SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
___
ACT OF 1934
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM __________.
Commission File Number 0-24234
For the fiscal year ended December 31, 1996
FOILMARK, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3101034
(State or other jurisdiction of incorporation) (IRS Employer
Identification No.)
5 Malcolm Hoyt Drive, Newburyport, Massachusetts 01950
(Address of principal executive officers)
Registrant's telephone number, including area code (508) 462-7300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock $.01
par value Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing for the
past 90 days.
Yes X No __
Indicate by check mark if disclosure of delinquent files pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 31, 1997, was $5,164,827.
The number of shares of all classes of the registrant's common stock at March
31, 1997: 4,158,207.
Exhibit Index Number of
Located on Pages Comprising
Page 23 This Report 77
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Item 1. BUSINESS
General
The Company is one of only two U.S. manufacturers of all components used
in the hot stamping process: machinery, foils, tooling, and dies. Hot stamping
is a dry process for marking, labeling and decorating products that uses heat
and pressure to apply a design or lettering to a flat, contoured or cylindrical
shaped surface. A foil consists of a plastic backing with a fine metallized or
pigmented coating on one side. The coating may consist of a single color, such
as metallized gold used for embossed lettering, or may include complex designs,
including trademarks and holographic (or diffractive) designs. The coated side
of the foil is placed against the surface to be stamped, and a die is pressed
against the other side to affix the design and, if desired, to give texture to
the design. The process requires a stamping press, stamping die or roller,
tooling for supporting or locating the part to be marked or decorated, and
stamping foil. Hot stamping foil varies from bright metallic and pigment colors
through printed designs such as wood-grains, multi-color transfers, diffraction
patterns and holograms. The foils can be applied with stamping machinery to a
wide variety of products to decorate, to label, or to increase their eye appeal
at point of sale. Such products include greeting cards, hardback and paperback
book covers, wine labels, cosmetic and other paper and plastic packaging,
household appliances and electronics, plastic housewares, automotive components,
medical devices, credit cards and sporting goods.
Foils are manufactured by the Company's subsidiary, Foilmark Manufacturing
Corporation ("FMC"), which also produces holographic (i.e., three-dimensional
effect) hot stamping foils and embossed polypropylene film for packaging.
Kensol-Olsenmark, Inc. another subsidiary of the Company, marketed as KF Systems
(Kensol-Franklin) manufactures hot stamp application machinery, including
vertical presses, roll-on presses and specialized machines targeted at the label
and credit card industries, as well as custom designed and built hot stamping
systems for specific purposes. Dies and tooling are manufactured by the Kensol
Tool and Die Division of Kensol-Olsenmark, Inc. The Company's foils, tools and
dies can be used on Kensol-Franklin machines as well as on machines produced by
other manufacturers.
In August 1995 the Company acquired substantially all of the assets of
Imtran Industries, Inc., a manufacturer of pad printing and silk screening
equipment and related supplies. Pad printing is a marking and an enhancement
process in which ink decoration is applied to products and packaging. There are
two basic methods of printing and decorating, the wet marking method and the dry
method of hot stamping. The pad printing method of product identification is
used extensively in the medical device, sporting goods and appliance industries.
The Company's (i) foils and (ii) machinery, tooling and dies accounted for
approximately 62% and 38%, respectively, of its net sales for the fiscal year
ended December 31, 1996.
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History
Kensol-Olsenmark, Inc. was established in New York in 1924 and
manufactured marking devices and indelible inks for the laundry, fur and shirt
industries, as well as hot stamping machinery. After World War II, the Company
took advantage of the tremendous growth in the plastic's industry by marketing
plastic decorating equipment and supplies. In 1977, FMC was incorporated as a
separate company to manufacture hot stamping foil. The Company began making dies
and related tooling in June 1991.
In 1992, the Company acquired a foil stamping machinery manufacturer,
Franklin Manufacturing Corporation, which increased the Company's annual
machinery sales by 136% in that year as compared to the prior year. The
acquisition enabled the Company to produce specialized machines targeted at the
label and credit card industries. In December 1992, the Company entered into a
joint venture with Arrow Coated Products Limited, an Indian corporation, in
order to expand its sales of hot stamping foil in the Far East. To date the
joint venture revenues are minimal. Also in 1992, F.M.F. Properties, Inc. (a
corporation holding the Melville real property) merged into Kensol-Olsenmark,
Inc., and Foil Properties (a partnership holding the Newburyport real and
personal property) merged into Foilmark Manufacturing Corporation.
The Company opened an office in China in July 1994 in order to expand its
sales into the growing markets for hot stamping foil in China. To date no
significant sales have been generated, although the office was instrumental in
obtaining a $560,000 contract with China Banknote for producing debit cards. The
contract was completed in February 1996.
In November 1994, Foilmark Holographics, Inc. ("FHI"), a subsidiary of
FMC, repurchased the shares of FHI held by Graham Ridout and Roger Wratten and
terminated the Joint Venture Agreement between FMC and Embossing Technology
Limited ("ETL") and Ridout. The total share price paid under the Agreement was
$300,000 and was distributed based on shareholdings. FHI agreed to pay ETL a
royalty payment equivalent to 2.5% of the value of invoices issued by FHI for
Holographic products produced using ETL equipment, technology and know-how, with
a minimum royalty payment of $100,000 during the first three year period
following the Agreement. On December 29, 1994, FHI was merged into FMC and
ceased to exist as a separate corporation. FHI continues to operate as a
division of FMC.
In November 1994, the Company purchased West Foils, Inc. through an
exchange of stock and cash from its owner and former president, Edward Sullivan.
The agreements included an Agreement of Exchange, a Registration Rights
Agreement with Sullivan, an Employment Agreement, and a Voting Agreement between
certain Foilmark shareholders. The Company paid Sullivan $750,000 and issued
153,847 shares of common stock. Edward Sullivan was appointed Director and Vice
President - West Coast Operations of Foilmark and Director, Vice President and
General Manager of West Foils. Under his four-year employment agreement with
West Foils, he receives a base salary of $120,000 plus 15% of West Foils
earnings over a base amount of $300,000 per annum. Mr. Sullivan and the Company
mutually agreed to terminate his employment contract effective as of December
31, 1996. The Company and Mr. Sullivan entered into a two year consulting
agreement effective on January 1, 1997.
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In December 1994, following consolidation of the Company's machine
operations in Norwood, Massachusetts, the Company merged Kensol-Olsenmark, Inc.,
a New York corporation, into a newly incorporated Kensol-Olsenmark, Inc., a
Delaware corporation.
In June 1995, the Company entered into an agreement with the Massachusetts
Industrial Finance Agency (MIFA) which issued a $4.4 million tax exempt
Industrial Development Bond (IDB), the net proceeds of which were used to
purchase production and manufacturing equipment for the Newburyport foil
manufacturing facility and the Norwood hot stamping machine manufacturing
location. Both sites were expanded through the construction of an addition of
approximately 10,000 square feet in Norwood and a 4,000 square foot addition at
Newburyport.
In August 1995, the Company acquired substantially all of the assets of
Imtran Industries, Inc., a Newburyport, Massachusetts based manufacturer of pad
printing equipment and a distributor of related supplies. Consideration for the
transaction was $2.95 million in cash and 257,044 shares of common stock. The
acquisition allowed Foilmark to enter into the pad printing field, a marking
enhancement process in which ink decoration is applied to products and
packaging. As part of the acquisition agreement, Imtran's prior owners, Kenneth
Harris and Steven Meredith, will remain as Vice Presidents and a Consultant to
the Company, respectively, for three years. In addition, by agreement, Kenneth
Harris was elected as director of the Company.
In March 1996, the Company established the "FOILMARK TECHNOLOGY GROUP", to
unify the KENSOL-OLSENMARK hot stamping and the IMTRAN pad transfer printing
subsidiaries. This was accompanied by a consolidation of all machinery and
related supplies operations in a dedicated, modern facility in Newburyport,
Massachusetts. The Norwood, Massachusetts location is currently being used for
component parts manufacturing for both the hot stamping and pad printing product
lines.
Products and Processes
Hot Stamping and Holographic Foils. Hot stamping foil represented $23.2
million (or 62%) of the Company's net sales in 1996 as compared to $23.5 million
(or 64%) of the Company's net sales in 1995 and $18.7 million or (61%) of net
sales in 1994. Hot stamping foil is used for decorative and marking purposes on
a wide array of products, including cosmetic packaging, book covers, wine
labels, greeting cards, credit cards, toys, and automotive and appliance
components.
The Company's foil products currently include (i) metallized foil
(metallic effect), (ii) pigmented foil (different colors), (iii) diffraction or
"prismatic" foil (shattering effect), (iv) holographic foil (three-dimensional
effect), (v) printed pattern foils (for the picture frame and graphic arts
industry), (vi) Infra-Red heat reflective films, (vii) and specialty coated
films. Metallized foil decorates a product with a brilliant metallic imprint,
typically in gold or silver, and constitutes a majority of the Company's sales.
Diffraction and holographic foils (metallized foil embossed with two-dimensional
and three-dimensional images) represent the fastest growing segment of the
market and are used in a variety of decorative applications on products such as
gift wrap and gift boxes, packaging applications, greeting cards, and
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trophy components. In addition holographic foils are increasingly used as a
security device for credit cards, computer software and high value products
packaging due to the difficulty of recreating a hologram.
Foilmark manufactures foils in its Newburyport, Massachusetts plant.
Metallized hot stamping foils, in their simplest form are constructed by coating
a number of thin films of coatings onto a carrier composed of a thin layer of
vaporized aluminum sandwiched between a top coat (also known as "color coat")
and an adhesive coat (also known as "sizing coat"). A thin layer of aluminum or
chrome is added to create a metallic finish. An image is embossed onto the
coatings to create diffraction and holographic foils. The construction of the
composite and the number of layers varies slightly according to the final
application.
Machinery and Tooling. Hot stamping and pad printing machines, tooling,
dies and supplies constituted $14.0 million (or 38%) of the Company's net sales
in 1996, as compared to $13.3 million (or 36%) of the Company's net sales in
1995 and $11.9 million (or 39%) of net sales in 1994. Spare parts for the
Company's machines represent approximately 35% of total machine sales.
Foilmark manufactures machines in Newburyport, Massachusetts under the
Kensol, Franklin, KF System and Foilmark Technology Group (FTG) trade names. The
Company's line of machinery consists of standard machines and customized systems
designed for specific applications. The prices for the Company's machines range
from $4,000 to $75,000 for standard machines and from $25,000 to $300,000 for
customized systems. The line of standard vertical presses is available in seven
pressure ranges from 1/2 to 15 tons. Standard presses perform hot stamping, die
cutting and label laminating functions. Customized systems include roll-on
machines, high tonnage vertical presses, and automated systems. Most of the
machines utilize microprocessor based controls.
The machine manufacturing process is handled by six departments or areas.
(1) The engineering department is responsible for ongoing machine development
and improvement. Specialized equipment design, automation and customized tooling
are also handled in this department. This department is equipped with computer
aided design ("CAD") capability to maximize engineering productivity. (2) The
machinery department manufactures machine components and tooling. The Company
utilizes vertical, horizontal and turning machining centers to ensure accuracy
and repeatability. These are integrated with the engineering department's CAD
system through a computer aided manufacturing ("CAM") system. (3) In the
finishing department, components are deburred, ground, sanded, cleaned and
painted. (4) The standard assembly area is where the basic line or vertical
presses are assembled. (5) In the special assembly area, technicians modify the
standard machines to incorporate high speed feeding devices, tooling and other
special components to meet customer requirements. The special assembly area also
assembles roll-on, rotary, high tonnage presses and complex custom designed
machines. (6) The die and tooling department manufactures support fixtures and
silicone rubber tooling products, including sheets and rollers. This department
also has an in-house art department and camera facilities as well as etching
equipment for the magnesium dies.
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During the first half of 1996, the Company consolidated certain portions
of the hot-stamp manufacturing facility in Norwood, Massachusetts to the Imtran
facility in Newburyport, Massachusetts. The transfer included the engineering,
assembly, sales, customer and technical service groups. High volume machining of
components remains in the Norwood facility. The consolidation was completed in
June 1996 and eliminated certain duplications of overhead.
