... $ 214 $ --
Depreciation...................................................... -- 1,180
Vacation accrual.................................................. 306 --
Reserves.......................................................... 234 --
Organization costs................................................ -- 185
Miscellaneous..................................................... 80 --
Net operating loss carryforwards.................................. 335 --
Deferred gain..................................................... 5,729 --
Cogeneration income............................................... -- 1,405
------ ------
$ 6,898 $ 2,770
------ ------
------ ------
</TABLE>
SFAS No. 109 requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. For the year ended
December 31, 1995, the Company reduced the valuation allowance to $0. Although
realization is not assured, management believes it is more likely than not that
the deferred tax assets will be realized through future taxable earnings.
F-13
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) INCOME TAXES (CONTINUED)
A reconciliation of income taxes from continuing operations at the United
States statutory rate to the effective rate for the years ended December 31,
1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
U.S. federal rate.................................................. 34.0% 34.0% 34.0%
Decrease in valuation allowance.................................... 0.0% (49.9%) (7.2%)
State taxes net of federal benefit................................. 5.8% 5.9% 6.9%
Other.............................................................. (1.4%) 4.4% 0.9%
--- --------- ---
Effective tax rate................................................. 38.4% (5.6%) 34.6%
--- --------- ---
--- --------- ---
</TABLE>
Income taxes paid during 1996, 1995 and 1994 were $3,698,000, $3,130,000 and
$1,728,000, respectively.
(10) FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About the
Fair Value of Financial Instruments", requires disclosure of information about
the fair value of certain financial instruments for which it is practicable to
estimate that value. For purposes of the following disclosure the fair value of
a financial instrument is the amount at which the instrument could be exchanged
in a current transaction between willing parties other than in a forced sale or
liquidation. Management has determined that the carrying values of its financial
assets and liabilities approximate fair value at December 31, 1996.
F-14
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) ACQUISITIONS
1996 ACQUISITIONS
The Company purchased all of the outstanding stock of Arcon Holdings
("Arcon") as of October 31, 1996. Concurrently with the transfer of the purchase
price to the stockholders of Arcon, the stockholders agreed to repay all amounts
owed under Arcon's revolver and term loans and repurchase and cancel warrants
then outstanding.
The Company also purchased all of the issued and outstanding common stock of
CPG Investors Inc. ("CPG") on October 31, 1996. Concurrently with the transfer
of the purchase price to the stockholders of CPG, the stockholders agreed to
repay all amounts owed under CPG's revolving and term loans.
The aggregate purchase price of CPG and Arcon was approximately $91,500,000
which includes costs of the acquisitions. The acquisitions were financed through
the issuance of senior notes in the amount $100,000,000 and were accounted for
using the purchase method. Accordingly, the purchase price was allocated to the
assets acquired and liabilities assumed based upon their respective fair values.
This treatment result in approximately $46,668,000 of cost in excess of net
assets acquired. Such excess, or goodwill, is being amortized on a straight-line
basis over thirty years. The 1996 consolidated results include Arcon and CPG's
results of operations from the date of the acquisitions through the end of the
year.
The following summarized unaudited proforma results of operations for the
years ended December 31, 1996 and 1995, assumes the Arcon and CPG acquisitions
occurred as of the beginning of the respective periods (dollars in thousands,
except per share amounts):
<TABLE>
<CAPTION>
UNAUDITED
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Net sales............................................................. $ 227,822 $ 239,464
Net income............................................................ 10,709 10,716
Net income per common share........................................... 1.77 1.77
</TABLE>
The unaudited pro forma results are not necessarily indicative of actual
results of operations that would have occurred had the acquisitions been
consummated as of the above dates, nor are they necessarily indicative of future
operating results.
1994 ACQUISITION
On June 30, 1994, the Company acquired through its wholly owned
subsidiaries, substantially all of the assets and liabilities of the Endura
Products Division of W.R. Grace ("Endura"). Endura is engaged in the
manufacture, conversion, saturation and coating of specialty papers at
facilities located in Quakerstown, Pennsylvania and Owensboro, Kentucky. The
results of operations for Endura have been included in the consolidated results
of operations since the acquisition date. Under the terms of the purchase
agreement, the total purchases price was approximately $26,400,000 plus
$1,000,000 of acquisition expenses paid. A portion of the purchase price was
financed by CIT pursuant to a $17,000,000 term loan. The balance of the purchase
price was paid using $3,000,000 provided by CIT to the Company under a revolving
line of credit and using cash reserves of the Company.
The acquisition was accounted for using the purchase method. Accordingly,
the purchase price was allocated to the net assets acquired based on the fair
values resulting in goodwill of approximately $526,000 which is being amortized
over 30 years.
F-15
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) ACQUISITIONS (CONTINUED)
The following summarized unaudited pro forma results of operations for the
year ended December 31, 1994, assumes the Endura acquisition occurred as of the
beginning of the respective period (dollars in thousands, except per share
amounts):
<TABLE>
<CAPTION>
UNAUDITED
----------
<S> <C>
Net sales......................................................................... $ 124,656
Net income........................................................................ 5,510
Net income per common share....................................................... 0.91
</TABLE>
The unaudited pro forma results are not necessarily indicative of actual
results of operations that would have occurred had the acquisition been
consummated as of the above dates, nor are they necessarily indicative of future
operating results.
(12) SALE OF ASSETS
On March 22, 1995, the Company sold the assets of its Lewis Mill and the
Company's gasket business to Armstrong World Industries Inc. ("Armstrong") for
$12,933,000 (the "Sale"). As part of the sale, inventory in the amount of
$1,080,000 was sold at book value to Armstrong. The net book value of the assets
sold was $19,311,000 and total expenses relating to sale are estimated at
$1,924,000. At December 31, 1995, $1,744,000 of these expenses had been paid;
the remaining expenses were accrued in 1995 and paid in 1996. This transaction
resulted in a loss of $8,302,000 before taxes. Approximately $160,000 of the
purchase price was held by Armstrong pending in receipt of a New York State tax
clearance certificate. This payment was received by the Company in May 1995. The
Lewis mill was part of a two-mill division located at the Company's Latex Fiber
Products Division in Beaver Falls, New York.
(13) RELATED PARTY TRANSACTIONS
The Company paid a management fee of $250,000 for the years ended December
31, 1996, 1995 and 1994, to an equity owner, MDC Management Company ("MDC"). The
Company has a management agreement with MDC which calls for an annual fee of
$250,000 through 1997. In 1996 the Company also paid MDC $250,000 in conjunction
with the CPG and Arcon acquisitions.
(14) RETIREMENT PLANS
The Company has a defined contribution plan (salaried and hourly) and a
defined benefit (hourly) retirement plan for FiberMark employees (excluding
Arcon and CPG employees).
DEFINED CONTRIBUTION PLAN
The defined contribution plan is a 401(k) ERISA and IRS-qualified plan
covering substantially all employees that permits employee salary deferrals up
to 16% of salary with the Company matching 50% of the first 6%. Defined
contribution expenses for the Company was $229,000, $193,000 and $163,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
DEFINED BENEFIT PLAN
The defined benefit plan is an ERISA and IRS-qualified plan based upon the
negotiated benefit and years of service in the collective bargaining agreement
between the Unions and the Company. Plan assets
F-16
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) RETIREMENT PLANS (CONTINUED)
are invested in an insurance company general account. The Company usually
contributes at least the minimum amount as required by ERISA.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
Actuarial present value of accumulated and projected benefit obligations:
Vested................................................................. $ (1,411) $ (1,127)
Nonvested.............................................................. (134) (219)
--------- ---------
(1,545) (1,346)
Plan assets at fair value................................................ 1,360 869
--------- ---------
Projected benefit obligations in excess of plan assets................... (185) (477)
Unrecognized net loss.................................................... -- 49
Unrecognized transition obligation....................................... 21 24
Unrecognized prior service costs......................................... 90 96
Adjustment required to recognize minimum liability....................... (111) (169)
--------- ---------
Accrued pension cost................................................. $ (185) $ (477)
--------- ---------
--------- ---------
</TABLE>
Total pension expense includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
Service cost--benefits earned during the period.............................. $ 126 $ 111
Interest cost on projected benefit obligation................................ 101 86
Actual return on plan assets................................................. (133) (103)
Net amortization and deferral................................................ 69 40
--------- ---------
Net periodic pension expense............................................. $ 163 $ 134
--------- ---------
--------- ---------
</TABLE>
Pension expense was approximately $116,000 for the year ended December 31,
1994. The benefit obligations as of December 31, 1996 and 1995 were calculated
using an average discount rate of 7.5% and 7.0%, respectively. A long-term rate
of return of 9% was used to calculate the 1996 and 1995 net periodic pension
expense.
CPG employees are covered by a noncontributory defined benefit plan. This is
an ERISA and IRS-qualified plan which has benefits based on stated amounts for
each year of credited service. The plan's assets consist principally of equity
securities, government and corporate debt securities and other fixed income
obligations.
F-17
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) RETIREMENT PLANS (CONTINUED)
The following table presents the funded status of the Company's pension plan
and the net pension liability included in the consolidated balance sheet
(dollars in thousands):
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefits.................................................. $ (6,827)
Nonvested benefits............................................... (517)
---------
Projected benefit obligation................................... (7,344)
Fair value of plan assets.......................................... 5,651
---------
Funded status.................................................. (1,693)
Unrecognized net gain.............................................. 102
Additional minimum liability....................................... (102)
---------
Net pension liability.......................................... $ (1,693)
---------
---------
</TABLE>
Net periodic pension expense for the two months ended December 31, 1996
included the following components (dollars in thousands):
<TABLE>
<S> <C>
Service cost........................................................ $ 42
Interest cost on projected benefit obligation....................... 83
Actual return on plan assets........................................ (80)
Net amortization and deferral....................................... (7)
---------
Net periodic pension expense.................................... $ 38
---------
---------
</TABLE>
The benefit obligation as of December 31, 1996 was calculated using a
discount rate of 7.5%. A long-term rate of return of 9% was used to calculate
the net periodic pension expense.
(15) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
CPG has benefit plans which provide certain health care and life insurance
benefits to eligible employees when they retire. Salaried employees generally
become eligible for retiree medical benefits after reaching age 62 and with 15
years of service or after reaching age 65. The medical plan for salaried
employees provides for an allowance, which must be used towards the purchase of
a Medicare supplemental insurance policy, based on a retiree's length of
service. The allowance may be adjusted to reflect annual changes in the Consumer
Price Index ("CPI"); however, once the initial allowance has doubled, there will
be no further increases. Salaried employees hired after January 1, 1993 are not
eligible to participate in this retiree medical plan. Upon satisfying certain
eligibility requirements, approximately 45% of the hourly employees are eligible
upon retirement to receive a medical benefit, which is an allowance to be used
toward the purchase of a Medicare supplemental insurance policy and cannot
exceed a specified annual amount. The postretirement benefit obligations related
to employees who retired prior to the Acquisition were not assumed by the
Company and remain the responsibility of prior owners.
F-18
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
Net periodic postretirement benefits cost for the two months ended December
31, 1996 included the following components (dollars in thousands):
<TABLE>
<S> <C>
Service cost.......................................................... $ 14
Interest cost on accumulated postretirement benefit obligation........ 23
Net amortizations and deferral........................................ (1)
---
Postretirement benefits cost.......................................... $ 36
---
---
</TABLE>
The following table sets forth the accumulated postretirement benefit
obligation included in other liabilities on the Company's consolidated balance
sheet (dollars in thousands):
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Fully eligible participants........................................ $ (181)
Retirees........................................................... (208)
Other active plan participants..................................... (938)
---------
Accumulated postretirement benefit obligation...................... (1,327)
Unrecognized net loss.............................................. 74
---------
Accrued postretirement benefit liability........................... $ (1,253)
---------
---------
</TABLE>
The assumed health care cost trend rate used in measuring future benefit
costs was 9%, gradually declining to 6% by 1999 and remaining at that level
thereafter. A 1% increase in this annual trend rate would increase the
accumulated postretirement benefit obligation at December 31, 1996 by $81,368
and the postretirement benefits expense for the two months ended December 31,
1996 by less than $11,000. The assumed discount rate used in determining the
accumulated postretirement benefit obligation was 7.5%. The assumed annual
increase in the CPI was 3%.
(16) SIGNIFICANT BUSINESS CONCENTRATIONS
Approximately 41%, 47% and 47% of the Company's total 1996, 1995 and 1994
sales, respectively, were concentrated in five customers. In 1996, 1995 and 1994
revenue from a single customer was $15,425,000 (12% of total sales), $18,933,000
(16% of total sales) and $18,905,000 (18% of total sales), respectively. Sales
to a second customer accounted for 10%, 10% and 11% of total sales in 1996, 1995
and 1994, respectively.
Approximately 12%, 13% and 11% of the Company's products were sold to
foreign customers (excluding Canada) in 1996, 1995 and 1994, respectively. The
principal international markets served by the Company include Asia/Pacific Rim,
Latin America, Mexico and Europe.
(17) STOCK OPTION AND BONUS PLANS
The Company has three stock option plans which provide for grants of
nonqualified or incentive stock options. The 1992 Amended and Restated Stock
Option Plan ("1992 Plan") is fully granted at 301,422 shares of common stock to
management of the Company. Options granted under the 1992 Plan typically vest at
a rate of 20% per year and are exercisable for a period of ten years from the
grant date.
F-19
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(17) STOCK OPTION AND BONUS PLANS (CONTINUED)
The 1994 Stock Option Plan ("1994 Plan") is fully granted at 300,000 shares
of common stock to selected officers and employees of the Company. Options
granted under the Plan vest at a rate of 20% per year commencing on the one year
anniversary of the grant date and 1.66% at the end of each month thereafter. The
options are exercisable for a period of ten years from the grant date.
The 1994 Director Stock Option Plan ("Directors' Plan") authorizes the grant
of up to 225,000 shares of common stock to directors who are not otherwise
full-time employees of the Company. The Plan was amended in 1996 to increase the
authorized shares from 75,000 to 225,000 shares and to allow for an accelerated
vesting schedule not to exceed five years. Options will vest and become
exercisable based upon target levels set for the fair market value of the common
stock or in the event of a merger or asset sale. The options are exercisable for
a period of eight years from the date of grant.
The following table sets forth the stock option transactions for the three
years ended December 31, 1996.
<TABLE>
<CAPTION>
1992 PLAN 1994 PLAN DIRECTORS' PLAN
----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
---------- ----------- ---------- ----------- ---------- -----------
Outstanding, December 31, 1993...................... 301,422 $ 3.33 -- $ -- -- $ --
Granted......................................... -- -- 60,000 14.25 52,500 13.50
Exercised....................................... (21,702) 3.33 -- -- -- --
---------- ---------- ----------
Outstanding, December 31, 1994...................... 279,720 3.33 60,000 14.25 52,500 13.50
Granted......................................... -- -- 66,150 17.63 -- --
Forfeited....................................... (37,377) 3.33 (8,100) 14.25 -- --
---------- ---------- ----------
Outstanding, December 31, 1995...................... 242,343 3.33 118,050 16.14 52,500 13.50
Granted......................................... 37,377 13.50 208,725 26.01 135,000 21.18
Exercised....................................... (6,465) 3.33 (2,025) 14.25 -- --
Forfeited....................................... -- -- (26,775) 16.28 (4,500) 13.50
---------- ---------- ----------
Outstanding, December 31, 1996.................. 273,255 4.73 297,975 23.10 183,000 19.17
---------- ---------- ----------
---------- ---------- ----------
Exercisable, December 31, 1996.................. 235,878 3.33 33,969 15.66 93,000 18.71
---------- ---------- ----------
---------- ---------- ----------
Weighted average remaining contractual life..... 5.7 years 9.3 years 8.7 years
</TABLE>
The Corporation has adopted the disclosure-only provisions of Statement of
Financial Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for stock options granted
under the plans during 1996 and 1995 as the options were all granted at exercise
prices which equaled the market value at the date of the grant. Compensation for
the options granted prior to December 31, 1992 at $7.50 per share was measured
as of the grant date based upon a fair market value of $12.00 per share as
determined by the Board of Directors and is being recognized as expense over the
vesting period. Had compensation cost for the Company's stock option plans been
determined based on
F-20
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(17) STOCK OPTION AND BONUS PLANS (CONTINUED)
the fair value at the grant date for awards during 1996 and 1995 consistent with
the provisions of SFAS No. 123, the Company's net income would have been reduced
to the proforma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net income, as reported.................................................... $ 7,217 $ 7,953
Net income, pro forma...................................................... 7,075 7,918
Earnings per share, as reported............................................ 1.19 1.31
Earnings per share, pro forma.............................................. 1.19 1.31
</TABLE>
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
periods and compensation cost for options granted prior to January 1, 1995 is
not considered.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: risk-free interest rate of 6%;
dividend yield of $0; expected volatility of 45; and expected lives of ten (10)
years.
Effective January 1, 1994, the Compensation Committee adopted the Executive
Bonus Plan, which provides for bonus payments of a percentage of base salary
based upon achievement by the Company of certain levels of earnings per share.
The Executive Bonus Plan utilizes a sliding scale so that the percentage of base
salary paid as bonus compensation increases as the earnings per share of the
Company increase. The Executive Bonus Plan is designed to directly align the
interests of the executive officers and the stockholders. Although the Executive
Bonus Plan is subject to annual review by the Committee, the Committee expects
it to remain in place for a five-year term.
(18) COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local environmental
requirements, particularly relating to air and water quality. The Company and
its predecessors have spent substantial sums for pollution control facilities to
comply with existing regulations. While the Company believes it has made
sufficient capital expenditures to maintain compliance with existing laws and
regulations, any failure by the Company to comply with present and future
regulations could subject it to future liability or require the suspension of
operations.
OTHER MATTERS
The Company is involved in various legal proceedings in the ordinary course
of business. Management believes that the outcome of these proceedings will not
have a material adverse effect on the Company's financial condition, results of
operations or cash flows.
F-21
<PAGE>
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(19) UNAUDITED QUARTERLY SUMMARY INFORMATION
The following is a summary of unaudited quarterly summary information for
the years ended December 31, 1996 and 1995 (in thousands, except per share
data).
<TABLE>
<CAPTION>
NET EARNINGS
GROSS ----------------------
NET SALES PROFIT INCOME PER SHARE
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
1996 QUARTERS
First............................................................. $ 24,859 $ 3,503 $ 1,048 $ 0.17
Second............................................................ 26,086 5,011 1,816 0.30
Third............................................................. 26,789 5,115 2,093 0.35
Fourth(2)......................................................... 47,037 9,161 2,260 0.37
----------- --------- --------- -----
Total............................................................... $ 124,771 $ 22,790 $ 7,217 $ 1.19
----------- --------- --------- -----
----------- --------- --------- -----
1995 QUARTERS
First(2).......................................................... $ 35,198 $ 4,837 $ 465 $ 0.08
Second............................................................ 31,879 4,369 1,572 0.26
Third(3).......................................................... 24,480 3,750 4,418 0.73
Fourth............................................................ 25,959 4,454 1,498 0.24
----------- --------- --------- -----
Total............................................................... $ 117,516 $ 17,410 $ 7,953 $ 1.31
----------- --------- --------- -----
----------- --------- --------- -----
</TABLE>
- ------------------------
(1) In the fourth quarter of 1996 the Company acquired Arcon and CPG. Net income
before extraordinary items for the fourth quarter of 1996 was $2,557,000;
per share net income before extraordinary items was $0.42.
(2) The first quarter of 1995 includes the present value of the Cogeneration
receivable of $6,512,000 booked as other income and a net book loss of
$8,159,000 resulting from the sale of the Lewis mill. An additional loss of
$143,000 was booked in the fourth quarter of 1995.
(3) In the third quarter of 1995, the Company recognized a tax benefit related
to the release of tax valuation allowances.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
We have audited the accompanying consolidated balance sheet of Steinbeis
Gessner GmbH and subsidiaries as of December 31, 1996, and the related
consolidated statement of income and retained earnings, and of cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in Germany and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Steinbeis
Gessner GmbH and subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
Wollert-Elmendorff
Deutsche Industrie-Treuhand GmbH
Wirtschaftsprufungfsgesellschaft
November 4, 1997
F-23
<PAGE>
STEINBEIS GESSNER GMBH
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, 1997
1996 (UNAUDITED)
------------- ---------------
<S> <C> <C> <C>
(DM 000) (DM 000)
ASSETS
Current assets
Cash..................................................... 475 453
Trade accounts receivable................................ 18,854 20,285
Less allowance for doubtful accounts..................... (2,011) (934)
------ ------
16,843 19,351
Accounts receivable from affiliates...................... 303 0
Other receivables........................................ 474 46
Inventories.............................................. (Note 3) 14,141 16,143
Prepaid expenses......................................... 53 0
------ ------
Total current assets................................... 32,289 35,993
Non-current assets
Property, plant and equipment-net........................ (Note 4) 55,087 56,029
Intangible assets-net.................................... (Note 5) 885 606
------ ------
Total assets............................................... 88,261 92,628
------ ------
------ ------
</TABLE>
See Notes to Financial Statements
F-24
<PAGE>
STEINBEIS GESSNER GMBH
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, 1997
1996 (UNAUDITED)
------------- -------------
<S> <C> <C> <C>
(DM 000) (DM 000)
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Deferred income taxes.................................................... 357 28
Short-term bank debt..................................................... 621 0
Current portion of long-term debt........................................ (Note 6) 4,990 2,746
Trade accounts payable................................................... 2,374 4,101
Due to parent company.................................................... 12,371 12,154
Accrued payroll and employee benefits.................................... 5,099 5,556
Other accrued liabilities................................................ 2,776 3,745
------ ------
Total current liabilities.............................................. 28,588 28,330
Deferred income taxes...................................................... (Note 8) 17,450 16,457
Other non-current liabilities.............................................. 724 418
Accrued pensions........................................................... (Note 11) 15,267 15,730
Long-term debt............................................................. (Note 6) 3,000 3,000
------ ------
Total liabilities...................................................... 65,029 63,935
Minority interest.......................................................... 109 100
Commitments and Contingencies.............................................. (Note 15)
Shareholder's equity
Registered capital......................................................... 6,145 6,145
Retained earnings.......................................................... 16,978 22,448
------ ------
Total shareholder's equity............................................. 23,123 28,593
------ ------
Total liabilities and shareholder's equity................................. 88,261 92,628
------ ------
------ ------
</TABLE>
See notes to Financial Statements
F-25
<PAGE>
STEINBEIS GESSNER GMBH
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
YEAR ENDED ------------------------
DECEMBER 31, 1997 1996
1996 (UNAUDITED) (UNAUDITED)
------------ ----------- -----------
<S> <C> <C> <C> <C>
(DM 000) (DM 000) (DM 000)
Net sales.................................................. (Note 12) 128,740 108,654 96,848
Costs of sales............................................. 98,069 80,478 74,364
------------ ----------- -----------
Gross profit............................................... 30,671 28,176 22,484
Operating Expenses
Selling.................................................. 10,139 8,521 7,540
General administrative and other......................... 10,970 8,560 8,316
Research and development................................. 2,940 2,071 2,186
Restructuring charges.................................... (Note 13) 2,416 -- --
------------ ----------- -----------
Operating income........................................... 4,206 9,024 4,442
Interest income............................................ 16 14 10
Interest expense........................................... 1,065 566 835
Other income............................................... (Note 14) 1,352 806 928
Other expenses............................................. 303 391 232
------------ ----------- -----------
Income before income taxes and minority interest........... 4,206 8,887 4,313
Provision for income taxes................................. (Note 8) 1,487 3,343 1,557
------------ ----------- -----------
Income before minority interest............................ 2,719 5,544 2,756
Minority interest.......................................... 99 74 67
------------ ----------- -----------
Net income................................................. 2,620 5,470 2,689
Retained earnings, beginning of period..................... 17,884 16,978 17,884
Dividends declared......................................... 3,526 -- --
------------ ----------- -----------
Retained earnings, end of period........................... 16,978 22,448 20,573
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See Notes to Financial Statements
F-26
<PAGE>
STEINBEIS GESSNER GMBH
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
YEAR ENDED ------------------------
DECEMBER 31, 1997 1996
1996 (UNAUDITED) (UNAUDITED)
------------- ----------- -----------
<S> <C> <C> <C>
(DM 000) (DM 000) (DM 000)
OPERATING ACTIVITIES:
Net income............................................................... 2,620 5,470 2,689
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.......................................... 7,328 5,613 5,570
(Gain) loss on disposal of property plant and equipment................ (308) 90 (213)
Changes in assets and liabilities:
Accounts receivable.................................................. (2,345) (2,205) (4,078)
Inventories.......................................................... 1,918 (2,002) 1,480
Prepaid expenses and other current assets............................ (90) 481 308
Deferred income taxes................................................ (1,110) (1,322) (920)
Accounts payable, due to parent and other current liabilities........ (2,990) 2,928 720
Accrued pensions and other non-current liabilities................... 1,151 157 524
------ ----------- -----------
Net cash provided by operating activities................................ 6,174 9,210 6,080
------ ----------- -----------
INVESTING ACTIVITIES:
Proceeds from sales of fixed assets...................................... 317 67 219
Additions to property, plant and equipment............................... (3,784) (6,433) (2,674)
------ ----------- -----------
Net cash used in investing activities.................................... (3,467) (6,366) (2,455)
------ ----------- -----------
FINANCING ACTIVITIES:
Increase (decrease) in short-term debt................................... 621 (621) --
Repayment of long-term debt.............................................. (3,513) (2,245) (3,502)
------ ----------- -----------
Net cash used in financing activities.................................... (2,892) (2,866) (3,502)
------ ----------- -----------
Increase (decrease) in cash.............................................. (185) (22) 123
Cash, beginning of period................................................ 660 475 660
------ ----------- -----------
Cash, end of period...................................................... 475 453 783
------ ----------- -----------
------ ----------- -----------
</TABLE>
See Notes to Financial Statements
F-27
<PAGE>
STEINBEIS GESSNER GMBH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN DM THOUSANDS)
1 DESCRIPTION OF BUSINESS
Steinbeis Gessner GmbH operates in a single segment as a manufacturer of
technical and filter paper and tape. Steinbeis Gessner is headquartered in
Brannenburg, Germany and operates two paper mills in the state of Bavaria.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Steinbeis Gessner GmbH and its subsidiaries, Leiss-GmbH & Co.-(55.6%) and
Steinbeis GmbH & Co. Grundstucksverwaltungs KG (100%). All significant
intercompany transactions and accounts have been eliminated in consolidation.
b) 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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
c) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
primarily using the average cost method.
d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is recorded
using the straight-line method based upon the useful lives of the assets, which
are primarily 20 to 50 years for buildings and 3 to 20 years for machinery and
equipment. When assets are sold or retired, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is included in
income. Improvements are capitalized and included in property, plant and
equipment while expenditures for maintenance and repairs are charged to expense.
e) Intangible Assets
Intangible assets include certain rights and licenses. Management
periodically evaluates the recoverability of intangibles and measures the amount
of impairment, if any, by assessing current and future levels of income and cash
flows as well as other factors, such as market and economic conditions.
Intangibles are amortized over three to forty years.
f) Research and Development
Research and development costs are expensed as incurred. The costs amounted
to DM 3 million for the year ended December 31, 1996.
g) Income Taxes
The company has a profit pooling management with its parent, Steinbeis
Holding GmbH. The company's statutory pretax profits are transferred to
Steinbeis Holding GmbH. The Company provides for current and deferred taxes as
if it were a separate taxpayer. Deferred income taxes are provided to reflect
F-28
<PAGE>
STEINBEIS GESSNER GMBH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN DM THOUSANDS)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
future tax consequences attributable to temporary differences between the
financial reporting and tax bases of assets and liabilities using presently
enacted tax rates and laws.
h) Impairment of Long-Lived Assets
Management periodically evaluates the recoverability of long-term assets,
based upon current and anticipated net income and undiscounted future cash
flows.
i) Revenue Recognition
Revenue from sales is recognized when goods are shipped.
j) New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which will be effective for the Company
beginning January 1, 1998. SFAS No. 131 redefines how operating segments are
determined and requires quantitative disclosures of certain financial and
descriptive information about a company's operating segments. The Company has
not yet completed an analysis of whether it will be required to report operating
segments.
k) Interim Financial Statements
The consolidated financial statements as of September 30, 1997 and for the
nine month periods ended September 30, 1996 and 1997 are unaudited, but in the
opinion of the Company all adjustments necessary for a fair presentation of
consolidated results of operations, consolidated financial position, and
consolidated cash flows at the date and for the periods indicated have been
included. The results of such interim periods are not necessarily indicative of
the results for the full year.
Certain information and footnote disclosures included in the consolidated
financial statements normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles in the
United States of America have been condensed or omitted. These unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements as of December 31, 1996 and notes thereto.
3 INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Raw materials and supplies..................................................................... 6,876
Work in process................................................................................ 486
Finished goods................................................................................. 6,779
------
Total inventories.............................................................................. 14,141
------
------
</TABLE>
F-29
<PAGE>
STEINBEIS GESSNER GMBH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN DM THOUSANDS)
4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Land........................................................................................... 4,755
Buildings...................................................................................... 35,459
Machinery and equipment........................................................................ 97,006
Construction in progress....................................................................... 278
-------
Total property, plant and equipment............................................................ 137,498
Less accumulated deprectiation................................................................. 82,411
-------
Net property plant and equipment............................................................... 55,087
-------
-------
</TABLE>
Depreciation expense was DM 6,798 for the year ended December 31, 1996.
5 INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------
<S> <C>
Intangible assets-at cost...................................................................... 2,393
Less accumulated amortization.................................................................. 1,508
-----
Intangible assets-net.......................................................................... 885
-----
-----
</TABLE>
Amortization expense was DM 530 for the year ended December 31, 1996.
F-30
<PAGE>
STEINBEIS GESSNER GMBH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN DM THOUSANDS)
6 LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------
<S> <C>
Bayerische Vereinsbank, 4.5%-8.95%, due 1997................................................... 4,500
Allianz Lebensversicherungs-AG, 6.2%, due 2000................................................. 3,000
Other.......................................................................................... 490
-----
Total long-term debt......................................................................... 7,990
Less current portion........................................................................... 4,990
-----
Long-term debt, excluding current portion...................................................... 3,000
-----
-----
</TABLE>
The Bayerische Vereinsbank and Allianz Lebensversicherungs-AG debt is
secured by the land and buildings of Steinbeis Gessner GmbH. Interest paid
during 1996 was DM 974.
Payments to be made in the years ending December 31:
<TABLE>
<S> <C>
1997.............................................................. 4,990
2000.............................................................. 3,000
</TABLE>
7 LEASES
The Company has non-cancellable operating leases, primarily with a related
party, for certain machinery, equipment and facilities. Rental expense was DM
284 for the year ended December 31, 1996. As of December 31, 1996, obligations
to make future minimum lease payments in the years ending December 31 were as
follows:
<TABLE>
<S> <C>
1997............................................................... 155
1998............................................................... 110
1999............................................................... 35
2000............................................................... 14
2001............................................................... 5
</TABLE>
F-31
<PAGE>
STEINBEIS GESSNER GMBH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN DM THOUSANDS)
8 INCOME TAXES
All income and income taxes are domestic. The components of the provision
for income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------
<S> <C>
Current:
Federal.................................................................. 1,710
Trade.................................................................... 887
-----
Total.................................................................... 2,597
-----
Deferred:
Federal.................................................................. 834
Trade.................................................................... 276
-----
Total.................................................................... 1,110
-----
Provision for income taxes................................................. 1,487
-----
-----
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------
ASSET LIABILITY NET
----- ----------- ----------
<S> <C> <C> <C>
Current deferred income taxes:
Accounts receivable............................................................... 0 250 -250
Inventory reserves................................................................ 0 162 -162
Accrued payroll and employee benefits............................................. 55 0 55
--- ----------- ----------
Total............................................................................. 55 412 -357
--- ----------- ----------
Non-current deferred income taxes:
Special reserve................................................................... 0 1,234 -1,234
Intangible assets................................................................. 64 0 64
Property, plant and equipment..................................................... 0 16,579 -16,579
Pensions.......................................................................... 299 0 299
--- ----------- ----------
Total............................................................................. 363 17,813 -17,450
--- ----------- ----------
Total deferred income taxes......................................................... 418 18,225 -17,807
--- ----------- ----------
--- ----------- ----------
</TABLE>
F-32
<PAGE>
STEINBEIS GESSNER GMBH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN DM THOUSANDS)
8 INCOME TAXES (CONTINUED)
The provision for income taxes at the German federal corporation tax rate of
45% differed from the Company's provision for income taxes for the year ended
December 31, 1996 as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Expected tax at statutory rate................................................................. 1,893
Corporation tax surcharge...................................................................... 142
Municipal trade taxes on income, net of corporation tax benefit................................ 298
Credit for dividend distribution............................................................... -812
Other.......................................................................................... -34
------
Provision for income taxes..................................................................... 1,487
------
------
Effective income tax rate...................................................................... 35.4%
</TABLE>
Income taxes paid during 1996 were DM 4.