Pad Printing
Foilmark manufactures its line of Imtran pad printing equipment and
supplies in Newburyport, Massachusetts. The Company's line of equipment consists
of three standard models as well as customized systems designed for specific
applications. The prices for the Company's standard machines range from $7,000
to $24,000 and for custom systems range from $20,000 to $200,000. Standard
presses are used to apply images from a dot to 10" x 10". Customized systems
include machines with automatic feeding devices such as shuttles, turntables and
carousels. They also include multiple headed machines and those with advanced
automation.
The manufacturing operation at Imtran consists of five departments or
areas. (1) The engineering department is responsible for ongoing machine
development and improvement. Specialized equipment design, automation and
customized tooling are also handled by this department. All design work is done
on through computer aided design (CAD) to maximize engineering productivity. (2)
The machining group manufactures all of the machine components and tooling used
in the manufacture of the systems. This group utilizes computer numerical
control equipment as well as conventional machine tools. (3) The assembly group
is responsible for the assembly of standard and customized systems. This group
is also responsible for marrying high speed feeders, tooling and other devices
to meet specific customer requirements. (4) The technical service group is
responsible for the final set up of equipment once it is completed by the
assembly group. The technical service group is also responsible for in house and
field training. They also field calls from customers with regard to application
issues. (5) The supply group is responsible for the manufacture of rubber pads,
inks, etched steel printing plates or cliches, silk screens and other supply
items. This department also includes an in-house art department. This group
includes the silicone rubber tooling manufacture (Kensol Tool & Die, or KTD) for
hot stamping systems that was relocated after the acquisition of Imtran. KTD
consolidated its art department into Imtran's. Included in the manufacture of
silicon dies is magnesium etching for dies and molds as well as high tonnage
presses for their manufacture. This group also manufactures silicon rollers for
hot-stamping and laminating.
Sales, Marketing and Customers
The Company has 12 full-time and outside sales people and one
manufacturers representative domestically (who is compensated on a commission
basis), along with 17 inside sales support personnel. The Company markets its
products and services by the way of industry trade shows, advertising, public
relations, telemarketing, direct mail, and the Company's Internet web site.
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The Company has a diverse customer base, and seeks to emphasize custom
foil and equipment and the use of its foil on a broad range of consumer
products. The Company's products are sold to more than 5,000 active customers
worldwide ranging from small companies to Fortune 500 companies. No single
customer accounted for more than 4% of total net sales of foil, machines,
tooling and dies in 1996. Of the largest 15 customers, eleven have been
customers for five years or more. Distributors sell the Company's products
worldwide on terms of either letters of credit or open account. The Company has
worked with the distributors on an exclusive and non-exclusive basis for periods
ranging from two to fifteen years. Foreign customers accounted for 16% of net
sales in 1996 and 13% of net sales in 1995.
The Company sells its foil directly, through domestic and foreign jobbers,
and indirectly through distributors. No foil customer accounted for more than 7%
of total net sales of foil in 1996. Hot stamping foils manufactured by the
Company are sold domestically under private label by 4 distributors. Terms of
sale for hot stamping foils are typically "net 30".
The Company sells its machinery directly or through manufacturer's
representatives. No machine customer accounted for more than 4% of total net
sales of machines in 1996. Terms of sale for hot stamp machines are typically
one-third down, one-third prior to shipment and the balance "net 30". Terms of
sale for pad print machines are 30% down, 60% prior to shipment and the balance
"net 30" days.
Backlog does not play a significant role in the sale of foil, although it
is significant in the sale of machinery due to the longer time required to
manufacture machines. At December 31, 1996 backlog was $4.4 million which
included a contract worth $2 million to supply China North Industries with
equipment to manufacture, convert, and apply hot stamping foils and holographic
products to meet the growing demand in China. This equipment for China was
shipped February 28, 1997. Comparable backlog at December 31, 1995 was $1.9
million.
Foreign Sales
The Company's foreign sales are made principally to customers in Western
Europe, Peoples Republic of China, Mexico, and South and Central America. All
foreign sales are payable in U.S. dollars and, therefore, settlement amounts do
not fluctuate with changes in exchange rates. No single country accounted for
more than 6% of the Company's sales in any of the periods presented below:
Percent of
Total Foreign Sales Company Sales
------------------- -------------
Year 1996................. $5,981,700 16%
Year 1995................. $4,655,000 13%
Year 1994................. $4,203,000 14%
Year 1993................. $5,154,000 19%
Year 1992................. $3,326,000 13%
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Research and Development
The engineering department and chemistry lab is responsible for the
Company's ongoing product development and improvement, as well as quality
control. The department consists of a team of 25 chemists, engineers and
technicians. The Company's research and development program focuses on the
development of new products and applications. The Company expenses its research
and development costs as incurred. Such expenses amounted to $776,526 and
$684,253 in 1994, 1995 and approximately $650,000 in 1996.
Competition
The product enhancement industry in which the Company competes includes a
large number of foreign and domestic competitors. The Company estimates that the
present worldwide market for the products in which Foilmark competes is $840
million in annual sales of foil and $535 million in annual sales of machinery,
tools, dies and supplies. With regard to foil, the Company competes with
approximately 25 manufacturers worldwide and believes that it supplies
approximately 3% of the world market. With regard to machines, which includes
both hot stamping and pad printing, the Company competes internationally with 15
primary manufacturers and several smaller companies and believes it supplies
approximately 2% of the world market.
Competition is based on price, variety of products, quality of products
and services. Some competitors have greater financial resources while other
competitors, especially foreign, may have lower cost structures or exchange
rates that may affect the Company's competitive position. A worldwide excess of
manufacturing capacity of stamping foils beginning in 1992 and continuing
through 1996 has caused severe price competition. Accordingly, the Company had
to reduce its selling prices in order to maintain its market share. However, the
Company believes that its product quality, long-standing customer relationships,
proprietary machinery and processes, continuity of management and experienced
personnel are competitive advantages. In addition, the Company has a competitive
advantage as the only one of two companies in the U.S. that manufacture and
distribute all components of the hot stamping and pad printing process which
includes machines, foils, tooling, dies and supplies, giving it the ability to
produce a complete turn-key package for both hot stamping and pad printing. The
hot stamping and pad printing industries in general have certain technological
barriers to entry. The process and machinery for the production of hot stamp
foils have been developed based on years of research and development, and
require a blend of art and chemistry based on years of experience working with
foils for a broad range of applications, in order to produce competitive high
quality foils.
Raw Materials and Supplies
The Company is not dependent on any one supplier for any of its raw
materials. The Company purchases the main component of its foil products,
polyester film, from a variety of different suppliers. During 1996, more
polyester was available due to a number of new polyester production lines that
went into production. The increased output enabled polyester prices world wide
to stabilize. The cost of polyester remained relatively constant in 1996 after
experiencing a 25% increase during 1995. All raw materials used in manufacturing
foil are readily available on terms favorable to the Company.
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Safety and Environmental Matters
The Company's operations are subject to federal, state and local
environmental laws and regulations that impose limitations on the discharge of
pollutants into the air, and water and establish standards for treatment,
storage and disposal of solid and hazardous wastes. The Company believes that it
is currently in material compliance with all applicable environmental laws and
regulations relating to its material business operations. The Company has not
been sanctioned by any regulatory body with respect to this matter. Insofar as
future laws and regulations relating to the environment may be adopted or
interpretations of existing laws and regulations relating to the environment may
change, new requirements may be imposed on the Company regarding future
activities which may create liability retroactively with respect to past
activities. Failure to comply with applicable laws and regulations could subject
the Company to monetary damages and injunctive actions that could adversely
affect the Company's financial performance.
Patents, Trademarks and Proprietary Information
While the Company owns certain patents, trademarks and logos, the Company
relies heavily upon trade secrets, know-how and other proprietary information.
Management believes that patent and trademark protection are not material to the
Company's business. Certain key employees of the Company are parties to
employment agreements providing for confidentiality and the assignment of rights
to innovations developed by them while employed by the Company. The Company also
requires all key employees to enter into confidentiality and non-competition
agreements to protect its confidential information. However, there is no
assurance that those agreements would be enforceable if they were breached or,
if enforced, that they would adequately protect the Company.
Employees
At December 31, 1996, the Company employed approximately 250 people,
including 143 in manufacturing, 32 in sales and sales support, 37 in technical
and development, and 38 in administrative and management positions. None of the
Company's employees are represented by a union and the Company is not aware of
any efforts to unionize any employees of the Company. The Company believes that
its relationship with its employees is satisfactory.
The executive officers of the Company have extensive experience in the
decorating and product enhancement industry.
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Item 2 PROPERTIES
The principal properties of the Company are:
Square
Location Footage Status
-------- ------- ------
Newburyport, MA
Foil Manufacturing............. 52,000 Own
Corporate Office............... 4,000 Own
Warehouse...................... 2,000 Month-to-month
Pad Print, Machine
Manufacturing, Tool and Die.... 27,500 Lease (Expires July 2000)(2)
Melville, NY
Foil Distribution.............. 20,000 Own (1)
Subleased to Third Party....... 20,000 Own (1)
Norwood, MA
Component Parts
Manufacturing.................. 36,000 Own (1)
Newbury Park, CA
Foil Distribution.............. 7,000 Lease (Expires in April 2002)(2)
- -------------
(1) These properties are subject to mortgages.
(2) See Note 14 to the Notes to Consolidated Financial Statements for the
aggregate amounts of the Company's lease commitments.
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The foil manufacturing facility in Newburyport, MA currently operates at
70% of capacity with two 10 hour shifts and one overlapping 9 hour shift. The
tool and die facility in Newburyport currently operates at approximately 80% of
capacity with one 10 hour shift. The machine manufacturing facility in
Newburyport, Massachusetts is currently being utilized at approximately 70% of
capacity with one 10 hour shift. The pad print manufacturing facility in
Newburyport is operating at 60% of capacity with one 8-hour shift. The component
parts manufacturing facility in Norwood operates at 90% of capacity with three
8-hour shifts.
In 1994, the Company consolidated its machinery manufacturing operations
by transferring all machine manufacturing from the Melville, New York plant to
the Norwood, Massachusetts plant. In conjunction with the consolidation, the
Company expanded its existing machinery manufacturing operations in Norwood,
Massachusetts. In 1995, the Company built a 10,000 square foot extension to the
existing Norwood building after purchasing 18,000 square feet adjacent to the
existing property for $75,000. Total cost of the 10,000 square foot addition
including land was $450,000.
Also in 1995, the Company added 4,000 square feet to the existing foil
manufacturing facility at a cost of $280,000. The purpose of the addition was
for expansion of the Holographic Division.
In June 1996, the Kensol hot stamping plant in Norwood, Massachusetts was
transferred to the Imtran Foilmark facility located in Newburyport,
Massachusetts in order to combine machine manufacturing operations. The
machining operation that manufactures components for both Kensol and Imtran will
remain in a portion of the Norwood facility with the balance of the facility to
be leased to a third party as an additional revenue source for the Company.
Item 3. LEGAL PROCEEDINGS
For all of 1996, the Company was a defendant in a group of consolidated
lawsuits brought in 1995 alleging personal injuries arising out of a motor
vehicle accident involving a vehicle leased by one of the Company's subsidiaries
and operated by an employee of that subsidiary. Plaintiffs sought damages for an
amount significantly in excess of the Company's insurance policy limits. During
1996 the Company settled two (2) of the cases within the limits of its liability
insurance policy. On April 8, 1997 the Company settled the remaining cases by
agreeing to pay $200,000.00 to the remaining Plaintiffs. In connection with the
settlement, the Company's liability carrier paid the balance of the amount
available under the policy after giving affect to the prior settlement. These
settlements have been confirmed by the Superior Court and Dismissal Stipulations
have been entered dismissing the litigation with prejudice.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART 11
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on NASDAQ - National Market System
under the trading symbol "FLMK". The range of high and low closing sale prices
for the Common Stock as reported on NASDAQ - NMS by quarter is set forth below.
Quarter Ended High Sale Low Sale
- ------------- --------- --------
March 31, 1995 ............................. 7-1/8 5-5/8
June 30, 1995 .............................. 8-1/8 4-1/8
September 30, 1995 ......................... 9 7
December 31, 1995 .......................... 8-1/8 6
March 31, 1996 ............................. 6-1/2 3-5/8
June 30, 1996 .............................. 4-3/4 3-3/8
September 30, 1996 ......................... 3-3/8 2-5/8
December 31, 1996 .......................... 3 2-1/8
March 31, 1997 ............................ 3 1-15/16
As of March 31, 1997, there were approximately 77 holders of record and
approximately 800 beneficial owners of the Common Stock.
The Company has never paid dividends on capital stock. The Company intends
to retain earnings to finance future operations and expansion and does not
expect to pay any cash dividends within the foreseeable future. The Company is
currently restricted from declaring or paying dividends under the provisions of
its bank loan agreements. See Note 9 of the Notes to the Consolidated Financial
Statements.
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Item 6 SELECTED FINANCIAL DATA
Foilmark, Inc. & Subsidiaries
Years Ended December 31,
(in thousands, except per share data)
<TABLE>
<CAPTION>
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
Operations: 1996 1995(d) 1994(c) 1993 1992(a),(b)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue: $ 37,191 $ 36,807 $ 30,584 $ 27,553 $ 25,289
Income (Loss) From Operations (510) 3,476 2,531 2,169 1,945
Net Income (Loss): (1,040) 1,843 1,265 840 857
Earnings (Loss) Per Share: (0.25) 0.46 0.44 0.42 --
Weighted Average Common and
Common Equivalent Shares
Outstanding: 4,142 3,999 2,900 2,000 --
Financial Condition:
Total Assets: $ 40,332 $ 37,952 $ 26,499 $ 21,779 $ 19,610
Total Long-term Debt: 12,165 10,732 3,401 6,784 7,214
Working Capital: 12,782 11,766 10,120 5,700 5,036
Stockholders' Equity: 18,250 19,243 16,178 6,682 5,686
</TABLE>
(a) Prior to March 1992, the Company's financial statements were composed of a
combination of entities all of which were wholly-owned by substantially the same
individuals. In March 1992, substantially all of the ownership interests in
these entities were contributed to the Company. This consolidation was accounted
for in a manner similar to a pooling-of-interests, whereby stock in the Company
was distributed for the equity interests in the pre-existing entities.
On March 17, 1992, the Company acquired all of the outstanding stock of Franklin
Manufacturing Corporation. This acquisition was accounted for as a purchase.
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(b) On December 18, 1992, the Company's subsidiary, FMC, entered into a joint
venture agreement with Embossing Technology Limited for a 50% interest in a
joint venture called Foilmark Holographics, Inc. This investment is being
accounted for using the equity method.
(c) Effective October 1, 1994, the Company acquired all of the outstanding stock
of West Foils, Inc., a California company engaged in the distribution of foils
for $750,000 in cash and 153,847 shares of common stock of the Company.
(d) On August 21, 1995, the Company acquired substantially all of the assets and
assumed certain liabilities of Imtran Industries, Inc. The acquired assets
consist primarily of equipment and other property used in the manufacture and
distribution of pad printing equipment. The Company has transferred all of the
assets of the newly formed wholly owned subsidiary called Imtran Foilmark, Inc.
which will continue operations in the pad printing business.
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company and its subsidiaries and their representatives may from time
to time make written or oral statements, including statements contained in the
Company's filings with the Securities and Exchange Commission (SEC) and in its
reports to shareholders, including this annual report which constitute or
contain "forward-looking statements" as that term is defined in the Private
Securities Litigation Reform Act of 1995 or by the SEC in its rules, regulations
and releases.
All statements other than statements of historical facts included in this
annual report regarding the Company's financial position and operating and
strategic initiatives and addressing industry developments are forward-looking
statements. Where, in any forward-looking statement, the Company, or its
management, express an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. Factors which
could cause actual results to differ materially from those anticipated, include
but are not limited to general economic, financial and business conditions;
competition in the product enhancement industry, and particularly the hot
stamping sector; the availability and cost of raw materials; the success and
costs of the Company's consolidation and integration efforts; the availability
and terms of capital; the business abilities and judgment of personnel; the
costs and effects of legal proceedings; the impacts of unusual items resulting
from ongoing evaluations of business strategies; and changes in business
strategy.
14
<PAGE>
GENERAL
1996 was a difficult year for the Company. In spite of a 1% increase in
sales to $37,190,611, Foilmark incurred a loss of $831,201 or $0.20 per share.
Industry wide demand for the Company's foil products were flat for most of 1996,
leading to world wide overcapacity. This resulted in severe pricing pressures
adversely impacting Foilmark's revenues and margins for most of the year.
Although demand for the Company's foil products strengthened in the third
quarter of 1996 compared to the prior six months, softness in the market
appeared again in the fourth quarter and sales declined by 8.8% over the
comparable 1995 quarter. For the year ended December 31, 1996, total foil sales
were $187,000 below 1995 sales level at $23.2 million, in spite of additional
manufacturing capacity available for most of 1996. Additionally, the delay in
delivery of Foilmark's new state-of-the-art metallizer, and continuing
difficulties in integrating new higher speed manufacturing equipment further
contributed to the loss. Polyester film, the main component of the foil product
which had increased in cost by 25% in 1995 remained relatively constant for most
of 1996. Due to the over capacity in the market, it was not possible to pass
along the higher polyester costs to customers. This resulted in lower margins
for most of 1996, also contributing to the loss.
Hot stamping machinery also experienced a soft market in 1996 which began
in the third quarter of 1995. The decline in demand extended to specialized
machines as well as standard machines and pad printing systems. To improve
profitability and efficiencies, and to better meet the changing demands of the
market place in hot stamping machinery, the Company announced in January 1996
the transfer of substantially all of its operations from the Kensol plant in
Norwood, Massachusetts to the Imtran-Foilmark manufacturing facility located in
Newburyport, Massachusetts. The purpose of the move was to share resources,
thereby reducing overhead at the Imtran facility and improving margins for both
the hot stamping and pad printing machinery business. The move which was
anticipated to be completed in March 1996 at a cost of $200,000 was not
finalized until June. Production delays of manufactured parts associated with
the move and unexpected loss of personnel not immediately replaced, continued to
adversely impact sales and profitability. Machinery shipments and manufacturing
efficiencies were severely affected and the vacancies in key production and
support personnel were not filled until the fourth quarter. Shipments of the
higher priced and higher margin credit card and label machines were especially
affected by the production delays of component parts and the manufacturing
inefficiencies caused by the consolidation. This resulted in reduced gross
profits.
Due to a change in market conditions affecting hot stamping machinery, in
December 1996 the Company decided to streamline the standard product line by
reducing the wide variety of models and options then presently available. In
line with this decision the Company wrote off approximately $500,000 in its
inventory of models that will be discontinued. By reducing the number of models
available, certain duplications will be eliminated, enabling the Company to
manufacture larger quantities of fewer products. It is anticipated these actions
will result in better gross margins, better efficiencies and lower inventories.
15
<PAGE>
The state-of-the-art metallizer was delivered in October 1996, installed
and tested during the balance of the year, and became operational in January
1997. This in-house metallization capability for all of the foil manufacturing
requirements, together with a stabilization in the price of polyester film, the
main component of the Company's foil products, should allow the foil product
line to return to higher and more traditional profit margins in 1997.
In July 1996, the Company announced receipt of a contract in excess of
$2,000,000 to supply China North Industries Corp. with equipment and technology
to manufacture, convert and apply hot stamping foils and holographic products to
meet the growing demand in China. The technology was approved and transferred in
December 1996 to China North Industries and the equipment was shipped in the
1997 first quarter.
LIQUIDITY AND CAPITAL RESOURCES
On December 17, 1996 the Company refinanced two existing mortgages, one
which matured in October 1996 in the amount of $830,587 and the other in the
amount of $654,113 due January 2000 to one fifteen (15) year mortgage in the
amount of $1,997,500 at the bank's prime interest rate or LIBOR plus 2% compared
to prime plus 1 1/4%. This transaction increased the Company's working capital
by approximately $200,000.
During 1996 the Company used $1,335,552 of the revolving credit facility
for working capital purposes and capital expenditures. As of December 31, 1996
the Company had $439,448 available under its revolving credit facility. The
Company has historically depended upon funds generated from operations and its
borrowings to provide both short and long term liquidity. The Company expects
these sources of liquidity to be sufficient to supply its working capital
requirements in the foreseeable future.
Capital expenditures for the year ended December 31, 1996 amounted to
$2,328,534 compared to $3,886,398 for the comparable 1995 period. The 1996
capital expenditures were incurred in connection with the relocation of
facilities from Norwood to Newburyport and the balance of the 1995 capital
expansion program which carried over into 1996. Planned capital expenditures for
1997 are minimal.
As of December 31, 1996 the Company had working capital of $12.9 million
compared to $11.8 million in the prior year. The increase is partially
attributable to the refinancing of the two mortgages over fifteen years, and to
the use of the revolving credit line.
The terms of the various long term debt agreements require, among other
things that the Company maintain certain amounts of net worth, ratios of current
assets to current liabilities, total liabilities to tangible net worth plus
subordinated liabilities, and debt service coverage and restrict the amount of
capital expenditures, and the payment of dividends. At December 31, 1996, the
Company was not in compliance with certain of these covenants for which waivers
were received from the lenders.
As of March 31, 1997, the Company has amended the six million dollar
($6,000,000) revolving credit agreement. The amended agreement does not require
principal payments prior to June 10, 1998 and has less restrictive financial
ratio covenants than the Company had prior to the amendment.
16
<PAGE>
RESULTS OF OPERATIONS
Fiscal 1996 compared to Fiscal 1995
Net Sales for the year ended December 31, 1996 increased 1% to $37.2
million from $36.8 in 1995. Foil sales declined by $.2 million to $23.2 compared
to $23.4 million in 1995. Machinery sales increased by $.6 million to $14.0
million compared to $13.4 million. Included in the 1996 revenues were $4.6
million in pad print machine sales compared to $1.5 million from the Company's
Imtran division acquired in August 1995 and not comparable for the complete year
1995. Excluding Imtran from 1996 sales, there would have been a decrease of
7.7%.
The decrease in foil sales was generally due to a soft market which
continued for all of 1996. In addition, foil sales suffered from the
unanticipated delay in installation of a vacuum metallizer and difficulties in
locating satisfactory outsourcing vendors for a portion of the Company's
metallizing needs until the end of the second quarter.
Machinery sales, as a result of the Imtran pad printing product line,
increased 4.2% over 1995. Hot stamping machinery declined by 21.2% in 1996
compared to the comparable 1995 period as a result of plant relocation and a
general softness in the industry for the Company's standard machine product
line.
Gross profit declined by $2,750,229 or 24.1% in 1996 compared to the year
ended December 31, 1995. Gross profit as a percentage of net sales declined to
23.3% in 1996 compared to 31.0% for the comparable twelve month period in 1995.
Gross profit in 1996 was adversely impacted by the world wide over
capacity in hot stamping foils. While at the same time, polyester film, the
primary raw material in the foil manufacturing process, significantly increased
in cost. In order to maintain market share the Company either reduced or did not
increase prices sufficient to affect increased costs. Furthermore, margins
suffered from the unanticipated delay in the installation of the metallizer, and
difficulties in locating appropriate outsourcing opportunities for a portion of
its metallizing needs. In addition, manufacturing difficulties in foil
production as a result of the start-up of new production equipment placed in
service at the end of 1995, adversely affected efficiencies, causing a decline
in gross profit.
Margins in the machinery product line were adversely impacted by the
relocation of the machinery manufacturing facilities from Norwood to
Newburyport, Ma. Manufacturing efficiencies suffered due to delays in the
receipt of manufactured parts, which resulted in increased costs, decreased
productivity and lower margins. In addition, the Company incurred approximately
$200,000 in additional operating costs in connection with the relocation of the
manufacturing facilities from Norwood to Newburyport, Massachusetts, a write
down of $500,000 hot stamping machinery inventory of models that will no longer
be manufactured, and facility consolidation costs of $100,000.
17
<PAGE>
Selling, General and Administrative Expenses increased by $1,236,123 to
$9,174,753, a 15.6% increase over fiscal 1995. Most of the increase was
attributable to the Imtran acquisition in August 1995 which was not included for
eight (8) months of 1995. The balance of the increase was due to increased
amortization costs in connection with the Imtran acquisition.
Income From Operations for the fiscal year ended December 31, 1996, the
Company incurred a loss from operations of $510,106 compared to income from
operations of $3,476,246 for fiscal 1995. The primary reason for the decline in
income from operations was the 24.1% reduction in gross profit, caused by a
reduction in gross profit margins to 23.3% in 1996 compared to 31.0% in
comparable 1995, on a 1% increase in revenues.