9 FAIR VALUE OF FINANCIAL INSTRUMENTS
Management has determined that the carrying values of cash, accounts
receivable, accounts payable and short-term bank debt approximate fair value at
December 31, 1996 because of immediate or short-term maturities. The carrying
amount reported for long-term debt approximates fair value because the interest
rate of the debt approximates the market rate.
10 RELATED PARTY TRANSACTIONS
The Company paid a management fee of DM 514 for the year ended December 31,
1996. The Company has a management agreement with Steinbeis Verwaltungs-GmbH
which calls for the provision of property administration, legal, taxation and
certain personnel related services. The Company's parent provides financing at
rates which are in accordance with market indicators (interest rate 1996 at
3.25%-5.5%). Interest expense on related party borrowings amounted to DM 392 in
1996. Certain equipment and facilities are leased from Mangfall Kraftwerke AG, a
subsidiary of the Company's parent. 1996 lease expense on such equipment and
facilities were DM 255.
11 RETIREMENT PLANS
The Company maintains non-contributory, defined-benefit pension plans
covering substantially all employees. Benefits for certain salaried employees
are based on salary and years of service, while benefits
F-33
<PAGE>
STEINBEIS GESSNER GMBH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN DM THOUSANDS)
11 RETIREMENT PLANS (CONTINUED)
for other employees are based on a fixed benefit rate and years of service. The
plan is unfunded and the Company accrues for the pension obligation in the
financial statements.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Actuarial present value of accumulated benefit obligations
Vested................................................................. 14,398
Nonvested.............................................................. 979
------
Accumulated benefit obligation........................................... 15,377
Effect of projected future salary increase............................... 305
------
Projected benefit obligation............................................. 15,682
Unrecognized net loss.................................................... -415
------
Accrued pension cost..................................................... 15,267
------
------
Total pension expense includes the following components:
1996
-------
Service cost............................................................. 356
Interest cost............................................................ 931
------
Net periodic pension expanse............................................. 1,287
------
------
</TABLE>
The benefit obligations as of December 31, 1996 were calculated using a
discount rate of 6.5%. Salary increases, where applicable, were calculated at
3%.
12 SIGNIFICANT BUSINESS CONCENTRATIONS
No customer accounted for more than 10% of its 1996 sales. Approximately 53%
of the Company's total 1996 sales were concentrated in its 10 largest customers.
The Company's sales in 1996 were made to customers located in the following
regions:
Germany 32%
Europe 48%
Rest of world 20%
13 RESTRUCTURING CHARGES
Restructuring charges in 1996 relate primarily to personnel related costs,
including severance benefits and notice period compensation.
F-34
<PAGE>
STEINBEIS GESSNER GMBH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN DM THOUSANDS)
14 OTHER INCOME
Other income consists of the following components:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Foreign exchange gains, net........................................................... 428
Gain on disposal of property, plant and equipment..................................... 239
Rental income......................................................................... 233
Other................................................................................. 452
---------
Total............................................................................... 1,352
---------
</TABLE>
15 COMMITMENTS AND CONTINGENCIES
A) ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local environmental
requirements, particularly relating to air and water quality. The Company has
spent substantial sums for pollution control facilities to comply with existing
regulations. While the Company believes it has made sufficient capital
expenditures to maintain compliance with existing laws and regulations, any
failure by the Company to comply with present and future regulations could
subject it to future liability or require the suspension of operations.
B) OTHER MATTERS
The Company is involved in various legal proceedings in the ordinary course
of business. Management believes that the outcome of these proceedings will not
have a material adverse effect on the Company's financial condition, results of
operations or cash flows.
F-35
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY AGENT, DEALER OR UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL OR IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information........................... 2
Incorporation of Certain Documents by
Reference..................................... 3
Forward Looking Statements...................... 3
Prospectus Summary.............................. 5
Risk Factors.................................... 11
Use of Proceeds................................. 15
Price Range of Common Stock and Dividend
Policy........................................ 15
Capitalization.................................. 16
Unaudited Pro Forma Consolidated Financial
Data.......................................... 17
Selected Historical Consolidated Financial
Data.......................................... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 26
Business of the Company......................... 31
The Gessner Acquisition......................... 45
Management...................................... 49
Security Ownership of Certain Beneficial Owners
and Management................................ 52
Certain Relationships and Related
Transactions.................................. 54
Description of Capital Stock.................... 55
Underwriting.................................... 57
Validity of Common Stock........................ 59
Experts......................................... 59
Index to Financial Statements................... F-1
</TABLE>
1,500,000 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
-------------
BT ALEX. BROWN
PAINEWEBBER INCORPORATED
December , 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<TABLE>
<S> <C>
SEC filing fee.................................................... $ 10,324
NASD filing fee................................................... 3,907
Accounting fees and expenses...................................... 550,000
Legal fees and expenses........................................... 130,000
Blue Sky and Legal Investment fees and expenses................... 5,000
Transfer Agent's fees............................................. 4,000
Miscellaneous..................................................... 47,000
---------
Total............................................................. $ 750,231
---------
---------
</TABLE>
- ------------------------
* All estimates except for filing fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Company provides that directors of
the Company shall, to the full extent not prohibited by the General Corporation
Law of the State of Delaware (the "DGCL"), not be liable to the Company or its
stockholders for monetary damages for breach of such director's fiduciary duty
as a director.
Section 145 of the DGCL provides that a corporation may indemnify directors
and officers as well as other employees and individuals against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation, a "derivative action") if they acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. A similar standard is applicable in the case of derivative actions,
except that indemnification only extends to expenses (including attorneys' fees)
incurred in connection with the defense or settlement of such actions, and the
statute requires court approval before there can be any indemnification where
the person seeking indemnification has been found liable to the corporation. The
statute provides that it is not exclusive of other indemnification that may be
granted by a corporation's bylaws, disinterested director vote, stockholder
vote, agreement or otherwise.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1 Share Purchase Agreement dated as of November 26, 1997, among Steinbeis Holding GmbH ("Steinbeis"),
Zetaphoenicis Beteiligungs GmbH and Thetaphoenicis Beteiligungs GmbH.
2.2(9) Merger Agreement dated as of August 28, 1996 by and among the Company, CPG Acquisition Co. ("CPG
Co.") and CPG Investors Inc. ("Investors").
2.3(9) Stock Purchase Agreement dated as of August 28, 1996 by and among the Company, Arcon Coating Mills,
Inc. ("Arcon Mills"), Arcon Holdings Corp. ("Holdings"), the stockholders of Holdings and various
other parties.
2.4(9) Certificate of Merger merging CPG Co. with and into Investors filed with the Secretary of State of
Delaware on October 31, 1996.
3.1(1) Restated Certificate of Incorporation of the Company as amended through March 25, 1997.
3.2(10) Certificate of Ownership and Merger of FiberMark, Inc. with and into Specialty Paperboard, Inc. filed
with the Secretary of State of Delaware on March 26, 1997.
3.3(1) Restated By-laws.
4.1(1) Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2(1) Specimen stock certificate.
4.3(9) Indenture dated as of October 15, 1996 (the "Indenture") among the Company, CPG Co., Specialty
Paperboard/Endura, Inc. ("Endura") and the Wilmington Trust Company ("Wilmington").
4.4(9) Specimen Certificate of 9 3/8% Series A Senior Note due 2006 (included in Exhibit 4.3 hereof).
4.5(9) Specimen Certificate of 9 3/8% Series B Senior Note due 2006 (included in Exhibit 4.3 hereof).
4.6(9) Form of Guarantee of Senior Notes issued pursuant to the Indenture (included in Exhibit 4.3 hereof).
4.7(9) Registration Rights Agreement dated as of October 16, 1996 among the Company, Endura, CPG Co. and BT
Securities Corporation.
5.1 Opinion of White & Case re legality of the Common Stock.
10.1(5) Lease Agreement dated April 29, 1994, between CIT Group/Equipment Financing Inc. ("CIT/Financing")
and the Company.
10.2(5) Security Agreement dated April 29, 1994, between CIT/Financing and the Company.
10.3(5) Grant of Security Interest in Patents, Trademarks and Leases dated April 29, 1994, between the
Company and CIT/Financing.
10.4(5) Bill of Sale dated April 29, 1994, to CIT/Financing.
10.5(9) Amended and Restated Financing Agreement dated December 31, 1996, between The CIT Group/Business
Credit, Inc. ("CIT/Credit") and the Company.
10.6(1)(3) Form of Indemnity Agreement entered into between the Company and its directors and executive
officers.
10.7(1)(3) The Company's 1992 Amended and Restated Stock Option Plan and related form of Option Agreement.
10.8(1) Paper Procurement Agreement, between the Company and Acco-U.S.A.
10.9(8) Paper Procurement Agreement, between the Company and Pajco/Holliston, dated February 23, 1995.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
10.10(1) Energy Service Agreement (Latex mill), dated as of November 19, 1992, between Kamine and the Company.
10.11(2) Amendment No. 1 to the Energy Service Agreement (Latex mill), dated as of May 7, 1993, between Kamine
and the Company.
10.12(1) Energy Service Agreement (Lewis mill), dated as of November 19, 1992, between Kamine and the Company.
10.13(2) Amendment No. 1 to the Energy Service Agreement (Lewis mill), dated as of May 7, 1993, between Kamine
and the Company.
10.14(1) Restated Ground Lease, dated as of November 19, 1992, between Kamine and the Company.
10.15(1) Beaver Falls Cogeneration Buyout Agreement, dated as of November 20, 1992, between Kamine, Kamine
Beaver Falls Cogen. Co., Inc. and the Company.
10.16(2) Consent and Agreement (Energy Services Agreement), dated as of May 7, 1993, by the Company.
10.17(2) First Amendment of Restated Ground Lease, dated as of May 7, 1993, between Kamine and the Company.
10.18(2) Memorandum of Lease, dated as of May 7, 1993, between Kamine and the Company.
10.19(2) Lessor Consent and Estoppel Certificate, dated as of May 7, 1993, between the Company and Deutsche
Bank AG, New York Branch, Ansaldo Industria of America, Inc. and SV Beavers Falls, Inc.
10.20(7)(3) The Company's 1994 Stock Option Plan and related forms of Option Agreements.
10.21(7)(3) The Company's 1994 Directors Stock Option Plan and related form of Option Agreement.
10.22(9)(3) Amendment to the Company's 1994 Directors Stock Option Plan.
10.23(4)(3) The Company's Executive Bonus Plan.
10.24(9) Deed of Lease between James River Paper Company, Inc. and CPG-Virginia Inc. dated as of October 31,
1993.
10.25(9) Amended and Restated Agreement of Lease, between Arnold Barsky doing business as A&C Realty and Arcon
Mills Inc., dated June 1, 1988.
10.26(9) Lease Agreement dated November 15, 1995, between IFA Incorporated and Custom Papers Group Inc.
("Custom Papers Group").
10.27(9) Master Lease Agreement dated January 1, 1994, between Meridian Leasing Corp. and Custom Papers Group.
10.28(9) Master Equipment Lease Agreement dated February 3, 1995, between Siemens Credit Corp. and CPG
Holdings Inc.
10.29 Loan Agreement dated as of November 24, 1997, between Steinbeis and Gessner.
10.30 Expansion Land Option and Preemption Right Agreement dated as of November 13, 1997, between Steinbeis
and Gessner.
10.31(6) Endura Sale Agreement, by and among W.R. Grace & Co. Conn., W.R. Grace (Hong Kong) Limited, Grace
Japan Kabushiki Kaisha (collectively, the "Sellers"), the Company, Spatulate Paperboard (Hong Kong
Limited) and Specialty Paperboard Japan Kabushiki Kaisha (collectively the "Buyers"), dated May 10,
1994.
10.32(6) Amendment No.1 to the Endura Sale Agreement, by and among the Buyers, Endura and the Sellers, dated
June 30, 1994.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Coopers & Lybrand L.L.P.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
23.5 Consent of Coopers & Lybrand L.L.P.
23.6 Consent of Price Waterhouse LLP.
23.7 Consent of Wollert-Elmendorff Deutsche Industrie-Treuhand GmbH Wirtschaftsprufungsgesellschaft.
23.8 Consent of White & Case (included in Exhibit 5.1 hereof).
24.1(11) Power of Attorney.
</TABLE>
- ------------------------
(1) Incorporated by reference to exhibits filed with the Company's Registration
Statement on Form S-1 (No. 33-47954), as amended, which became effective
March 10, 1993.
(2) Incorporated by reference to exhibits filed with the Company's report on
Form 10-Q for the quarter ended June 30, 1993, filed August 13, 1993.
(3) Indicates management contracts or compensatory arrangements filed pursuant
to Item 601(b)(10) of Regulation S-K.
(4) Incorporated by reference to exhibits filed with the Company's report on
Form 10-K for the year ended December 31, 1993 (No. 0-20231).
(5) Incorporated by reference to exhibits filed with the Company's report on
Form 10-Q for the quarter ended March 31, 1994, filed May 14, 1994.
(6) Incorporated by reference to exhibits filed with the Company's report on
Form 8-K, filed July 14, 1994.
(7) Incorporated by reference to exhibits filed with the Company's Registration
Statement on Form S-8 filed, July 18, 1994.
(8) Incorporated by reference to exhibits filed with the Company's report on
Form 10-K for the year ended December 13, 1994 (No. 0-20231).
(9) Incorporated by reference to exhibits filed with the Company's Registration
Statement on Form S-4 (No. 333-17471), which became effective on February
11, 1997.
(10) Incorporated by reference to exhibits filed with the Company's report on
Form 10-K for the year ended December 31, 1996, filed April 1, 1997.
(11) Previously filed.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(a) for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof;
(b) insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in such Act and
will be governed by the final adjudication of such issue;
(c) for purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
(d) for purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has caused this Amendment No. 2 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the Town
of Brattleboro, State of Vermont, on the 12th day of December, 1997.
FIBERMARK, INC.
BY *
-----------------------------------------
Alex Kwader
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 has been signed by the following persons in the capacities indicated on
December 12, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
Director, President and
* Chief Executive Officer
- ------------------------------ (Principal Executive
Alex Kwader Officer)
Vice President and Chief
/s/ BRUCE P. MOORE Financial Officer
- ------------------------------ (Principal Financial and
Bruce P. Moore Accounting Officer)
* Chairman of the Board of
- ------------------------------ Directors
K. Peter Norrie
* Director
- ------------------------------
Brian C. Kerester
* Director
- ------------------------------
Marion A. Keyes, IV
* Director
- ------------------------------
George E. McCown
* Director
- ------------------------------
Glenn S. McKenzie
* Director
- ------------------------------
Jon H. Miller
* Director
- ------------------------------
Fred P. Thompson, Jr.
* Director
- ------------------------------
John D. Weil
<TABLE>
<S> <C>
/s/ BRUCE P. MOORE
------------------------------------------
Bruce P. Moore
*By ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
Exhibit 1.1
FIBERMARK, INC.
1,500,000 Shares
Common Stock
(par value $.001 per share)
UNDERWRITING AGREEMENT
December , 1997
BT Alex. Brown Incorporated
PaineWebber Incorporated
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Ladies and Gentlemen:
Fibermark, Inc., a Delaware corporation (the "Company"), hereby confirms
its agreement with you, as set forth below.
1. The Securities. Subject to the terms and conditions herein
contained, the Company proposes to sell to the underwriters named in Schedule
I hereto (the "Underwriters"), for whom you are acting as reprentatives (the
"Representatives"), an aggregate of 1,500,000 shares (the "Firm Securities")
of common stock, par value $.001 per share, of the Company (the "Common
Stock"). In addition, solely for the purpose of covering over-allotments, the
Company proposes to grant to the Underwriters the option, exercisable by the
Representatives of the Underwriters, to purchase from the Company up to an
additional 225,000 shares of Common Stock (the "Additional Securities") as
set forth below. The Firm Securities and the Additional Securities that may
be sold to the Underwriters are hereinafter collectively referred to as the
"Securities."
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The Securities are being sold in connection with the acquisition by
the Company (the "Acquisition") of Steinbeis Gessner GmbH ("Gessner") pursuant
to a stock purchase agreement dated as of November [ ], 1997 (the "Acquisition
Agreement") in which the Company has agreed to purchase all of the outstanding
capital stock of Gessner.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (SEC File No. 333-[ ])
and a related preliminary prospectus for the registration of the Securities
under the Securities Act of 1933, as amended (the "Act"), and has filed such
amendments thereto, if any, as may have been required prior to the date hereof.
As used in this Agreement, the term "Registration Statement" means
such registration statement, as amended at the time when it was or is
declared effective, including all financial statements and schedules and
exhibits thereto and including any information omitted therefrom pursuant to
Rule 430A under the Rules and Regulations ("Rule 430A"), if applicable, and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus relating to the Securities as filed with
such registration statement or any amendment thereto (including the
prospectus, if any, included in such registration statement or any amendment
thereto at the time it was or is declared effective if declared effective
prior to the execution and delivery of this Agreement); and the term
"Prospectus" means the prospectus relating to the Securities as first filed
with respect to such registration statement with the Commission pursuant to
Rule 430A and Rule 424(b) under the Rules and Regulations ("Rule 424(b)"), if
required, or, if no prospectus is required to be filed pursuant to Rule 430A
or Rule 424(b), such term means the prospectus included in such registration
statement at the time it became or becomes effective; provided that if a
revised Prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering and sale of the Securities that differs
from the prospectus on file at the Commission at the time such registration
statement becomes effective or as first filed under Rule 430A and Rule
424(b), the term "Prospectus" shall refer to the revised prospectus from and
after the time it is first provided to the Underwriters for such use. If the
Company has filed an abbreviated registration statement to register
additional securities pursuant to Rule 462(b) under the Act (the "Rule 462
Registration Statement"), then any reference herein to "Registration
Statement" shall be deemed to include such Rule 462 Registration Statement.
All references in this Agreement to the Registration
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3
Statement, Preliminary Prospectus and Prospectus and to financial statements
and schedules and other information that is "contained," "included," "set
forth," "described in" or "stated" therein (and all other references of like
import) shall be deemed to mean and include all such financial statements and
schedules and other information that is or is deemed to be incorporated by
reference therein; and all references in this Agreement to amendments or
supplements to the Registration Statement, the Preliminary Prospectus or the
Prospectus shall be deemed to mean and include the filing of any document
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), that
is or is deemed to be incorporated by reference therein.
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each Underwriter that:
(a) The registration statement originally filed with the Commission
with respect to the Securities, including the form of prospectus, together
with all amendments thereto, has been prepared by the Company in conformity
in all material respects with the requirements of the Act and the rules and
regulations (the "Rules and Regulations") of the Commission thereunder and
the Company meets all the requirements for filing on Form S-3. The
Registration Statement at the time it was or will be declared effective and
at the Closing Date (as hereinafter defined) complies and will comply in
all material respects with the requirements of the Act and the Rules and
Regulations.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus nor instituted any proceeding for
such purpose. When the Registration Statement or any amendment thereto was
or is declared effective and on the Closing Date (as hereinafter defined),
it did not or will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading. The Prospectus, and any
amendments or supplements thereto on the date first filed with the
Commission pursuant to Rule 424(b) (or if not filed, on the date first
provided to the Underwriters in connection with the offering and sale of
the Securities) and on the Closing Date, (i) complied and will comply in
all material respects with the requirements of the Act and the Rules and
Regulations, and (ii) did not and will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
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4
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions in
the Registration Statement or any amendment thereto or the Prospectus or
any amendment or supplement thereto made in reliance upon and in conformity
with written information with respect to the Underwriters furnished to the
Company by BT Alex. Brown Incorporated specifically for use therein.
(c) The documents incorporated or deemed to be incorporated by
reference in the Prospectus, at the time they were or hereafter are filed
with the Commission, complied and will comply in all material respects with
the requirements of the 1934 Act and the rules and regulations (the "1934
Act Regulations") of the Commission thereunder, and when read together with
the other information in the Prospectus, at the time the Registration
Statement and any amendments thereto became or becomes effective and at the
Closing Date, did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) Each of the Company, its subsidiaries (the "Subsidiaries") and
each of Gessner and its subsidiaries (the "Gessner Subsidiaries") is, and
after giving effect to the Acquisition will be, a corporation, partnership
or other business entity, as the case may be, duly organized, validly
existing and in good standing under the laws of its jurisdiction of its
formation. Except as otherwise set forth in the Registration Statement,
the Company or Gessner, as the case may be, owns, directly or indirectly,
free and clear of all mortgages, pledges, liens, security interests,
conditional sale agreements and other charges (except for inchoate
statutory obligations that are not yet due and payable and other immaterial
liens), all of the outstanding equity interests of each Subsidiary and
Gessner Subsidiary, as the case may be, and all of such equity interests
have been duly and validly authorized and issued and are fully paid and
non-assessable. Except where the failure would not have a material adverse
effect on the business, business prospects, financial condition, results of
operation, earnings or properties of either (x) the Company and the
Subsidiaries, taken as a whole, or (y) after giving effect to the
Acquisition, the Company, the
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5
Subsidiaries, Gessner and the Gessner Subsidiaries, taken as a whole (in
either case, a "Material Adverse Effect") and except as otherwise
disclosed under the Registration Statement, (i) each of the Company, the
Subsidiaries, Gessner and the Gessner Subsidiaries has the power and
authority and all approvals, orders, licenses, certificates, permits and
other governmental authorizations necessary to conduct all of the
activities conducted by it, to own or lease all of the assets owned or
leased by it and to conduct its business as described in the
Registration Statement and the Prospectus and (ii) each is duly licensed
or qualified to do business and in good standing in all jurisdictions in
which the nature of the activities conducted by it and/or the character
of the assets owned and leased by it makes such license or qualification
necessary. Except as otherwise set forth in the Registration Statement,
neither the Company nor Gessner owns, directly or indirectly, any equity
securities of any corporation or have any material equity interest in
any firm, partnership, association or other entity, other than the
Subsidiaries and the Gessner Subsidiaries, respectively.
(e) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the term "Capitalization"
and all such capital stock has been validly authorized and issued and is
fully paid and non-assessable. Other than as disclosed in the Prospectus,
the Company does not have outstanding any options to purchase, or any
rights or warrants to subscribe for, or any securities or obligations
convertible into, or any contracts or commitments to issue or sell shares
of capital stock or any warrants or convertible securities. No holder of
securities of the Company or any Subsidiary is entitled to have such
securities registered under the Registration Statement.
(f) The consolidated financial statements of the Company and
Gessner(including the footnotes thereto) included or incorporated by
reference in the Registration Statement and the Prospectus present fairly
the consolidated financial position, results of operation and cash flows of
the Company and Gessner, as the case may be, as of the respective dates
thereof and for the respective periods covered thereby, all in conformity
with generally accepted accounting principles ("GAAP") applied on a basis
consistent with prior periods. The unaudited consolidated financial
statements of the Company and Gessner and the related notes included or
incorporated by reference in the
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6
Registration Statement and the Prospectus present fairly the
consolidated financial position, results of operations and cash flows of
the Company and Gessner, as the case may be, at the dates and for the
periods to which they relate, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
and have been prepared on a basis substantially consistent with that of
the audited financial statements referred to above. The summary and
selected financial and statistical data included in the Registration
Statement and the Prospectus present fairly the information shown
therein and have been prepared and compiled on a basis consistent with
the audited and unaudited financial statements included therein, except
as otherwise stated therein. The consolidated financial statements of
Arcon Holding Corp. ("Arcon") incorporated by reference in the
Registration Statement and the Prospectus present fairly in all material
respects the consolidated financial position of Arcon and its
consolidated subsidiaries as of the dates indicated and the results of
their operations and the changes in their consolidated cash flows for
the periods specified. The consolidated financial statements of CPG
Investors Inc. ("CPG") incorporated by reference in the Registration
Statement and the Prospectus present fairly in all material respects the
consolidated financial position of CPG and its consolidated subsidiaries
as of the dates indicated and the results of their operations and the
changes in their consolidated cash flows for the periods specified.
Each of Coopers & Lybrand L.L.P., KPMG Peat Marwick LLP, Price
Waterhouse LLP, Arthur Andersen LLP and Deloitte & Touche Gmbh, who has
reported on such financial statements, is an independent accountant as
required by the Act and the Rules and Regulations. No financial
statements are required to be included in the Registration Statement or
the Prospectus, other than those so included.
(g) The pro forma financial statements and other pro forma financial
information (including the notes thereto) included in the Prospectus (A)
comply as to form in all material respects with the applicable requirements
of Regulation S-X promulgated under the 1934 Act, and (B) have been
computed on the bases described therein. The assumptions used in the
preparation of the pro forma finanicial statements and other pro forma
condensed consolidated financial information included in the Prospectus are
reasonable and the adjustments used therein are reasonably appropriate to
give effect to the transactions or circumstances referred to therein.
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7
(h) The statistical and market-related data included in the
Prospectus are based on or derived from sources that the Company
believes to be reliable and accurate.
(i) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set forth
therein or contemplated thereby, (i) neither the Company, the Subsidiaries
nor Gessner or any of the Gessner Subsidiaries has incurred or will have
incurred any liabilities or obligations, direct or contingent, or entered
into any transactions not in the ordinary course of business, except for
liabilities, obligations or transactions that are not material to the
Company and its subsidiaries, taken as a whole; (ii) neither the Company,
the Subsidiaries nor Gessner or any of the Gessner Subsidiaries has paid or
declared nor will pay or declare any dividends or other distributions on
its capital stock and (iii) there has not been and will not have been any
change in the capitalization of the Company (except for the exercise of
warrants or options referred to in the Registration Statement), any
Subsidiary, Gessner or any Gessner Subsidiary or any material adverse
change in the business, business prospects, financial condition or results
of operations of the Company, any Subsidiary, Gessner or any Gessner
Subsidiary or in the condition of the Company, any Subsidiary, Gessner or
any Gessner Subsidiary or in the value of the assets of the Company, the
Subsidiaries, Gessner or the Gessner Subsidiaries that would have a
Material Adverse Effect.
(j) There are no actions, suits or proceedings at law or in equity
pending or, to the knowledge of the Company, threatened, against or
affecting the Company, any Subsidiary, Gessner or any of the Gessner
Subsidiaries, any of their respective assets or any of their respective
officers or directors, before or by any federal, state, county or local
commission, regulatory body, administrative agency or other governmental
body, domestic or foreign, that could reasonably be expected to have a
Material Adverse Effect. Neither the Company, the Subsidiaries nor Gessner
or any of the Gessner Subsidiaries is involved in any labor dispute (nor,
to their knowledge, is any such dispute threatened) that would have a
Material Adverse Effect.
(k) Each of the Company, the Subsidiaries, Gessner and each of the
Gessner Subsidiaries has complied with all laws, regulations and orders
applicable to it or its busi-
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8
ness, except for any violation of which would not have a Material
Adverse Effect. Each of the Company, the Subsidiaries, Gessner and each
of the Gessner Subsidiaries has in all material respects performed all
of the obligations required to be performed by it, and is not in default
under any indenture, mortgage, deed of trust, voting trust agreement,
loan agreement, letter of credit agreement, bond, debenture, note
agreement or other evidence of indebtedness, lease, contract or other
agreement or instrument to which it is a party or by which it or any of
its property is bound, except for such failures to perform or defaults
as would not have a Material Adverse Effect, and, to the knowledge of
the Company, no other party under any such agreement or instrument to
which the Company, any Subsidiary, Gessner or any Gessner Subsidiary is
a party is in material default in any respect thereunder, except for
such defaults as would not have a Material Adverse Effect.
(l) Each of the Company and Gessner, (i) keeps books, records and
accounts that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company and its
Subsidiaries and Gessner and the Gessner Subsidiaries, as the case may be,
and (ii) maintains a system of internal accounting controls sufficient to
provide reasonable assurances that (A) transactions are executed in
accordance with management's general or specific authorization, (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles or
any other criteria applicable to such statements and to maintain
accountability for assets, (C) access to assets is permitted only in
accordance with management's general or specific authorization and (D) the
recorded value of assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(m) Neither the Company, any of the Subsidiaries nor Gessner or any
of the Gessner Subsidiaries is in violation of its organizational
documents.
(n) The Securities have been duly authorized by the Company and will
be, upon payment therefor in accordance with the terms hereof, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights or similar contractual rights to purchase securities
issued by the Company. The Securities conform in all
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9
material respects to all statements with regard thereto contained in the
Registration Statement and the Prospectus.
(o) The Company has all requisite corporate power and authority to
execute and deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. This Agreement and the
consummation by the Company of the transactions contemplated hereby have
been duly authorized by the Company. This Agreement has been duly
authorized, executed and delivered by the Company; no consent, approval,
authorization or order of any court or governmental agency or body is
required for the consummation by the Company of the transactions on its
part herein contemplated, except such as may have been obtained under the
Act or otherwise and such as may be required under state securities or
"Blue Sky" laws; the performance of this Agreement and the consummation of
the transactions contemplated hereby will not conflict with or result in a
breach or violation of any of the terms and provisions of or constitute a
default under the Certificate of Incorporation or By-laws of the Company or
any Subsidiary. Except, in each case, for instances that would not result
in a Material Adverse Effect or a material adverse effect on the ability of
the Company to perform its obligations under this Agreement, the
performance of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or result in a breach or
violation of any of the terms and provisions of or constitute a default
under or result in the creation or imposition of any lien, charge, or
encumbrance upon the assets or properties of the Company or any Subsidiary,
pursuant to any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, letter of credit agreement, bond, debenture,
note agreement or other evidence of indebtedness, lease, contract or other
agreement or instrument to which the Company or any Subsidiary is a party
or by which the Company or any Subsidiary or any of their respective
properties is bound, or under any statute or under any order, rule or
regulation applicable to the Company or any Subsidiary or their respective
businesses or properties or of any court or other governmental body.
(p) Each of the Company, the Subsidiaries, Gessner and each of the
Gessner Subsidiaries has good and indefeasible title to all properties and
assets owned by it, free and clear of all liens, charges, encumbrances or
restrictions, except such as are described in or referred to in
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10
the Prospectus or are not material to the business of either (x) the
Company and the Subsidiaries, taken as a whole, or (y) after giving
effect to the Acquisition, the Company, the Subsidiaries, Gessner and
the Gessner Subsidiaries, taken as a whole. Each of the Company, the
Subsidiaries, Gessner and the Gessner Subsidiaries has valid, subsisting
and enforceable leases for the real properties described in the
Prospectus as leased by it, with such exceptions as are not material
either (x) the Company and the Subsidiaries, taken as a whole, or (y)
after giving effect to the Acquisition, the Company, the Subsidiaries,
Gessner and the Gessner Subsidiaries, taken as a whole or do not
materially interfere with the use made of such properties by either (x)
the Company and the Subsidiaries, taken as a whole, or (y) after giving
effect to the Acquisition, the Company, the Subsidiaries, Gessner and
the Gessner Subsidiaries, taken as a whole.
(q) There is no document or contract of a character required to be
described in the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described or filed as required; and no
statement in this Agreement or in any certificate or document required by
this Agreement to be delivered to you is, was when made, or as of the
Closing Date (as hereinafter defined) or any Option Closing Date (as
hereinafter defined) will be, inaccurate, untrue or incorrect in any
material respect.
(r) Except for instances that would not result in a Material Adverse
Effect, each of the Company, the Subsidiaries, Gessner and the Gessner
Subsidiaries possesses the right to use all patents, patent applications,
trademarks, trade names, service marks, service names, copyrights and
licenses necessary for the conduct of the business, as presently conducted,
of the Company, the Subsidiaries, Gessner and the Gessner Subsidiaries and,
except as disclosed in the Registration Statement or Prospectus have not
received any notice of conflict with the asserted rights of others in
respect thereof.
(s) The Company is not, and does not intend to conduct its business
in a manner that would cause it to become, an "investment company" as
defined in Section 3(a) of the Investment Company Act of 1940 as amended
(the "Investment Company Act").
(t) None of the Company, the Subsidiaries or an agent acting on their
behalf has taken or will take any
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11
action that might cause this Agreement or the sale of the Securities to
violate Regulation G, T, U or X of the Board of Governors of the Federal
Reserve System.
(u) Neither the Company nor any of its officers or directors or
affiliates (as defined in the Rules and Regulations) has taken or will
take, directly or indirectly, any action designed to stabilize or
manipulate the price of any security of the Company, or that has
constituted or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company,
to facilitate the sale or resale of any of the Securities in violation of
the Exchange Act or any applicable rules of the New York Stock Exchange
("NYSE").