Additionally, the Company incurred a 15.6% increase in selling, general
and administrative expenses due in part to the Imtran acquisition without a
corresponding increase in total revenues.
Interest expense increased by 119.4% to $914,711 up from $416,940 for year
ended December 31,1995. The higher interest expense was due primarily to the
increase in bank debt, the proceeds of which were used to fund the 1995
expansion projects at the Company's Massachusetts facilities, to acquire Imtran
in August 1995 and to provide required working capital in 1996.
Settlement of litigation in connection with the personal injury claim
filed against the Company and described in its prior financial statement and
filings was settled in April 1997. The Company has accrued and is included in
the 1996 financials $305,000 to cover the cost of the settlement and additional
settlement costs above the insurance coverage.
Provision For Income Taxes for the year ended December 31,1996 were
recorded as a benefit of $477,971 at an effective rate of 31.5%, as a result of
a pre-tax loss of $1,518,097. For the year ended December 31,1995, the provision
for income taxes was $1,330,000 on pre tax income of $3,173,326, with an
effective tax rate of 41.9%.
Net Loss. for the twelve months ended December 31,1996 was $1,040,126
compared to a net income of $1,843,326 for the comparable 1995 period. Net loss
in 1996 was the result of a decline in gross profit, increased amortization
costs associated with the Imtran acquisition, $200,000 in additional operating
costs incurred in connection with consolidating machinery operations in
Newburyport, facility consolidation costs of $100,000, and the increased
operating costs due to the 1996 plant expansion without a corresponding increase
in revenues. In addition the Company has written down $500,000 in hot stamping
machinery inventory of models that will no longer be manufactured. Furthermore,
the Company has accrued $305,000 in the 1996 net loss before benefit for income
taxes as a result of the settlement in connection with the personal injury
litigation filed against the Company in January 1995.
18
<PAGE>
RESULTS OF OPERATIONS
Fiscal 1995 compared to Fiscal 1994
Net Sales for the year ended December 31, 1995 increased 20.3% to $36.8
million from $30.7 million in 1994. Machine sales increased 12.5% to $13.4
million from $12.0 million in the prior year, and foil sales increased 25.1% to
$23.4 million from $18.7 million as of December 31, 1994. The increase in
machine sales was solely attributable to the acquisition of Imtran in August
1995 whose sales contributed $1.5 million. The increase in foil sales resulted
in part due to the inclusion of West Foils (acquired in October 1994) for a full
twelve months in 1995 as compared to a three month period in 1994, resulting in
an increase of $1.7 million in fiscal 1995 versus fiscal 1994. The balance of
the increase was from improved market penetration in both the domestic and
foreign markets.
Gross Profit increased to $11.4 million from the fiscal 1994 level of $8.9
million, a 28.0% increase. West Foils contributed $1.3 million and Imtran
contributed $860,000 or 84.6% or the overall increase in gross profit.
Specifically, the increase in gross profits related to increases in sales of
higher margin products from the Foilmark Holographic Images division of Foilmark
Manufacturing and West Foils. In addition, the newly acquired Imtran product
line of pad printing machines and supplies provided gross margins higher than
hot stamping machines and foils. The delay in completion of the vacuum
metallizer had no material effect on gross profit in 1995.
Selling General and Administrative Expenses increased $1.6 million to $7.9
million compared to $6.4 million for fiscal 1994. For the fiscal years 1995 and
1994 expenses as a percentage of sales were 21.6% and 20.9%, respectively. Most
of the increase in expenses was attributable to the acquisition of West Foils
and Imtran. As a result, the year to year figures are not comparable as West
Foils was only included in the last quarter of 1994 and Imtran was acquired in
August 1995. In addition, there were increased advertising and other associated
selling costs in 1995 as the Company attempted to maintain market share.
Further, the Company experienced in 1995 the full impact of the ancillary costs
associated with being a public company.
Income From Operations increased by $950,000 or 37.4% to $3.5 million
compared to $2.5 million in fiscal 1994. As a percentage of net sales, income
from operations increased from 8.3% to 9.4%. This increase was due to the
increase in foil sales on higher margin products and the acquisition of Imtran
offset in part, by increases in associated selling and administrative expenses.
19
<PAGE>
Interest Expense declined to $417,000 from $513,000 for the fiscal year
1995 compared to fiscal 1994, an 18.8% decrease. Interest expense declined in
part as a result of the use of the proceeds of the Company's initial public
offering in June 1994 to retire various long and short term bank debt as well as
stockholders' debt. Interest expense for the last six months of fiscal 1995
increased $46,000 over the comparable period in fiscal 1994 due to the use of
various bank loans in June 1995 to fund the expansion project at the Company's
Newburyport and Norwood, Massachusetts facilities and the line of credit
borrowings used to acquire Imtran in August 1995 and to provide working capital.
Provision For Income Taxes increased to $1.3 million in fiscal 1995 from
$897,000 in fiscal 1994. The increase in the provision for taxes was due to the
increased profits of the Company in 1995. The effective tax rates were 41.9% and
41.5% respectively, in fiscal 1995 and 1994. The Company's effective tax rate
was lower than would otherwise be expected in fiscal 1994 as a result of the
proceeds received from a life insurance policy on an executive officer of the
Company that was not subject to income taxes.
Net income increased 45.7% to $1.8 million in fiscal 1995 from $1.3
million in fiscal 1994. The increase was attributable to both higher sales and
increased gross profit.
Effects of Inflation
During the two year period ended December 31, 1996 inflation did not have
a significant impact on the Company's operations. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and filed as part of this report are the financial
statements and supplementary data listed in the list of Financial Statements and
Schedules under Item 14 hereof.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
20
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The information called for by Item 10 is incorporated by reference from
the 1997 Proxy Statement which is to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days of the end of the fiscal
year covered by this report.
Item 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated by reference from
the 1997 Proxy Statement which is to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days of the end of the fiscal
year covered by this report.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 is incorporated by reference from
the 1997 Proxy Statement which is to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days of the end of the fiscal
year covered by this report.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated by reference from
the 1997 Proxy Statement which is to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days of the end of the fiscal
year covered by this report.
21
<PAGE>
PART IV
<TABLE>
<CAPTION>
Item 14. EXHIBITS,FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<C> <S> <C>
(a) Financial Statements, Financial Statement Schedules and Exhibits:
(1) Financial Statements and Supplementary Data - See Form 10-K -
Item 8
(2) Financial Statements and Schedules:
Independent Auditors' Report F-1
Consolidated Balance Sheets - December 31, 1996 and 1995 F-2
Consolidated Statement of Operations - Years Ended F-3
December 31, 1996, 1995 and 1994 Consolidated Statement of
Stockholders Equity - Years Ended F-4 December 31, 1996, 1995
and 1994
Consolidated Statements of Cash Flows - Years Ended F-5
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements F-6
For the three years ended December 31, 1996
Schedule II - Valuation and Qualifying Accounts S-1
Other schedules are omitted because of the absence of
conditions under which they are required or because the
required information is given in the financial statements of
notes thereto.
(3) Index of Exhibits:
The following is a list of exhibits files as part of this
Annual Report on Form 10-K. For exhibits incorporated by
reference the location of the exhibit in the previous filing
is indicated in parenthesis.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Form 10-K
------ ---------
Articles and By-Law Instruments:
<C> <S> <C>
3.1 Restated Certificate of Incorporation (1)
3.2 Restated By-Laws
3.3 Specimen Stock Certificate (8)
3.4 1995 Restated Certificate of Incorporation (9)
3.5 1995 Restated By-Laws (9)
Voting Trust Agreements:
9.1 Voting Agreement dated 11/17/94 between certain Shareholders (7)
Other Material Contracts:
10.1 Form of Employment Agreements (1)
10.2 1993 Stock Option Plan (3)
10.3 First Amendment to Chemical Bank Loan dated 5/21/93 (1)
10.4 Foilmark Holographics, Inc. Joint Venture Agreement (1)
10.5 Arrow Coated Products ltd, technical Collaboration Agreement (1)
10.6 Agreement for the Purchase of Patents (1)
10.7 Agreement to Acquire Franklin Manufacturing Corp. (1)
10.8 Stock Redemption Agreement dated 10/10/92 (1)
10.9 Agreement to Purchase Equipment between FHI and ETL (2)
10.10 Registration Rights Agreement between the Company and Mintz (2)
10.11 Mintz Waiver Agreement (2)
10.12 Mintz Employment Agreement (2)
10.13 Stockholders Agreement (2)
10.14 Form of Employee Stock Grant Agreement (3)
10.15 Form of Employee Stock Restriction Agreement (3)
10.16 Form of Promissory Note and Schedule of Notes (3)
10.17 Form of January 1994 Shareholder Note and Schedule of Notes (3)
10.18 Option of Agreement for Norwood Plant Expansion (3)
10.19 China Sales and Distribution Agreement (4)
10.20 Sublease of 40 Melville Park Road (5)
10.21 Foilmark Holographics, Inc. Stock Purchase Agreement (7)
10.22 Sales and Licensing Agreement with Embossing Technology Limited (7)
10.23 Acquisition Agreement for West Foils, Inc. (7)
10.24 Registration Rights Agreement with Edward Sullivan (7)
10.25 1995 $1.2 Million Chemical Bank Term Loan Agreement (9)
10.26 1995 $4,400,000 Industrial Revenue Bond Loan Agreement (9)
10.27 1995 Employee Stock Purchase Plan (9)
10.28 1995 Employee Stock Options Plan (9)
10.29 Asset Purchase Agreement between Imtran Industries, Inc. et al and Foilmark,
Inc. (10)
10.40 Consulting Agreement with Martin A. Olsen dated December 31, 1995 (11)
10.41 Registration Rights agreement between Foilmark, Inc. and Martin A. Olsen,
dated December 31, 1995 (11)
10.42 Amended and Restated Employee Stock Purchase Plan, dated
January 31, 1996 (11)
10.43 Amended and Restated Employee Stock Option Plan as of
January 31, 1996 (11)
10.44 Annual Incentive Compensation Plan January 2, 1996 (12)
10.45 1997 Waiver and Amendment, Chase Bank
10.46 1997 Waiver and Amendment, Fleet Bank
10.47 1997 Consulting Agreement with Edward Sullivan
10.48 1997 Waiver and Amendment to Term Loan, Chase Bank
13.1 Annual Report to Security Holders*
</TABLE>
Subsidiaries:
21.1 The following is a list of all subsidiaries of the
Registrant, the jurisdiction of incorporation, and the
percentage of shares owned by each such subsidiary.
<TABLE>
<CAPTION>
Name Incorporated Ownership
---- ------------ ---------
<S> <C> <C>
Kensol-Olsenmark, Inc. Delaware 100%
Foilmark Manufacturing Corp. Delaware 100%
Kensolmark, Inc. Barbados 100%
West Foils, Inc. California 100%
</TABLE>
The following footnote references are to documents incorporated by
reference herein:
(1) Exhibits to Form S-1 filed October 25, 1993.
(2) Exhibits to Form S-1 Amendment No. 1 filed December 3, 1993.
(3) Exhibits to Form S-1 Amendment No. 2 filed May 9, 1994.
(4) Exhibits to Form S-1 Amendment No. 3 filed June 17, 1994.
(5) Form 10-Q filed August 8, 1994.
(6) Form 10-Q filed November 3, 1994.
(7) Form 8-K filed November 30, 1994.
(8) Form 8-A filed May 24, 1994. To be filed pursuant to
Regulation 14A within 120 days of the end of the fiscal
year covered by this report.
(9) Exhibits to Form 10-Q for the Quarter ending June 30, 1995.
(10) Exhibits to Form 8-K filed on September 1, 1995.
(11) Exhibits to Form 10-K filed on March 30, 1996.
(12) Exhibits to Form 10-Q filed on April 30, 1996.
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
Board of Directors and Stockholders
Foilmark, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Foilmark, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, Stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996. In connection with our
audits of the consolidated financial statements, we have also audited the
related financial statement schedule as listed in item 14 (a)(2). These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Foilmark, Inc. and subsidiaries at December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects, the information set forth
therein.
/s/ KPMG Peat Marwick LLP
Providence, Rhode Island
April 14, 1997
F-1
<PAGE>
FOILMARK, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Assets
Current assets:
Cash $ 199,923 464,256
Accounts receivable - trade (less allowance for doubtful
accounts of $539,000 and $299,000 in 1996 and 1995) 5,730,924 5,933,109
Inventories 13,910,815 11,556,163
Other current assets (including $40,000 due from
an affiliate in 1996 and 1995) 206,952 317,655
Income taxes receivable 491,915 --
Deferred income taxes 760,246 307,000
----------- -----------
Total current assets 21,300,775 18,578,183
Property, plant and equipment, net - at cost 12,518,552 11,541,702
Bond and mortgage financing costs (net of accumulated amortization
of $344,055 and $247,258 in 1996 and 1995, respectively) 533,868 442,580
Intangible assets, net 5,840,242 6,184,297
Other assets 138,680 167,772
Cash - restricted -- 1,037,590
----------- -----------
$40,332,117 37,952,124
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of notes payable - stockholders $ 132,113 200,433
Current installments of other long-term debt 1,385,598 1,823,899
Accounts payable and accrued expenses 6,173,197 4,716,111
Customer deposits 827,812 71,232
----------- -----------
Total current liabilities 8,518,720 6,811,675
Long-term debt:
Notes payable to stockholders, net of current installments 767,054 903,494
Other long-term debt, net of current installments 11,398,034 9,828,629
----------- -----------
12,165,088 10,732,123
Deferred income taxes 1,398,528 1,165,000
----------- -----------
Commitments and contingencies (Notes 14 and 18)
Stockholders' equity:
Common stock ($.01 par value; 10,000,000 shares authorized;
4,151,719 and 4,135,844 shares issued and outstanding
in 1996 and 1995, respectively) 41,517 41,358
Additional paid-in capital 13,364,404 13,317,982
Retained earnings 4,843,860 5,883,986
----------- -----------
Total stockholders' equity 18,249,781 19,243,326
----------- -----------
$40,332,117 37,952,124
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE>
FOILMARK, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $ 37,190,611 36,806,783 30,583,751
Cost of Sales 28,525,964 25,391,907 21,663,327
------------ ------------ ------------
Gross profit 8,664,647 11,414,876 8,920,424
Selling, general and administrative expenses 9,174,753 7,938,630 6,389,522
------------ ------------ ------------
(510,106) 3,476,246 2,530,902
------------ ------------ ------------
Other income (expense):
Interest expense - net (914,711) (416,940) (513,455)
Other income 211,720 114,020 144,677
Settlement of litigation (note 18) (305,000) - -
------------ ------------ ------------
Income (loss) before income taxes (1,518,097) 3,173,326 2,162,124
Income tax (benefit) expense (477,971) 1,330,000 897,000
------------ ------------ ------------
Net income (loss) (1,040,126) 1,843,326 1,265,124
============ ============ ============
Net income (loss) per share (.25) .46 .44
============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 4,142,318 3,999,263 2,900,489
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FOILMARK, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additional
Common paid-in Retained
stock capital earnings Total
----- ------- -------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ 20,000 3,886,038 2,775,536 6,681,574
Shares issued in initial public
offering 17,250 7,650,345 --
7,667,595
Shares issued under stock grants -- 24,356 -- 24,356
Shares issues in acquisition of West
Foils, Inc. 1,538 537,887 -- 539,425
Net income -- -- 1,265,124 1,265,124
----------- ----------- ----------- -----------
Balance at December 31, 1994 38,788 12,098,626 4,040,660 16,178,074
Shares issued under stock grants -- 6,926 -- 6,926
Shares issued in acquisition of Imtran
Industries, Inc. 2,570 1,212,430 --
1,215,000
Net income -- -- 1,843,326 1,843,326
----------- ----------- ----------- -----------
Balance at December 31, 1995 41,358 13,317,982 5,883,986 19,243,326
Shares issued under stock grants -- 8,923 -- 8,923
Shares issued under benefit plans 159 37,499 --
37,658
Net loss -- -- (1,040,126) (1,040,126)
----------- ----------- ----------- -----------
Balance at December 31, 1996 $ 41,517 13,364,404 4,843,860 18,249,781
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FOILMARK, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,040,126) 1,843,326 1,265,124
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 1,351,685 913,629 865,560
344,055 299,383 239,798
Issuance of common stock to employees
under stock grants 8,923 6,926 24,356
Provision for doubtful accounts 240,000 137,000 40,000
Deferred taxes (219,718) (146,000) 130,385
Change in assets and liabilities, net of
effects from the purchase of the companies:
Increase in accounts receivable (37,815) (736,361) (503,466)
Increase in inventories (2,354,652) (1,504,300) (1,684,287)
Increase in income taxes receivable (491,915) -- --
Decrease (increase) in bond and mortgage
financing costs and other assets 48,507 (500,365) 574,764
Increase (decrease) in accounts payable
and accrued expenses (1,457,086) 993,908 (704,019)
Increase (decrease) in customer deposits 756,580 (248,793) (295,456)
Increase (decrease) in income taxes payable -- (274,244) 274,244
----------- ----------- -----------
Net cash provided by operating activities 62,610 784,109 227,003
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (2,328,535) (3,886,398) (1,279,641)
Increase (decrease) in cash restricted 1,037,590 (1,037,590) --
Payment for the purchase of companies, net of cash acquired -- -- (949,603)
----------- ----------- -----------
Net cash used in investing activities (1,290,945) (4,923,988) (2,229,244)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from shares issued in public offering -- -- 7,667,595
Proceeds of other long-term debt 3,667,770 5,892,631 --
Repayments of note payable - bank (2,536,646) (1,200,000) (50,000)
Payments of notes payable to stockholders (204,780) (815,202) (817,587)
Payments of other long-term debt -- -- (4,133,180)
Proceeds from shares issued under benefit plans 37,658 -- --
----------- ----------- -----------
Net cash provided by financing activities 964,002 3,877,429 2,666,828
----------- ----------- -----------
Net increase (decrease) in cash (264,333) (262,450) 664,587
Cash - beginning of year 464,256 726,706 62,119
----------- ----------- -----------
Cash - end of year $ 199,923 464,256 726,706
=========== =========== ===========
</TABLE>
F-5
<PAGE>
FOILMARK, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest .......................................... $893,392 416,940 506,965
-------- -------- --------
Income taxes ...................................... $129,100 905,000 399,550
======== ======== ========
Supplemental schedule of noncash investing
and financing activities
Capitalized lease relating to the purchase of
computer equipment ................................ $ -- -- 347,338
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Foilmark, Inc. & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1996 and 1995
(1) The Company
Foilmark, Inc. (the "Company" or "Foilmark") is a leading United States
manufacturer of all components used in the hot stamping process: machinery,
foils, tooling and dies. Hot stamping is a dry process for marking, labeling and
decorating products that uses heat and pressure to apply a design or lettering
to a flat, contoured or cylindrical shaped surface. The Company sells its hot
stamping machines to the appliance, television cabinet, television
manufacturing, automotive and pharmaceutical industries. In addition, the
Company produces and sells hot stamping foils for the graphics and general
plastic industries. The Company also manufactures pad printing equipment and
supplies for ink decoration of various products.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material intercompany balances and
transactions are eliminated in consolidation.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
(c) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed as
follows:
Estimated
Methods Useful Life
------- -----------
Building and improvements Straight-line and accelerated 15-45 years
Machinery, furniture and fixtures Straight-line and accelerated 3-10 years
Automobiles Straight-line 3 years
(d) Bond and Mortgage Financing Costs
Bond and mortgage financing costs are amortized over the life of the related
obligations.
(e) 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 and operating
loss and tax credit carry forwards. 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.
(f) Research and Development
The Company incurs costs in the research and development of new products and
applications. Such costs are expensed as incurred and amounted to $650,000 and
$684,253, and $776,526 for the years ended December 31, 1996, 1995, and 1994
respectively, and were included as a component of cost of sales.
F-6
<PAGE>
(g) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(h) Impairment of 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 or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
(i) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(j) Reclassification
Certain reclassifications were made to prior year amounts in order to conform
with current year presentations
(3) Manufacturing Facilities Consolidation
In the first quarter of 1996, the Company consolidated its machinery
manufacturing operations by transferring a portion of machine manufacturing from
the Norwood, Massachusetts plant to the Newburyport, Massachusetts, Imtran
Foilmark facility. Costs incurred in this move totaled approximately $200,000 in
1996, and were included in cost of goods sold. Cost of goods sold in 1996 also
includes approximately $100,000 in other facility consolidation costs.
(4) Acquisitions
(a) West Foils, Inc.
Effective October 1, 1994, the Company acquired all of the outstanding stock of
West Foils, Inc., a California company engaged in the distribution of foils, for
$750,000 in cash and 153,847 shares of common stock of the Company. The common
stock was valued at approximately $540,000 based upon an appraisal by an
investment company. The cash portion of the purchase price was paid from
borrowings under the Company's line of credit agreement with its bank. The
acquisition has been accounted for as a purchase and the operating results of
West Foils, Inc. are included in the consolidated statement of earnings from the
date of acquisition. The excess of the total acquisition cost over the fair
value of assets acquired, amounting to approximately $786,000 is being amortized
on the straight line basis over 20 years.
F-7
<PAGE>
In connection with the acquisition, the Company entered into an employment
agreement with the former shareholder of West Foils, Inc. Under the terms of the
employment agreement, the Company is obligated to pay a base salary of $120,000
per year plus 15% of West Foils earnings over $300,000 per year, in each of the
next two years. The employment agreement terminated on December 31, 1996 by
mutual agreement. The former shareholder is now serving as a consultant to the
Company pursuant to a two year consulting agreement.
(b) Imtran
On August 21, 1995, the Company acquired substantially all of the assets and
assumed certain liabilities of Imtran Industries, Inc. The acquired assets
consist primarily of equipment and other property used in the manufacture and
distribution of pad printing equipment. The Company has transferred all of the
assets to a newly formed wholly-owned subsidiary Imtran Foilmark, Inc. which
will continue operations in the pad printing business. The aggregate purchase
price of $4.9 million was paid through a $3.7 million borrowing under the
Company's available line of credit and the issuance of 257,044 shares of the
Company's common stock (which was valued at $1,215,000 based upon appraisal.)
The acquisition, which was accounted for as a purchase, resulted in an excess of
cost over fair value of assets acquired of approximately $3.9 million, which is
being amortized on the straight line basis over 20 years.
The following unaudited pro forma consolidated results of operations assume that
the West Foils and Imtran acquisitions occurred on January 1, 1994 and reflect
the historical operations of the purchased businesses adjusted for increased
interest expenses as a result of borrowings and increased amortization, net of
applicable income taxes resulting from the acquisitions:
1995 1994
---- ----
Net sales .............................. $39,384,000 $34,433,000
Net income ............................. 1,915,000 1,317,000
Net income per share ................... .46 .42
The pro forma results of operations are not necessarily indicative of the actual
results of operations that would have occurred had the purchases been made at
the beginning of the period, or of results which may occur in the future.
(5) Inventories
Inventory balances consist of the following:
1996 1995
---- ----
Raw materials ...................... $ 795,856 $ 1,885,377
Work-in-progress ................... 3,768,067 1,837,471
Finished goods ..................... 9,346,892 7,833,315
---------- ----------
13,910,815 11,556,163
========== ==========
Polyester, the primary raw material in foil manufacturing, is subject to
fluctuations in price depending on industry supply and demand.
F-8
<PAGE>
(6) Property, Plant and Equipment
Property, plant and equipment at December 31, 1996 consists of the following:
1996 1995
---- ----
Land ....................................... $ 697,404 $ 697,404
Building and improvements .................. 7,106,686 6,492,023
Machinery, furniture and fixtures .......... 13,336,891 11,633,509
Automobiles ................................ 112,553 102,063
----------- -----------
21,253,534 18,924,999
Less accumulated depreciation .............. 8,734,982 7,383,297
----------- -----------
12,518,552 11,541,702
=========== ===========
Depreciation expense amounted to $1,351,685, $913,629 and $865,560 for the years
ended December 31, 1996, 1995 and 1994 respectively.