(v) The Company, each Subsidiary, Gessner and each Gessner Subsidiary
have filed all federal, state and local income and franchise tax returns
required to be filed through the date hereof except for returns being
contested in good faith and have paid all taxes due and owing thereon
except for amounts being contested in good faith, and no material tax
deficiency is currently being asserted against the Company, any Subsidiary,
Gessner or any Gessner Subsidiary that could have a Material Adverse
Effect.
(w) Each of the Company, the Subsidiaries, Gessner and each Gessner
Subsidiary is in compliance with all environmental laws and with the terms
and conditions of any permit, license or approval required thereunder in
connection with the operation of its business, property and assets where
the failure to be in such compliance could reasonably be expected to have,
singly or in the aggregate, a Material Adverse Effect; and, except as
disclosed in the Prospectus, neither the Company, any of the Subsidiaries
nor Gessner or any Gessner Subsidiary has any liability, absolute or
contingent, under any environmental law and there is no civil, criminal or
administrative action, suit, demand, hearing, notice of violation or
deficiency, investigation, proceeding or notice or demand letter pending or
threatened against the Company, any of the Subsidiaries or Gessner or any
Gessner Subsidiary, under any environmental law.
(x) The Acquisition Agreement has been duly and validly authorized by
all necessary corporate action on behalf of the Company and is a valid and
legally binding obligation of the Company, enforceable in accordance with
its terms.
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3. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company at
a purchase price of $[ ] per share, the number of Firm Securities set
forth opposite their respective names in Schedule I hereto. The Representatives
shall release the Firm Securities for public sale promptly after this Agreement
becomes effective. The Representatives may from time to time change the public
offering price and other terms of the offering after the initial public offering
to such extent as they may determine.
In addition, upon written notice from you to the Company, not more
than 30 days from the date hereof, the Underwriters may purchase from time to
time all or less than all of the Additional Securities at the purchase price per
share to be paid for the Firm Securities solely to cover over-allotments. The
Company agrees to sell to the Underwriters such Additional Securities and the
Underwriters agree, severally and not jointly, to purchase such Additional
Securities. Such Additional Securities shall be purchased for the account of
each Underwriter in the same proportion as the number of shares of Firm
Securities set forth opposite such Underwriter's name bears to the total number
of shares of Firm Securities (subject to adjustment by you to eliminate
fractions) and may be purchased by the Underwriters only for the purpose of
covering over-allotments made in connection with the offering of the Firm
Securities. This option may be exercised at any time on or before the thirtieth
day following the date hereof, by written notice to the Company. Such notice
shall set forth the aggregate number of Additional Securities as to which the
option is being exercised, and the date and time when the Additional Securities
are to be delivered (such date and time being herein referred to as an "Option
Closing Date"); provided, however, that no Option Closing Date shall be earlier
than the Closing Date (as defined below) nor earlier than the second business
day after the date on which notice of the exercise of the option shall have been
given nor later than the eighth business day after the date on which notice of
the option shall have been given. No Additional Securities shall be sold or
delivered unless the Firm Securities previously have been, or simultaneously
are, sold and delivered. The right to purchase the Additional Securities or any
portion thereof may be surrendered and terminated at any time upon notice by you
to the Company.
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13
(b) Certificates in definitive form for the Firm Securities that
each Underwriter has agreed to purchase hereunder, and in such denomination
or denominations and registered in such name or names as such Underwriter
requests upon notice to the Company at least 48 hours prior to the Closing
Date, shall be delivered by or on behalf of the Company to the Underwriters,
against payment by or on behalf of such Underwriter of the purchase price
therefor by wire transfer of same day funds, or such other payment procedures
agreed to by the parties, to the account of the Company. Such delivery of
and payment for the Firm Securities shall be made at the offices of Cahill
Gordon & Reindel, 80 Pine Street, New York, New York 10005, at 9:00 A.M., New
York time, on [ ], 1997, or at such other place, time or date as you
and the Company may agree upon or as you may determine pursuant to Section
7(a) hereof, such time and date of delivery against payment being herein
referred to as the "Closing Date." The Company will make such certificates
for the Firm Securities available for checking and packaging by the
Underwriters at the offices of BT Alex. Brown Incorporated in New York, New
York at least 24 hours prior to the Closing Date.
In the event the option with respect to the Additional Securities is
exercised, certificates in definitive form for the Additional Securities that
such Underwriter has agreed to purchase hereunder, and in such denomination
or denominations and registered in such name or names as such Underwriter
requests upon notice to the Company at least 48 hours prior to the Option
Closing Date, shall be delivered by the Company to the Underwriters, against
payment by or on behalf of such Underwriter of the purchase price therefore
by wire transfer of same day funds or such other payment procedures agreed to
by the parties, to the account of the Company. Such delivery of and payment
for the Additional Securities shall be made at each Option Closing Date at
the above-mentioned offices. The Company will make certificates for the
Additional Securities available for inspection, checking and packaging by the
Underwriters at the offices in New York, New York of BT Alex. Brown
Incorporated at least 24 hours prior to each Option Closing Date.
4. Offering by the Underwriters. After the Registration Statement
becomes effective, the Underwriters propose to offer for sale to the public
the Securities at the price and upon the terms set forth in the Prospectus
relating to the Securities.
5. Covenants of the Company. The Company covenants and agrees
with the Underwriters that:
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14
(a) The Company will, if the Registration Statement is not effective
at the time of the execution and delivery of this Agreement, prepare and
timely file with the Commission an amendment to the Registration Statement
that includes the form of final prospectus, which amendment and form of
final prospectus shall contain all required information with respect to the
Securities and the offering thereof, and, if required by Rule 424(b), a
prospectus under Rule 424(b) (in each case only if the Representatives or
their counsel have not reasonably objected thereto after having been
furnished a copy thereof prior to the proposed filing thereof), and in each
case will notify the Representatives promptly of such filing and will use
its best efforts to cause the Registration Statement, if not effective at
the time of execution of this Agreement (and any amendments thereto), to
become effective promptly. If required, the Company will file the
Prospectus and any amendments or supplements thereto with the Commission in
the manner and within the time period required by Rule 424(b) (but only if
the Representatives or their counsel have not reasonably objected thereto
promptly after having been furnished a copy thereof a reasonable time prior
to the proposed filing thereof). During any time when a prospectus
relating to the Securities is required to be delivered under the Act, the
Company (i) will comply with all requirements imposed upon it by the Act
and the Rules and Regulations to the extent necessary to permit the
continuation of sales of or dealings in the Securities in accordance with
the provisions hereof and of the Prospectus, as then amended or
supplemented, and (ii) will not file with the Commission the Prospectus or
the amendment referred to in the second sentence of Section 2(a) hereof or
any amendment or supplement to such Prospectus or any amendment to the
Registration Statement of which the Representatives and their counsel shall
not previously have been advised and furnished a copy for a reasonable
period of time prior to the proposed filing and as to which filing the
Representatives and their counsel shall not have given their respective
consent, which consent will not be unreasonably withheld or delayed. The
Company will prepare and will file with the Commission, in accordance with
the Act and the Rules and Regulations, promptly upon request by the
Representatives or counsel for the Representatives, any amendments to the
Registration Statement or amendments or supplements to the Prospectus that
may be necessary or reasonably advisable in connection with the
distribution of the Securities by the Underwriters, and the Company will
use its best efforts to cause any such
<PAGE>
15
amendment to the Registration Statement to be declared effective by the
Commission promptly. The Company will advise the Representatives,
promptly after it receives notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or
declared effective or the Prospectus or any amendments or supplements
thereto have been filed.
(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any amendment thereto or any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, or any
amendments or supplements thereto, (ii) the suspension of the qualification
of the Securities for offering or sale in any jurisdiction, (iii) the
institution, threat or contemplation of any proceeding for any such purpose
or (iv) any request made by the Commission for amending the Registration
Statement, for amending or supplementing the Prospectus or for additional
information. The Company will use its best efforts to prevent the issuance
of any such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(c) The Company will cooperate with the Representatives in arranging
for the qualification of the Securities for offering and sale under the
securities or "Blue Sky" laws of such jurisdictions in the United States
and Canada as the Representatives may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Securities; provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction or to
subject itself to taxation in respect of doing business in any jurisdiction
in which it is not otherwise subject.
(d) During such time as a prospectus relating to the Securities is
required to be delivered under the Act, if after due inquiry, the Company
should become aware of any event that occurs, and as a result of which the
Prospectus as then amended or supplemented would include any untrue
statement of a material fact, or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances
<PAGE>
16
under which they were made, not misleading, or if the Company should be
of the opinion that for any other reason it is necessary at any time to
amend or supplement the Prospectus to comply with the Act or the Rules
and Regulations, the Company will promptly notify the Representatives
and their counsel thereof and the Company will prepare and, subject to
Section 6(a) hereof, will file with the Commission, at its sole expense,
an amendment to the Registration Statement or an amendment or supplement
to the Prospectus (in form and substance reasonably satisfactory to the
Representatives and their counsel and in compliance with the Act and the
Rules and Regulations) so that the Prospectus as so supplemented or
amended will not contain an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading, or so that the Prospectus will comply
with law, and will deliver to the Representatives, without charge, such
number of copies thereof as they may reasonably request.
(e) The Company will, without charge, provide (i) to the
Representatives and to their counsel a signed copy of the registration
statement originally filed and each amendment thereto (in each case
including exhibits thereto) and the Registration Statement and (ii) so long
as a prospectus relating to the Securities is required to be delivered
under the Act, as many copies of each Preliminary Prospectus and the
Prospectus relating to the Securities and any amendment or supplement
thereto as each Underwriter may reasonably request.
(f) The Company, as soon as reasonably practicable, will make
generally available to holders of the Securities and to the Underwriters
consolidated earning statements of the Company (which need not be certified
by an independent public accountant) that satisfy the provisions of Section
11(a) of the Act and Rule 158 thereunder.
(g) For and during the period ending five years after the effective
date of the Registration Statement, the Company will furnish to the
Representatives and, upon request, to each of the other Underwriters copies
of all reports and other communications (financial or otherwise) furnished
by the Company to its securityholders generally and copies of any reports
or financial statements furnished to or filed by the Company with the
Commission or
<PAGE>
17
any national securities exchange on which any class of securities of the
Company may be listed.
(h) Prior to the Closing Date and any Option Closing Date, as the
case may be, the Company will furnish to the Representatives, as soon as
they have been prepared and are available, a copy of any unaudited interim
consolidated financial statements of the Company and Gessner and any pro
forma information for any period subsequent to the period covered by its
most recent financial statements included in the Registration Statement and
the Prospectus.
(i) The Company will file with the New York Stock Exchange all
documents and notices required by the New York Stock Exchange of companies
that have issued securities that are traded in the over-the-counter market
and quotations for which are reported by the New York Stock Exchange.
(j) The Company will not at any time, directly or indirectly, take
any action designed, or that might reasonably be expected, to cause or
result in, or that will constitute, stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of any
of the Securities in violation of the Exchange Act or any applicable rules
of the New York Stock Exchange.
(k) If, prior to the completion of the distribution of the
Securities, the Company commences engaging in business with the government
of Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the
Commissioner with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported in
the Prospectus relating to the Securities, if any, concerning the Company's
business with Cuba or with any person or affiliate located in Cuba changes
in any material way, the Company will provide the Department notice of such
business or change, as appropriate, in a form acceptable to the Department.
(l) During a period of 90 days from the date hereof "Lock-up
Period"), the Company will not, without the Representatives' prior written
consent, offer, sell, contract to sell, or otherwise dispose of, directly
or indirectly, any shares of Common Stock or any interests therein, or any
securities convertible into, or exchangeable for,
<PAGE>
18
shares of Common Stock, or rights to acquire the same except for (i)
Securities issued pursuant to this Agreement; (ii) Common Stock or other
equity securities issued in connection with any merger or other
acquisition by the Company provided that such Common Stock or other
equity securities are specifically made subject to the restrictions of
this paragraph for the Lock-up Period and (iii) Common Stock issuable on
exercise of options or warrants referred to in the Prospectus.
6. Expenses. The Company agrees to pay all costs and expenses
incident to the performance of its obligations under this Agreement, whether
or not the transactions contemplated herein are consummated or this Agreement
is terminated, as provided in this Section 6 including all costs and expenses
incident to (i) the printing or other production of documents with respect to
the transactions, including any costs of printing the registration statement
originally filed with respect to the Securities and any amendment thereto and
the Registration Statement, any Preliminary Prospectus and the Prospectus and
any amendment or supplement thereto, (ii) the printing (or reproduction) and
delivery of this Agreement, the Securities, any Blue Sky Memoranda and all
other documents and agreements printed (or reproduced) and delivered in
connection with the offering of the Securities, (iii) all arrangements
relating to the delivery to the Underwriters of copies of the foregoing
documents, (iv) the fees and disbursements of the counsel, the accountants
and any other experts or advisors retained by the Company or its
subsidiaries, (v) preparation (including printing), issuance and delivery to
the Underwriters of certificates evidencing the Securities, (vi) the
qualification of the Securities in the United States and Canada under state
securities and "Blue Sky" laws, including filing fees and reasonable fees and
disbursements of counsel for the Underwriters relating thereto, (vii) the
filing fees of the Commission and the National Association of Securities
Dealers, Inc. relating to the Securities, (viii) expenses of the Company and
its subsidiaries in connection with any meetings with prospective investors
in the Securities, (ix) advertising relating to the offering of the
Securities (other than as shall have been specifically approved in writing by
the Underwriters to be paid by the Underwriters), (x) the fees and expenses
incurred in connection with the listing of the Securities on the New York
Stock Exchange and (xi) the costs and expenses incident to the performance by
the Company of its obligations hereunder and in connection with the offer,
sale and delivery of the Securities to be sold by it, including any stock
transfer taxes payable upon the sale of such Securities to the
<PAGE>
19
Underwriters and the fees and expenses of any counsel retained by the Company.
If the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 7 hereof is not satisfied, because this Agreement is terminated
pursuant to Section 10 hereof or because of any failure, refusal or inability
on the part of the Company to perform all obligations and satisfy all
conditions on its part to be performed or satisfied hereunder (other than
solely by reason of a default by the Underwriters of their obligations
hereunder after all conditions hereunder have been satisfied in accordance
herewith), the Company will promptly reimburse the Underwriters upon demand
for all reasonable out-of-pocket expenses (including reasonable fees and
disbursements of counsel for the Underwriters) that shall have been incurred
by the Underwriters in connection with the proposed purchase and sale of the
Securities not so delivered.
7. Conditions of the Underwriters' Obligations. The obligation of
the Underwriters to purchase and pay for the Firm Securities on the Closing
Date and the Additional Securities on each Option Closing Date shall be
subject to the following additional conditions:
(a) If the registration statement, as amended, with respect to the
Securities has not been declared effective as of the time of execution and
delivery hereof, the registration statement shall have been declared
effective not later than 11:00 A.M., New York City time, on the date of
this Agreement or, if any post-effective amendment to the Registration
Statement has been filed, 11:00 A.M., New York City time, on the date on
which such post-effective amendment to the Registration Statement has been
filed with the Commission, or such later time and date as shall have been
expressly consented to by the Representatives in writing; if required, the
Prospectus and any amendments or supplements thereto shall have been timely
filed in accordance with Rule 430A and Rule 424(b); no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto shall have been issued and no proceedings for that purpose shall
have been instituted or, to the best knowledge of the Company or the
Underwriters, shall be contemplated or threatened by the Commission.
(b) The Underwriters shall have received an opinion, in form and
substance satisfactory to the Underwriters and Cahill Gordon & Reindel,
counsel for the Underwriters,
<PAGE>
20
dated the Closing Date and each Option Closing Date, as the case may
be, and addressed to the Underwriters, of White & Case, counsel for the
Company and its subsidiaries to the effect that:
(i) Each of the Company and its Subsidiaries is duly
incorporated, validly existing and in good standing under the laws
of its respective jurisdiction of incorporation and has all
requisite corporate power and authority to own its properties and
to conduct its business as described in the Registration Statement
and the Prospectus. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign corporation in good
standing in the jurisdictions listed on a schedule to such opinion
(which the Company shall have certified are the only jurisdictions
where the failure to be so qualified could, individually or in the
aggregate, have a Material Adverse Effect).
(ii) No authorization, approval, consent or license of any
state or federal governmental or regulatory body, except as may be
required under the Act or the "Blue Sky" laws of the various
jurisdictions, is required in connection with the (A) authorization,
issuance, transfer, sale or delivery of the Securities under this
Agreement; (B) execution, delivery and performance of this Agreement
by the Company; (C) taking of any action contemplated herein or in the
Registration Statement or Prospectus, or if so required all such
authorizations, approvals, consents and licenses, specifying the same,
have been obtained and are in full force and effect.
(iii) The Company has the authorized and outstanding capital
stock, and, to the knowledge of such counsel, stock options and
warrants as set forth in the Registration Statement and the
Prospectus. The outstanding shares of the Common Stock are, and
all of the Securities will be, upon sale and payment therefor under
this Agreement, duly authorized, validly issued, fully paid and
nonassessable, and are not subject to statutory preemptive rights.
The Common Stock has been duly authorized for quotation on
<PAGE>
21
the New York Stock Exchange. All issuances of securities by the
Company were exempt from, or complied in all respects with, the
registration or qualification provisions of all applicable federal
and state securities laws.
(iv) All of the issued and outstanding shares of the capital
stock of each Subsidiary are validly issued, fully paid and
nonassessable and, to such counsel's knowledge, all of the issued and
outstanding shares of stock of each Subsidiary are owned by the
Company free and clear of all mortgages, pledges, liens, security
interests, conditional sales agreements, charges and encumbrances of
every nature.
(v) To such counsel's knowledge, no holder of any securities of
the Company has the right to require registration of shares of the
Common Stock or other securities of the Company because of the filing
or effectiveness of the Registration Statement.
(vi) The Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act.
(vii) The Company has full corporate power and authority to
enter into this Agreement and this Agreement has been duly authorized,
executed and delivered by the Company.
(viii) The Company possesses all state and federal
authorizations, approvals, consents and licenses necessary for the
operations of its business.
(ix) The Registration Statement and the Prospectus, and each
amendment thereof or supplement thereto, comply in all material
respects as to form with the requirements of the Act and the Rules and
Regulations (except that no opinion need be expressed as to financial
statements, financial statement notes and other financial and
statistical data contained in the Registration Statement or the
Prospectus).
(x) The descriptions in the Registration Statement and
Prospectus of contracts and other documents are accurate in all
material respects and fairly present the information required to be
shown; and such counsel does not know of any contracts or documents
<PAGE>
22
of a character required to be described in the Registration Statement
or the Prospectus or to be filed as an exhibit to the Registration
Statement (including, for this purpose, all exhibits filed with respect
to any document incorporated by reference therein) that are not
described or filed as required; it being understood that such counsel
need express no opinion as to the financial statements, financial notes
or schedules or other financial or statistical data included therein.
(xi) The Registration Statement has become effective under the
Act, and, to the knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are threatened,
pending or contemplated. All filings required by Rule 424 and Rule
430A of the Rules and Regulations have been made.
(xii) The execution and delivery of this Agreement by the
Company, the consummation by the Company of the transactions herein
contemplated and the compliance with the terms of this Agreement do
not and will not conflict with or result in a breach of any of the
terms or provisions of or violate or constitute a default under, the
Certificate of Incorporation or By-laws of the Company or any
Subsidiary, or any material indenture or mortgage known to such
counsel or other material agreement or instrument known to such
counsel to which the Company or any Subsidiary, is a party or by which
the Company or any Subsidiary or any of their respective properties is
bound, or any existing federal or state statute, rule or regulation,
or any judgment, order or decree known to such counsel, of any
government, governmental instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or any
of their respective properties.
Such counsel shall also state that such counsel has participated in
the preparation of the Registration Statement and the Prospectus and
although such counsel has not independently checked the accuracy or
completeness of or otherwise verified, and such counsel is not passing on
and does not assume responsibility for the accuracy or completeness of, the
Registration Statement or the Prospectus, such counsel has generally
reviewed and discussed
<PAGE>
23
such information with representatives of the Company, the Underwriters and
their counsel and accountants for the Company. Based on such review and
discussion, nothing has come to the attention of such counsel to lead them
to believe that, both as of the date on which the Registration Statement
became effective and as of the Closing Date and each Option Closing Date,
as the case may be, either the Registration Statement, or any amendment or
supplement thereto, contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
or the Prospectus, or any amendment or supplement thereto, contained or
contains any untrue statement of a material fact or omitted or omits to
state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading (except that no opinion need be expressed as to
financial statements, financial statement notes and other financial and
statistical data contained in the Registration Statement or the Prospectus).
(c) The Underwriters shall have received an opinion, in form and
substance reasonably satisfactory to the Underwriters, dated the Closing
Date and each Option Closing Date, as the case may be, and addressed to the
Underwriters, of Cahill Gordon & Reindel, counsel for the Underwriters,
with respect to the sufficiency of certain corporate proceedings and other
legal matters relating to this Agreement and the Securities and such other
related matters as the Representatives may reasonably require. In
rendering such opinion, Cahill Gordon & Reindel shall have received, in
form and substance satisfactory to such counsel, and may rely upon, such
certificates and other documents and information as they may reasonably
request to pass upon such matters.
(d) The Underwriters shall have received from each of KPMG Peat
Marwick LLP and Deloitte & Touche, LLP a letter dated the date hereof and
the Closing Date and each Option Closing Date, as the case may be, and
addressed to the Underwriters, in substantially the form previously
approved by the Representatives and in form and substance reasonably
satisfactory to the Representatives and Cahill Gordon & Reindel, counsel
for the Underwriters.
(e) The representations and warranties of the Company contained in
this Agreement shall be true and correct
<PAGE>
24
in all material respects on and as of the date hereof and on and as of the
Closing Date and each Option Closing Date, as the case may be, as if made
on and as of such date; the statements of the Company's officers made
pursuant to any certificate delivered in accordance with the provisions
hereof shall be true and correct in all material respects on and as of the
date made and on and as of the Closing Date and each Option Closing Date,
as the case may be; the Company shall have complied in all material respects
with all agreements and satisfied all conditions on its part to be performed
or satisfied hereunder at or prior to the Closing Date and each Option
Closing Date, as the case may be; and subsequent to the date of the most
recent financial statements in the Prospectus, there shall have been no
Material Adverse Change or any development involving a prospective Material
Adverse Change.
(f) The sale of the Securities by the Company hereunder shall not be
enjoined (temporarily or permanently) on the Closing Date or any Option
Closing Date, as the case may be.
(g) Subsequent to the respective dates as of which information is
given in the Prospectus, except in each case as described in the
Prospectus, none of the Company, the Subsidiaries, Gessner or any Gessner
Subsidiary shall have incurred any liabilities or obligations, direct or
contingent (other than in the ordinary course of business), that are
material either (x) the Company and the Subsidiaries, taken as a whole, or
(y) after giving effect to the Acquisition, the Company, the Subsidiaries,
Gessner and the Gessner Subsidiaries, taken as a whole, or entered into any
transactions not in the ordinary course of business that are material
either (x) the Company and the Subsidiaries, taken as a whole, or (y) after
giving effect to the Acquisition, the Company, the Subsidiaries, Gessner
and the Gessner Subsidiaries, taken as a whole, and there shall not have
been any adverse change in the capital stock or long-term indebtedness of
the Company and its Subsidiaries that is material either (x) the Company
and the Subsidiaries, taken as a whole, or (y) after giving effect to the
Acquisition, the Company, the Subsidiaries, Gessner and the Gessner
Subsidiaries, taken as a whole.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the conduct of the
business and operations of each of the Company, its Subsidiaries, Gessner
and each of
<PAGE>
25
the Gessner Subsidiaries shall not have been interfered with by strike,
fire, flood, hurricane, accident or other calamity (whether or not insured)
or by any court or governmental action, order or decree, and, except as
otherwise stated therein, the properties of each of the Company, its
Subsidiaries, Gessner and each of the Gessner Subsidiaries shall not have
sustained any loss or damage (whether or not insured) as a result of any
such occurrence, except any such interference, loss or damage that would
not have a Material Adverse Effect.
(i) The Underwriters shall have received certificates, in form and
substance reasonably satisfactory to the Underwriters and Cahill Gordon &
Reindel, counsel for the Underwriters, dated the Closing Date and each
Option Closing Date, as the case may be, and addressed to the
Underwriters, of the Company, executed by its chief executive officer or
president and the chief financial officer or chief accounting officer, to
the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct in all material respects as if made on
and as of the Closing Date and each Option Closing Date, as the case
may be, and the Company has performed in all material respects all
covenants and agreements and satisfied all conditions to be performed
or satisfied at or prior to the Closing Date and each Option Closing
Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and,
to the best of such officers' knowledge, no proceedings for those
purposes have been instituted or threatened or are contemplated by the
Commission;
(iii) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the
Company, the Subsidiaries, Gessner and the Gessner Subsidiaries have
not sustained any material loss or interference with their respective
businesses or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding and there has not been
any material change in the capital stock, long-term debt, obligations
under capital
<PAGE>
26
leases or short-term borrowings or other agreements or instruments
relating to the ownership of the property of the Company, the
Subsidiaries, Gessner and the Gessner Subsidiaries or any Material
Adverse Change, or any development involving a prospective Material
Adverse Change, except in each case as described in or contemplated
by the Prospectus; and
(iv) To the best of such officers' knowledge and belief, the
sale of the Securities by the Company has not been enjoined
(temporarily or permanently).
(j) The Company shall have furnished to you "lock-up" letters, in
form and substance satisfactory to you, signed by the directors and
executive officers of the Company, prohibiting such persons from offering,
selling, contracting to sell or otherwise disposing, directly or
indirectly, of any shares of Common Stock or any interests therein, or any
securities convertible into, or exchangeable for, shares of Common Stock or
rights to acquire the same, during the Lock-up Period, without the prior
written consent of the Representatives.
(k) The Acquisition Agreement shall be in full force and effect and
there shall have been no amendment, modification or waiver of the
Acquisition Agreement of which the Representatives shall not have been
aware or to which they shall have reasonably objected.
On or before the Closing Date and each Option Closing Date, as the
case may be, the Underwriters and Cahill Gordon & Reindel, counsel for the
Underwriters, shall have received such further documents, opinions,
certificates and schedules or instruments relating to the business,
corporate, legal and financial affairs of the Company and each of its
Subsidiaries as they shall have heretofore reasonably requested.
All such opinions, certificates, letters, schedules, documents or
instruments delivered pursuant to this Agreement will comply with the
provisions hereof only if they are reasonably satisfactory in all respects to
the Underwriters and Cahill Gordon & Reindel, counsel for the Underwriters.
The Company and each of its Subsidiaries shall furnish to the Underwriters
such conformed copies of such opinions, certificates, letters, schedules,
documents and instruments in such quantities as the Underwriters shall
reasonably request.
<PAGE>
27
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter,
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter
or such controlling person may become subject under the Act, the Exchange Act
or otherwise, insofar as any such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material
fact contained in (A) the Registration Statement or any amendment thereto
or any Preliminary Prospectus or the Prospectus or any amendments or
supplements thereto or (B) any application or other document, or any
amendment or supplement thereto, executed by the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Securities under the securities or
"Blue Sky" laws thereof or filed with the Commission or any securities
association or securities exchange (each an "Application"); or
(ii) the omission or alleged omission to state in such Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or any Application, a
material fact required to be stated therein or necessary to make the
statements therein not misleading,
and will reimburse, as incurred, each Underwriter and each such controlling
person for any reasonable legal or other out-of-pocket expenses reasonably
incurred by any such Underwriter or any such controlling person in connection
with investigating or defending against or appearing as a third-party witness
in connection with any such loss, claim, damage, liability or action in
respect thereof; provided that the Company will not be liable in any such
case to the extent, but only to the extent, that any such loss, claim,
damage, or liability arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in such
Registration Statement or any amendment thereto, any Preliminary Prospectus
or the Prospectus or any amendments or supplements thereto, or any
Application in reliance upon and in conformity with written information
furnished to the Company by the Underwriters through the Representatives with
respect to the Underwriters specifically
<PAGE>
28
for use therein; provided, further, that the Company will not be liable to
any Underwriter if such untrue statement or omission or alleged untrue
statement or omission was contained or made in any Preliminary Prospectus and
completely corrected in the Prospectus and any such loss, liability, claim,
damage or expense suffered or incurred by any Underwriter resulted from any
action, claim or suit by any person who purchased Securities that are the
subject thereof from any Underwriter and such Underwriter failed to deliver
or provide a copy of the Prospectus relating to the Securities to such person
with or prior to the confirmation of the sale of such Securities sold to such
person in any case where delivery is required by the Act or the Rules and
Regulations, unless such failure to deliver or provide a copy of the
Prospectus relating to the Securities was a result of noncompliance by the
Company with Section 5(e)(ii) of this Agreement. This indemnity agreement
will be in addition to any liability that the Company may otherwise have to
the indemnified parties. The Company shall not be liable under this Section
8 for any settlement of any claim or action effected without its consent,
which shall not be unreasonably withheld.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors and each of its officers who signed the
Registration Statement and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
against any losses, claims, damages or liabilities to which the Company, or
any such director, officer or controlling person may become subject under the
Act, the Exchange Act, or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or any Application or (ii) the omission or the alleged omission to
state therein a material fact required to be stated in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or necessary to make the
statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through the
Representatives specifically for use therein; and, subject to the limitation
set forth immediately preceding this clause, will reimburse, as incurred, any
legal or other expenses incurred by the Company or any such director, officer
or controlling person in connection with
<PAGE>
29
investigating or defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action in respect
thereof. This indemnity agreement will be in addition to any liability that
the Underwriters may otherwise have to the indemnified parties. No
Underwriter shall be liable under this Section 8 for any settlement of any
claim or action effected without its consent, which shall not be unreasonably
withheld.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action for which such indemnified party
is entitled to indemnification under this Section 8, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability that it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party; provided that if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have been advised by
counsel that there may be one or more legal defenses available to it and/or
other indemnified parties that are different from or additional to those
available to the indemnifying party, then the indemnifying party shall not
have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof and
approval by such indemnified party of counsel appointed to defend such
action, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses, other than reasonable
costs of investigation, subsequently incurred by such indemnified party in
connection with the defense thereof, unless (i) the indemnified party shall
have employed separate counsel in accordance with the proviso to the
immediately preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for
the expenses of more than one separate counsel (in addition to local counsel)
in any one action or separate but substantially similar
<PAGE>
30
actions in the same jurisdiction arising out of the same general allegations
or circumstances, designated by any Underwriter in the case of paragraph (a)
of this Section 8 or the Company, in the case of paragraph (b) of this
Section 8, representing the indemnified parties under such paragraph (a) or
paragraph (b), as the case may be, who are parties to such action or
actions), (ii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party or
(iii) the indemnifying party shall have failed to assume the defense or
retain counsel reasonably satisfactory to the indemnified party. After such
notice from the indemnifying party to such indemnified party, the
indemnifying party will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the
consent of the indemnifying party, which consent shall not be unreasonably
withheld.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is for any reason unavailable or
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative benefits received by the Company on
the one hand and the Underwriters on the other shall be deemed to be in the same
proportion as (x) the total proceeds from the offering (net of underwriter's
discounts and commissions but before deducting expenses) received by the Company
and (y) the total underwriting discounts and commissions received by the
Underwriters, respectively, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by an indemnified party or parties
on the one
<PAGE>
31
hand, or the indemnifying party or parties on the other, the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company and the Underwriters agree
that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation (even if the Company on the
one hand and the Underwriters on the other hand were treated as one entity
for such purpose) or by any other method of allocation that does not take
into account the equitable considerations referred to in the first sentence
of this paragraph (d). Notwithstanding any other provision of this paragraph
(d), no Underwriter shall be obligated to make contributions hereunder that
in the aggregate exceed the total underwriting discounts and commissions
received by such Underwriter under this Agreement, less the aggregate amount
of any damages that such Underwriter has otherwise paid or been required to
pay by reason of the untrue or alleged untrue statements or the omissions or
alleged omissions to state a material fact, and no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this paragraph (d), each
person, if any, who controls an Underwriter within the meaning of Section 15
of the Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, and each
officer of the Company who signed the Registration Statement and each person,
if any, who controls the Company within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, shall have the same rights to contribution
as the Company.
9. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, the
Company's officers, and the Underwriters set forth in this Agreement or made
by or on behalf of them, respectively, pursuant to this Agreement shall
remain in full force and effect, regardless of (i) any investigation made by
or on behalf of the Company or any of its officers or directors, the
Underwriters or any controlling person referred to in Section 8 hereof and
(ii) delivery of and payment for the Securities. The respective agreements,
covenants, indemnities and other statements set forth in Sections 6 and 8
hereof shall remain in full force and effect, regardless of any termination
or cancellation of this Agreement.