(7) Intangible Assets
Intangible assets at December 31, 1996 and 1995 include the following:
<TABLE>
<CAPTION>
Amortization
1996 1995 Period
---- ---- ------
<S> <C> <C> <C>
Excess of cost over fair value of assets acquired... $5,768,759 $5,768,759 20 Years
Covenant not to compete............................. 325,000 325,000 10 Years
Patents............................................. 363,156 363,156 17 Years
Trademarks.......................................... 157,063 157,063 20 Years
---------- ----------
6,613,978 6,613,978
Less: accumulated amortization .................... 773,736 429,681
---------- ----------
5,840,242 6,184,297
========== ==========
</TABLE>
The Company assesses the recoverability of the excess of cost over fair value of
assets acquired annually based upon the projected undiscounted future cash flows
of the acquired entity with any diminution in value recorded when identified.
Amortization expense of $344,055, $299,383, and $239,798 relating to intangible
assets was charged to operations in 1996, 1995 and 1994, respectively.
(8) Notes Payable - Stockholders
Notes payable to stockholders' consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Notes payable to stockholders with interest at 6% and balance due in equal
quarterly installments through December 31, 2003, subordinated to bank notes
and/or industrial revenue bonds .............................................................. $ 182,675 $ 206,568
Promissory notes to a stockholder,
subordinated except for monthly installments
through the due date to industrial development
revenue bonds, bearing a stated interest rate of 6% due in
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
quarterly installments of $10,357 including interest
through 2003 ................................................................................. 156,265 187,150
Notes due to a stockholder in connection with the acquisition of Franklin
Manufacturing Corporation. Payable in aggregate monthly installments of $8,500
through March 1997 including interest at
approximately 6.5% ........................................................................... 25,400 129,879
Notes due to former stockholders, payable in semi-annual payments of $19,911,
which include interest at 6% per annum. Payments began May 1, 1993 and continue
through November 1, 2007, subordinated
through the due date ......................................................................... 534,827 580,330
--------- ---------
Total notes payable stockholders ............................................................. 899,167 1,103,927
Less current installments .................................................................... 132,113 200,433
--------- ---------
Notes payable-stockholders, excluding
current installments ......................................................................... 767,054 903,494
--------- ---------
Interest amounting to $57,935, $66,381, and $175,000 in 1996, 1995, 1994,
respectively, was paid to the Company's stockholders or other related parties.
(9) Other Long-Term Debt
Other long-term debt consists of the following:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Borrowings under revolving credit loan financing
agreement, see (a) ........................................................................... $ 5,560,552 $ 4,225,000
Borrowings under The Massachusetts Industrial
Financing Agreement, see (b) ................................................................. 4,100,000 4,400,000
Mortgage note payable in quarterly installments of $33,292 plus interest at
LIBOR + 2% (5.56% at December 31, 1996,) with a final payment of $699,126 due
January 17, 2007; secured by real property with
a depreciated cost of $2,939,509, see (c) .................................................... 1,997,500 --
Borrowings under financing agreement, interest
at prime (8.25% at December 31, 1996) payable
monthly, through June 1999, see (d) .......................................................... 775,000 1,200,000
Capital lease obligation payable in quarterly
installments of $21,379, including interest at 6%,
through March 1999 ........................................................................... 179,404 241,121
Mortgage loans payable, interest at prime(8.25%
at December 31, 1996) see (e) ................................................................ 171,176 --
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Second mortgage payable - This mortgage is payable in monthly installments of
$6,541 plus interest at prime plus 1-1/4% per annum through January 1, 2000 and
a final payment of $399,068 due January 24, 2000 ............................................. -- 719,577
Mortgage loan payable, interest at prime plus 1-1/4% per annum, due in monthly
installments of $6,667 plus interest to October 1, 1996, and a final
payment of $806,627 due October 1, 1996 ...................................................... -- 866,830
---------- ---------
Total other long-term debt ................................................................... 12,783,632 11,652,528
Less current installments .................................................................... 1,385,598 1,823,899
---------- ---------
Other long-term debt, excluding current installments ......................................... 11,398,034 9,828,629
========== =========
</TABLE>
(a) In 1995, the Company entered into an unsecured revolving credit agreement
with two banks that permits the Company to borrow up to $6,000,000 at an
interest rate that equals the Reserve Adjusted LIBOR rate plus 2% (5.56 at
December 31, 1996). The Company must pay a quarterly commitment fee of 1/4 of 1%
per annum on the average daily amount of the available revolving credit
commitment. Borrowings under the revolver include two term notes. A $2,316,617
term note shall be payable in sixty monthly installments beginning September 30,
1996. A $1,158,333 term note shall be payable in full on June 30, 1998. As of
December 31, 1996, the Company had an outstanding total of $5,560,552, under the
revolving credit agreement. As of March 31, 1997, the Company has amended the
agreement. The amended agreement does not require principal payments prior to
June 30, 1998 and has less restrictive financial ratio covenants.
(b) In 1995, the Company entered into a financing agreement with the Company's
primary bank and the State of Massachusetts (MIFA Industrial Development Revenue
Bonds) that permitted the Company to borrow up to $4,400,000 at the bank's
fluctuating seven day interest rate (5.56% and 5.1% at December 31, 1996 and
1995). The Company must pay a monthly commitment fee of 1/12th of one percent
(1%) per annum on the average daily stated amount of the letter of credit. The
bonds are subject to mandatory redemption through sinking fund installment
payments prior to maturity on each June 1 as follows: $400,000 for years
1997-2005, and $100,000 for years 2006 - 2010.
(c) In 1996, the Company entered into a financing agreement with two banks which
provides for a ten year mortgage note payable, in the principal amount of
$1,997,500. Approximately $1,484,000 was used to refinance the Company's
previously existing mortgages.
(d) In 1995, the Company borrowed $1,200,000 from a bank. Such borrowings are
repayable in 48 equal monthly installments beginning July 31, 1995. Interest is
payable monthly at the bank's prime rate. The agreement allows for a one time
election by the Company to convert the interest rate to a fixed rate.
(e) In 1996, the Company borrowed $180,250 under two mortgage loan agreements.
The mortgages are payable monthly plus interest at 7.75%. At December 31, 1996,
a building with a net book value of $217,000 was pledged as collateral for this
loan.
The terms of the various long term debt agreements require, among other things,
that the Company maintain certain amounts of tangible net worth, ratios of
current assets to current liabilities, total liabilities to tangible net worth
plus subordinated liabilities, and debt service coverage and restrict the amount
of capital expenditures, and the payment of dividends. At December 31, 1996, the
Company was not in compliance with certain of these covenants for which waivers
were received from the lenders.
F-11
<PAGE>
The Company requested, and obtained, amendments to the various agreements to
change the financial ratio covenants and the Company has assessed based upon
projected operations it is probable that it will meet these amended covenants
over the next year. If the Company fails to meet the covenants, the lenders
under the Agreement have the right to demand repayment of the debt.
Maturities of all long term debt are as follows:
Total Stockholders Other
----- ------------ -----
Year ending December 31:
1997 ................. 1,517,711 132,113 1,385,598
1998 ................. 4,853,714 112,922 4,740,792
1999 ................. 1,315,934 119,827 1,196,107
2000 ................. 1,482,085 127,155 1,354,930
2001 ................. 780,453 105,915 674,538
Thereafter ........... 3,732,902 301,235 3,431,667
---------- ---------- ----------
13,682,799 899,167 12,783,632
========== ======= ==========
(10) Employee Retirement Plans
The Company maintains a profit sharing plan for the benefit of eligible
employees of certain subsidiaries. Contributions are made at the sole discretion
of the Board of Directors, but may not exceed the amounts deductible for income
tax purposes. Contributions are first allocated based upon an integration with
the social security taxable wage base and the remainder based upon total
eligible compensation. There was no expense under the plan during 1996.
Retirement plan expense amounted to $122,000 and $168,000 in the years 1995 and
1994, respectively.
The Company also maintains a profit sharing plan which conforms with Section 401
(k) of the Internal Revenue Code. Contributions are made exclusively by the
participants. The Company does not contribute to the Plan.
The Company does not pay post-retirement or other post-employment benefits.
(11) Income Taxes
The provision for income tax (benefit) expense for the years ended December 31,
1996, 1995, and 1994 is as follows:
1996 1995 1994
---- ---- ----
Federal:
Current .............. $ (312,486) $ 1,169,000 $ 553,000
Deferred ............. (75,808) (109,000) 96,000
----------- ----------- -----------
(388,294) 1,060,000 649,000
----------- ----------- -----------
State:
Current .............. 54,233 307,000 213,615
Deferred ............. (143,910) (37,000) 34,385
----------- ----------- -----------
(89,677) 270,000 248,000
----------- ----------- -----------
$ (477,971) 1,330,000 897,000
=========== =========== ===========
F-12
<PAGE>
Income tax (benefit) expense for the years ended December 31, 1996, 1995, and
1994 differed from the amounts computed by applying the U.S. federal income tax
rate of 34% to pretax income from continuing operations as a result of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax (benefit) expense .......... (516,153) $1,079,000 $ 735,000
Increase (reduction) in income taxes resulting from:
Nondeductible expenses ............................. 71,819 51,000 18,000
State and local income taxes, net of
federal income tax benefit ......................... (59,187) 178,000 178,000
Other, net ......................................... 25,550 22,000 (34,000)
---------- ---------- ----------
(477,971) 1,330,000 897,000
========== ========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996,
and 1995 are presented below:
1996 1995
---- ----
Deferred tax assets:
Accounts receivable principally due to allowance
for doubtful accounts ............................. $ 214,190 $ 81,000
Inventories, cost capitalization .................. 226,177 137,000
Unrealized inventory write downs .................. 138,855 --
Reserve for settlement of litigaton................ 96,075 --
Compensated absences, principally due to accrual
for financial reporting purposes .................. 53,450 89,000
Net state operating loss carry forward ............ 88,400 --
Other ............................................. 93,876
---------- ----------
Net deferred tax assets ........................... 911,023 307,000
========== ==========
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation and capitalized interest .......... (1,549,305) (1,165,000)
---------- ----------
Total gross deferred liabilities .................. (1,549,305) (1,165,000)
---------- ----------
Net deferred tax liability ........................ (638,282) (858,000)
========== ==========
As of December 31, 1996 and 1995 no valuation allowance has been established
relative to the deferred tax assets. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, carryback availability, and projected future taxable income in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred tax
assets are deductible,management believes that it is more likely than not the
Company will realize the benefits of these deductible differences. The amount of
the deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income during thecarryforward period
are reduced.
(12) Stockholders' Equity
F-13
<PAGE>
(a) Stock Grants
Since 1986 the Company has granted 61,992 shares of its common stock to certain
key employees. The grants are recorded at net book value which was considered
the fair market value on the date of the grant, as determined by Company
management. Granted shares vest 20% per year beginning on the December 31
immediately after the grant. As of December 31, 1996, 2,035 shares remain
unvested. Deferred compensation expense is recorded by the Company for the value
of the grants that have not vested. Deferred compensation expense has been
netted with additional paid-in capital in the accompanying consolidated
statements of stockholders' equity. No shares were granted in 1996 and 1995.
Compensation expense of $8,923, $6,926, and $24,356 relating to these grants was
recorded for the years ended December 31, 1996, 1995 and 1994, respectively.
(b) Stock Option Plan
The Company had two stock option plans in effect at December 31, 1996: The 1993
Employees Stock Option Plan (1993 Plan) and the 1995 Employees Stock Option Plan
(1995 Plan) (collectively the "plans").
The 1993 and 1995 Employees Stock Option Plans provide for the issuance to key
employees and officers a maximum of 200,000 and 400,000 shares of common stock,
respectively, in the form of stock options. Stock options issued under the Plans
may be granted as "Incentive Stock Options" (as defined by the Internal Revenue
Code of 1986) or nonqualified stock options. Options may be exercised only
within ten years from the date of grant.
Effective September 1, 1994, certain officer/shareholders agreed to cancel and
rescind stock options to purchase 18,700 and 17,400 shares respectively of the
Company's authorized but unissued common stock previously granted to them in
1993 in accordance with the 1993 Plan. Effective May 5, 1995, certain
officers/shareholders agreed to cancel and rescind stock options to purchase
88,900 shares of the Company's authorized but unissued common stock previously
granted to them in 1993 in accordance with the 1993 Plan. Stock options for
160,150 shares of common stock with an exercise price of $5.50 per share, remain
outstanding. As a result of the cancellation, 39,850 shares remain available for
granting under the 1993 Plan.