<PAGE>
32
10. Termination.
(a) This Agreement may be terminated in the sole discretion of the
Representatives by notice to the Company, given prior to the Closing Date or
Option Closing Date, as the case may be, in the event that the Company shall
have failed, refused or become unable to perform all obligations and satisfy
all conditions on its part to be performed or satisfied hereunder at or prior
thereto or, if at or prior to the Closing Date or Option Closing Date, as the
case may be:
(i) the Company, the Subsidiaries, Gessner or the Gessner
Subsidiaries shall have sustained any loss or interference with respect
to its businesses or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any strike,
labor dispute, slow down or work stoppage or any legal or governmental
proceeding, which loss or interference, in the sole judgment of the
Underwriters, has had or has a Material Adverse Effect, or there shall have
been, in the sole judgment of the Underwriters, any event or development
that, individually or in the aggregate, has or could be reasonably likely
to have a Material Adverse Effect (including without limitation a change in
control of the Company or any of its Subsidiaries), except in each case as
described in the Prospectus (exclusive of any amendment or supplement
thereto after the date hereof);
(ii) trading in securities of the Company or in securities generally
on the New York Stock Exchange shall have been suspended or minimum or
maximum prices shall have been established on the New York Stock Exchange;
(iii) a banking moratorium shall have been declared by New York or
United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an outbreak
or escalation of any other insurrection or armed conflict involving the
United States or any other national or international calamity or emergency
or (C) any material change in the financial markets of the United States
which, in the sole judgment of the Representatives, makes it impracticable
or inadvisable to proceed with the public offering or the delivery of the
Securities as contemplated by the Registration Statement, as amended as of
the date hereof.
<PAGE>
33
(b) Termination of this Agreement pursuant to this Section 10 shall be
without liability of any party to any other party except as provided in
Section 9 hereof.
11. Increase in Underwriters' Commitments. If any Underwriter shall
default in its obligation to take up and pay for the Securities to be
purchased by it hereunder on the Closing Date or any Option Closing Date and
if the amount of Securities that all Underwriters so defaulting shall have
agreed but failed to take up and pay for does not exceed 10% of the total
number of Securities that the Underwriters are obligated to purchase on the
Closing Date or Option Closing Date, as the case may be, the non-defaulting
Underwriters shall take up and pay for (in addition to the Securities they
are obligated to purchase pursuant to Section 1 hereof) the number of
Securities agreed to be purchased by all such defaulting Underwriters on the
Closing Date or Option Closing Date, as the case may be, as hereinafter
provided. Such Securities shall be taken up and paid for by such
non-defaulting Underwriter or Underwriters in such amount or amounts as you
may designate with the consent of each Underwriter so designated or, in the
event no such designation is made, such Securities shall be taken up and paid
for by all non-defaulting Underwriters pro rata in proportion to the
aggregate amount of Securities set opposite the names of such non-defaulting
Underwriters in Schedule I.
If a new allocation is made in accordance with the foregoing provision,
you shall have the right to postpone the Closing Date or Option Closing Date,
as the case may be, for a period not exceeding five business days in order
that any necessary changes in the Registration Statement and Prospectus and
other documents may be effected.
The term Underwriter as used in this agreement shall refer to and
include any Underwriter substituted under this Section 11 with like effect as
if such substituted Underwriter had originally been named in Schedule I.
If the amount of Securities that all Underwriters so defaulting shall
have agreed but failed to take up and pay for exceeds 10% of the total number
of Securities that the Underwriters are obligated to purchase on the Closing
Date or Option Closing Date, as the case may be, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter
(provided that if such default occurs with respect to Additional Securities
after the Closing Date, this Agreement will not terminate as to the Firm
Securities).
<PAGE>
34
12. Information Supplied by the Underwriters
The statements set forth in the last paragraph on the front cover page
of the Prospectus relating to the Securities and paragraph four under the
heading "Underwriting" in the Prospectus relating to the Securities (to the
extent such statements relate to the Underwriters) constitute the only
information furnished by the Underwriters to the Company for the purposes of
Sections 2(b), 8(a) and 8(b) hereof. Each Underwriter confirms that such
statements, to the extent such statements relate to each such Underwriter,
are correct in all material respects.
13. Notices. All communications hereunder shall be in writing and, if
sent to the Underwriters, shall be mailed or delivered or telecopied and
confirmed in writing to the Representatives in care of BT Alex. Brown
Incorporated, One Bankers Trust Plaza, 130 Liberty Street, New York, New York
10006, Attention: Corporate Finance Department, and if sent to the Company,
shall be mailed, delivered or telegraphed and confirmed in writing to
Fibermark at 161 Wellington Road, Brattleboro, VT 05032, Attention: Bruce
Moore.
14. Successors. This Agreement shall inure to the benefit of and be
binding upon the Underwriters and the Company and their respective successors
and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained. This Agreement and all
conditions and provisions hereof are intended to be and are for the sole and
exclusive benefit of such persons and for the benefit of no other person
except that (i) the indemnities of the Company contained in Section 8 of this
Agreement shall also be for the benefit of any person or persons who control
the Underwriters within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act and (ii) the indemnities of the Underwriters contained in
Section 8 of this Agreement shall also be for the benefit of the directors of
the Company, the Company's officers who have signed the Registration
Statement, and any person or persons who control the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act. No
purchaser of Securities from the Underwriters will be deemed a successor
because of such purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH
<PAGE>
35
THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY PROVISIONS
RELATING TO CONFLICTS OF LAW.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
36
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between
the Company and the Underwriters.
Very truly yours,
FIBERMARK, INC.
By: _____________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
BT ALEX. BROWN INCORPORATED
PAINEWEBBER INCORPORATED
Acting on behalf of themselves and as
the Representatives of the several
Underwriters named in Schedule II hereto.
By BT ALEX. BROWN INCORPORATED
By ____________________________
Name:
Title:
<PAGE>
SCHEDULE I
Number of
Shares to
Underwriter Be Purchased
- ----------- ------------
BT Alex. Brown Incorporated.....................
PaineWebber Incorporated........................
Total Underwriters 1,500,000
<PAGE>
Exhibit 2.1
SHARE PURCHASE AGREEMENT
for the
Sale and Purchase
of 100 % of the Share Capital of
Steinbeis Gessner GmbH
____________________________
dated as of November 26, 1997
____________________________
<PAGE>
<PAGE>
TABLE OF CONTENTS
RECITALS
DEFINITIONS
ARTICLE 1: SUBJECT OF PURCHASE
1.1 Purchase, Sale and Assignment of SHARES
1.2 Consent of the COMPANY
1.3 Rights of First Refusal
ARTICLE 2: OTHER COMMITMENTS OF SELLER
2.1 DM 8 Million Loan Agreement
2.2 Expansion Land Option and Preemption Right Agreement
2.3 Assumption of Liabilities
2.4 Termination of Profit and Loss Take-Over Agreement
2.5 Transfer of Pension Obligations
2.6 Extension of Hereditary Building Rights
2.7 Other Undertakings
2.8 SELLER's Environmental Commitment
ARTICLE 3: PURCHASE PRICE
3.1 Amount of the Base Purchase Price
3.2 Payment of BASE PURCHASE PRICE
3.3 Amount of Final Purchase Price
3.4 Post-Closing Audit and Determination of FINAL PURCHASE PRICE
3.5 Payment of FINAL PURCHASE PRICE
3.6 Form of Payments
ARTICLE 4: CONDITIONS PRECEDENT; CLOSING DATE; RIGHTS OF RESCISSION
4.1 Conditions Precedent to Assignment of SHARES
4.2 Closing Date
4.3 Rights of Rescission
ARTICLE 5: EXPENSES AND INDEMNIFICATIONS FOR ACTIONS TO BE
COMPLETED BY SELLER
ARTICLE 6: REPRESENTATIONS AND WARRANTIES OF PURCHASER;
REMEDIES
6.1 Organization and Corporate Authority
6.2 Agreement Not in Breach of Other Instruments
6.3 Regulatory Approvals
6.4 Remedies
ARTICLE 7: REPRESENTATIONS AND WARRANTIES OF SELLER
7.1 Recitals
7.2 Transfer of SHARES
7.3 Organization, Good Standing and Authority
7.4 Capitalisation
7.5 Equity Interests
7.6 Real Property and Leaseholds
7.7 Tangible Property Rights
7.8 Intangible Property Rights
7.9 Accounts Receivable and Inventory
7.10 Contracts or Agreements with AFFILIATES (including Intercompany Loans)
<PAGE>
7.11 Bank Accounts (including Financial Debt)
7.12 Customers and Suppliers
7.13 Powers of Attorney and Suretyships
7.14 Labour and Employment
7.15 Pensions
7.16 Important Contracts
7.17 AGREEMENT Not in Breach of Other Instruments; Early Termination Rights
7.18 Insurances
7.19 Licenses and Permits
7.20 Environmental Matters
7.21 Financial Statements
7.22 TAXES
7.23 No Undisclosed Liabilities
7.24 Litigation
7.25 Compliance with Law and Agreements
7.26 Brokers
7.27 Absence of Certain Changes
7.28 Correctness of Information; Sufficiency of Assets
ARTICLE 8: REMEDIES OF PURCHASER
8.1 Right to Withdraw
8.2 Other Remedies
8.3 Indemnification and Audits
8.4 Environmental Remedies..................
8.5 Treatment of Accounts Receivable
8.6 Time Limits
8.7 Knowledge
ARTICLE 9: OTHER CLOSING AND POST-CLOSING COVENANTS
9.1 Management of the COMPANY prior to the CLOSING DATE
9.2 Notifications
9.3 Trade Names, Trademarks
9.4 Costs and TAXES
9.5 Non-Competition Clause
9.6 Customer and Supplier Relationships
ARTICLE 10: CARTEL LAW ISSUES
ARTICLE 11: MISCELLANEOUS PROVISIONS
11.1 Notices
11.2 Successors and Assigns
11.3 Amendments
11.4 Severability
11.5 Confidentiality
11.6 Applicable Jurisdiction
11.7 European Economic and Monetary Union
<PAGE>
SHARE PURCHASE AGREEMENT
This Share Purchase Agreement (hereinafter referred to as the "AGREEMENT") is
made and entered into on the 26th day of November 1997 (hereinafter referred to
as the "SIGNING DATE"), by and among the following parties (hereinafter
individually and collectively also referred to as the "PARTIES"):
- Steinbeis Holding GmbH, a company with limited liability organized
under the laws of the Federal Republic of Germany, registered in the
commercial register of the municipal court of Traunstein under No. HRB
6018 and having its registered office at Brannenburg (hereinafter
referred to as "SELLER" );
- Zetaphoenicis Beteiligungs GmbH, a company with limited liability
organized under the laws of the Federal Republic of Germany,
registered in the commercial register of the municipal court of Munich
under No. HRB 117443 and having its registered office in Munich
(hereinafter referred to as "GmbH I"); and
Thetaphoenicis Beteiligungs GmbH, a company with limited liability
organized under the laws of the Federal Republic of Germany,
registered in the commercial register of the municipal court of Munich
under No. HRB 117456 and having its registered office in Munich
(hereinafter referred to as "GmbH II");
GmbH I and GmbH II (hereinafter individually and collectively also
referred to as "PURCHASER") are subsidiaries of FiberMark, Inc., a
corporation under the laws of the State of Delaware, United States.
RECITALS
(A) Steinbeis Gessner GmbH, a company with limited liability organized
under the laws of the Federal Republic of Germany, registered in the
commercial register of the municipal court of Traunstein under No. HRB
112 and having its registered office at Brannenburg (hereinafter
referred to as the "COMPANY"), presently operates two paper mills in
Bruckmuhl and Weidach (Feldkirchen-Westerham) with a total of three
paper machines and three saturation units and conducts the business of
developing, manufacturing, selling and marketing of paper products
such as, but not limited to, automotive filter papers, dustbag filter
paper, coffee filter paper, raw masking tape, impregnated abrasive
papers as well as impregnated masking tape (such business, as
presently conducted, referred to hereinafter also as the "Business").
(B) SELLER is the sole shareholder, and owns the entire aggregate share
capital, of the COMPANY in the amount of DM 6,145,000, divided into
shares in the nominal values as set forth below:
<PAGE>
Number of Shares: Nominal value of Shares:
- ----------------- ------------------------
1 DM 2,000,000
1 DM 1,800,000
1 DM 1,145,000
1 DM 400,000
2 DM 165,000
1 DM 108,000
2 DM 73,000
2 DM 72,000
1 DM 40,000
2 DM 15,000
2 DM 1,000
- -----------------------------------------
Total share capital DM 6,145,000
(C) SELLER desires to sell and transfer to PURCHASER 100 % of the shares
in the COMPANY, upon the terms and subject to the conditions set forth
in this AGREEMENT, and PURCHASER desires to purchase and acquire such
shares from SELLER.
(D) The COMPANY is the sole general partner (Komplementarin) and the owner
of a majority interest of approximately 55,556 % in Leiss-GmbH & Co.,
a limited partnership organized under the laws of the Federal Republic
of Germany, registered in the commercial register of the municipal
court of Traunstein under No. HRA 59 and having its registered office
in Weidach (Feldkirchen-Westerham) . Furthermore, the COMPANY has
formed by notarial deed of the notary public Werner Schiebel in
Rosenheim on November 13, 1997 (Deed No. 3138/1997) a limited
liability company under the firm name Steinbeis Gessner
Unterstutzungskasse GmbH (i.G.), organised under the laws of the
Federal Republic of Germany, to be registered in the commercial
register of the municipal court of Traunstein, having its registered
office in Bruckmuhl and having a registered share capital of DM 50,000
(hereinafter referred to as "Unterstutzungskasse"). Leiss-GmbH & Co.
and Steinbeis Gessner Unterstutzungskasse GmbH (i.G.) shall be
hereinafter, individually and collectively, referred to as the
"SUBSIDIARY".
The COMPANY as general partner, with capital interests
(Kapitalanteile) in the aggregate amount of DM 125,000, and the
limited partners (Kommanditisten), with aggregate registered limited
partnership liability capital (Haftsummen) of DM 100,000 and capital
interests in even amount, are the holders of the entire capital
interests in Leiss GmbH & Co. in the aggregate amount of DM 225,000,
in the nominal values and numbers as set opposite their respective
names below:
<PAGE>
Names: Aggregate nominal value of capital interests
(Kapitalanteile):
General Partner:
- ----------------
Steinbeis Gessner GmbH DM 125,000 (Nos. 1 through 5)
Limited Partners:
- -----------------
Brunhilde Dieterle DM 25,000 (No. 6)
Helmut Riedle DM 25,001 (Nos. 8, 9 and 11)
Ulrich Riedle DM 41,666 (Nos. 7 and 12)
Maximiliane Riedle DM 8,333 (No. 10)
- ----------------------------------------------------------------
Total fixed capital interests DM 225,000
(E) Neither the COMPANY nor the SUBSIDIARY own any other shares or
interests in any other corpo ration, company, partnership or
entity. The PARTIES have agreed that the COMPANY will have disposed
of its interest in Steinbeis GmbH & Co. Grundstucksverwaltungs KG,
a limited partnership organized under the laws of the Federal
Republic of Germany, registered in the commercial register of the
municipal court of Traunstein under No. HRA 6456 and having its
registered seat in Brannenburg (hereinafter referred to as
"GRUNDSTUCKS KG") prior to the EFFECTIVE DATE.
(F) SELLER has delivered to PURCHASER a collection of certain
contracts and other documents relating to the COMPANY, the
SUBSIDIARY and the Business (hereinafter referred to as
"Schedules") which, together with the EXHIBITS, are enclosed
hereto, and are deemed to form a part of this AGREEMENT and to
which reference is made in the following.
DEFINITIONS:
(A) As used in this AGREEMENT, the following terms shall have the
following meanings:
"AFFILIATE" means a person or entity which is affiliated within the
meaning of Sections 17-19 Aktiengesetz (German Stock Corporation Act)
and/or closely related within the meaning of Section 1 (2)
Aussensteuergesetz (German Foreign Tax Relations Act); the term
Affiliate shall also be deemed to include any person which is
affiliated to any of them in the foregoing sense.
"AGREEMENT" means this Share Purchase Agreement.
"AUDITED NET CLOSING BALANCE SHEET VALUE" shall have the meaning
defined in Article 3.3(c).
<PAGE>
"BASE PURCHASE PRICE" shall have the meaning defined in Article 3.1.
"BENCHMARK" shall have the meaning defined in Article 3.3(b).
"BUSINESS" shall have the meaning defined in the Recitals under (A).
"CLOSING BALANCE SHEET" shall have the meaning defined in Article 3.4.
"CLOSING DATE" shall have the meaning defined in Article 4.2.
"COMPANY" means Steinbeis Gessner GmbH.
"CONFIDENTIAL INFORMATION" shall have the meaning defined in Article
11.5.
"CONTRACTS" shall have the meaning defined in Article 7.16 (a).
"DRAFT CLOSING BALANCE SHEET" shall have the meaning defined in
Article 3.4.
"EFFECTIVE DATE" means January 01, 1998, 0:00 hours.
"EXPANSION LAND AGREEMENT" shall have the meaning defined in Article
2.2.
"EXPERT" means ENSR Consulting and Engineering (ENSR).
"EXPERT OPINION" shall have the meaning defined in Article 8.4 (h).
"FINAL PURCHASE PRICE" shall have the meaning defined in Article
3.3(a).
"FINANCIAL STATEMENTS" shall have the meaning defined in Article
7.21(a).
"GmbH I" means zetaphoenicis Beteiligungs GmbH.
"GmbH II" means thetaphoenicis Beteiligungs GmbH.
"GRUNDSTUCKS KG" means Steinbeis GmbH & Co. Grundstucksverwaltungs KG.
"Key Employees" means any employee who (i) is entitled to bind the
legal entity on whose behalf he is acting by his signature
vis-a-vis third parties under general provisions of the applicable
corporate law, or (ii) receives an annual gross salary (with fixed and
variable fringe benefits) exceeding DM 120,000 per annum or its
equivalent in foreign currency.
"LOAN AGREEMENT" shall have the meaning defined in Article 2.1.
"LOAN AMOUNT" shall have the meaning defined in Article 2.1.
<PAGE>
"MATERIAL ADVERSE EFFECT" means any change in, or effect on, the
business of the COMPANY or the SUBSIDIARY, as the case may be, as
currently conducted that is material adverse to the results of the
operations or the financial condition of such business; such change or
effect shall be irrefutably presumed (unwiderlegbar vermutet) to have
a material adverse effect if the damage (Schaden), including lost
profits (entgangener Gewinn) or any other losses (Einbussen) of
PURCHASER, the COMPANY or the SUBSIDIARY, respectively, incurred as a
result of the violation of the respective representation and warranty
section of Article 7 of this AGREEMENT exceed a threshold amount of DM
50,000 in the individual case or in the aggregate.
"1997 BALANCE SHEET" shall have the meaning defined in Article 3.4.
"1997 FINANCIAL STATEMENTS" shall have the meaning defined in Article
3.4.
"OTHER COMMITMENTS" shall have the meaning defined in Article 2.
"OTHER UNDERTAKINGS" shall have the meaning defined in Article 2.7.
"PARTIES" means, individually or collectively, Steinbeis Holding GmbH,
GmbH I and/or GmbH II.
"PENSION TRANSFER AGREEMENT" shall have the meaning defined in Article
2.5.
"PURCHASER" means, individually and collectively, GmbH I and/or GmbH
II.
"PURCHASER'S ACCOUNTANTS" shall have the meaning defined in Article
3.4.
"SCHEDULES" shall have the meaning defined in the Recitals under (F).
"SELLER" means Steinbeis Holding GmbH.
"SELLER'S ACCOUNTANTS" shall have the meaning defined in Article 3.4.
"SELLER'S BEST KNOWLEDGE" means and includes the knowledge of (i)
SELLER itself as well as the knowledge of its statutory
representatives (Geschaftsfuhrer) including proxy managers
(Prokuristen) and (ii) Dr. Hans Ferdinand Steinbeis, Mr. Jorg Rehm,
Mr. Eugen Henrich and Ms. Monika Vodermaier of Steinbeis Verwaltungs
GmbH, and shall also include the knowledge of (iii) the statutory
representatives including proxy managers of the COMPANY and the
SUBSIDIARY, and shall include Dr. Walter Haegler, Dr. Hans-Ulrich
Heininger, Messrs. Gunther Aumann, Holger Baumgartner, Armin Damm,
Gerhard Frank, Luitpold Gollreiter, Arno Haufellner, Jens-Peter Heins,
Manfred Kirstein, Ernst Raabe, Armin Schwinn, Holger
Sotje, Dr. Jurgen Hoffmann and Dr. Peter Wimmer.
"SHARES" shall have the meaning defined in Article 1.1(c).
<PAGE>
"SIGNING DATE" means the date of this AGREEMENT.
"SUBSIDIARY" shall have the meaning defined in the Recitals under (D).
"TAXES" means any taxes (Steuern und steuerliche Nebenleistungen)
within the meaning of Section 3 AO (German Tax Code) including all
withholding taxes and other fiscal or governmental charges , such as,
but not limited to, social security contributions
(Sozialversicherungsbeitrage), any public investment grants
(Investionszulagen), premiums (Investionszuschusse) and subsidies
(Subventionen).
"URGENT CLEAN-UP MEASURES" shall have the meaning defined in Article
8.4 (j) (iii) (1).
(B) The headings contained in this AGREEMENT are for reference purposes
only and shall not affect in any way the meaning or interpretation of
the terms and conditions of this AGREEMENT.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and in accordance
with the mutual representations, warranties, covenants, obligations and
undertakings herein set forth, the PARTIES hereto agree as follows:
ARTICLE 1
SUBJECT OF PURCHASE
1.1 Purchase, Sale and Assignment of Shares
(a) SELLER hereby sells with commercial effect (mit wirtschaftlicher
Wirkung) as of the EFFECTIVE DATE and assigns to PURCHASER with effect
from the CLOSING DATE, 100 % of the shares of the COMPANY in the
aggregate nominal value of DM 6,145,000, of which shares
- one share in the nominal value of DM 40,000 shall be sold and
assigned to GmbH II; and
- all other shares shall be sold and assigned to GmbH I,
provided that such assignments shall become effective (mit dinglicher
Wirkung) upon satisfaction of the conditions precedent set forth in
Article 4.1.
(b) Purchaser hereby accepts such sale and assignments.
<PAGE>
(c) The shares in the COMPANY which are sold and assigned pursuant to
paragraphs (a) and (b) above shall collectively and individually
hereinafter be referred to as the "Shares".
(d) The sale and assignment of the SHARES shall include all ancillary
rights, benefits and obligations arising from the SHARES, including,
without limitation, the right to receive profits, the voting rights as
well as earnings accrued and undistributed prior to the EFFECTIVE
DATE, it being understood, however, that SELLER shall be entitled to
receive the earnings of the COMPANY for the fiscal year 1997 through
December 31, 1997 under the profit and loss take-over agreement
(Gewinnabfuhrungsvertrag) between SELLER and the COMPANY of November
30, 1990. The assignments include all rights and obligations
pertaining or related to the SHARES, insofar as nothing to the
contrary is stipulated elsewhere in this AGREEMENT. It is understood
that PURCHASER does not assume any personal obligations of the SELLER
vis-a-vis third parties, including, but not limited to, tax
obligations.
(e) In the event that the CLOSING DATE shall be a later date than January
01, 1998, 00:00 hours, the PARTIES hereby agree that, regardless of
when the CLOSING DATE occurs, as among the PARTIES, the SHARES shall
be deemed to have been transferred in accordance with the law of
obligations (mit schuldrechtlicher Wirkung) as from the EFFECTIVE
DATE.
1.2 Consent of the COMPANY
In their capacity as managing directors (Geschaftsfuhrer) of the
COMPANY, Dr. Walter Haegler and Dr. Hans-Ulrich Heininger have given
the consent of the COMPANY to the sale and assignment of the Shares
contemplated in this AGREEMENT, pursuant to Section 5 (1) of the
Articles of Association of the COMPANY. This consent and the
corresponding shareholder resolution of the COMPANY required for such
consent are attached hereto as EXHIBIT 1.2. The acting notary will
promptly notify the COMPANY about the transfer of the SHARES from
SELLER to PURCHASER provided in this AGREEMENT pursuant to Section 16
GmbHG (German Act on Companies with Limited Liability).
1.3 Rights of First Refusal
There are no rights of first refusal, redemption rights or similar
rights pursuant to the Articles of Association of the COMPANY or
otherwise with respect to the SHARES.
ARTICLE 2
OTHER COMMITMENTS OF SELLER
<PAGE>
In addition to the sale and assignment of the SHARES, SELLER has undertaken
further commitments which are set forth below and which shall be hereinafter
referred to as the "OTHER COMMITMENTS".
2.1 DM 8 Million Loan Agreement
Prior to the SIGNING DATE, SELLER and the COMPANY entered into the
loan agreement a copy of which is enclosed as EXHIBIT 2.1 (hereinafter
referred to as the "LOAN AGREEMENT") which provides for a loan in the
principal amount of DM 8,000,000 (eight million Deutsche Mark)
(hereinafter referred to as the "LOAN AMOUNT") at a fixed rate of 5 %
p.a. and the terms of this LOAN AGREEMENT shall not have been amended
or terminated and shall continue to be in effect on the CLOSING DATE.
2.2 Expansion Land Option and Preemption Right Agreement
Prior to the SIGNING DATE, by notarial deed of the notary public
Werner Schiebel in Rosenheim (Deed No. 3136/1997) GRUNDSTUCKS KG and
the COMPANY entered into the land option and preemption right
agreement, the contents of which are known to the PARTIES and a copy
of which is enclosed for evidence purposes as EXHIBIT 2.2 (hereinafter
referred to as the "EXPANSION LAND AGREEMENT"), related to the real
property registered with the land register (Grundbuchamt) of Vagen,
Volume (Band) 28, page (Blatt) 1257 under No. (FlNr.) 2548 and the
terms of this EXPANSION LAND AGREEMENT shall not have been amended or
terminated and shall continue to be in effect on the CLOSING DATE.
2.3 Assumption of Liabilities
The COMPANY shall be sold by SELLER to PURCHASER free and clear of any
financial debt, intercompany liabilities and any contingent
liabilities within the meaning of Section 251 HGB; prior to the
EFFECTIVE DATE SELLER shall in particular (i) assume any financial
debt of the COMPANY as defined in Section 266 subsection 3 C. 1. and
2. HGB (German Commercial Code) and (ii) waive any intercompany
liabilities of the COMPANY as defined in Section 266 subsection 3 C.
6. and 7. HGB (including any claims under the profit and loss
take-over agreement between SELLER and the COMPANY of November 30,
1990). It is expressly understood, however, that PURCHASER shall
procure that the COMPANY will pay to the entitled beneficiaries two
twelfth of the bonus payments set forth in EXHIBIT 2.3 after the
CLOSING DATE, if and to the extent such payments have been provided
for in the CLOSING BALANCE SHEET.
2.4 Termination of Profit and Loss Take-Over Agreement
Prior to the SIGNING DATE, SELLER and the COMPANY shall have finally
and irrevocably terminated (beenden) the profit and loss take-over
agreement between SELLER and the COMPANY of November 30, 1990 which
termination
<PAGE>
shall become effective on December 31, 1997, 24:00 hours,
and shall have, prior to the EFFECTIVE DATE, taken all requisite
corporate actions in connection with such termination; copies of the
termination agreement together with the contemplated corresponding
shareholder resolutions are enclosed as EXHIBIT 2.4. SELLER confirms
that it has not assigned or otherwise transferred and hereby, with
effect as from the EFFECTIVE DATE, expressly waives any rights against
the COMPANY and, as a precaution, hereby assigns any remaining rights,
if any, to PURCHASER under the said profit and loss take-over
agreement of November 30, 1990; PURCHASER accepts such assignment.
2.5 Transfer of Pension Obligations
Prior to the EFFECTIVE DATE, SELLER and the COMPANY, with the prior
consent of PURCHASER which shall not be unreasonably withheld, shall
have entered into an agreement related to the transfer of the pension
liabilities of the COMPANY (hereinafter referred to as the "PENSION
TRANSFER AGREEMENT") substantially upon the terms enclosed as EXHIBIT
2.5 and the terms of this PENSION TRANSFER AGREEMENT shall not have
been amended or terminated and shall continue to be in effect on the
CLOSING DATE.
2.6 Extension of Hereditary Building Rights
Prior to the SIGNING DATE, by notarial deed of the notary public
Werner Schiebel in Rosenheim (Deed No. 3135/1997) the SUBSIDIARY
granted the COMPANY a binding and irrevocable offer (bindendes und
unwiderrufliches Angebot) in notarial form related to the real
property registered with the land register (Grundbuchamt) of Vagen,
volume (Band) 21, page (Blatt) 950 under Nos. (FlNrn.) 1569, 1570,
1573 and 1594, the contents of which are known to the PARTIES and a
copy of which is enclosed for evidence purposes as EXHIBIT 2.6
(hereinafter referred to as the "HEREDITARY BUILDING RIGHTS EXTENSION
OFFER"), and the terms of the HEREDITARY BUILDING RIGHTS EXTENSION
OFFER shall not have been amended or terminated and shall continue to
be in effect on the CLOSING DATE.
2.7 Other Undertakings
SELLER shall complete, or cause to be completed, each of the actions
described in EXHIBIT 2.7 (hereinafter referred to as "OTHER
UNDERTAKINGS") within the time limits set forth therein and the terms
of any agreements or commitments related to these OTHER UNDERTAKINGS
shall not be amended or terminated and shall continue to be in effect
on the CLOSING DATE and the execution (Vollzug) of such agreements or
commitments shall be continued as initially contemplated.
2.8 SELLER's Environmental Commitment
<PAGE>
Prior to the SIGNING DATE, SELLER shall deliver to PURCHASER the
declaration a copy of which is enclosed as EXHIBIT 2.8.
ARTICLE 3
PURCHASE PRICE
The aggregate purchase price to be paid by PURCHASER to SELLER in consideration
of the SHARES and the OTHER COMMITMENTS shall be the amount set forth below and
shall be payable as follows:
<PAGE>
3.1 Amount of the Base Purchase Price
The aggregate base purchase price to be paid by PURCHASER to SELLER
shall be the amount of US $ 40,000,000 (forty million US Dollars) plus
the amount of DM 5,315,000 (five million three hundred fifteen
thousand Deutsche Mark) (hereinafter referred to as the "BASE PURCHASE
PRICE").
3.2 Payment of BASE PURCHASE PRICE
(a) The BASE Purchase Price shall be payable by PURCHASER to SELLER on the
CLOSING DATE by banker's cheque (LZB-Scheck) against (Zug um Zug)
payment of the LOAN AMOUNT to be paid by SELLER to the COMPANY on the
CLOSING DATE also by banker's cheque.
(b) A copy of the preliminary declaration of approval of the
Landeszentralbank im Freistaat Bayern (Hauptverwaltung der
Deutschen Bundesbank), Munich (Bavarian branch of the Federal
Reserve Bank), pursuant to Section 3 Wahrungsgesetz (German
Currency Act) and Section 49 Aussenwirtschaftsgesetz (Foreign Trade
and Payments Act) for any payments to be made in a foreign currency
under this AGREEMENT is enclosed as EXHIBIT 3.2; a copy of the
final declaration shall be provided by PURCHASER to SELLER prior to
the CLOSING DATE.
3.3 Amount of Final Purchase Price
(a) The BASE PURCHASE PRICE shall be adjusted in accordance with the
formula set forth in paragraph (b) below and the amount so adjusted
shall be referred to hereinafter as the "FINAL PURCHASE PRICE".
(b) The BASE PURCHASE PRICE shall be decreased or increased, as the case
may be, if and to the extent that the AUDITED NET CLOSING BALANCE
SHEET VALUE (as defined in paragraph (c) and as determined in
accordance with Article 3.4 below) deviates from the agreed upon
benchmark value of DM 35,000,000 (thirty-five million Deutsche Mark)
(hereinafter referred to as the "BENCHMARK"). Thus, if the AUDITED NET
CLOSING BALANCE SHEET VALUE is lower than the BENCHMARK, the BASE
PURCHASE PRICE will be decreased by the balance (Unterschiedsbetrag)
which amount shall be repaid to PURCHASER; vice versa if the AUDITED
NET CLOSING BALANCE SHEET VALUE is higher than the BENCHMARK, the BASE
PURCHASE PRICE will be increased by the balance which amount shall be
paid to SELLER in addition.
(c) The "AUDITED NET CLOSING BALANCE SHEET VALUE" shall be defined and
calculated as follows:
(i) Fixed assets of the COMPANY as defined in Section 266 subsection
2 A. I., II. and III. HGB plus current assets of the COMPANY as
defined in Section 266 subsection 2 B. I., II., III. and IV. HGB
plus prepaid expenses
<PAGE>
(Rechnungsabgrenzungsposten) as defined in
Section 266 subsection 2 C. HGB
less
(ii) provisions of the COMPANY as defined in Section 266 subsection 3
B. 1., 2. and 3. HGB plus current liabilities of the COMPANY as
defined in Section 266 subsection 3 C. 3., 4., 5. and 8. HGB plus
deferred income (Rechnungsabgrenzungsposten) as defined in
Section 266 subsection 3 D. HGB, however, excluding any special
reserves (Sonderposten mit Rucklagenanteil) pursuant to Section
273 HGB.
The balance resulting from the calculation pursuant to (i) and (ii)
above is the aggregate amount of the equity capital (Eigenkapital) of
the COMPANY as defined in Section 266 subsection 3 A. HGB plus the
special reserves as defined in Section 273 HGB, assuming that SELLER
has fully complied with Article 2.3 above.
A sample calculation for the determination of the AUDITED NET CLOSING
BALANCE SHEET VALUE is enclosed as EXHIBIT 3.3.
(d) Notwithstanding the obligations of SELLER pursuant to Article 2.3
above, if and to the extent there are any financial debt as defined in
Section 266 subsection 3 C. 1. and 2. HGB or any intercompany
liabilities within the meaning of Section 266 subsection 3 C. 6. and
7. HGB on the EFFECTIVE DATE, it is expressly agreed that such
financial debt or intercompany liabilities shall reduce the FINAL
PURCHASE PRICE in even amount.
3.4 Post-Closing Audit and Determination of FINAL PURCHASE PRICE
As promptly as practical, but no later than forty-five days following
the CLOSING DATE, PURCHASER shall procure that the COMPANY shall
prepare and deliver to PURCHASER and SELLER the financial statements
consisting of balance sheet (Bilanz) (hereinafter referred to as "1997
BALANCE SHEET"), profit and loss accounts (Gewinn- und
Verlustrechung), notes to the financial statements (Anhang) and report
on the economic development and position of the COMPANY (Lagebericht)
(hereinafter collectively referred to as "1997 FINANCIAL STATEMENTS")
as of December 31, 1997, 24:00 hours, which shall be prepared in
accordance with German generally accepted accounting principles
applied consistently with past practice (taking into account
adjustments resulting from prior tax audits) and using the same
methods and valuation principles applied previously. Steinbeis
Verwaltungs GmbH is entitled to assist the accountants on behalf and
at the expense of the COMPANY if required and reasonable.
As promptly as practical, but no later than forty-five days following
PURCHASER's and SELLER's receipt of the 1997 FINANCIAL STATEMENTS,
SELLER's accountants Wollert-Elmendorff Deutsche Industrie-Treuhand
GmbH, Wirtschaftsprufungsgesellschaft, Munich (hereinafter referred as
"SELLER'S
<PAGE>
ACCOUNTANTS"), on behalf and at the expense of the COMPANY,
shall audit the 1997 FINANCIAL STATEMENTS.
PURCHASER's accountants KPMG Deutsche Treuhand-Gesellschaft,
Aktiengesellschaft Wirtschaftsprufungsgesellschaft, Munich
(hereinafter referred to as "PURCHASER'S ACCOUNTANTS"), on behalf and
at the expense of PURCHASER, shall review the 1997 BALANCE SHEET
(including the above mentioned adjustments due to the tax audit for
1991 through 1994) included in the above mentioned 1997 FINANCIAL
STATEMENTS. PURCHASER'S ACCOUNTANTS shall be entitled to participate
in the inventory count (Inventur) and to review any bookkeeping or
other documents relating to the 1997 financial year as well as any
previous financial years of the COMPANY. PURCHASER'S ACCOUNTANTS will
in particular also have access to the working papers of SELLER'S
ACCOUNTANTS for the 1997 FINANCIAL STATEMENTS and all material related
to the 1996 and 1997 fiscal year of the COMPANY which were prepared by
the COMPANY or Steinbeis Verwaltungs GmbH, respectively.
The purpose of PURCHASER'S ACCOUNTANTS' review is to determine whether
the 1997 BALANCE SHEET has been prepared in accordance with the
requirements of this AGREEMENT. If PURCHASER'S ACCOUNTANTS, following
their review, conclude that the 1997 BALANCE SHEET has been prepared
in accordance with the requirements of this AGREEMENT, then the 1997
BALANCE SHEET will become the final closing balance sheet for the
purpose of this AGREEMENT (hereinafter referred to as the "CLOSING
BALANCE SHEET").
If PURCHASER'S ACCOUNTANTS disagree with the 1997 BALANCE SHEET, they
will prepare a revised balance sheet which will become the draft
closing balance sheet (hereinafter referred to as "DRAFT CLOSING
BALANCE SHEET"). In the event of dispute between PURCHASER'S and
SELLER'S ACCOUNTANTS with respect to the DRAFT CLOSING BALANCE SHEET,
PURCHASER and SELLER together with PURCHASER'S and SELLER'S
ACCOUNTANTS shall first use their best efforts to resolve such dispute
among themselves. If the dispute is settled, the appropriate
adjustments will be made to the DRAFT CLOSING BALANCE SHEET which will
then become the final CLOSING BALANCE SHEET for purposes of this
AGREEMENT.
If PURCHASER and SELLER together with PURCHASER'S and SELLER'S
ACCOUNTANTS are unable to resolve such dispute within ten banking days
(in Munich), the dispute shall be submitted to a mutually agreed
independent accountant, whose resolution of such dispute shall be
final and binding. For the avoidance of doubt, the final balance sheet
so determined shall constitute and become the final CLOSING BALANCE
SHEET for purposes of this AGREEMENT.
If PURCHASER and SELLER are unable to agree on an independent
accountant, such accountant shall be determined at the request of
either PURCHASER or SELLER by the Institut der
Wirtschaftsprufer in Deutschland e.V. (IDW) (Institute of Chartered
Accountants in Germany); it being understood that any independent
accountant shall have discretion (Entscheidungs-
<PAGE>
spielraum) only in the range between the amounts in dispute between
PURCHASER'S and SELLER'S ACCOUNTANTS, respectively.
The costs of such independent accountant shall be borne by PURCHASER
and/or SELLER, respectively, in accordance with Sections 91 et seq.
ZPO (German Code of Civil Procedure).
The FINAL PURCHASE PRICE shall be determined on the basis of the
AUDITED NET CLOSING BALANCE SHEET VALUE resulting from the final
CLOSING BALANCE SHEET.
3.5 Payment of FINAL PURCHASE PRICE
Any balance between the BASE PURCHASE PRICE and the FINAL PURCHASE
PRICE shall be paid by SELLER or PURCHASER, as the case may be, in
German currency within five banking days (in Munich) after the
determination of the FINAL PURCHASE PRICE pursuant to Article 3.4,
together with interest thereon at a percentage rate of three percent
above the prevailing discount rate of the German Federal Reserve Bank
(Bundesbankdiskontsatz) as from the CLOSING DATE until the date of
payment.
3.6 Form of Payments
The BASE PURCHASE PRICE as well as the LOAN AMOUNT shall be paid by
banker's cheque (LZB-Scheck) pursuant to Article 3.2 (a). All other
payments to be made by SELLER or PURCHASER, respectively, under this
AGREEMENT shall be made in German currency and at the discretion of
the payor of such payment, by banker's cheque or wire transfer. Any
payments by either PURCHASER shall be with releasing effect
(schuldbefreiende Wirkung) upon each PURCHASER.
ARTICLE 4
CONDITIONS PRECEDENT; CLOSING DATE; RIGHTS OF RESCISSION
4.1 Conditions Precedent to Assignment of SHARES
The assignment of the SHARES pursuant to Article 1.1 (a) and (b) shall
be subject to satisfaction, or waiver by SELLER, of the conditions
precedent (aufschiebende Bedingungen) of (i) payment of the BASE
PURCHASE PRICE by PURCHASER in accordance with Article 3.1 and (ii)
provision of the guarantee (Burgschaft) for the LOAN AMOUNT in the
form as enclosed as EXHIBIT 4.1 to SELLER.
<PAGE>
4.2 Closing Date
(a) The closing date (referred to as the "CLOSING DATE") shall be the
fifth banking day (in Munich) after satisfaction of the closing
condition set forth in paragraph (b) below, but in no event earlier
than the first banking day (in Munich) after the EFFECTIVE DATE.
(b) The obligation of PURCHASER to pay the BASE PURCHASE PRICE or the
FINAL PURCHASE PRICE, respectively, or to provide the guarantee
referred to in Article 4.1 (ii) above, shall be subject to the closing
condition (Vollzugsbedingung) that the Board of Directors of
FiberMark, Inc. has approved the transaction contemplated by this
AGREEMENT; the decision of the Board of Directors of FiberMark, Inc.,
be it approval or denial, shall be communicated to SELLER prior to or
on January 31, 1998, 24:00 hours, or, in the event of additional
investigations pursuant to Article 8.4 (h), February 28, 1998, 24:00
hours, respectively; if no notification is received by SELLER within
the foregoing period (as applicable) such approval shall be deemed to
have been denied.
4.3 Rights of Rescission
(a) PURCHASER shall be entitled to rescind this AGREEMENT (zurucktreten)
(i) pursuant to Article 8.1, or (ii) if the Board of Directors of
FiberMark, Inc. has finally refused approval of the acquisition
contemplated by this AGREEMENT or, (iii) pursuant to Article 8.4 (j)
(ii) until the later of January 31, 1998, 24:00 hours, or, if
additional investigations will be made pursuant to Article 8.4 (h),
until February 28, 1998, 24:00 hours.
(b) SELLER shall be entitled to rescind this AGREEMENT (zurucktreten) (i)
pursuant to Article 8.4 (f), or (ii) if the CLOSING DATE has not
occurred by the later of five banking days (in Munich) after January
31, 1998, 24:00 hours, or, if additional investigations will be made
pursuant to Article 8.4 (h), five banking days (in Munich) after
February 28, 1998, 24:00 hours.
(c) Any right of rescission pursuant to paragraphs (a) and (b) above shall
be exercised in writing (including fax communication). Any dates for
exercising the rights of rescission referred to in paragraphs (a) and
(b) above may be extended in writing if SELLER and PURCHASER mutually
so agree.
(d) It is agreed that in the event of termination of this AGREEMENT by way
of rescission pursuant to paragraphs (a) and (b) above (with the
exception of a rescission pursuant to Article 8.1 by PURCHASER, in
which case this AGREEMENT shall be unwound (ruckabgewickelt) in
accordance with the statutory provisions), this AGREEMENT shall
forthwith become null and void and shall be unwound to the extent
already executed (vollzogen) and there shall be no further liability
of SELLER or PURCHASER, as the case may be, except as set forth in
Article 9.4 which shall continue to apply, and there shall be in
particular no damage or indemnification claims of either SELLER or
PURCHASER against the other party because of such rescission.
<PAGE>
ARTICLE 5
EXPENSES AND INDEMNIFICATIONS FOR ACTIONS TO BE COMPLETED BY SELLER
SELLER shall indemnify (entschadigen) and hold harmless (freistellen) PURCHASER
and/or the COMPANY and/or the SUBSIDIARY from and for:
(a) any TAXES, costs, fees, expenses or other charges
whatsoever (including payments to third parties), incurred by
PURCHASER and/or the COMPANY and/or the SUBSIDIARY relating to any
of the actions to be completed pursuant to Articles 2.3 through
2.7, except for any real estate transfer tax triggered by the
acceptance of the HEREDITARY BUILDING RIGHTS EXTENSION OFFER; it is
agreed that although the COMPANY has assumed the obligation to
remove certain tanks on a certain part of the real property to be
acquired by GRUNDSTUCKS KG pursuant to the notarial deed of the
notary public Werner Schiebel in Rosenheim of November 13, 1997
(Deed No. 3137/1997) (cf. EXHIBIT 2.7) at its costs, the costs of
such removal shall be paid by the COMPANY either prior to the
EFFECTIVE DATE or appropriate provisions shall be made in the
CLOSING BALANCE SHEET; otherwise SELLER shall reimburse PURCHASER
for such amount;
(b) any TAXES, costs, fees, expenses or other charges
whatsoever incurred by the COMPANY in connection with the disposal
of the COMPANY's interest in Steinbeis GmbH & Co.
Grundstuckverwaltungs KG referred to in the Recitals under (E)
which shall be borne by SELLER;
(c) any TAXES, costs, fees, expenses, charges or other claims whatsoever
incurred by the COMPANY in connection with any prior profit and loss
take-over agreement to which the COMPANY is or has been a party; and
(d) any TAXES, costs, fees, expenses, charges or other claims whatsoever
regardless of their legal nature, including, but not limited to,
warranty claims (Gewahrleistungsanspruche) or claims of any
governmental or administrative body related to any real property other
than the real property owned or used by the COMPANY on the basis of a
hereditary building right referred to in Article 7.6 (a) (i) and (ii).
It is understood, that PURCHASER's claims under paragraphs (a) through (d) shall
be reduced accordingly if and to the extent the COMPANY and/or the SUBSIDIARY
have made the respective payment prior to the EFFECTIVE DATE or corresponding
provisions have been established in the CLOSING BALANCE SHEET or payment is made
by SELLER after the EFFECTIVE DATE.
If and to the extent the consents of cancellation (Loschungbewilligungen)
required to be delivered by SELLER to PURCHASER pursuant to EXHIBIT 2.7 and
Article 7.6 (b), respectively, are not received by PURCHASER prior to the
CLOSING DATE, SELLER shall deliver to PURCHASER prior to the CLOSING DATE an
unconditional, irrevocable guarantee of a German major bank payable at first
sight and not limited in duration
<PAGE>
(unwiderrufliche, unbedingte, unbefristete selbstschuldnerische
Bankburgschaft -auf erstes Verlangen- einer deutschen Grossbank) in
an amount even to the aggregate amount of all incumbrances for
which the necessary consents of cancellation have not been
provided; PURCHASER shall return this guarantee upon receipt of all
outstanding consents of cancellation.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER; REMEDIES
PURCHASER represents and warrants ("sichert zu") within the meaning of Section
459 subsection 2 BGB (German Civil Code) to SELLER the following:
6.1 Organization and Corporate Authority
Each of PURCHASER is a duly organized and validly existing company
with limited liability under the laws of the Federal Republic of
Germany; each of PURCHASER has all requisite corporate power and
authority to enter into this AGREEMENT and to consummate the
transactions contemplated hereby, save for the approval of the Board
of Directors of FiberMark, Inc. referred to in Article 4.2 (b). This
AGREEMENT and all other agreements herein contemplated to be executed
in connection herewith by PURCHASER have been (or upon execution will
have been) duly executed and delivered by PURCHASER, and constitute
(or upon execution will constitute) legal, valid and binding
obligations of PURCHASER in accordance with their respective terms and
conditions. Copies of excerpts from the commercial register of each
PURCHASER of recent date and accurate in substance are enclosed hereto
as EXHIBIT 6.1.
6.2 Agreement Not in Breach of Other Instruments
The execution, delivery, and performance of this AGREEMENT by
PURCHASER and the consummation of all other agreements herein
contemplated to be executed in connection herewith and the fulfillment
of the terms thereof will not result in a breach of any of the terms
or provisions of, or constitute a default under, or conflict with, any
agreement to which PURCHASER is a party or by which it is bound, the
Articles of Association of PURCHASER, any judgement, decree, or order
of any court, governmental body or arbitrator by which PURCHASER is
bound, or any law, rule or regulation applicable to Purchaser, save
for the approval of the Board of Directors of FiberMark, Inc. referred
to in Article 4.2 (b).
6.3 Regulatory Approvals
All consents, approvals, authorizations and other requirements of any
governmental or other administrative authorities prescribed by any
law, rule or
<PAGE>
regulation which must be obtained or satisfied by
PURCHASER in order to permit the consummation of the transactions
contemplated by this Agreement have been or will be obtained and
satisfied.
6.4 Remedies
If any of the representations and warranties assumed by PURCHASER in
this Article 6 is partially or totally incorrect, PURCHASER shall be
liable for any damages incurred by SELLER because of this
incorrectness. However, such claims shall only be valid if such
incorrectness is not cured by PURCHASER within six weeks after it has
received written notice from SELLER describing such incorrectness.
<PAGE>
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF SELLER
SELLER represents and warrants ("sichert zu") within the meaning of Section 459
subsection 2 BGB (German Civil Code) to PURCHASER, that all of the following
statements shall be true and correct as of the SIGNING DATE and shall continue
to be true and correct until the EFFECTIVE DATE, unless SELLER promptly notifies
without delay (unverzuglich) PURCHASER about any material changes to the
information disclosed to PURCHASER in the time period between the SIGNING DATE
and the EFFECTIVE DATE:
7.1 Recitals
The statements in the Recitals hereto are correct. Copies of the excerpts
from the commercial register of SELLER, the COMPANY, the SUBSIDIARY and
GRUNDSTUCKS KG of recent date and correct in substance are attached hereto
as SCHEDULE 7.1.
7.2 Transfer of SHARES
(a) SELLER is a company duly organized, validly existing and in good standing
under the laws of the Federal Republic of Germany, and has all requisite
corporate power and authority to enter into this AGREEMENT and to
consummate the transactions contemplated hereby. This AGREEMENT and all
other agreements herein contemplated to be executed in connection herewith
by SELLER have been (or upon execution will have been) duly executed and
delivered by SELLER, and constitute (or upon execution will constitute)
legal, valid and binding obligations of SELLER.
(b) SELLER has good and valid title to the SHARES and will effectively assign
to PURCHASER the SHARES pursuant to this AGREEMENT, free and clear of all
liens, pledges, security interests, restrictions, encumbrances, options or
rights of third parties of whatever kind, in particular sub-participation
rights and rights to usufruct.
(c) The SHARES represent 100 % of the entire share capital of the COMPANY.
PURCHASER has received a true and complete compilation of all documents by
which, up to the CLOSING DATE, the COMPANY's SHARES have been created,
transferred or otherwise affected. The SHARES have been held for at least
the last ten consecutive years prior to the EFFECTIVE DATE by a legal
entity (juristische Person) entitled to corporate tax credits
(anrechnungsberechtigte juristische Person) rather than an individual
(naturliche Person) with the exception of two SHARES in the nominal value
each of DM 1,000 which were held in trust (treuhanderisch) by Jochen
Gessner and Dr. Hans Ferdinand Steinbeis from November 30, 1990 through
August 2, 1991.
<PAGE>
(d) The execution, delivery, and performance of this AGREEMENT by SELLER, and
the consummation of all other agreements herein contemplated to be executed
in connection herewith and the fulfillment of the terms thereof, do not and
will not contravene any provision of SELLER's Articles of Association;
moreover, such execution, delivery, performance and consummation do not (i)
constitute a breach of or result in a default under, or cause the
acceleration of any payments pursuant to any agreement, contract or
indenture (Treuhandverhaltnis) to which SELLER, the COMPANY or the
SUBSIDIARY is a party, or any of their assets is bound; or violate any
provision of law, rule, regulation, order, permit, license, judgement or
decree, to which any of them is subject, in a manner that would have a
MATERIAL ADVERSE EFFECT on the COMPANY or the SUBSIDIARY; or (ii) require
any consents other than disclosed by SELLER in this AGREEMENT and will not
(iii) cause a dissolution of the COMPANY or the SUBSIDIARY.
(e) SELLER is not restricted from entering into or performing this AGREEMENT in
any manner; the SHARES do not represent all or substantially all of the
assets of SELLER within the meaning of Section 419 BGB (German Civil Code).
7.3 Organization, Good Standing and Authority
(a) The COMPANY and the SUBSIDIARY are companies duly organized, validly
existing and in good standing under the laws of the Federal Republic of
Germany. They have full corporate power to carry on their businesses as
they are now and have since their incorporation been conducted, and are
entitled to own, lease or operate the properties and assets they now own,
lease or operate.
(b) Schedule 7.3 contains true, correct and complete copies of the Articles of
Association of the COMPANY and the Articles of Association/limited
partnership agreement of the SUBSIDIARY, respectively, in each case as in
effect on the EFFECTIVE DATE; and these Articles of Association and limited
partnership agreement have not been amended, or filed for amendment with
any competent register or authority. There are no side agreements relating
to the constitution or formation of the COMPANY or the SUBSIDIARY which
will be binding upon PURCHASER or, with respect to the SUBSIDIARY, the
COMPANY, or which affect PURCHASER's or the COMPANY's rights in the COMPANY
or the SUBSIDIARY, respectively.
7.4 Capitalisation
The issued share capital of the COMPANY and the share capital/capital
contributions of the SUBSIDIARY are fully paid and not diminished, in full
or in part, by any repayment of any contribution or withdrawal of profits
to the respective shareholders and partners or for their or the benefit of
third parties, and there are no further outstanding payment obligations by
the shareholders or partners, respectively. There are not outstanding with
respect to the COMPANY and the SUBSIDIARY:
<PAGE>
(i) any options, warrants or other rights to purchase from the COMPANY or
the SUBSIDIARY any shares or interests of the COMPANY or the
SUBSIDIARY;
(ii) any securities convertible into or exchangeable for shares or
interests in the COMPANY or the SUBSIDIARY;
(iii) any other commitments of any kind for the issuance of additional
shares or interests or options, warrants or other securities with
respect to the COMPANY or the SUBSIDIARY.
7.5 Equity Interests
Neither the COMPANY nor the SUBSIDIARY, with the exception of the COMPANY's
interest in the SUBSIDIARY, own directly or indirectly any capital stock of
or other equity interests (representing 10 % or more of the issued and
outstanding capital stock, equity interests or voting rights) in any
corporation, association, partnership, equity joint venture or other
entity.
7.6 Real Property and Leaseholds
(a) There is listed on Schedule 7.6:
(i) all real property owned (Grundstuckseigentum) or used by the COMPANY
and the SUBSIDIARY (already taking into account the final execution
(Vollzug) of the items referred to in Articles 2.6 and 2.7);
(ii) each hereditary building right (Erbbaurecht) or comparable right under
which the COMPANY or the SUBSIDIARY own a building or other structures
(already taking into account the final execution of the items referred
to in Articles 2.6 and 2.7); and
(iii) each lease of real property (Miet-, Pacht- und Leasingvertrage)
under which the COMPANY or the SUBSIDIARY is a lessee, lessor,
sublessee or sublessor.
Unless disclosed in SCHEDULE 7.6, to SELLER'S BEST KNOWLEDGE, there are no
ancient rights (so-called Altrechte) or any other rights relating to the
real property referred to in paragraphs (i) and (ii) which have not been
entered into the land register (Grundbuch) and there are no undisclosed
duties (Duldungs-, Nutzungs- und Handlungspflichten) to which the COMPANY
or the SUBSIDIARY are subject including, but not limited to, maintenance
obligations (Instandhaltungspflichten), rights of way or access (Wegerechte
und Rechte zum Betreten oder Befahren) or any other rights of use
(Nutzungsrechte) with respect to such real property owned or used, that
would have a MATERIAL ADVERSE EFFECT on the PURCHASER, the COMPANY or the
SUBSIDIARY.
<PAGE>
(b) Except for the rights shown in the land register extracts
(Grundbuchauszuge) of the real property referred to in paragraphs (a) (i)
and (ii) above, as of the EFFECTIVE DATE there are no other rights and in
particular, but not limited to, no other obligations whatsoever of the
COMPANY to transfer title (Ubereignung) or to create any other rights
(dingliche Rechte) except for those disclosed in SCHEDULE 7.6; to the
extent that any of the agreements referred to in Articles 2.6 and 2.7 have
been notarized or signed, as the case may be, but have not been fully
executed (vollzogen) on the CLOSING DATE, such agreements shall not be
amended or terminated and shall continue to be in effect on the CLOSING
DATE without any changes thereto and shall be fully executed (vollzogen) as
initially contemplated. It is expressly agreed between the PARTIES that
SELLER shall deliver or cause to be delivered to PURCHASER prior to the
CLOSING DATE consents of cancellation (Loschungsbewilligungen) in
appropriate form for land register purposes (in grundbuchtauglicher Form)
for the deletion of all encumbrances registered in part III of the
respective land registers (in Abteilung III des Grundbuchs eingetragene
Belastungen) of the real estate referred to in paragraphs (a) (i) and (ii)
above.
(c) Except as disclosed in Schedule 7.6:
(i) the COMPANY and the SUBSIDIARY, as the case may be, has good and valid
title to each of the real properties owned or used by them on the
basis of a hereditary building right listed in Schedule 7.6, free and
clear of all rights of third parties, claims, charges and encumbrances
of any kind which are not shown in the land register (if a land
register exists) or listed in Schedule 7.6;
(ii) all of the buildings, fixtures and other improvements owned, leased or
otherwise used by the COMPANY and the SUBSIDIARY are technically in
sufficient operating condition (faktisch standsicher) and to SELLER'S
BEST KNOWLEDGE capable of being properly used in connection with the
BUSINESS or the business of the SUBSIDIARY as currently conducted and
in state of good repair and maintenance; to continue the BUSINESS in
its present shape, as far as the real property and building situation
is concerned, does not require any further action, except for the
replacement of existing items due to regular wear and tear;
(iii) the COMPANY and the SUBSIDIARY have access to all utilities,
including water and sewage, necessary to operate the BUSINESS and
the business of the SUBSIDIARY in the normal course and as
presently conducted and there are no overdue unpaid assessments
for the installation thereof or overdue charges for making
connection thereto that have not been fully paid on the EFFECTIVE
DATE; with respect to such real property, public utilities,
including connection and permanent right to discharge sanitary
waste into the collector system, as the case may be, of the
appropriate sewer authority, are installed and operating, and all
due and payable installation and connection charges have been
paid in full; there are no current or pending instalments of
special assessments which are overdue and unpaid, nor, to
SELLER'S BEST KNOWLEDGE, has the COMPANY or the SUBSIDIARY been
threatened for any instalments of special
<PAGE>
assessments; and there are, to SELLER'S BEST KNOWLEDGE, no
proceedings pending, or threatened, for any increase of the
assessed valuation for any portion of such real property;
(iv) there are, to SELLER'S BEST KNOWLEDGE, no condemnation
(Abbruchsverfugung oder Enteignungsverfahren) or appropriation
(behordliche Inbesitznahme-Verfugungen) proceedings pending or
threatened against any of such real property or improvement;
(v) none of the real property now or heretofore owned or used (for any
purpose) and none of the real property now or heretofore leased for
manufacturing, processing or similar activities
(alpha) is used in any manner in material violation of applicable ,
building, zoning, land use, administrative, occupational or
safety or health law or regulation,
(beta) is in a state or condition that could subject the COMPANY or
the SUBSIDIARY to material expense or liability pursuant to
such laws or regulations, or
(gamma) is, to SELLER'S BEST KNOWLEDGE, subject to any governmental
inquiry or investigation pursuant to such laws and regulations.
7.7 Tangible Property Rights
(a) All tangible assets (bewegliche Sachen) which are used for the BUSINESS or
located on the real property owned, used or in possession of the COMPANY,
are owned or properly leased in the ordinary course of business by the
COMPANY, save for items of minor value that are provided to the COMPANY in
connection with services, such as waste containers, gas cylinders and
similar items.
(b) Except as otherwise expressly indicated in this AGREEMENT:
(i) the COMPANY or the SUBSIDIARY, as the case may be, has good and valid
title to, or is in lawful possession of, each item of such tangible
property free and clear of all liens, encumbrances, security interests
and similar rights of third parties (except for liens or security
interests in the ordinary course of commercial or banking
transactions); no property is pledged or assigned as security to banks
or other financial institutions as collateral;
(ii) each item of tangible personal or leased property is in good operating
condition, repair and maintenance and is fit for its intended
purposes;
(iii) the COMPANY is the owner of the partnership interests in the
SUBSIDIARY free and clear of restrictions, encumbrances or any
third party rights
<PAGE>
whatsoever, unless otherwise provided by the
limited partnership agreement of the SUBSIDIARY;
(iv) all current assets (Gegenstande des Umlaufvermogens) are
unrestrictedly owned by the COMPANY and the SUBSIDIARY, as the case
may be, and are not encumbered with any rights of third parties with
the exception of retention of title rights of suppliers or other
security rights for obligations entered into in the ordinary course of
business.
<PAGE>
7.8 Intangible Property Rights
(a) There is listed on Schedule 7.8:
(i) a true and complete list of the items of intangible property owned by,
or used in the business of, the COMPANY and the SUBSIDIARY, including,
but not limited to, domestic and foreign patents, utility patents
(Gebrauchsmuster), trade names, service marks, trademarks and
trademark registrations, design patents (Geschmacksmuster) and
copyright registrations (if applicable) and applications for any of
the foregoing; and
(ii) a true and complete list of all licenses or similar agreements or
arrangements to which the COMPANY or the SUBSIDIARY is a party either
as licensee or licensor for each such item of intangible personal
property.
(b) Except as indicated in Schedule 7.8:
(i) the COMPANY or the SUBSIDIARY, as the case may be, is the owner of or
the lawful licensee, respectively, of all right, title and interest in
and to each such item of intangible personal property, free and clear
of restrictions, encumbrances, liens and other adverse claims;
(ii) the COMPANY and the SUBSIDIARY, as the case may be, have the right and
authority to use said intangible property in connection with the
conduct of their respective businesses in the manner presently
conducted, and such use, to SELLER'S BEST KNOWLEDGE, does not conflict
with, infringe upon or violate any rights of third parties; and
(iii) in their operations the COMPANY and the SUBSIDIARY, as the case
may be, do not use nor are they dependent on the use of any
intangible property rights other than those mentioned in such
list the lack of which use would have a MATERIAL ADVERSE EFFECT
on the conduct of the businesses of the COMPANY or the SUBSIDIARY
as presently conducted.
(c) With regard to all such intangible property rights:
(i) all are vested in or validly granted to the COMPANY or the SUBSIDIARY
and are not restricted in any way and all renewal fees and steps
required for their maintenance or protections have been paid and
taken; no intangible property right used or owned by the COMPANY or
the SUBSIDIARY has been challenged by any third party and, to SELLER'S
BEST KNOWLEDGE, there are no circumstances which could give rise to
any challenge;
(ii) neither the COMPANY nor the SUBSIDIARY granted or is obliged to grant
any licence, sub-licence or assignment in respect of any such
intangible property rights owned or used by it or has disclosed or is
obliged to disclose any information relating to such intellectual
property rights to any person,
<PAGE>
other than its employees for the purpose of carrying on their
respective businesses;
(iii) neither the COMPANY nor the SUBSIDIARY is, to SELLER'S BEST
KNOWLEDGE, in breach of any licence, sub-licence or assignment
granted to it in respect of any such intellectual property rights
or of any agreement under which any intellectual property was or
is to be made available;
(iv) the processes and methods employed, the services provided, the
business conducted and the products manufactured, used or dealt with
by the COMPANY or the SUBSIDIARY do not, to SELLER'S BEST KNOWLEDGE,
infringe the rights of any other entity or person;
(v) all licences in respect of such intangible property rights are in full
force and effect, have not been terminated and all requirements under
such licences have been fully complied with and there are, to SELLER'S
BEST KNOWLEDGE, no circumstances which indicate that any licence,
consent, permission or approval is likely to be revoked or which might
confer a right of revocation;
(vi) neither the COMPANY nor the SUBSIDIARY, to SELLER'S BEST KNOWLEDGE, is
aware of, nor have acquiesced in the unauthorised use by any person of
any of such intangible property rights or of any infringement of the
rights of the COMPANY or the SUBSIDIARY in any items.
(e) The COMPANY and the SUBSIDIARY, as the case may be, are owners of the
know-how required to conduct the BUSINESS. PURCHASER, as from the CLOSING
DATE, will have access to and will be able to use without any restrictions
all know-how relating to the BUSINESS and all marketing information
relating thereto.
(f) The COMPANY and the SUBSIDIARY, as the case may be, have good title, or
valid licenses, as the case may be, to any software rights used by it in
the course of business, free and clear of restrictions, encumbrances or any
third party rights whatsoever except as disclosed on SCHEDULE 7.8 and
except for certain copies of certain standard software programs. A further
exception is to be made for any moral rights belonging to the authors
("Urheber") of the software rights within the meaning of the
Urheberrechtsgesetz (German Copyright Act).
7.9 Accounts Receivable and Inventory
(a) The accounts receivable reflected on the CLOSING BALANCE SHEET of the
COMPANY constitute valid receivables, have arisen in the ordinary course of
business, are fully collectible within ninety days following their
respective due date (Falligkeitszeitpunkt) , and are, unless disclosed and
appropriately accrued for in the CLOSING BALANCE SHEET, not subject to any
set-off or counterclaim.