At December 31, 1996, there were 39,850 additional shares available for grant
under the 1993 Plan and 352,050 additional shares available under the 1995 Plan.
The per share weighted-average fair value of stock options granted during 1995
and 1996 was $2.48 and $2.29 respectively on the date of grant using the Black
Scholes option-pricing model with the following weightied-average assumptions:
1993 Plan - expected dividend yield 0%, risk-free interest rate of 5.95%, and an
expected life of 5 years; 1995 Plan - expected dividend yield 0%, risk free
interest rate of 6.03%, and an expected life of 5 years. The expected volatility
rate was 39% for both plans.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
below:
1996 1995
---- ----
Net income As reported ........... $(1,040,126) $1,843,326
Pro forma ............. (1,287,965) 1,611,642
EPS As reported ........... (.25) .46
Pro forma ............. (.31) .40
Pro forma net income (loss) reflects only options granted in 1996 and 1995.
Compensation cost is reflected over the options' vesting period of 1 year.
F-14
<PAGE>
The following table summarizes the activity in the Plan:
Weighted-Average
Number Option price
of Shares per Share
-- ------ ---------
Outstanding,
January 1, 1994................ 125,000 $7.35
Rescinded........................ (36,100) 7.70
------- ---------
Balance,
December 31, 1994............... 88,900 7.35
Rescinded...................... (88,900) 7.35
Granted....................... 160,150 5.50
------- ---------
Balance,
December 31, 1995............... 160,150 5.50
Granted....................... 47,950 4.50
------- ---------
Balance,
December 31, 1996............... 208,100 $5.27
======= =========
At December 31, 1996 the number of options exercisable was 160,150 with a
weighted-average exercise price of $5.50. At December 31, 1995 no options were
exercisable.
(c) Employee Stock Purchase Plan
The Employee Stock Purchase Plan (the "ESPP") covers substantially all
employees. The ESPP allows eligible employees the right to purchase common stock
every eight weeks at 85% of the average market price during the eight week
period. As of December 31, 1996 there were 400,000 shares of common stock
reserved for the ESPP. The number of shares issued under the plan in 1996 were
15,828 shares for $37,658.
(13) Foreign Sales
The Company's foreign sales are made principally to customers in Western Europe,
Taiwan, Peoples Republic of China, Mexico, South and Central America. All
foreign sales are payable in U.S. dollars. No single country accounted for more
than 5% of the Company's sales. Such sales amounted to $5,981,700, $4,655,000
and $4,203,000 for the years ended December 31, 1996, 1995, and 1994
respectively.
(14) Commitments
Rental Commitments
The Company's minimum annual rentals under various non-cancelable operating
leases for warehouse space, equipment and autos expiring through 2000 is as
follows:
Year ending December 31:
- ------------------------
1997 ................................................ $356,207
1998 ................................................ 314,673
1999 ................................................ 269,111
2000 ................................................ 154,761
2001 ................................................ 75,330
Rental expense under operating leases was $438,000, $150,000, and $175,000 in
1996, 1995 and 1994, respectively. Rent expense of $30,000 per annum was paid
for the years ended December 31, 1995, and 1994 to an entity wholly-owned by
certain stockholders of the Company.
F-15
<PAGE>
(15) Business and Credit Concentrations
The Company's customers are located primarily throughout the United States.
There were no accounts receivable from a customer greater than 5% of the
Company's total stockholders' equity at December 31, 1996.
(16) Quarterly Results of Operations (Unaudited)
The following table sets forth quarterly financial information for 1996 and
1995:
Net Gross Net Net income(loss)
sales profit income per share
----- ------ ------ ---------
1996:
First quarter ... $ 8,846,000 $ 2,246,000 $ (183,000) $(.04)
Second quarter ... 10,162,000 2,888,000 143,000 .03
Third quarter .... 9,564,000 2,588,000 70,000 .02
Fourth quarter ... 8,619,000 943,000 (1,070,000) (.26)
----------- ----------- ----------- ----
Total ............ 37,191,000 8,665,000 $(1,040,000) $(.25)
----------- ----------- ----------- ----
1995:
First quarter .... $ 9,668,000 $ 2,979,000 $ 523,000 $.14
Second quarter ... 9,131,000 3,036,000 594,000 .15
Third quarter .... 8,813,000 2,790,000 480,000 .12
Fourth quarter ... 9,195,000 2,610,000 246,000 .06
----------- ----------- ----------- ----
Total ............ $36,807,000 $11,415,000 $ 1,843,000 $.46
----------- ----------- ----------- ----
1994:
First quarter .... $ 7,401,000 $ 2,084,000 $ 231,000 $.12
Second quarter ... 7,918,000 2,471,000 247,000 .12
Third quarter .... 7,859,000 2,113,000 279,000 .08
Fourth quarter ... 7,406,000 2,252,000 509,000 .13
----------- ----------- ----------- ----
Total ............ $30,584,000 $ 8,920,000 $ 1,265,000 $.44
=========== =========== =========== ====
The fourth quarter of 1996 includes a $500,000 write down of inventory related
to discontinued products and $100,000 in facility relocation expenses. The
fourth quarter of 1996 also include a $305,000 settlement of a lawsuit, (note
18).
The fourth quarter of 1994 includes $100,000 in proceeds from a life insurance
policy covering the Company's former director and executive vice president. The
effective tax rate in the fourth quarter of 1994 was lower than the effective
rate for the entire year in order to adjust the Company's tax expense to the
required amount.
(17) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Accounts receivables-trade, other current assets, notes payable to banks,
accounts payables and accrued expenses, customer deposits and deferred income
taxes. The carrying amounts of these financial instruments approximate fair
value because of the short maturity of those instruments.
Notes payable-stockholders and other long-term debt: The fair value of the
Company's long-term debt is estimated by discounting the future cash flows of
each instrument at rates currently offered to the Company for similar debt
instruments of comparable maturities by the Company's bank. Such fair values
approximated carrying values at December 31, 1996 and 1995.
F-16
<PAGE>
(18) Commitments and Contingencies
For all of 1996, the Company was a defendant in a group of consolidated lawsuits
brought in 1995 alleging personal injuries arising out of a motor vehicle
accident involving a vehicle leased by one of the Company's subsidiaries and
operated by an employee of that subsidiary. Plaintiffs sought damages for an
amount significantly in excess of the Company's insurance policy limits. During
1996 the Company settled two (2) of the cases within the limits of its liability
insurance policy. On April 8, 1997 the Company settled the remaining cases by
agreeing to pay $200,000.00 to the remaining Plaintiffs. In connection with the
settlement, the Company's liability carrier paid the balance of the amount
available under the policy after giving effect to the prior settlement. These
settlements have been confirmed by the Superior Court and Dismissal Stipulations
have been entered dismissing the litigation with prejudice. The Company has
recorded $305,000 to cover the cost of the settlement in excess of the insurance
proceeds and additional settlement related costs.
The Company is involved in various other claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
F-17
<PAGE>
Schedule 1
FOILMARK, INC. AND SUBSIDIARIES
Schedule of Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F
- ------ ------ ------ ------ ------ ------
Balance at Charged to Balance
beginning cost and at end of
Classification of period expense Deductions (1) Other period
- -------------- --------- ------- ---------- ----- ------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1994:
Allowance for doubtful
accounts (deducted from
accounts receivable) $122,000 $ 40,000 -- -- $162,000
For the year ended
December 31, 1995:
Allowance for doubtful
accounts (deducted from
accounts receivable) 162,000 137,000 -- -- 299,000
For the year ended
December 31, 1996:
Allowance for doubtful
accounts (deducted from
accounts receivable) 299,000 240,000 -- -- 539,000
</TABLE>
(1) Deductions relate to uncollectible accounts charged off to valuation
accounts, net of recoveries
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(g) of the Securities
Exchange Act of 1934, the Registrant has duly caused this document to be signed
on its behalf by the undersigned, thereunto duly authorized.
FOILMARK, INC.
By: /s/ Frank J. Olsen, Jr. Date: April 11, 1997
-------------------------------------
Frank J. Olsen, Jr., President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ Frank J. Olsen, Jr. Chairman of the Board April 11, 1997
- ------------------------ Chief Executive Officer
Frank J. Olsen, Jr.
/s/ Philip Leibel Vice President - Finance April 11, 1997
- ------------------------ Chief Financial Officer
Philip Leibel
/s/ Leonard A. Mintz Senior Vice President April 11, 1997
- ------------------------ & Director
Leonard A. Mintz
/s/ Wilhelm P. Kutsch Senior Vice President April 11, 1997
- ------------------------ & Director
Wilhelm P. Kutsch
/s/ Edward Sullivan Vice President - April 11, 1997
- ------------------------ West Coast Operations
Edward Sullivan & Director
/s/ Carol J. Robie Vice President - April 11, 1997
- ------------------------ Administration & Director
Carol J. Robie
/s/ Kenneth Harris Vice President - April 11, 1997
- ------------------------ Pad Print Operations
Kenneth Harris & Director
/s/ Martin A. Olsen Chairman of the Board April 11, 1997
- ------------------------ Emeritus & Director
Martin A. Olsen
22
<PAGE>
Signature Capacity Date
--------- -------- ----
/s/ Michael J. Bertuch Director April 11, 1997
- ------------------------
Michael J. Bertuch
/s/ Michael Foster Director April 11, 1997
- ------------------------
Michael Foster
23
AMENDED AND RESTATED FOURTH AMENDMENT AND WAIVER (the "Fourth Amendment and
Waiver") dated as of March 31, 1997 to the Letter of Credit, Reimbursement and
Loan Agreement dated as of June 28, 1995, as amended by the First Amendment and
Waiver dated as of March 5, 1996, the Second Amendment and Waiver dated as of
July 23, 1996 and the Third Amendment and Waiver dated as of February 7, 1997
(the "Agreement") by and between Foilmark Manufacturing Corporation (the
"Company") and The Chase Manhattan Bank (formerly known as Chemical Bank) (the
"Bank")
WHEREAS, the Company has requested and the Bank has agreed, subject to the terms
and conditions of this FOURTH AMENDMENT AND WAIVER, to amend and waive the
Agreement to reflect the requests set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements
herein contained, the parties hereto agree as follows:
1. Waiver of ARTICLE II, Letter of Credit and Loans, Section 2.02, Debt
Service Account; Reimbursement.
Compliance with Section 2.02. (a) of the Agreement is hereby waived for
the period commencing July 1, 1996 through and including the date hereof
solely to the extent necessary to permit the non-receipt by the Bank
during such period of the Aggregate amount of monthly sinking fund
payments required to be made by the Company into the Debt Service Account
maintained at the Bank, in the amount of $300,000, provided, however, that
the Company makes a cumulative payment, no later than April 30, 1997, in
the amount of $148,143.29 into the Debt Service Account maintained at the
Bank. As of the date hereof, the Company has made sinking fund payments
into the Debt Service Account maintained at the Bank in the aggregate
amount of $151,856.71.
2. Waiver of ARTICLE V, AFFIRMATIVE COVENANTS, SECTION 5.03, Financial
Statemens, Reports
Compliance with Section 5.03.(a) of the Agreement is hereby waived for the
fiscal year ended December 31, 1996 to permit the late receipt by the Bank
of the audited consolidated financial statements of Foilmark and its
Subsidiaries for such fiscal year and the unaudited consolidating
financial statements of Foilmark and its Subsidiaries for such fiscal
year, which were to be delivered to the Bank on or before March 31, 1997
provided, however, such financial statements are received by the Bank no
later than April 15, 1997.
Compliance with Section 5.03.(c) of the Agreement is hereby waived for the
fiscal year ended December 31, 1996 to permit the late receipt by the Bank
of the certificate of non-default relating to such fiscal year, prepared
and signed by the Auditor and the Chief Financial Officer of Foilmark and
each of its Subsidiaries, which was to be delivered to the Bank on or
before March 31, 1997 provided, however, such certificate is delivered to
the Bank no later than April 15, 1997.