<PAGE>
(b) Except as stated in SCHEDULE 7.9, neither the COMPANY nor the SUBSIDIARY
holds any items of inventory on consignment or has title to any items of
inventory in the possession of others.
7.10 Contracts or Agreements with Affiliates (including Intercompany Loans)
(a) SCHEDULE 7.10 contains a true, correct and complete list of each contract
or agreement (including options) made between the COMPANY or the
SUBSIDIARY, on the one hand, and SELLER or any of its AFFILIATES (including
the COMPANY and the SUBSIDIARY, as the case may be), on the other hand.
Except as listed in Schedule 7.10, there is no such contract or agreement
(including options) in force or pending as of the CLOSING DATE. Except as
indicated in SCHEDULE 7.10, all such agreements are concluded on an arm's
length basis, are legally binding and fully enforceable, have been properly
fulfilled and no obligations contemplated by this AGREEMENT may be
jeopardized or rendered unenforceable thereby. On request of PURCHASER,
SELLER shall terminate or cause to be terminated with immediate effect any
of these agreements, whether or not listed on SCHEDULE 7.10. The PARTIES
agree that the service agreement between GRUNDSTUCKS KG and the COMPANY of
December 20/30, 1996 concerning certain real estate services to be provided
by the COMPANY shall not be terminated to expire prior to June 30, 1998.
(b) Except as expressly set forth on SCHEDULE 7.10, on the EFFECTIVE DATE there
are no outstanding intercompany loans or other financial obligations of the
COMPANY or the SUBSIDIARY towards SELLER or any of its AFFILIATES.
7.11 Bank Accounts (including Financial Debt)
(a) SCHEDULE 7.11 lists the names and addresses of every bank and other
financial institution in which the COMPANY and the SUBSIDIARY maintain
an account (whether a check, savings or other account), lock box or
safe deposit box, and the account numbers and names of persons having
signing authority or other access thereto.
(b) Except as expressly set forth on SCHEDULE 7.11, there are no
outstanding financial debt of the COMPANY or the SUBSIDIARY towards
any bank or other financial institution.
7.12 Customers and Suppliers
(a) There does not exist any reason to believe that any substantial customer
of, or substantial supplier to the COMPANY or the SUBSIDIARY, as the case
may be, will reduce the extent of its previous dealing with the COMPANY or
the SUBSIDIARY to any material degree, except as for the general
development of the economy or the market and, to SELLER'S BEST KNOWLEDGE
the attitude or actions of customers, suppliers, employees or other persons
with regard to the
<PAGE>
COMPANY, the SUBSIDIARY or the BUSINESS will not be affected by the
execution of this Agreement.
(b) None of the principal suppliers of the COMPANY or the SUBSIDIARY has for
the last two years given notice terminating, cancelling or threatening to
terminate or cancel any contract or relationship with the COMPANY or the
SUBSIDIARY; to SELLER'S BEST KNOWLEDGE, there is no material deterioration
of any such relationship.
7.13 Powers of Attorney and Suretyships
Except as disclosed in SCHEDULE 7.13, neither the COMPANY nor the
SUBSIDIARY have any general or special powers of attorney outstanding
giving the grantee the power to bind the grantor to any material obligation
(whether as grantor or grantee thereof) or have any obligation or liability
(whether actual, accrued, accruing, contingent or otherwise) as guarantor,
surety, co-signer, endorser, comaker, indemnitor or otherwise in respect of
the obligation of any person, except as endorser or maker of checks, bills
of exchange, or letters of credit, respectively, endorsed or made in the
ordinary course of business.
7.14 Labour and Employment
SCHEDULE 7.14 contains a true, complete and correct list of each agreement
with a KEY EMPLOYEE of the COMPANY and the SUBSIDIARY. Except as set forth
in SCHEDULE 7.14:
(i) the COMPANY and the SUBSIDIARY have complied in all material respects
with all labour and employment laws, including provisions thereof
relating to wages, employment security, hours, equal opportunity
(Gleichheitsgrundsatz), collective bargaining, and have paid all
applicable social security and employee taxes;
(ii) no labour complaint (Arbeitsgerichtsverfahren) is pending against the
COMPANY or the SUBSIDIARY before any federal, state or local agency or
other judicial or administrative forum, no labour strike or other
labour trouble affecting the COMPANY or the SUBSIDIARY is pending, and
no grievance is pending against the COMPANY or the SUBSIDIARY;
(iii) no organization or representation question ("Fragen hinsichtlich
der Zusammensetzung des Betriebsrats") is pending regarding the
employees of the COMPANY or the SUBSIDIARY, and no such question
has been raised within the three year period prior to the SIGNING
DATE;
(iv) there is no shop agreement or similar contract or arrangement
regarding retirement rights, profit or turnover participation of
employees or regarding similar benefits. SCHEDULE 7.14 further lists
any existing "employee benefit plans" and all contributions required
by law for such benefit plans;
<PAGE>
(v) no change in the compensation or other terms of engagement of any
managing director or employee of the COMPANY or the SUBSIDIARY, and
no negotiation or request for such a change is due or expected within
three months from the SIGNING DATE, except for the normal annual
salary review;
(vii) none of SELLER, the COMPANY or the SUBSIDIARY is aware that any
executive or KEY EMPLOYEE, or any group of employees has any
plans to terminate employment with it;
(viii) SCHEDULE 7.14 further contains a complete and correct list of all
employees of the COMPANY and the SUBSIDIARY as of the date
indicated in such list including the respective salaries or wage
rates for each class of employees. Furthermore, SCHEDULE 7.14
contains a list of each collective bargaining agreement
(Tarifvertrag), shop agreement (Betriebsvereinbarung) or
comparable agreements and material applicable usages
(betriebliche Ubungen), if any; and
(ix) there are no claims, whether absolute, accured, contingent, due or to
become due for any liabilities pursuant to Section 128 AFG (German
Act to Promote Employment), unless appropriately accrued for in the
CLOSING BALANCE SHEET.
7.15 Pensions
SELLER has delivered to PURCHASER prior to the SIGNING DATE a true and
complete list of all pension claims and commitments of any kind as of
October 01, 1997 ("Pensionsverpflichtungen und Anwartschaften") related to
the COMPANY and the SUBSIDIARY.
7.16 Important Contracts
(a) SCHEDULE 7.16 contains a true and complete list of all material contracts,
agreements and commitments (hereinafter together referred to as the
"Contracts") to which the COMPANY or the SUBSIDIARY, as the case may be, is
a party and which are not disclosed to PURCHASER under another section of
this AGREEMENT. For the purpose of this Agreement a Contract is defined to
be each contract, agreement or commitment pertaining to or concluded with:
(i) any employment, consulting or other service agreement with a total
gross remuneration exceeding DM 120,000 per annum (as of the SIGNING
DATE), or providing for the payment of bonuses, profit sharings,
turnover participations, or any similar agreement with advisers or
present or previous shareholders or managing directors;
<PAGE>
(ii) any agreement or commitment pertaining to the acquisition,
construction, development, manufacturing, disposal or encumbrance of
any tangible or intangible fixed assets whether or not shown on the
financial statements;
(iii) any lease or rental agreement for real property;
(iv) any written agreement which has a remaining term of more than 12
(twelve) months and cannot on or any time after the first anniversary
of the SIGNING DATE be terminated by it on 90 (ninety) or fewer days
notice without material penalty to it;
(v) any agreement and commitment relating to investments pending on the
SIGNING DATE which, in each case, exceed DM 100,000 or in the
aggregate DM 250,000;
(vi) any material agreements with domestic and international distributors,
commercial agents and representatives and similar material
distribution agreements which in case of their termination may give
rise to compensation claims against the COMPANY or the SUBSIDIARY
exceeding in each individual case DM 10,000 or DM 50,000 in the
aggregate or for which the non-cancellable remaining term exceeds
three months;
(vii) any agreement which contains a restraint on competition (whether
vertical or horizontal), including, but not limited to,
agreements which exclude or limit the right of the COMPANY or the
SUBSIDIARY to do business in certain lines or certain geographic
areas;
(viii) any loan, loan engagement, credit and overdraft facility,
promissory note or other evidence of indebtedness relating to the
borrowing or lending of money of any kind to which the COMPANY or
the SUBSIDIARY is a party, except for customary extensions of the
due date of accounts receivables or payables;
(ix) any guarantee of indebtedness or other obligations of third parties,
surety, mortgage, pledge, grant of security interest in or pledges of
assets, derivative transactions or securities of any kind granted by
the COMPANY or the SUBSIDIARY and any commitments of the COMPANY or
the SUBSIDIARY to third parties which have issued guarantees or
sureties of any kind on behalf of the COMPANY or the SUBSIDIARY;
(x) any factoring agreements;
(xi) unless already disclosed in SCHEDULE 7.14, any collective bargaining
agreements and shop agreements with trade unions or works councils to
which the COMPANY or the SUBSIDIARY is a party or otherwise subject
to, except for regional or national collective bargaining agreements
covering numerous companies or partnerships;
<PAGE>
(xii) any other agreement or commitment which exceeds DM 100,000 in
each case, except for sale agreements concluded in the ordinary
course of business;
(xiii) any other agreement or commitment which is outside the ordinary
course of business of the COMPANY or the SUBSIDIARY and which in
each case exceed DM 50,000 or in the aggregate DM 100,000;
(xiv) any agreement on supplies and services rendered by or provided to
the COMPANY and the SUBSIDIARY and paid by them which in each
case or in the aggregate exceed DM 50,000; SELLER represents and
warrants that all supplies and services (including employments)
rendered by or provided to the COMPANY or the SUBSIDIARY are used
only for the benefit of their respective businesses.
(b) The validity or enforceability of the Contracts has not been legally
contested or questioned by anyone. To SELLER'S BEST KNOWLEDGE, (i) none of
the Contracts is nor is about to be terminated and (ii) except as disclosed
in SCHEDULE 7.16, all CONTRACTS to which the COMPANY and/or the SUBSIDIARY
is a party have been performed by the respective party pursuant to the
respective contractual terms and conditions, and with respect to none of
the CONTRACTS any contractual violations, non-performances or late
performances have occurred or have been announced or are reasonably to be
expected - be it on the part of the COMPANY or its SUBSIDIARY or on the
part of the respective contract partner. To SELLER'S BEST KNOWLEDGE, the
acquisition contemplated in this Agreement will not give any party a right
of early termination or amendment of, or create a breach under, any
Contract.
7.17 AGREEMENT Not in Breach of Other Instruments; Early Termination Rights
Neither the execution and delivery of this Agreement, nor the consummation
of the acquisition contemplated hereby, will violate, or result in a breach
of any of the terms and provisions of, or constitute a default under, or
conflict with, or give any party a right of amendment, early termination or
similar right under any agreement, indenture or other instrument to which
the COMPANY or the SUBSIDIARY is a party or by which any of them is bound,
or any law, rule, regulation, permit, license, judgement, decree, order or
award applicable to the COMPANY or the SUBSIDIARY, which would have a
MATERIAL ADVERSE EFFECT.
7.18 Insurances
SCHEDULE 7.18 contains a true, correct and complete list of all insurances
taken out by the COMPANY and the SUBSIDIARY; the insurance policies are in
full force, all premiums have been paid and except as set forth in SCHEDULE
7.18 none of the insurances will terminate upon the transfer of the SHARES
to PURCHASER. The insurance policies maintained by the COMPANY and the
SUBSIDIARY cover all material risks customary for the BUSINESS with a view
to
<PAGE>
any losses or damages incurred by the COMPANY or the SUBSIDIARY prior to
the CLOSING DATE, and conform to the care of an orderly businessman, in
particular with respect to scope and coverage amounts. In the event that
the insurance policies contain stipulations or provisions that are not
customary, such facts have been disclosed to PURCHASER.
7.19 Licenses and Permits
The COMPANY and the SUBSIDIARY have all governmental licenses, permits and
authorisations including, but not limited to, all permits under the
relevant water laws (partially limited in time) (wasserrechtliche
Genehmigungen und Gestattungen, die teilweise befristet sind,) necessary to
carry on their businesses as currently conducted, except for such
governmental licenses, permits and authorisations, the absence of which
would not have a MATERIAL ADVERSE EFFECT on businesses, operations or
financial condition of the COMPANY or the SUBSIDIARY. Such licences,
permits and authorisations have neither been returned, revoked, nor
restricted, nor is, to SELLER'S BEST KNOWLEDGE, such return, revocation or
restriction impending or threatened.
7.20 Environmental Matters
Any representations and warranties relating to environmental matters are
dealt with separately under Article 8.4.
7.21 Financial Statements
(a) SELLER has provided PURCHASER with (i) the audited financial
statements (Jahresabschlusse) of the COMPANY for the fiscal years
1994, 1995 and 1996, as testified by Wollert-Elmendorff, Deutsche
Industrie-Treuhand GmbH, Wirtschaftsprufungsgesellschaft, Munich, on
April 20, 1995, April 15, 1996 and April 21, 1997, and (ii) the
unaudited financial statements of the SUBSIDIARY for such fiscal
years, as well as the related profit and loss accounts and statements
of income.
The aforementioned documents and financial information shall
collectively hereinafter be referred to as the "FINANCIAL STATEMENTS".
(b) The FINANCIAL STATEMENTS:
(i) were prepared in accordance with the books and records of the COMPANY
and the SUBSIDIARY;
(ii) were prepared consistent with German commercial law in accordance with
German generally accepted accounting principles (Grundsatze
ordnungsgemasser Buchfuhrung) consistently applied (Bilanzkontinuitat);
and
<PAGE>
(iii) present a true and fair view of the net worth, the financial
position and results (Finanz-, Vermogens- und Ertragslage) within
the meaning of Section 264 subsection 2 HGB of the COMPANY's and
the SUBSIDIARY's assets, financial condition and earnings, and
the results of their operations as at the relevant dates thereof
and for the periods covered thereby, observing continuity in the
accounting and evaluation methods; depreciations have been made
in accordance with the statutory provisions and reserves were
made for all known or identifiable risks in accordance with
German generally accepted accounting principles.
7.22 Taxes
Except as disclosed in Schedule 7.22:
(i) the COMPANY and the SUBSIDIARY have since their respective formation
been, and are, properly characterised and qualify for German tax
purposes as a company with limited liability (GmbH) and limited
partnership (KG), respectively, for the purposes of federal and
applicable state tax laws;
(ii) within the times and in the manner prescribed by law or, if it was
not the case, without ensuing any legal effects, the COMPANY and the
SUBSIDIARY have filed all federal, state and local tax returns and
all tax returns for foreign countries, provinces and other governing
bodies having jurisdiction to levy taxes upon them;
(iii) SELLER warrants that all tax returns constitute complete and
accurate representations of the basis for the respective tax
liabilities of the COMPANY and the SUBSIDIARY for such period and
accurately set forth all items (to the extent required to be
included or reflected in such returns) relevant to their tax
liabilities, including the tax bases of their properties and
assets;
(iv) neither the COMPANY nor the SUBSIDIARY has waived or extended any
applicable statute of limitations relating to the assessment of
federal, state, local or foreign TAXES;
(v) SELLER warrants that all TAXES, charges, fees, levies or other
assessments, including, without limitation, income, excise, property,
sales, gross receipts, employment , franchise and all withholding
taxes imposed by the Federal Republic of Germany, or any state,
county, local or foreign government, or subdivision or agency
thereof, including any interest, penalties or additions attributable
thereto due and payable by the COMPANY or the SUBSIDIARY prior to the
EFFECTIVE DATE have been paid in full;
(vi) to SELLER'S BEST KNOWLEDGE, no audits of the federal, state, local or
foreign tax returns of the COMPANY or the SUBSIDIARY are currently in
progress nor is any special audit threatened; no issue or issues have
been raised in connection with any prior or pending review or audit
of any federal,
<PAGE>
state, local or foreign tax returns which SELLER reasonably believes
may be expected to be raised in the future by such taxing authorities
in connection with the audit or review of the tax returns of the
COMPANY or the SUBSIDIARY;
(vii) TAXES relating to periods of time up to the EFFECTIVE DATE(i)
have been paid in full or (ii) are provided for or will be
provided for in the CLOSING BALANCE SHEET;
(viii) until December 31, 1997, 24:00 hours, a fiscal unity
(Organschaft) with respect to corporate, trade and value added
tax existed between SELLER and the COMPANY;
(ix) No individual or legal entity not entitled to German tax credit has
owned the COMPANY's SHARES within the last ten years prior to the
EFFECTIVE DATE. In case the COMPANY's SHARES have been sold
(veraussert) by individuals or legal entities entitled to German tax
credit within the last ten years prior to the EFFECTIVE DATE the sale
has been subject to German income or corporate tax. In case the
COMPANY's SHARES have been transferred without remuneration
(unentgeltlich verauBert) or contributed without remuneration
(unentgeltlich eingelegt) by individuals or legal entities entitled
to German tax credit within the last ten years prior to the EFFECTIVE
DATE, a sale instead of the transfer or contribution would have been
subject to German income or corporate tax. The foregoing
representation in this paragraph (ix) does not apply with respect to
the two SHARES which were held by Jochen Gessner and Dr. Hans
Ferdinand Steinbeis as set forth in Article 7.2 (c).
7.23 No Undisclosed Liabilities
(a) Except as and to the extent specifically provided for in the CLOSING
BALANCE SHEET or otherwise disclosed in the AGREEMENT, neither the
COMPANY nor the SUBSIDIARY have any liabilities or obligations of any
nature, including, but not limited to, product liability, whether
absolute, accrued, contingent or otherwise, whether known or unknown
and whether due or to become due which exceed in the aggregate DM
250,000 or are material to the financial condition, assets, or
business of the COMPANY and the SUBSIDIARY.
(b) Except as disclosed in SCHEDULE 7.23, neither the COMPANY nor the
SUBSIDIARY nor their assets have any liability (whether contingent or
otherwise) within the meaning of Section 251 HBG for any third party
obligations.
(c) Except as disclosed in SCHEDULE 7.23, neither the COMPANY nor the
SUBSIDIARY have received any financial support from public sources
(Subventionen) of whatever kind or nature, and in the event of a claim
for repayment of such financial support for non-compliance with its
terms prior to the EFFECTIVE DATE, whether disclosed or undisclosed,
the COMPANY or the SUBSIDIARY shall be indemnified in accordance with
Article 8.
<PAGE>
7.24 Litigation
Except as listed in Schedule 7.24 and except for actions involving less
than DM 10,000 individually:
(i) there is no action, suit, proceeding, order, investigation or claim in
which the COMPANY or the SUBSIDIARY are engaged in any capacity
(including litigation before the labour courts) or affecting any of
its property pending (rechtshangig) before or conducted by any court
or governmental agency, authority or body or arbitrator, and there is,
to SELLER'S BEST KNOWLEDGE, no action, suit threatened by or against
the COMPANY or the SUBSIDIARY and there are no facts or circumstances
which are likely to give rise to any such dispute;
(ii) there is not in existence any order, judgement or decree of any court
or other tribunal or other agency enjoining or requiring the COMPANY
or the SUBSIDIARY to take any action of any kind with respect to its
business, assets or properties;
(iii) there are no product liability claims pending (rechtshangig) or,
to SELLER'S BEST KNOWLEDGE, threatened to be initiated against
SELLER, the COMPANY or the SUBSIDIARY.
7.25 Compliance with Law and Agreements
Except as set forth in SCHEDULE 7.25, the conduct of business by the
COMPANY and the SUBSIDIARY, respectively, is in compliance with all
federal, state, local or foreign laws, statutes, ordinances, rules,
regulations, decrees, orders, permits or other similar items in force on
the EFFECTIVE DATE (including, but not limited to, any of the foregoing
relating to employment discrimination, social security), the enforcement of
which would have a MATERIAL ADVERSE EFFECT on the COMPANY or the
SUBSIDIARY, nor has the COMPANY or the SUBSIDIARY received any notice of
any such violation or asserted failure. There are no legal or
administrative proceedings or investigations pending (rechtshangig) or, to
SELLER'S BEST KNOWLEDGE, threatened against the COMPANY or the SUBSIDIARY.
There have been no illegal kickbacks, bribes or political contributions
made by the COMPANY or the SUBSIDIARY.
7.26 Brokers
SELLER retained Rothschild GmbH, Frankfurt a.M., to act as its advisor with
respect to the acquisition contemplated by this AGREEMENT. SELLER
represents and warrants that no other broker, finder or other person has
been retained by SELLER and that neither Rothschild GmbH nor any other
broker, finder or other person is entitled to any brokerage, finder's or
similar fee against the COMPANY, the SUBSIDIARY or PURCHASER in connection
with the
<PAGE>
transactions contemplated by this Agreement by reason of any
action taken by SELLER, the COMPANY, the SUBSIDIARY, or any of their
respective KEY EMPLOYEES, other employees or agents. Any claim for any fee,
commission or brokerage shall be the sole responsibility of SELLER.
7.27 Absence of Certain Changes
Except as disclosed in SCHEDULE 7.27, or in any other SCHEDULE or as
provided for or contemplated in this Agreement, since December 31, 1996
there has not been any of the following with regard to the COMPANY and the
SUBSIDIARY:
(i) any payment of dividends or transfer of assets of any kind to SELLER
or any of its AFFILIATES with respect to the COMPANY, or SELLER or
any of its AFFILIATES including the COMPANY with respect to the
SUBSIDIARY;
(ii) any profit distributions - including preliminary and concealed
distributions - and no hidden reserves were dissolved or withdrawn
except in transactions within the ordinary course of business; SELLER
has used its best efforts to preserve the reputation of the COMPANY
and the SUBSIDIARY and their relationship with customers, suppliers,
employees and the general public;
(iii) any transaction not in the ordinary course of business which may
have a MATERIAL ADVERSE EFFECT on the businesses of the COMPANY
or the SUBSIDIARY;
(iv) any material adverse changes in the financial condition, assets,
liabilities or businesses of the COMPANY and the SUBSIDIARY; and no
such material adverse changes are, to SELLER'S BEST KNOWLEDGE, likely
to occur;
(v) any material damage, destruction, or loss to their assets, whether or
not covered by insurance;
(vi) any sale or transfer by the COMPANY or the SUBSIDIARY of any real
property, material tangible or material intangible asset, or any
mortgage or pledge, or the creation of any security interest, lien,
or encumbrance on any such asset, or any lease of property, including
equipment, other than in the ordinary course of business and except
for the sale of GRUNDSTUCKS KG;
(vii) the discharge or satisfaction of any material lien or encumbrance
or the payment of any material liability other than in the
ordinary course of business;
(viii) any strike, lockout, labour trouble or other event of similar
nature;
(ix) any material amendment, modification or termination of any material
contract or agreement to which the COMPANY or the SUBSIDIARY is a
party;
<PAGE>
(x) any increase in, or commitment to increase, the compensation payable
or to become payable to any officer, director, employee or agent to
the COMPANY or the SUBSIDIARY, or any increase of salary, bonus
payment or similar arrangement made to or with any of such KEY
EMPLOYEES, employees or agents, other than increases made in the
ordinary course of business and increases for KEY EMPLOYEES not
exceeding DM 25,000 per annum for any of them individually;
(xi) the making of any loan, advance, or guaranty to or for the benefit of
any person except as made in the ordinary course of business; or
(xii) any undertaking to enter into any of the foregoing transactions
or agreements, as the case may be.
<PAGE>
7.28 Correctness of Information; Sufficiency of Assets
(a) The information concerning the COMPANY and the SUBSIDIARY set forth in
this Agreement, the Schedules and any document, statement or
certificate furnished or to be furnished to PURCHASER or its advisors
pursuant hereto, is true and correct. To SELLER'S BEST KNOWLEDGE, the
information does not omit anything relating to the Shares, the COMPANY
and the business operated by it or the SUBSIDIARY which is important
for the individual information given or of which the PURCHASER should
be aware when entering into this Agreement, for the purpose of the
assessment of such information. There are, to SELLER'S BEST KNOWLEDGE,
no events or circumstances which, in the future, could have a MATERIAL
ADVERSE EFFECT on the COMPANY and its SUBSIDIARY or their operations
except as connected with general developments of the economy or the
market.
(b) The assets owned or used (including any know-how) by the COMPANY and
the SUBSIDIARY as of the EFFECTIVE DATE are all that are required for
PURCHASER for engaging the conduct of the businesses of the COMPANY
and the SUBSIDIARY to the same extent and in the same manner as the
COMPANY and the SUBSIDIARY conducted such businesses prior to the
EFFECTIVE DATE. SELLER or its affiliates do not retain or own any
assets used or useful primarily in the businesses of the COMPANY and
the SUBSIDIARY.
ARTICLE 8
REMEDIES OF PURCHASER
8.1 Right to Withdraw
Save for any additional rights pursuant to Article 4.3 (a) and further
notwithstanding any mandatory statutory rights of PURCHASER (such as in
cases of malicious intent (Arglist), intentional tort (vorsatzliche
Schadigung), fraud (Betrug) or similar situations), PURCHASER shall be
entitled to withdraw (wandeln) from or rescind (zurucktreten) this
Agreement only in the event that
(i) the acquisition of the Shares or, with respect to the interests in the
SUBSIDIARY, such interests should be subject to legal restrictions
which SELLER did not remove within six weeks after having received a
written demand from PURCHASER; or
(ii) with respect to the Shares and/or the interests in the SUBSIDIARY
there are rights of third parties which could materially affect the
exercise of the shareholder rights connected with such SHARES or
interests of PURCHASER or the COMPANY, as the case may be, or the
value of such SHARES or interests (other than as a result of any
action, event or circumstance for which PURCHASER is responsible) and
SELLER did not
<PAGE>
remove such third party rights within six weeks after
having received a written demand from PURCHASER; or
(iii) any of the representations and warranties assumed by SELLER in
Article 7 above, is totally or partially incorrect or incomplete,
or SELLER fails to duly observe or satisfy any other term or
obligation under this AGREEMENT, and such incorrectness,
incompleteness or failure leads to any loss or damages whatsoever
in an aggregate amount exceeding fifty percent of the BASE
PURCHASE PRICE; the rescission right under this Article 8.1 (iii)
shall be excluded if not exercised by March 31, 2000, 24:00
hours.
8.2 Other Remedies
(a) If and to the extent any of the representations and warranties assumed by
SELLER in Article 7 above, is totally or partially incorrect, misleading or
incomplete, or if SELLER fails to duly observe or satisfy any other term or
obligation under this AGREEMENT, SELLER shall be liable for all types of
damages incurred by PURCHASER, the COMPANY or the SUBSIDIARY because of
this incorrectness, incompleteness, misrepresentation or failure. SELLER
shall be liable to place PURCHASER, or if PURCHASER so requests, the
COMPANY or the SUBSIDIARY, in the position that they would have been in,
had the representation been correct, the warranty not been breached or the
respective term or obligation been observed or satisfied
(Naturalrestitution). Alternatively, under the same conditions, PURCHASER,
or if PURCHASER so requests, the COMPANY or the SUBSIDIARY, respectively,
may demand monetary damages in cash (Schadensersatz in Geld) in order to be
compensated for any misrepresentation, breach of warranty, non-observance
or non-fulfilment.
(b) Unless otherwise provided in this AGREEMENT, any other claims of PURCHASER
for the reduction of the purchase price (Minderung) or arising under culpa
in contrahendo (as far as related to any representations or warranties in
Article 7) are expressly excluded. There exist no other representations and
warranties, other than those expressly given under this AGREEMENT.
(c) In the event of any breach or non-fulfillment by SELLER of any of the
representations and warranties contained under Article 7, PURCHASER will
give SELLER written notice within three months upon knowledge of such
breach or non-fulfillment stating the nature thereof and the expected
amount involved to the extent that such amount has been determined at the
time where such note is given. Section 377 HGB shall not apply.
(d) The maximum aggregate liability of SELLER in respect of any breach or
non-fulfillment of the representations and warranties arising under Article
7, however excluding the items set forth in paragraph (h) below, shall not
exceed DM 4,250,000 (four million two hundred and fifty thousand Deutsche
Mark). No liability shall be assumed by SELLER where the aggregate claims
are less than DM 250,000 (two hundred and fifty thousand Deutsche Mark),
such claims being ignored for the purpose of calculating the liability of
SELLER (Freibetrag); it being understood, however, that any items which do
not constitute a violation of the
<PAGE>
representations and warranties in Article 7 because they do not
have a MATERIAL ADVERSE EFFECT shall be fully compensated by SELLER,
regardless of whether or not they have a MATERIAL ADVERSE EFFECT, once
the foregoing threshold amount of DM 250,000 is exceeded.
(e) SELLER shall not be liable for, and PURCHASER shall not be entitled to any
claim arising under Article 7 above, with the exception of the items
referred to in paragraph (h) below, for any breach or nonfulfilment by
SELLER of such representations and warranties, if and to the extent that
(i) the facts and circumstances to which PURCHASER's claims relate are
explicitly disclosed in the SCHEDULES; or
(ii) such claims result from a failure of PURCHASER, the COMPANY or the
SUBSIDIARY to mitigate damages pursuant to paragraph 254 BGB.
(f) When calculating the amount of SELLER's liability under this AGREEMENT all
advantages in connection with the respective item shall be taken into
account (Vorteilsausgleichung), in particular if and to the extent (i) the
items to which PURCHASER's claims relate have been taken into account in
the CLOSING BALANCE SHEET by way of provision (Ruckstellung) or an
extraordinary devaluation (Wertberichtigung), or (ii) accounts receivable
have been collected which were written off or were not accounted for in the
CLOSING BALANCE SHEET or (iii) tax advantages (Steuervorteile) result from
a future tax audit for any period up to the EFFECTIVE DATE, calculated with
an assumed tax rate of forty-five percent and a discount rate
(Abzinsungsrate) of six percent, and, vice versa, tax disadvantages
(Steuernachteile) under the foregoing criteria, or (iv) any amount of
PURCHASER's claims is recovered by PURCHASER or the COMPANY or the
SUBSIDIARY, as the case may be, from third parties.
(g) If either the COMPANY, the SUBSIDIARY or PURCHASER are sued or threatened
to be sued by a third party, which suit would give rise to a claim of
PURCHASER under Article 7, PURCHASER shall give SELLER prompt notice of any
such claim. Furthermore, PURCHASER undertakes that (i) SELLER shall be
given reasonable access at its own expense during ordinary business hours
to the books and records of PURCHASER or the COMPANY or the SUBSIDIARY, as
the case may be, to the extent that such access may assist SELLER in
avoiding or reducing its liability under this AGREEMENT, (ii) SELLER shall
be provided, to the extent reasonable and at its own expense, with material
and information relevant in relation to the third-party claim, (iii) SELLER
shall be given reasonable opportunity to comment or discuss with the
COMPANY or the SUBSIDIARY any measures which SELLER proposes to take or to
omit in connection with the third-party claim, (iv) upon SELLER's request
PURCHASER will diligently defend any such claim at SELLER's cost, provided
that such defense does not substantially impair PURCHASER's or the
COMPANY's or the SUBSIDIARY's interests, and (v) settle any such claim only
after having obtained SELLER's consent which consent may not unreasonably
be withheld. The costs for any such proceedings shall be reimbursed by
SELLER to PURCHASER.
<PAGE>
(h) Any rights of PURCHASER under Articles 7.9, 7.20/8.4 and 7.22 and, for the
avoidance of any doubt, under Articles 2 and 5 shall not be subject to the
restrictions set forth in paragraphs (d) and (e) above.
8.3 Indemnification and Audits
(a) TAXES of any kind owed by or leading to a liability of the COMPANY or the
SUBSIDIARY, as the case may be, in each case including any interest thereon
or connected therewith, which relate to a period prior to the EFFECTIVE
DATE and which are not accurately reflected or fully provided for in the
CLOSING BALANCE SHEET, shall be borne by SELLER. SELLER shall be under an
obligation to make any payments in accordance with this paragraph upon
presentation of a payable tax assessment or other public payment order,
even though not formally assessed against (Zug um Zug) assignment of the
possible tax refund claims (Steuererstattungsanspruche) in accordance with
Section 46 AO (German Tax Code) or, in case of wage tax (Lohnsteuer) to be
paid by the COMPANY, the assignment of the corresponding recourse claims
(RegreBanspruche) against the respective employees, to the extent legally
permissible by PURCHASER, the COMPANY or the SUBSIDIARY, respectively.
(b) As to the defence of any legal proceedings regarding the payment of TAXES,
social security or other payments to be made to fiscal or governmental
authorities, Article 8.2 (g) above shall apply mutis mutandis. In addition
thereto, SELLER shall be given an opportunity to comment on or participate
from the outset in and review any reports from all relevant tax, social
security and any other fiscal or governmental audits or other measures
which may give rise to any claims, provided, that they relate to periods
prior to the EFFECTIVE DATE, and PURCHASER shall ensure that SELLER
receives without undue delay copies of all relevant tax and social security
assessment letters available to PURCHASER at the cost of SELLER. PURCHASER
shall ensure that upon the request of SELLER, to the extent reasonable,
objections are filed, rights of defence exercised and all proceedings
instituted and conducted against any tax, social security and other
assessments in accordance with SELLER's discretion and at SELLER's expense,
including any proceedings to pursue an opportunity to obtain a refund,
relating to periods prior to the EFFECTIVE DATE, provided in each case that
the foregoing actions and measures do not unduly impair PURCHASER's or the
COMPANY's or the SUBSIDIARY's legitimate interests. If PURCHASER, contrary
to SELLER's request, decides not to initiate, or not to cause the COMPANY
or the SUBSIDIARY to initiate, a defense against any such third party
claim, SELLER shall be released from its liability with respect to such
third party claim towards PURCHASER, the COMPANY and the SUSIDIARY, as the
case may be.
(c) Disregarding the foregoing provisions, for the avoidance of any doubt, it
is understood that the FINAL PURCHASE PRICE shall not be affected by the
results of any future tax audits.
8.4 Environmental Remedies
<PAGE>
(a) SELLER's liability for environmental pollution on
(i) properties which are in the ownership of the COMPANY or the SUBSIDIARY
or used by the COMPANY on the basis of hereditary building rights on
the EFFECTIVE DATE,
(ii) properties which, pursuant to contractual agreements already existing
on the SIGNING DATE, are to be transferred to the ownership of the
COMPANY,
(iii) properties which were used in the past by the COMPANY or its
legal predecessors prior to the EFFECTIVE DATE, and which
properties do not belong to the properties listed above under (i)
and (ii), and
(iv) properties which do not belong to those listed under (i), (ii) and
(iii) above but which have, nevertheless, been polluted by the COMPANY
or its legal predecessors
shall be governed exclusively by the provisions of this Article 8.4.
(b) Environmental pollution for the purposes of this Article means
contamination of the ground and soil, buildings and installations located
thereon, the groundwater as well as of drinking water wells or sources
through pollutants from industrial or trade activity, the deposit either
above ground or underground, regardless whether these were made legally or
illegally - whereby the term deposit includes also temporary deposits - of
production waste and other waste from industrial or trade activity,
provided that such contamination or deposits were caused by the COMPANY or
the SUBSIDIARY or their legal predecessors prior to the CLOSING DATE or
provided that such contamination or deposits existed prior to the CLOSING
DATE. There shall be no requirement that on the CLOSING DATE there is a
danger to public safety or public order due to the environmental pollution
or that certain measures have been ordered by a regulatory authority or
will be necessary following justified third party claims.
(c) Clean-up measures for the purposes of this Article are all measures which
(i) pursuant to the findings of the EXPERT referred to in paragraph (f)
below, (ii) because of orders of regulatory authorities, (iii) pursuant to
a mutual agreement of the contracting parties or (iv) pursuant to final and
enforceable judgements in favour of third parties, are required in relation
to environmental pollution, it being understood that -without prejudice to
the costs- PURCHASER shall be entitled to at any time carry out clean-up
measures pursuant to subparagraph (j) (iii) (3) below.
(d) The clean-up costs shall, in addition to the actual costs of clean-up
measures (only third party costs - "Fremdkosten"), also include the costs
of the expert's findings, the costs of specialist engineers for the
planning, tender and supervision of the clean-up works, also the costs due
to the stoppage of production, but not, however, the costs of additional
staffing requirements of the COMPANY.
<PAGE>
(e) To the extent that orders of regulatory authorities are mentioned in this
Article, such orders must be enforceable; SELLER can demand that appeals
and court action be filed against such orders provided that SELLER assumes
the costs thereof and reimburses the damages incurred by PURCHASER
resulting from the delay thereby caused, in particular in the form of
increased clean-up costs or restricted production. The deadline agreed in
paragraph (j) (iii) shall be extended by the duration of the proceedings
initiated by the appeal plus a further term of six months. PURCHASER shall
inform SELLER without undue delay of any such order; SELLER bears no
liability if and to the extent SELLER has not been properly informed on any
such order. The provisions set forth in Article 8.2 (g) shall apply mutatis
mutandis.
The provisions set forth in this Article 8.4 (e) shall apply mutatis
mutandis if third party claims (zivilrechtliche Anspruche) relating to
environmental pollution are raised against PURCHASER.
(f) SELLER hereby consents to PURCHASER examining the ground and soil,
buildings, groundwater and drinking water for the presence of environmental
pollution.
The examination shall be carried out by ENSR (hereinafter referred to as
"EXPERT") in accordance with the examination plan attached hereto as
SCHEDULE 8.4. If this first examination of the EXPERT comes to the
conclusion that the clean-up costs exceed DM 5 million, then SELLER shall
have the right to rescind (zurucktreten) this AGREEMENT within a period of
three days following the day of receipt of the examination results which
right of rescission shall forfeit (AusschluBfrist) thereafter.
(g) The object of the examination referred to in paragraph (f) is to clarify
whether, which and to what extent there is environmental pollution, whether
and subject to which conditions clean-up measures will be required and what
clean-up costs will thereby foreseeably be incurred.
The carrying-out of the examination, the evaluation of the results thereof
and the determination whether and which clean-up measures are necessary and
under what conditions are to be made taking into account all of the
relevant site conditions and any affected protected rights (Schutzguter)
and on the basis of the pertinent statutory and other applicable
provisions, in particular the "Guidelines for the Treatment of Pollutant
Deposits and Contaminated Sites in Bavaria" (Leitfaden fur die Behandlung
von Altablagerungen und kontaminierten Standorten in Bayern), as of July
1991 ("Pollution Guidelines") and the "Technical Rules of the State Working
Group Waste (LAGA) Requirements for the Material Utilisation of Mineral
Residual Substances and Waste" (Technische Regelung der Arbeitsgemeinschaft
Abfall (LAGA) Anforderungen an die stoffliche Verwertung von mineralischen
Reststoffen und Abfallen), as of March 1994 ("Technical Rules of the
Working Group").
<PAGE>
(h) For the event that the EXPERT concludes that further investigations are
expedient, such further investigations may not be carried out without
SELLER'S consent.
References in this clause to an "expert opinion" refer to all expert
opinions drawn up by the EXPERT (hereinafter referred to as the "EXPERT
OPINION").
(i) SELLER shall receive for his information a copy of the EXPERT's findings,
in particular the final EXPERT OPINION.
(j) (i) Without prejudice to the costs, PURCHASER or the COMPANY or the
SUBSIDIARY, as the case may be, shall be entitled vis-a-vis SELLER to
at any time after the CLOSING DATE carry out the clean-up measures
suggested by the EXPERT on the properties listed under paragraphs (a)
(i) and (ii). Prior to carrying out clean-up measures, PURCHASER shall
inform SELLER thereof.
(ii) In the event that the EXPERT OPINION forecasts clean-up costs of more
than DM 15 million, PURCHASER shall instruct the EXPERT to determine
the foreseeable costs as precisely as possible by appropriately
detailed tenders. In the event that on the basis of such detailed cost
determination, expenditure of more than DM 20 million is foreseeable,
PURCHASER shall have the right to rescind this AGREEMENT pursuant to
Article 4.3 (a). PURCHASER's right to rescind this AGREEMENT shall
lapse in the event that SELLER acknowledges in writing that SELLER
will pay the entire costs in excess of DM 20 million.
(iii) As regards clean-up measures and clean-up costs in relation to
the properties listed in paragraph (a) (i) and (ii), the
following shall apply:
(1) Clean-up costs for clean-up measures which (i) are to be
taken according to applicable laws due to any danger to
public safety or public order, (ii) are ordered by public
authorities or (iii) are mutually considered to be necessary
by both PARTIES (hereinafter referred to as "URGENT CLEAN-UP
MEASURES") shall be borne by SELLER in full to the extent
the relevant environmental pollution was identified by the
EXPERT in his examination pursuant to paragraph (f).
(2) Clean-up costs for URGENT CLEAN-UP MEASURES in relation to
environmental pollution which was not identified by the
EXPERT in his examination pursuant to paragraph (f) but any
time thereafter within five years as of the CLOSING DATE
shall be shared between SELLER and PURCHASER as follows:
- With regard to clean-up costs of up to the amount of DM
10 million, SELLER shall bear 82,5 % and PURCHASER shall
bear 17,5 %.
<PAGE>
- With regard to clean-up costs between DM 10 million up
to the amount of DM 20 million, SELLER shall bear 97,5 % and
PURCHASER shall bear 2,5 %.
- Clean-up costs in excess of DM 20 million shall be
borne by PURCHASER in full.
(3) Clean-up costs for clean-up measures which are not urgent
(for example, because clean-up measures are required only in
the event that construction measures, in particular
soil-shifting operations, are to be carried out) in relation
to environmental pollution discovered by the EXPERT in his
examination pursuant to paragraph (f) or thereafter within
five years as of the CLOSING DATE shall be shared between
SELLER and PURCHASER in accordance with the preceding
paragraph (2) above. However, SELLER's obligation to share
in such costs shall be subject to the condition that
(aa) the clean-up measures are justified by a reasonable
interest of PURCHASER,
(bb) the clean-up measures are notified to SELLER within
five years as of the CLOSING DATE, and
(cc) the clean-up measures are initiated within seven years
as of the CLOSING DATE at the latest.
(4) The clean-up costs pursuant to the preceding paragraph (3)
above shall be limited to the difference between ordinary
and mandatory (gesetzlich zwingend vorgeschrieben) increased
(special) dumping ground costs. SELLER is liable for such
clean-up costs only if and to the extent the respective
clean-up measures have been carried out (erbracht) within
eight years as of the CLOSING DATE. Article 8.4 (d) shall
not apply.
(5) SELLER shall not be liable for clean-up costs
(aa) which are incurred by reason of statutory provisions or
amended statutes adopted after the CLOSING DATE
("liability exclusion"), it being understood that
SELLER shall remain liable if and to the extent SELLER
would be liable pursuant to the laws applicable on the
CLOSING DATE; however, this liability exclusion shall
neither apply to the bill for a soil protection act
(Bodenschutzgesetz) as presently discussed in the
mediation committee (Vermittlungsausschuss) nor to any
federal or state law, regulations and/or ordinances
connected with or based on the soil protection act (in
the following collectively referred to as the "Soil
Protection Act"); SELLER shall also be
<PAGE>
liable for any clean-up measures and clean-up costs
required under the Soil Protection Act;
(bb) which become necessary because PURCHASER materially
changes the object of the COMPANY; modernisations and
expansions of the production facilities of the COMPANY
and changes based upon the development of the COMPANY'S
now existing market shall not be deemed to constitute a
material change of the object of the COMPANY;
(cc) which are attributable to the fact that PURCHASER has
incriminated himself with the competent environmental
authorities, provided that such self-incrimination is
not based upon a statutory obligation.
(6) If, in the case of construction measures pursuant to
subparagraph (3) above, it transpires that clean-up measures
become URGENT CLEAN-UP MEASURES, for example because
contaminated excavated soil presents a danger to public
safety or public order, the costs shall be governed by
subparagraphs (3) and (4) above. In such event Article 8.4
(d) shall not apply.
Save for the provisions set forth in paragraph (e) hereof and
unless otherwise provided for in this paragraph (iii), SELLER's
obligations under this paragraph (iii) shall lapse upon the
expiry of five years after the CLOSING DATE unless orders of the
regulatory authorities or judgments in favour of third parties
have become enforceable prior to said date, or unless an expert
finding is pending pursuant to paragraphs (l) and (k) below.
(iv) In the event that regulatory authorities or third parties hold
the COMPANY or the SUBSIDIARY liable for (1) carrying out
clean-up measures on the properties mentioned in paragraph (a)
(iii) and (iv) or for (2) costs incurred in connection with
clean-up measures carried out or to be carried out, SELLER shall
hold the COMPANY and the SUBSIDIARY harmless from the full scope
and full amount of all such claims. In the event that the COMPANY
or the SUBSIDIARY are held liable by regulatory authorities or
third parties to carry out clean-up measures or to reimburse
clean-up costs despite this indemnity, SELLER alone shall bear
such costs in their full amount as between SELLER and PURCHASER
or SELLER and the COMPANY. However, SELLER'S liability as to
properties mentioned in paragraph (a) (iv) under this paragraph
(iv) shall be limited to environmental pollution the source of
which lies on a property mentioned in paragraph (a) (iii) and in
the event that the source of the environmental pollution lies on
a property mentioned in paragraph (a) (i) and (ii) the provisions
set forth in paragraph (j) (iii) shall apply.
<PAGE>
(v) SELLER is - unlimited in time - fully liable vis-a-vis PURCHASER,
the COMPANY and the SUBSIDIARY for environmental pollution,
clean-up measures and costs incurred in connection with clean-up
measures as regards the properties listed in paragraph (a) (iii)
and (iv). However, SELLER'S liability as to properties mentioned
in paragraph (a) (iv) under this paragraph (v) shall be limited
to environmental pollution the source of which lies on a property
mentioned in paragraph (a) (iii) and in the event that the source
of the environmental pollution lies on a property mentioned in
paragraph (a) (i) and (ii) the provisions set forth in paragraph
(j) (iii) shall apply.
(k) In the event that PURCHASER or SELLER doubt the EXPERT findings, in
particular in respect of the necessity or the extent of the clean-up
measures, both parties hereto shall instruct an independent EXPERT who
shall finally settle the issues disputed between the PARTIES with binding
effect. In the event that the PARTIES hereto cannot agree on an independent
expert, such EXPERT shall upon request of either party be appointed by the
Bayerische Landesamt fur Umweltschutz (Bavarian Land Authority for
Environmental Protection) or, if such Authority refuses to appoint an
expert, by the President of the Chamber of Industry and Commerce in Munich.
The costs incurred in connection with the EXPERT shall be borne by the
losing party by analogously applying the provisions in sec. 91 et seq. ZPO
(German Code of Civil Procedure).
(l) If the PARTIES hereto fail to agree on the type and extent of environmental
pollution and the necessary clean-up measures and costs, the provisions
contained in paragraph (k) above shall apply mutatis mutandis.
(m) If a third party assumes any possible liabilities of SELLER under this
Article 8.4, PURCHASER shall accept such assumption of liability by such
third party with discharging effect for SELLER (befreiende Schuldubernahme)
if such third party provides PURCHASER with an irrevocable and
unconditional guarantee of a major German bank unlimited in time
(unwiderrufliche, unbedingte, unbefristete Bankburgschaft einer deutschen
GroBbank) in favour of PURCHASER in the amount of DM 20 million.
8.5 Treatment of Accounts Receivable
(a) From and after the CLOSING DATE, PURCHASER shall use commercially
reasonable efforts to collect in full amount each of the accounts
receivable referred to in Article 7.9 (a), provided, however, that
(i) PURCHASER's obligation to use commercially reasonable efforts shall
not require PURCHASER to file any lawsuit or initiate other legal
proceedings against any party to any such accounts receivable, unless
the terms of any existing credit insurance (Kreditversicherung)
provide otherwise in which case SELLER shall bear the costs of such
legal proceedings (unless such costs are covered by the respective
credit insurance), and
<PAGE>
(ii) SELLER shall provide to PURCHASER assistance reasonably requested by
PURCHASER in its efforts to collect such accounts receivable.
In the event that at the expiration of six months after the respective due
dates certain of such accounts receivable shall not have been collected by
the COMPANY or the SUBSIDIARY with commercial reasonable efforts in
accordance with this Article 8.5, SELLER shall, at PURCHASER's election,
acquire these accounts receivable against payment of the respective
uncollected amount subject to any adjustments made in the CLOSING BALANCE
SHEET (Teilwertabschreibung). If PURCHASER decides against the acquisition
by SELLER of any such accounts receivable, SELLER shall be released from
its obligation to compensate PURCHASER for the respective receivables.
(b) Any accounts receivable of the COMPANY within the meaning of Section 266
subsection 2 B. II. 2. and 3. HGB shall be compensated by SELLER to
PURCHASER, if and to the extent such accounts receivable prove to be
uncollectable within ten days after their respective due dates.
8.6 Time Limits
(a) Any warranty claims of PURCHASER arising under Article 7 are excluded if
and to the extent that they are not asserted in writing by March 31, 2000,
24:00 hours, at the latest, save that
(i) any rights or claims with regards to defects in rights (Rechtsmangel)
of the SHARES or the interests in the SUBSIDIARY are subject to the
statutory limitation period,
(ii) any claims resulting from the reassessment of any tax, social security
and comparable charges may be asserted within six months after such
assessment or reassessment of taxes or of social security payment
obligations or comparable charges served upon the COMPANY or the
SUBSIDIARY, as the case may be, has become final, unappealable and
binding upon the respective recipient, and
(iii) any environmental remedies shall have the limitation period set
forth in Article 8.4.
(b) Any claims of PURCHASER under Article 2 or Article 5 shall have a four
years' limitation period as from the CLOSING DATE, with the exception of
any claims under Article 5 (d) which claims shall have a thirty years'
limitation period.
(c) All asserted claims, unless acknowledged by SELLER in writing, shall expire
one year after the foregoing periods, unless court action has been filed
with respect to such claims within such one year period.
8.7 Knowledge
<PAGE>
PURCHASER's possibility to get knowledge of certain facts relating to the
COMPANY, the SUBSIDIARY and the Business shall not release SELLER from its
liabilities under this Agreement, in particular, but not limited to, any
claims based on a breach of any of the representations and warranties
contained in Article 7 hereof, except if and to the extent that any such
fact has been expressly disclosed in the Schedules to this Agreement.
SELLER shall only be released from its liabilities under this AGREEMENT if
PURCHASER has positive knowledge (positive Kenntnis) of certain facts
relating to the COMPANY, the SUBSIDIARY and the BUSINESS. For purposes of
this Article 8.7 it is agreed that PURCHASER is deemed to have positive
knowledge of certain facts only if PURCHASER is precisely aware of (i)
those facts and (ii) the precise legal evaluation and the legal
consequences resulting from those facts. For evidence purposes only (nur zu
Beweiszwecken) a copy of the legal due diligence report (without exhibits
thereto) prepared by PURCHASER's legal counsel has been deposited
(hinterlegt) at the acting notary public a certified copy of which shall be
forwarded by the notary public to SELLER if and to the extent PURCHASER
initiates any claims against SELLER under Article 7 of this AGREEMENT. The
acting notary may destroy the legal due diligence report after December 31,
2007.
<PAGE>
ARTICLE 9
Other Closing and Post-Closing Covenants
9.1 Management of the COMPANY prior to the CLOSING DATE
SELLER undertakes that during the period from the SIGNING DATE until the
CLOSING DATE (i) SELLER will not dispose of any assets nor engage in any
activity or enter into any commitment in this respect outside the ordinary
course of business of the COMPANY or the SUBISIDARY, as the case may be,
unless PURCHASER has agreed thereto in writing; (ii) SELLER will not enter
into any agreement with customers or suppliers which fall outside the
ordinary course of business; (iii) SELLER will not hire or commit to hire
any employee (including freelance) and will not conduct the BUSINESS other
than in the ordinary course as previously conducted, unless PURCHASER has
agreed thereto in writing; and from the EFFECTIVE DATE (iv) SELLER will
grant to PURCHASER and its representatives full access to all premises,
file and bookkeeping documents as well as instruct all employees to
disclose any information to PURCHASER and its representatives if material
for the future conduct of the business of the COMPANY and the SUBSIDIARY.
9.2 Notifications
PURCHASER and SELLER will comply with any applicable post-closing
notification or other legal provision (including trade, cartel or currency
exchange provisions).
9.3 Trade Names, Trademarks
For the avoidance of any doubt, after the CLOSING DATE, SELLER will not
have any right to use, and shall cause its AFFILIATES not to use, any of
the names and trademarks described in EXHIBIT 9.3.
9.4 Costs and TAXES
(a) The costs of this Agreement, i.e. notarial fees, commercial register fees,
publication costs, and filing fees of the Federal Cartel Office or the
competent authorities in the United States or any other country (but
excluding the fees of SELLER'S advisors) incurred in connection with this
AGREEMENT shall be borne by PURCHASER; this applies also with respect to
the real estate transfer tax (Grunderwerbsteuer) triggered by the execution
of this AGREEMENT but, for the avoidance of any doubt, shall not apply to
TAXES referred to in paragraph (c) below.
<PAGE>
(b) SELLER and PURCHASER, respectively, shall bear their own legal, accounting
and consulting fees and any other costs incurred by them in connection with
negotiations and conclusion of this AGREEMENT.
(c) It is expressly understood and agreed between the PARTIES that neither
PURCHASER nor the COMPANY shall be liable for or assume any of the costs or
TAXES including real estate transfer tax (Grunderwerbssteuer) incurred in
connection with any preparatory measures or other steps taken prior to the
CLOSING DATE by SELLER and/or the COMPANY or the SUBSIDIARY, in particular,
but not limited to, any costs or taxes incurred as a result of the transfer
to the COMPANY's interest in GRUNDSTUCKS KG or any of the actions to be
completed by SELLER under Article 2 of this AGREEMENT, except for any real
estate transfer tax triggered by the acceptance of the HEREDITARY BUILDING
RIGHTS EXTENSION OFFER.
9.5 Non-Competition Clause
As from the EFFECTIVE DATE, neither SELLER nor any of its AFFILIATES shall
compete directly or indirectly, for their own account, for the benefit of
third parties, as shareholder, partner or employee or in any other
capacity, with the COMPANY, with regard to the BUSINESS as conducted by the
COMPANY, at the time of the EFFECTIVE DATE. Furthermore, SELLER and its
AFFILIATES will not attempt or effectively entice away any employees
including the managing directors from the COMPANY without a prior written
consent of PURCHASER. The non-competition covenants shall have a duration
of five years as from the CLOSING DATE and shall be restricted to the
present jurisdictions in which the COMPANY conducts the BUSINESS.
9.6 Customer and Supplier Relationships
The PARTIES shall duly co-operate with regard to the smooth transfer of
customer relationships of the COMPANY following the EFFECTIVE DATE. The
same shall apply with regard to the possible termination or continuance of
agreements with sales representatives currently acting on behalf of the
COMPANY which are listed in SCHEDULE 9.7.
ARTICLE 10
CARTEL LAW ISSUES
The PARTIES shall support each other with respect to responding to any
requests by the Federal Cartel Office or any other filing or notification
requirements with other authorities in other countries.
<PAGE>
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 Notices
All notices and other communications required or permitted hereunder shall
be in writing, in the English or German language, and, unless otherwise
provided in this Agreement, will be deemed to have been duly given when
delivered in person or when dispatched by telex or telefax (confirmed in
writing by mail simultaneously dispatched) to the appropriate party at the
address specified below:
If to PURCHASER to:
FiberMark, Inc.
161 Wellington Road
PO Box 498
Brattleboro, VT 05302
USA
Attn: Alex Kwader
Bruce Moore
with a copy to:
BEITEN BURKHARDT MITTL & WEGENER
Leopoldstr. 236, 80807 Munich,
Federal Republic of Germany
Telefax No. (089) 35065-123
Attn: Dr. Christoph Kuhmann
Dr. Jorg Kretschmer
If to SELLER to:
Steinbeis Holding GmbH
Rosenheimer StraBe 88
83098 Brannenburg
Federal Republic of Germany
Telefax No. (08034) 70-240
Attn: Dr. Rainer Kruger-Barvels
Mr. Jorg Rehm
Dr. Hans Ferdinand Steinbeis
<PAGE>
or to such other address or addresses as such party may from time to time
designate as to itself by like notice.
11.2 Successors and Assigns
This Agreement will be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. PURCHASER
shall be entitled to transfer all rights and obligations under this
Agreement to a company affiliated with PURCHASER.
11.3 Amendments
Any amendment to this Agreement must be in writing or (if required by law)
in the form of a notarial deed. This requirement shall also apply to the
waiver of this written form requirement. The term "writing" shall not
include the verbal statement of one of the PARTIES which is reflected in
the confirmation letter of one of the PARTIES.
11.4 Severability
(a) In the event that one or several provisions of this Agreement should be
invalid or unenforceable, or if this Agreement should be incomplete, the
validity of and enforceability of the other provisions of this Agreement
shall not be affected thereby. In such case, the PARTIES hereto shall
replace the invalid provision by such valid and enforceable provision or by
such provision completing this Agreement which is or which are commensurate
with the commercial intent of this Agreement as of the date hereof.
(b) In the event that the prohibition to compete pursuant to Article 9.5 of
this AGREEMENT is declared to be void by an unappealable decision of a
court due to its coverage as to time or contents, then a scope of this
provision as to time and/or contents shall be deemed to apply which comes
closest to the void prohibition to compete which would be considered as
being effective by the competent court. This shall not affect the validity
of the remaining provisions of this AGREEMENT.
<PAGE>
11.5 Confidentiality
(a) SELLER shall, and shall cause its representatives, to hold in strict
confidence, and not use for any commercial purpose or provide to any third
party, any confidential information of any kind concerning PURCHASER,
FiberMark, Inc. and any enterprises affiliated with PURCHASER. The term
"confidential information" shall mean facts and circumstances of any kind
which are not publicly known, including trade and business secrets.
(b) The foregoing obligations regarding confidentiality shall apply
correspondingly to the obligation of PURCHASER with respect to any
confidential information regarding the SELLER and/or the COMPANY and/or the
BUSINESS.
(c) The PARTIES shall not disclose the terms of this AGREEMENT, in particular
the purchase price stipulated herein, to any third party that is not
entitled to receive such information. Such disclosure may, however, be made
to direct or indirect shareholders of PURCHASER, to any person providing
any debt or equity finance to or investing in PURCHASER or its AFFILIATES
and related parties, or to any professional advisor or any public or
governmental authority in Germany or any other country. The PARTIES will
endeavour to jointly agree on press releases relating to this AGREEMENT.
PURCHASER shall have the right to release and file any information required
by law.
11.6 Applicable Jurisdiction
(a) This Agreement and the legal relations among the PARTIES shall be governed
by and construed in accordance with the laws of the Federal Republic of
Germany.
(b) All disputes arising in connection with this AGREEMENT or related thereto
shall be finally settled by arbitration under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce with a tribunal of
three arbitrators with sufficient proficiency in both the German and the
English language, who shall be appointed in accordance with the said Rules,
and which arbitration shall be conducted in the German language; however,
this AGREEMENT or any other agreements or instruments which have been
signed and/or executed in the English language shall be introduced in the
arbitration proceedings in the English language. The place of arbitration
shall be Munich. In as far as the said Rules do not provide procedural
regulations, the statutory provisions of the ZPO (German Code of Civil
Procedure) shall apply.
(c) To the extent that any documents of or related to the COMPANY or the
SUBSIDIARY are not in possession of the COMPANY or the SUBSIDIARY,
respectively, in the event of arbitration SELLER shall upon request of
PURCHASER disclose and, at PURCHASER's expense, provide copies of any these
documents if SELLER or any of its AFFILIATES is in possession of such
documents.
<PAGE>
11.7 European Economic and Monetary Union
The European Union anticipates the introduction of a single currency and
substitution of the national currencies of Member States participating in a
Monetary Union. On the date on which the Deutsche Mark is replaced by
single currency, conversion into such currency shall take effect. The
denomination of the original currency shall be retained for so long as this
is legally permissible. Conversions shall be based on the officially fixed
rate of conversion. Neither the introduction of the single currency nor the
substitution of the national currencies of the Member States participating
in such Monetary Union nor the fixing of the official rate of conversion
nor any economic consequences that arise from any of the aforementioned
events or in connection with such Monetary Union shall give rise to any
right to terminate prematurely, contest, cancel, rescind, modify, or
renegotiate this AGREEMENT or any of its provisions or to raise any other
objections and/or exceptions or to assert any claims for compensation. This
AGREEMENT shall continue in full force and effect in accordance with its
terms; in particular, interest rates which have been set for an interest
period shall remain unchanged for such interest period, subject to any
mandatory provisions.
<PAGE>
List of Exhibits
EXHIBIT 1.2 Consent of COMPANY to Sale and Assignment as well as
Corresponding Shareholder Resolution of SELLER
EXHIBIT 2.1 DM 8 Million Loan Agreement
EXHIBIT 2.2 Expansion Land Option and Preemption Right Agreement
EXHIBIT 2.3 Bonus Schedule
EXHIBIT 2.4 Termination of Profit and Loss Take-Over Agreement and
Corresponding Shareholder Resolutions
EXHIBIT 2.5 Pension Transfer Agreement
EXHIBIT 2.6 Hereditary Building Rights Extension Offer
EXHIBIT 2.7 Other Undertakings
EXHIBIT 2.8 Seller's Environmental Commitment
EXHIBIT 3.2 Preliminary Declaration of Approval of the Landeszentralbank
EXHIBIT 3.3 Sample Calculation for Audited Net Closing Balance Sheet
Value
EXHIBIT 4.1 Guarantee for Loan Agreement
EXHIBIT 6.1 Commercial Register Excerpts of Each Purchaser
EXHIBIT 9.3 Trade Names, Trademarks
The Company will provide supplementally to the Commission a copy of any
omitted exhibit upon request.
<PAGE>
List of Schedules
SCHEDULE 7.1 Commercial Register Excerpts of SELLER, the COMPANY, the
SUBSIDIARY and GRUNDSTUCKS KG
SCHEDULE 7.3 Articles of Association of COMPANY and Limited Partnership
Agreement of SUBSIDIARY
SCHEDULE 7.6 Real Property and Leaseholds
SCHEDULE 7.8 Intangible Property Rights
SCHEDULE 7.9 Accounts Receivable and Inventory
SCHEDULE 7.10 Contracts or Agreements with Affiliates
SCHEDULE 7.11 Bank Accounts
SCHEDULE 7.13 Powers of Attorney and Suretyships
SCHEDULE 7.14 Labour and Employment
SCHEDULE 7.16 Important Contracts
SCHEDULE 7.18 Insurances
SCHEDULE 7.22 Taxes
SCHEDULE 7.23 No Undisclosed Liabilties
SCHEDULE 7.24 Litigation
SCHEDULE 7.25 Compliance with Law and Agreements
SCHEDULE 7.27 Absence of Changes
SCHEDULE 8.4 Environmental Examination Plan
SCHEDULE 9.7 Customer and Supplier Relationships
The Company will provide supplementally to the Commission a copy of any
omitted schedule upon request.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF WHITE & CASE]
December 15, 1996
FiberMark, Inc.
161 Wellington Road
P.O. Box 498
Brattleboro, VT 15302
Dear Sirs:
We refer to Amendment No. 2 to the Registration Statement on Form S-3
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), in the form in which it is to be filed today by
FiberMark, Inc., a Delaware corporation ("FiberMark"), with the Securities
and Exchange Commission (the "Commission"), relating to the issuance by
FiberMark of up to 1,725,000 shares of common stock, par value $0.001 per
share, of FiberMark (the "Securities").
We have examined the originals, or photostatic or certified copies, of such
records of FiberMark, certificates of officers of FiberMark and of public
officials and such other documents as we have deemed relevant and necessary as
the basis for the opinion set forth below. We have relied upon such
certificates of public officials and such certificates of officers of FiberMark
and statements and information furnished by officers of FiberMark with respect
to the accuracy of material factual matters contained therein which were not
independently established. In such examination we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as photostatic or certified copies, and the authenticity of the originals of
such copies.
Based upon our examination mentioned above, subject to the assumptions
stated, it is our opinion that the Securities, upon issuance by FiberMark as
contemplated in the Registration Statement and any amendments thereto, will have
been duly authorized by FiberMark, will be legally issued, fully paid and
nonassessable.
We consent to the filing of this opinion as an exhibit to Amendment No.
2 to the Registration Statement and to the reference to our firm appearing
under the caption "Validity of Common Stock" in the Prospectus forming part
of the Registration Statement. In giving this consent, we do
<PAGE>
not thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act or the Rules and Regulations of
the Commission.
Very truly yours,
White & Case
<PAGE>
EXHIBIT 10.29
LOAN AGREEMENT
This Agreement is made as of November 24, 1997 between Steinbeis Holding
GmbH, a company with limited liability organized under the laws of the
Federal Republic of Germany, registered in the commercial register of the
municipal court of Traunstein under No. HRB 6018 and having its registered
office at Brannenburg (hereinafter referred to as "LENDER") and Steinbeis
Gessner GmbH, a company with limited liability organized under the laws of
the Federal Republic of Germany, registered in the commercial register of the
municipal court of Traunstein under No. HRB 112 and having its registered
office at Brannenburg (hereinafter referred to as "BORROWER").
WHEREAS, BORROWER requests additional funding, and LENDER is willing to grant
such funding.
WHEREAS, LENDER is the sole shareholder of BORROWER and intends to sell and
assign its shares in BORROWER to wholly owned subsidiaries of FiberMark,
Inc., a corporation under the laws of the State of Delaware, United States,
pursuant to the terms and conditions of a certain share purchase agreement
(hereinafter referred to as the "SHARE PURCHASE AGREEMENT") to be entered
into after conclusion or this Agreement.
WHEREAS, the loan to be granted to BORROWER by LENDER under this Agreement
shall also serve as collateral for any warranty claims of BORROWER or
assigned to BORROWER under the SHARE PURCHASE AGREEMENT.
THEREFORE, it is agreed as follows:
ARTICLE 1
THE LOAN
LENDER hereby grants to BORROWER a loan (Darlehen) within the meaning of
Section 607 BGB (German Civil Code) in the principal amount of DM 8,000,000
(eight million Deutsche Mark) and BORROWER hereby accepts such loan.
Payment of the principal amount of DM 8,000,000 shall be made by banker's
cheque (LZB-Scheck) on the CLOSING DATE as defined in the SHARE PURCHASE
AGREEMENT in accordance with the provisions of Article 3.2 (a) of the said
SHARE PURCHASE AGREEMENT.
<PAGE>
ARTICLE 2
TERM
The loan shall have a fixed term (feste Laufzeit) until March 31, 2001.
Subject to Article 7, any payment of principal or interest shall be made in
German currency .
ARTICLE 3
INTEREST
The principal amount of the loan or any outstanding remainder thereof
shall bear interest from the date following the day of payment of the
principal amount pursuant to Article 1 at a fixed rate per annum of 5% (five
percent). Such interest shall be due and payable on the dates set forth in
Article 4 hereof.
ARTICLE 4
REPAYMENT OF THE LOAN
The loan shall be due for repayment in three installments in the amounts and on
the dates set forth below:
(a) The first installment in the principal amount of DM 2,000,000 (two million
Deutsche Mark) plus accrued interest (aufgelaufene Zinsen) shall be paid on
March 31, 1999;
(b) The second installment in the principal amount of DM 2,000,000 (two million
Deutsche Mark) plus accrued interest shall be paid on March 31, 2000;
(c) The final installment in the principal amount of DM 4,000,000 (four million
Deutsche Mark) plus accrued interest shall be paid on March 31, 2001.
At any time, BORROWER shall have the right to prepay part or all of the
outstanding principal of the loan without any damage or compensation payments
whatsoever, in particular, but not limited to, any acceleration damages
(Vorfalligkeitsentschadigung).
ARTICLE 5
ASSIGNMENT, SET-OFF, RIGHT OF RETENTION
<PAGE>
It is agreed between LENDER and BORROWER that LENDER shall not have the right
to assign or otherwise transfer the loan or any repayment claims under such
loan to any third party, including, but not limited to, any of its
affiliates.
To the extent Section 354a HGB (German Commercial Code) acknowledges an
assignment contrary to the aforementioned prohibition of assignment, LENDER
and BORROWER agree that, notwithstanding any other statutory rights, BORROWER
shall in particular have the rights pursuant to Section 354a second sentence
HGB, including but not limited to the right to set-off and charge against
(aufrechnen und verrechnen) any claims against LENDER which BORROWER may have
or which may have been assigned to BORROWER (in particular, but not limited
to, any claims under the SHARE PURCHASE AGREEMENT) against any repayment
claims under this Agreement disregarding when such claims of BORROWER have
arisen. To the extent permissible under mandatory statutory provisions, the
same shall apply with respect to any right of retention of BORROWER
(Zuruckbehaltungsrecht).
ARTICLE 6
AMENDMENTS, MODIFICATIONS, TERMINATION
It is agreed between LENDER and BORROWER that an amendment to, a
modification of or a termination of this Agreement shall be made in writing.
ARTICLE 7
EUROPEAN ECONOMIC AND MONETARY UNION
The European Union anticipates the introduction of a single currency and
substitution of the national currencies of the Member States participating in
a Monetary Union. On the date on which the Deutsche Mark is replaced by a
single currency, conversion into such currency shall take effect. Conversion
shall be based on the official fixed rate of conversion. The denomination of
the original currency shall, however, be retained for so long as this is
legally permissible.
Neither the introduction of the single currency nor the substitution of the
national currencies of the Member States participating in such Monetary Union
nor the fixing of the official rate of conversion nor any economic
consequences that arise from any of the aforementioned events or in
connection with such Monetary Union shall give rise to any right to terminate
prematurely, contest, cancel, rescind, modify, or renegotiate this Agreement
or any of its provisions or to raise any other objections and/or assert any
claims for compensation. This Agreement shall remain in full force and effect
in accordance with its terms; in particular, interest rates which have been
set for an interest period shall remain unchanged for such interest period,
subject to any mandatory provisions.
<PAGE>
ARTICLE 8
SEVERABILITY
In the event that one or several provisions of this Agreement should be
invalid or unenforceable, or if this Agreement should be incomplete, the
validity of and enforceability of the other provisions of this Agreement
shall not be affected thereby. In such case, LENDER and BORROWER shall
replace the invalid provision by such valid and enforceable provision or by
such provision completing this Agreement which is or are commensurate with
the commercial intent of this Agreement as of the date hereof. In the event
that Article 5 of this Agreement, in whole or in part, is declared to be void
by an unappealable decision of a court due to its coverage, then a scope of
this provision shall be deemed to apply which comes closest to the void
provision which would be considered as being effective by the competent
court. This shall not affect the validity of the remaining provisions of this
Agreement.
ARTICLE 9
GOVERNING LAW, ARBITRATION
This Agreement shall be governed by and construed in accordance with the laws
of the Federal Republic of Germany. All disputes arising in connection with
this Agreement or related thereto shall be finally settled by arbitration
under the Rules of Conciliation and Arbitration of the International Chamber
of Commerce with a tribunal of three arbitrators with sufficient proficiency
in both the German and the English language, who shall be appointed in
accordance with the said Rules, and which arbitration shall be conducted in
the German language; however, this Agreement or any other agreements or
instruments which have been signed and/or executed in the English language
shall be introduced in the arbitration proceedings in the English language.
The place of arbitration shall be Munich. In as far as the said Rules do not
provide procedural regulations, the statutory provisions of the ZPO (German
Code of Civil Procedure) shall apply.
IN WITNESS HEREOF, this Agreement has been executed as of the date first above
written.
Steinbeis Holding GmbH Steinbeis Gessner GmbH
_____________________ ________________________
<PAGE>
GUARANTEE
FiberMark, Inc., a corporation organized under the laws of the State of
Delaware, United States, hereby assumes a guarantee (Burgschaft) within the
meaning of Section 765 BGB (German Civil Code) towards Steinbeis Holding GmbH
(hereinafter referred to as "LENDER") for any payment obligations of
Steinbeis Gessner GmbH (hereinafter referred to as "BORROWER") pursuant to
the terms and conditions of a certain Loan Agreement between LENDER and
BORROWER of November 24, 1997 in the principal amount of DM 8,000,000 (eight
million Deutsche Mark) which are either (i) undisputed between LENDER and
BORROWER or (ii) which have been determined by final arbitration court
decision against BORROWER, if and to the extent that BORROWER has failed to
fulfill its payment obligations under this Agreement within a period of one
month after justified demand for payment by LENDER, it being understood that
if the foregoing requirements are satisfied LENDER shall have the right to
initiate court proceedings against FiberMark, Inc. directly without taking
any further legal action against BORROWER.
This guarantee shall expire either (i) if the certain Share Purchase
Agreement of November 26, 1997 according to which the shares in BORROWER are
sold and assigned by LENDER to wholly owned subsidiaries of FiberMark, Inc.
is terminated by way of rescission or otherwise for whatever legal reason, in
which case this guarantee shall expire with immediate effect or (ii) on the
date when all payment claims under the Loan Agreement have been finally
settled.
FiberMark, Inc. Steinbeis Holding GmbH
____________________ _______________________
<PAGE>
EXHIBIT 10.30
Translation
Page 1 of 17
Notarial Instrument
Werner Schiebel
Notary Public
83022 Rosenheim
<PAGE>
Translation
Page 2 of 17
Certified Copy
[Emblem]
Werner Schiebel, Notary Public
(address)
I hereby certify that the attached copy is a true and complete copy of
the original submitted to me.
Rosenheim, dated 17 November 1997
[signed]
Notary Public
<PAGE>
Translation
Page 3 of 17
Notary's Document Register No. 3136/1997 S
Offer to enter into a contract of sale
(with the obligation to tender)
Today, this thirteenth day of November
nineteen hundred ninety seven
13 November 1997 -
there appeared before me
Werner Schiebel,
notary public in Rosenheim, in my official residence in Rosenheim, Rathausstr.
15/11:
1. Dr. Hans-Ferdinand Steinbeis,
lawyer in 83098 Brannenburg,
here not acting in his own name but, in his capacity as registered director
(Geschaftsfuhrer having individual power of representation, for and on
behalf of
Steinbeis Beteiligungs GmbH
with its seat in Brannenburg
(business address: Rosenheimer Str. 88, 83098 Brannenburg),
which company, in its capacity as general partner having individual power
of representation, is in turn acting for and on behalf of
Steinbeis GmbH & Co. Grundstucksverwaltungs KG
with its seat in Brannenburg
(business address as above).
2. Dr. Walter Haegler, registered director
and
Mr. Jens-Peter Heins, Prokurist (NB: person vested with general commercial
power of attorney),
<PAGE>
Translation
Page 4 of 17
both here not acting in their own name but for and on behalf of
Steinbeis Gessner GmbH
with its seat in Brannenburg
(business address: Rosenheimer Str. 88, 83098 Brannenburg).
In this respect I, after having inspected the commercial register kept with
the Amtsgericht (local court) Traunstein - Registry Court - on 21 October
1997, confirm that
- Steinbeis Beteiligungs GmbH with its seat in Brannenburg is registered
therein under HRB no. 7167, and that Dr. Hans-Ferdinand Steinbeis has
individual power to represent the company-,
- Steinbeis GmbH & Co. Grundstucksverwaltungs KG with its seat in
Brannenburg is registered therein under HRA no. 6456, and that
Steinbeis Beteiligungs GmbH is the sole personally liable (General)
partner of such company;
- Steinbeis Gessner GmbH with its seat in Brannenburg is registered
therein under HRB no. 112, and that Dr. Walter Haegler as registered
director and Mr. Jens-Peter Heins as Prokurist are authorised to
represent the said company jointly.
The persons appearing are personally known to me, the recording notary
public.
I have satisfied myself as to the entries in the land title register.
The persons appearing declare the following:
A. Offer
Steinbeis GmbH & Co. Grundstucksverwaltungs KG with its seat in Brannenburg
offers
Steinbeis Gessner GmbH with its seat in Brannenburg to enter into the following
<PAGE>
Translation
Page 5 of 17
Contract for the Sale of Land:
1. Preamble
According to the entry in the land title register of the Amtsgericht Rosenheim
of
Vagen
folio 1257
Gessner & Co. GmbH, now trading under the name "Steinbeis Gessner GmbH" is the
sole owner of the following property:
Local subdistrict of Vagen
Plot no. 2548 "Brunnlstauden", greenland-field,
having a size of 21,535 m(2)
In Section III this property is not encumbered, whereas the following
encumbrances are registered in Section 11:
- - right to lay cables (Kabelrecht) in favour of Isar-Amperwerke AG, Munich
- - right to conduct dirty water (Schmutzwasserleitungsrecht) in favour of the
municipality of Feldkirchen-Westerham
- - priority notice of conveyance concerning a fractional tract of land in
favour of the municipality of Feldkirchen-Westerham.
The priority notice of conveyance is based on the instrument of the notary
public Dr. Gunter Grassmann in Bad Aibling dated 18 January 1995, Doc. Reg.
No. 106. The result of the measuring is already available. Pursuant to the
official record of changes no. 1419, local subdistrict of Vagen, the measured
fractional tract of the land has a size of 94 m(2) so that after execution of
the official record of changes the remaining property is defined as follows:
Plot no. 2548 "Brunnlstauden", greenland - field,
having a size of 21,441 m(2)
Pursuant to the recording notary public's instrument dated 26 November 1996,
Doc. Reg. No. 3625, Steinbeis Gessner GmbH contributed the plot no. 2548,
less the fractional tract of 94 M2 under the official record of changes no.
141, local subdistrict of Vagen, to Steinbeis GmbH & Co.
Grundstucksverwaltungs KG, Brannenburg. The transfer of title is registered
upon execution of the above-mentioned official record of changes no. 1419,
local subdistrict of Vagen.
The following agreements shall relate to the property plot no. 2548 remaining
after execution of the official record of changes, having a size of 21,441
m(2).
<PAGE>
Translation
Page 6 of 17
2. Sale
Steinbeis GmbH & Co. Grundstucksverwaltungs KG, Brannenburg, - in the following
referred to as the "Seller"-
sells to
Steinbeis Gessner GmbH, Brannenburg,
- - in the following referred to as the "Purchaser"
for sole ownership
the property plot no. 2548 with a size of 21,441 m(2) as more particularly
defined in Clause 1 of this instrument, together with any and all rights,
fixtures and the statutory accessories.
3. Purchase Price
3.1 The purchase price shall amount to DM 4,000,000
- four million Deutschmarks -.
This purchase price shall be increased by the development charges which are
to be borne by the Purchaser pursuant to the agreements set forth in Clause
5.2 hereof.
3.2 The overall purchase price, excluding interest, shall be due for payment as
soon as the notary public has confirmed to the Purchaser in writing that
a) for the purposes of protecting the claim for transfer of title, a
priority notice of conveyance, which may be subordinate to the
easements specified in Clause 1 hereof (cable right in favour of
Isar-Amperwerke AG and right to conduct dirty water in favour of the
municipality of
<PAGE>
Translation
Page 7 of 17
Feldkirchen-Westerham) has been registered in favour of the Purchaser in
the land title register,
b) the public law permissions which are required for the legal validity
of the contract of sale concluded atter acceptance ot the otter, at
present in particular under the Real Estate Transactions Act have been
given, and
c) the notary public has been provided with a declaration in due form
concerning the non-existence or waiver of the right of first refusal
under the German Building Code.
The notary public is requested to notify the parties hereto if and when the
conditions of the due date have been met.
3.3 The Seller's account yet to be specified shall be credited with the due
purchase price by no later than 10 days after the Purchaser has received
the notary public's written confirmation that the above agreed conditions
of the due date have been met.
3.4 In the event of default in payment, the amount due shall, as of the first
day in default, bear interest at a rate of 3.5% - three point five per cent
- p.a. above the discount rate of the German Bundesbank from time to time.
The interest shall be due immediately. The right to claim compensation of
any further damage caused by default shall remain unaffected.
4. Obligation of Conveyance, Priority Notice
The parties hereto mutually undertake to transfer and accept titie to the
land and to give any other declaration required for the execution and
registration of the transaction in the land titie register by entering into a
supplement to this instrument immediately after the offer has been accepted
and after any and all payment obligations assumed by the Purchaser towards
the Seller under this instrument have been satisfied.
The Seller irrevocably consents to and the Purchaser, for the purposes of
protecting his claim for transfer of titie to the contractual property,
applies for the registration of a
priority notice pursuant to sec. 883 BGB (German Civil Code)
in favour of the Purchaser.
<PAGE>
Translation
Page 8 of 17
The Purchaser shall apply for the cancellation of the priority notice upon the
registration of conveyance, provided that in the meantime no registrations which
might affect his claim have been made without his consent.
5. Possession, Profits and Enjovrnent, Encunibrances
5.1 Delivery of possession shall be effected upon the date the Seller's account
is credited with the purchase price (value date on the Seller's account).
Profits and enjoyment as well as all encumbrances and charges, the risk of
deterioration and the duty to maintain safety shall devolve upon the
Purchaser as of the same time.
5.2 Development charges under the German Building Code and all other charges
and development costs for public-utility installations and waste disposal
systems, streets, sidewalks and other installations pursuant to statutory
provisions, in particular pursuant to the Local Rates Act, in relation to
which official notices of costs or charges are served as of today's date
shall be borne by the Purchaser.
Any such development costs in the broadest sense shall also be borne by the
Purchaser if they are attributable to development measures taken in the
past. However, the Seller represents that there are no amounts outstanding
on official notices of costs or charges already served.
The parties involved have been informed about sec. 134 German Building Code
according to which the person having title to the property at the time of
service of the official notice of charge shall be liable towards the
municipality for such charges. In the event that the municipality holds one
contracting party liable contrary to the above agreements, the contracting
parties shall be obliged to internally arrange for a compensation in
accordance with the above agreements, i.e. after acceptance of this offer
the Purchaser should pay to the Seller, in addition to the purchase price
agreed in Clause 3, any and all charges which the Seller might have paid,
plus 3.5% interest above the discount rate of the German Bundesbank from
time to time as of the date of payment of such charges by the Seller until
receipt of the increased purchase price.
5.3 The contractual property is let on lease. The present lease expires on 31
December 1998. lt is tacitly extended by one calendar year unless the lease
agreement is terminated on or before 30 September of a year to the end of
the year.
<PAGE>
Translation
Page 9 of 17
The Seller undertakes to terminate the lease upon the Purchaser's request
and, without the Purchasers consent, neither to let nor to lease the
contractual property again. As far as the existing lease or tenancy or
lease relationships entered into with the Purchaser's consent are
concerned, the Purchaser shall enter into any and all rights and
obligations thereunder as of the date of delivery of possession.
6. Warranty
6.1 The Seller shall be liable for the unhindered transfer of possession and
titie and for the freedom of the contractual property from any charges or
encumbrances registered in the land title register to the extent such
charges or encumbrances are not expressly assumed by the Purchaser in this
instrument.
However, the Seller shall not be liable for the condition and possibilities
of use of the contractual property, the correctness of the measurements
stated in this instrument, the freedom from environmental pollution
(Altiasten) and ancient rights or easements (altrechtliche
Dienstbarkeiten). The Seller is not aware of such easements or
environmental pollution affecting the contractual property.
6.2 The easements specified in Clause 1 of this instrument are assumed by the
Purchaser for further toleration and allowance, together with all
obligations resulting from the consents to the entry in the land register.
The Purchaser is aware of the content of such rights.
6.3 After having discussed the statutory provisions relating to the Sellers
liability for defects, the parties hereto expressly agree that the Seller's
liability for defects shall be excluded, irrespective of whether such
defects are patent or hidden. The Seller has been instructed that he may
not be exempt from liability for hidden defects if he is aware of such
defects but fails to disclose them to the Purchaser. The Seller hereby
represents that he is not aware of any hidden defects in or on the
contractual property.
6.4 The Seller's statutory liability for defects in title shall not be deemed
affected by the above provisions.
7. Authorisation of the Notary Public
The parties involved hereby instruct and authorise the notary public to enquire
with the municipality of Feldkirchen-Westerham after acceptance of the offer as
to whether
<PAGE>
Translation
Page 10 of 17
there exists any statutory right of first refusal, to give a notice pursuant
to sec. 510 BGB if appropriate, and to give, obtain and receive any necessary
permission, release, cancellation and other declaration suitable for the
execution, as well as to file, amend or withdraw any application for
registration.
B. Period Allowed for Acceptance
In order to take legal effect, this offer shall be accepted on or before
31 December 2000
- - the thirty-first day of December of the year two thousand -.
This period shall be deemed complied with if acceptance of the offer is
recorded by a notary public within such period. The Seller expressly waives
the service of the declaration of acceptance. However, the notary public
recording the acceptance is hereby irrevocably instructed to deliver an
official copy of the deed of acceptance to the Seller and the notary public
recording this offer immediately after acceptance of the offer. In this
connection, express reference is made to the period allowed for submitting
the consent to the cancellation of the priority notice pursuant to Clause D.2
of his instrument.
C. Condition of Acceptance
This offer shall be deemed validly and effectively accepted by the Purchaser
only when accepted as a whole and unconditionally.
The effective acceptance of this offer shall be subject to the condition that
the Purchaser gives the following declarations in the instrument relating to
the acceptance of the offer:
"With reference to the deed of offer, the Purchaser consents to immediate
execution under this deed levied upon his entire property in relation to any
and all obligations for payment of money incurred or assumed under the
Contract for the Sale of Land.
The notary public is authorised to issue an enforceable copy of this deed at
any time without evidence of the facts justifying the enforceability.
Furthermore, the Purchaser grants and gives to the recording notary public the
same authorisations and instructions as are granted or given in the deed of
offer."
<PAGE>
Translation
Page 11 of 17
D. Priority Notice
1. The Seller hereby
applies
that the priority notice for the protection of the Purchaser's claim for
transfer of titie as consented to in Clause A. 4 hereof be registered in the
land title register in the event that the offer is accepted.
The Seller has been instructed that a notarially certified declaration of the
recipient of the offer is required for the cancellation of this priority
notice even if the offer is not accepted.
The priority notice shall be subordinate to the easements specified in Clause
A.1. However, it may be registered at the best order of rank possible if the
notary public expressly applies therefor.
2. The Purchaser hereby
consents to
the cancellation of such priority notice. The notary public is instructed to
submit this consent to the cancellation together with the application for
registration to the land title register only if he will not have received an
instrument concerning the acceptance of this offer on or before 28 February
2001. Until such time it shall only be permissible to issue extracts from
certified copies or official copies of the present instrument, exciuding the
above consent to the cancellation of the priority notice.
E. Power of Attorney
In the event that the offer is accepted, the Seller shall grant the Purchaser,
releasing him from the restrictions set forth in sec. 181 BGB,
power of attorney
for the purposes of declaring conveyance and giving any and all declarations in
the name of the Seller as may be necessary for the execution and registration of
the Contract for the Sale of Land in the land title register.
<PAGE>
Translation
Page 12 of 17
The Purchaser may exercise this power of attorney effectively only before the
recording notary public, his officially appointed deputy or his successor in
office. These persons are irrevocably authorised to record the conveyance
only if either
- - the purchase price, prior to the notarial recording of the conveyance, is
deposited with the notary public's trust account with the instruction to
pay such amount to the Seller after the conditions of the due date agreed
upon in Clause A.3.2 hereof have been met, or
- - for the purposes of securing payment of the purchase price, the Seller has
been provided with an irrevocable and continuing guarantee issued by a
financial institution licensed to do business within Germany, which
guarantee contains a waiver of the defences pursuant to sec. 770 and sec.
771 BGB and a waiver of the right to be released from the guarantee upon
deposit, with the costs of the guarantee or in reiation to the fiduciary
transaction via the notary public's trust account to be borne by the
Purchaser, or
- - the Seller has confirmed to the notary public in writing that the purchase
price has been paid.
F. Obligation to Tender
In the event that the offer is not accepted by Steinbeis Gessner GmbH,
Brannenburg, in due time on or before 31 December 2000, the following
Obligation to Tender
is agreed between
Steinbeis GmbH & Co. Grundstucksverwaltungs KG, Brannenburg,
- - in the following referred to as the "KG" -
and
Steinbeis Gessner GmbH, Brannenburg,
- - in the following referred to as the "GmbH" -
1. The obligation to tender shall commence on 1 January 2001 and cease on 31
December 2007.
<PAGE>
Translation
Page 13 of 17
2. lf the KG sells the property to any partner of the KG or any company
affiliated with the partner of the KG within the meaning of sec. 15 German
Stock Corporation Act, or any private individual holding a direct or
indirect share in the KG, the contracting parties agree that the tendering
purchase price shall amount to
DM 4,000,000
(four million Deutschmarks).
Such tendering purchase price shall be increased by the difference between
the agreed tendering price of DM 4 million and the fair market value of the
contractual property at the time the offer is submitted by the GmbH (cf.
Clause 5 below), provided that such amount shall not exceed the amount by
which the tendering purchase price of DM 4 million would rise if it
increased in the same proportion as the cost-of-living index of all private
households in Germany (on the basis of 100 in 1991) as established by the
Federal Statistics Office in VViesbaden has risen as against the index
established for the month January 2001.
In the event that the contracting parties fail to agree on the fair market
value at the relevant time, such value shall be determined by two sworn
experts, one of whom to be appointed by either party. lf either party fails
to designate an expert within fourteen calendar days after having so been
requested by the other party, such expert shall upon request be designated
by the President of the Chamber of Industry and Commerce for Munich and
Upper Bavaria in Munich. lf the experts come to different results, the
arithmetic mean of the expert opinions shall be authoritative for the
amount of the fair market value.
The contracting parties assume that the above agreement is not subject to a
permission pursuant to sec. 3 (2) Currency Act. They nonetheless instruct
the recording notary public to obtain a confirmation from the Land Central
Bank in Bavaria that the agreements reached are not subject to consent or
permission.
3. lf the property is not sold to any of the persons pursuant to Clause F.2
(third parties), the tendering price shall correspond to the purchase price
agreed with the third party.
4. The KG undertakes to give the GmbH a right of first refusal before selling
it to the persons specified in Clause F.2 and F.3. The offer shall be
submitted in writing and include the compiete version of the draft contract
for the sale of land.
<PAGE>
Translation
Page 14 of 17
5. VVithin a period of three months after receipt of the written offer, the
GmbH shall be entitled to submit a binding and notarially recorded offer
for the purchase of the property on the terms and conditions notified in
writing. The KG shall be obliged to accept such notarially recorded and
binding offer within a period of four weeks after receipt thereof.
6. lf the GmbH fails to submit the purchase offer in due time and form, the
obligation to tender shall cease. In this case the KG may seil the
property to any person whosoever within a further period of six months
after the KG has submitted its written offer to the GmbH, provided,
however, that the property shall not be sold at a price or on terms and
conditions which are less favourabie to the KG than the terms and
conditions set out in the first written offer.
7. The obligation to tender shall revive unless the KG has sold the property
within six months after submission of the first written offer, or if the
property is sold at a price or on terms and conditions which are less
favourabie to the KG than the terms and conditions set out in the first
written offer.
8. Any infringement of the above obligation to tender shall give rise to a
contractual penalty amounting to
DM 1,000,000
(one million Deutschmarks)
which the KG shall pay to the GmbH. In addition, the GmbH reserves the
right to claim any further damages. Such damages shall be credited against
the contractual penalty.
For the purposes of securing this conditional payment obligation, the KG
creates an
uncertificated land charge
on the property plot no. 2548, local subdistrict of Vagen, in the amount of
DM 1,000,000
(one million Deutschmarks)
and
consents to and applies for
<PAGE>
Translation
Page 15 of 17
the registration of such land charge in the land title register at the best
order of rank possible, however, subordinate to the priority notice
pursuant to Clause D.
As regards the conditional payment obligation, there is no demand for
submission to immediate execution in rem or in personam.
The costs incurred in relation to the registration in the land title
register shall be borne by the KG.
9. The parties involved do not wish that the conditional claim for transfer of
title under the above agreed obligation to tender be secured in rem by the
registration of a priority notice pursuant to sec. 883 BGB.
G. Instructions
The parties involved have been instructed by the notary public that
- - any agreements must be recorded correctly and completely, and that any
nonrecorded arrangements are null and void and may question the validity of
the entire agreement;
- - both contracting parties are jointly and severally liable for the payment
of the costs and fees payable to the court and the notary public as well as
for the real estate transfer tax;
- - the property is liable for any public fees and charges in arrears,
including but not limited to development charges, if any;
- - title to the property is transferred to the Purchaser not until after
conveyance has been registered in the land title register. Transfer of
title can be registered only if and when this offer has been accepted,
conveyance has been declared, the required permissions and negative
confirmations concerning the statutory right of first refusal have been
issued, and if and when the tax certificate of non-objection has been
given;
the property may be subject to a statutory right of first refusal under the
German Building Code;
a permission under the Real Estate Transactions Act is required in order
that the contract for the sale of land concluded after acceptance of the
offer can take legal effect.
<PAGE>
Translation
Page 16 of 17
H. Costs, Official Copies, Copies
1. The costs incurred in the relation to the notarisation of this offer, as
well as the costs incurred in relation to the registration of the priority
notice of conveyance pursuant to Clause D shall be borne by Steinbeis GmbH
& Co. Grundstucksverwaltungs KG, Brannenburg.
The costs incurred in relation to the Purchaser's acceptance, the
permissions required for the execution of the contract for the sale of land
concluded by his acceptance, the costs of the execution and registration of
the contract for the sale of land concluded by his acceptance in the land
title register, as well as the real estate transfer tax shall be borne by
the Purchaser.
2. Official copies/Copies of this instrument shall be delivered immediately to
Steinbeis Gessner GmbH (one official copy)
Steinbeis GmbH & Co. Grundstucksverwaltungs KG, Brannenburg (one certified
copy)
the Land Central Bank in Bavaria (one certified copy)
the tax office - real estate transfer tax department - Rosenheim, and the
contracting parties (one simple copy each).
After acceptance of the offer, copies of this instrument shall be delivered
to
- the Seller (one official copy)
- the Purchaser (one official copy)
both of the deed of offer and of the deed of acceptance,
- the land title register (one official copy of the deed of acceptance)
- the tax office - real estate transfer tax department - Rosenheim,
- (one simple copy of the deed of acceptance, including a notice of
alienation)
- the county office (Landratsamt) of Rosenheim for the purposes of a
permission pursuant to the Real Estate Transactions Act (one simple
copy of the deed of offer, including the acceptance).
Any certified copies and official copies may only be issued in extracts,
i.e. without the consent to the cancellation pursuant to Clause D.2.
After acceptance of the offer, the municipality of Feldkirchen-Westerham
shall receive extracts from a simple copy of the deed of offer and the deed
of
<PAGE>
Translation
Page 17 of 17
acceptance for the purposes of commenting on the statutory right of first
refusal.
I. Taking Notice
Steinbeis Gessner GmbH, Brannenburg, takes note of the above offer to enter into
a sales and purchase contract without hereby accepting it.
Read out by the notary public,
approved by the parties involved and
signed by them in their own hands:
[signatures]
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
The Board of Directors
FiberMark, Inc.:
We consent to the incorporation by reference in this registration statement
of FiberMark, Inc. on Form S-3 of our report dated December 31, 1996 on our
audit of the financial statements of CPG Investors Inc. and subsidiaries as
of October 31, 1996 and for the year then ended. We also consent to the
reference to our firm under the caption "Experts".
/s/ KPMG Peat Marwick LLP
Richmond Virginia
December 10, 1997
d
<PAGE>
EXHIBIT 23.2
The Board of Directors
FiberMark, Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Burlington, Vt.
December 10, 1997
<PAGE>
EXHIBIT 23.3
The Board of Directors
FiberMark, Inc.:
We consent to the incorporation by reference in this registration statement
of FiberMark, Inc. on Form S-3 of our report dated December 20, 1996 on our
audit of the financial statements of Arcon Holdings Corp. and subsidiary as
of October 31, 1996 and for the year then ended. We also consent to the
reference to our firm under the caption "Experts".
KPMG Peat Marwick LLP
Jericho, New York
December 10, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of FiberMark, Inc. on Form S-3, to be filed on or about December 10, 1997, of
our report dated January 26, 1996, on our audits of the financial statements
of FiberMark, Inc. (formerly Specialty Paper Board, Inc.) as of December 31,
1995 and for the years ended December 31, 1995 and 1994. We also consent to
the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 10, 1997
<PAGE>
EXHIBIT 23.5
Consent of Independent Accountants
We consent to the incorporation by reference in this registration statement
of FiberMark, Inc. on Form S-3 of our report dated February 29, 1996 (August
28, 1996 as to Note 13) on our audits of the financial statements of CPG
Investors Inc. as of December 31, 1994 and 1995, and for the years then ended.
/s/ Coopers & Lybrand L.L.P.
Richmond, Virginia
December 10, 1997
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 of FiberMark,
Inc. of our report dated November 28, 1995, except as to Note 14, which is as
of August 28, 1996, relating to the consolidated financial statements of
Arcon Holdings Corp. and Subsidiary appearing in FiberMark, Inc.'s (formerly
Specialty Paperboard, Inc.) Registration Statement on Form S-4 (No.
333-17471), dated February 11, 1997.
/s/ PRICE WATERHOUSE LLP
------------------------
PRICE WATERHOUSE LLP
Melville, New York
December 10, 1997
<PAGE>
EXHIBIT 23.7
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to the Registration Statement
333-40527 of FiberMark, Inc. of our report dated November 4, 1997 (relating
to the financial statements of Steinbels Gessner GmbH as of and for the year
ended December 31, 1996 presented separately herein) appearing in the
Prospectus, which is part of this Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
Wollert-Elmendorff
Deutsche Industrie-Treuhand GmbH
Wirtschaftsprufungsgesellschaft
- ------------------------------------
/s/ Wollert-Elmendorff
Deutsche Industrie-Treuhand GmbH
Wirtschaftsprufungsgesellschaft
Munich, Germany
December 10, 1997