3. Waiver of ARTICLE VI, NEGATIVE COVENANTS, SECTION 6.01 Liens.
Compliance with Section 6.01. of the Agreement is hereby waived to permit
Kensol-Olsenmark, Inc., a New York corporation and Kensol-Olsenmark, Inc.,
a Delaware corporation to have granted a first mortgage lien on certain
real property owned by each of such entities respectively and located at
40 Melville Park Road, Melville, New York and 692 Pleasant Street,
Norwood, Massachusetts, respectively, solely to secure a guaranty
delivered to Fleet National Bank by each such entity on December 16, 1996
of certain Indebtedness owing by Foilmark, Inc. to Fleet National Bank in
the original principal amount of $1,997,500 and funded on December 16,
1996.
<PAGE>
4. Waiver of ARTICLE VI. NEGATIVE COVENANTS, SECTION 6.02. Indebtedness
Compliance with Section 6.02. of the Agreement is hereby waived to permit
Foilmark, Inc. to incur Indebtedness from Fleet National Bank pursuant to
a Commercial Term Loan Agreement and Commercial Term Promissory Note
entered into on December 16, 1996 with respect to a ten (10) year term
loan in the original principal amount of $1,997,500, payable in
consecutive quarterly installments of $33,291.66 each, commencing March
16, 1997, with the then outstanding balance of such term loan due and
payable in full on December 16, 2006.
5. Waiver of ARTICLE VI. NEGATIVE COVENANTS, SECTION 6.04. Guarantees.
Compliance with Section 6.04. of the Agreement is hereby waived to permit
Kensol-Olsenmark, Inc., a New York corporation and Kensol-Olsenmark, Inc.,
a Delaware corporation to have guaranteed certain Indebtedness of
Foilmark, Inc. owing to Fleet National Bank pursuant to a Commercial Term
Loan Agreement and Commercial Term Promissory Note entered into on
December 16, 1996 with respect to a ten (10) year term loan in the
original principal amount of $1,997,500, payable in consecutive quarterly
installments of $33,291.66 each, commencing March 16, 1997, with the then
outstanding balance of such term loan due and payable in full on December
16, 2006.
6. Waiver of ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.09. Leases.
Compliance with Section 6.09. of the Agreement is hereby waived for the
fiscal year ended December 31, 1996 to permit the aggregate amount of all
rents paid by the Company and its Affiliates under operating leases to
exceed $400,000 during such fiscal year provided, however, the aggregate
amount of all such rents paid during such fiscal year was not in excess of
$438,000.
7. Waiver of ARTICLE VI. NEGATIVE COVENANTS, SECTION 6.14. Consolidated
Tangible Net Worth plus Consolidated Subordinated Debt.
Compliance with Section 6.14 of the Agreement is hereby waived for the
fiscal year ended December 31, 1996 to permit the Consolidated Tangible
Net Worth plus Consolidated Subordinated Debt to be less than $13,892,000
as of such fiscal year end provided, however, the Consolidated Tangible
Net Worth plus Consolidated Subordinated Debt was not less than
$12,949,000 as of such fiscal year end.
8. Waiver of ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.15. Consolidated Debt
Service Coverage Ratio.
Compliance with Section 6.15. of the Agreement is hereby waived for the
fiscal year ended December 31, 1996 to permit the Consolidated Debt
Service Coverage Ratio to be less than 1.25 to 1.0 as of such fiscal year
end provided, however, the Consolidated Debt Service Ratio was not less
than 0.68 to 1.0 as of such fiscal year end.
<PAGE>
9. Waiver of ARTICLE VI. NEGATIVE COVENANTS, SECTION 6.17. Consolidated
Capital Expenditures.
Compliance with Section 6.17. of the Agreement is hereby waived for the
fiscal year ended December 31, 1996 to permit the Consolidated Capital
Expenditures of Foilmark and its Subsidiaries to be greater than $600,000
during such fiscal year provided, however, the Consolidated Capital
Expenditures of Foilmark and its Subsidiaries during such fiscal year was
not in excess of $2,330,000.
10. Waiver of ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.18. Total
Unsubordinated Liabilities to Consolidated Tangible Net Worth plus
Consolidated Subordinated Debt.
Compliance with Section 6.18. of the Agreement is hereby waived for the
fiscal year ended December 31, 1996 to permit the ratio of Consolidated
Total Unsubordinated Liabilities to Consolidated Tangible Net Worth plus
Consolidated Subordinated Debt to be greater than 1.50 to 1.0 as of such
fiscal year end provided, however, such ratio was not greater than 1.64 to
1.0 as of such fiscal year end.
11. Amendment to ARTICLE II, LETTER OF CREDIT AND LOANS. SECTION 2.02. Debt
Service Account, Reimbursement, (a).
Section 2.02. (a) of the Agreement is hereby amended by adding the
following sentence to the end thereof as follows:
"The Bank shall directly charge all such monthly installments due pursuant
to this Section to the Company's (i.e.: Foilmark Manufacturing
Corporation's) account number 893-105171 or one or more other accounts of
the Company at the Payment Office or other office of the Bank commencing
April 1, 1997."
12. Amendment to ARTICLE V. AFFIRMATIVE COVENANTS, SECTION 5.03. Financial
Statements, Reports.
Section 5.03. of the Agreement is hereby amended by (1) deleting the word
"and" at the end of subsection (f) thereof, (2) re-designating subsection
(g) thereof as subsection (h) and (3) adding a new subsection (g) as
follows:
"(g) (1) promptly provide to the Bank copies of all material pleadings,
motions and other filings made by any party with respect to the
Proceedings (which shall mean the pending litigation outlined in the
letter dated July 1, 1996 from Hinckley, Allen & Snyder, counsel to the
Company and its affiliates, to the Bank, as updated by letters to the Bank
from Hinckley, Allen & Snyder on October 23, 1996, January 15, 1997 and
March 15, 1997 and all other litigation or proceedings to which the
Company or any of its affiliates are a party which arise out of the
incident which is the basis for the foregoing pending litigation) promptly
after receipt thereof and promptly notify the Bank of any change in the
status of the Proceedings including any decision or orders of the count in
which such Proceedings are held and (2) provide a detailed update of the
Proceedings from counsel to the Company and its affiliates, addressed to
the Bank, on the 15th day of each month commencing April 15, 1997.
<PAGE>
13. Amendment to ARTICLE V. AFFFIRMATIVE COVENANTS.
Article V. of the Agreement is hereby amended by adding a new SECTION 5.18
as follows:
"SECTION 5.18. Proceedings. Cause the counsel to the Company and its
affiliates with respect to the Proceedings (as defined in Section
5.03. (g) hereof) to be available for conferences with respect to
the status of the Proceedings from time to time at the request of
the Bank."
14. Amendment to ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.01. Liens.
Section 6.01. of the Agreement is hereby amended by deleting the work
"and" at the end of subsection (d) thereof, deleting the period at the end
of subsection (e) thereof and substituting therefor the phrase "; and" and
inserting a new subsection "(f)" as follows:
"(f) (1) in the case of Kensol-Olsenmark, Inc., a New York
corporation, a first mortgage Lien granted to Fleet National Bank
covering real property located at 40 Melville Park Road, Melville,
New York to secure a guaranty issued by such entity to Fleet
National Bank on December 16, 1996 as permitted in Section 6.04 (e)
(1) hereof and (2) in the case of Kensol-Olsenmark, Inc., a Delaware
corporation, a first mortgage Lien granted to Fleet National Bank
covering real property located at 692 Pleasant Street, Norwood,
Massachusetts solely to secure a guaranty issued by such entity to
Fleet National Bank on December 16, 1996 as permitted in Section
6.04 (e) (2) hereof, but not including any renewals or extensions of
such mortgage Liens."
15. Amendment to ARTICLE VI. NEGATIVE COVENANTS SECTION 6.02 Indebtedness,
Section 6.02 (h) of the Agreement is hereby amended by deleting the date
"March 31, 1997" contained therein and substituting therefor the date
"April 30, 1997".
Section 6.02 of the Agreement is hereby further amended by deleting the
word "and" at the end of subsection (g) contained therein, deleting the
period at the end of subsection (h) contained therein and substituting
therefor the phrase "; and: and inserting a new subsection "(i)" and a new
subsection "(j)" as follows:
"(i) Unsecured Indebtedness owing by Foilmark, Inc. to Fleet
National Bank under a $6,000,000 revolving credit facility provided
such facility shall expire and all such Indebtedness be repaid to
Fleet National Bank no later than June 30, 1998; and
<PAGE>
(j) Indebtedness owing by Foilmark, Inc. to Fleet National Bank pursuant
to a Commercial Term Loan Agreement and Commercial Term Promissory
Note entered into on December 16, 1996 with respect to a ten (10)
year term loan in the original principal amount of $1,997,500,
payable in consecutive quarterly installments of $33,291.66 each,
commencing March 16, 1997, with the then outstanding balance of such
term loan due and payable in full on December 16, 2006, but not
including any renewals, amendments, extensions or modifications
thereof."
16. Amendment to ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.04. Guarantees.
Section 6.04. of the Agreement is hereby amended by deleting the word
"and" at the end of subsection (c ) thereof, deleting the period at the
end of subsection (d) thereof and substituting therefor the phrase "; and"
and inserting a new subsection "(e)" as follows:
"(e) (1) in the case of Kensol-Olsenmark, Inc., a New York
corporation, a guaranty dated December 16, 1996 of certain
Indebtedness of Foilmark, Inc. owing to Fleet National Bank as
permitted pursuant to Section 6.02. (j) hereof and (2) in the case
of Kensol-Olsenmark, Inc., a Delaware corporation, a guaranty dated
December 16, 1996 of certain Indebtedness of Foilmark, Inc. owing to
Fleet National Bank as permitted pursuant to Section 6.02. (j)
hereof, but not including any renewals, amendments, extensions or
modifications thereof of such guarantys."
17. Amendment to ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.09. Leases.
Section 6.09. of the Agreement is hereby amended by deleting the number
"$400,000" contained therein and substituting therefor the number
"$500,000".
18. Amendment to ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.14.
Consolidated Tangible Net Worth plus Consolidated Subordinated Debt.
Section 6.14 of the Agreement is hereby amended by deleting it in its
entirety and substituting the following therefor:
"SECTION 6.14. Consolidated Tangible Net Worth plus Consolidated
Subordinated Debt. Permit Consolidated Tangible Net Worth plus
Consolidated Subordinated Debt ("TNW"), at any time to be less than
the amount set forth below opposite the relevant period:
<PAGE>
Period Amount
December 31, 1996 through June 29, 1997 $12,700,000
June 30, 1997 through December 30, 1997 $13,000,000
December 31, 1997 through December 30, 1998 The greater of (a) $13,500,000
and (b) the actual TNW as of
December 31, 1997
and for each comparable thereafter, commencing December 31 through
and including December 30 of the following year, an amount not less
than the actual Consolidated Tangible Net Worth plus Consolidated
Subordinated Debt as of the immediately prior December 31 plus
$500,000."
19. Amendment to ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.15 Consolidated
Debt Service Coverage Ratio.
Section 6.15 of the Agreement is hereby amended by deleting it in its
entirety and substituting therefor the following:
"SECTION 6.15. Consolidated Debt Service Coverage Ratio. Permit the
Consolidated Debt Service Coverage Ratio to be less 0.68 to 1.0 at any
time from December 31, 1996 through March 30, 1997; 0.09 to 1.0 at any
time from March 31, 1997 to December 30, 1997 and 1.25 to 1.0 at any time
from December 31, 1997 and thereafter."
20. Amendment to ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.17. Consolidated
Capital Expenditures.
Section 6.17. of the Agreement is hereby amended by deleting such section
in its entirety and substituting therefor the following:
"SECTION 6.17. Consolidated Capital Expenditures. Permit Consolidated
Capital expenditures (including, without limitation, obligations under
Finance Leases) of Foilmark and its Subsidiaries to be greater than
$700,000 in any fiscal year."
21. Amendment to ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.18. Total
Unsobordinated Liabilities to Consolidated Tangible Net Worth plus
Consolidated Subordinated Debt.
Section 6.18 of the Agreement is hereby amended by deleting it in its
entirety and substituting therefor the following:
"SECTION 6.18. Total Unsubordinated Liabilities to Consolidated
Tangible Net Worth plus Consolidated Subordinated Debt. Permit the
ratio of Consolidated Total Unsubordinated Liabilities to
Consolidated Tangible Net Worth plus Consolidated Subordinated Debt
to be greater than (1) 1.67 to 1.0 at any time from December 31,
1996 through December 30, 1997 and (2) 1.50 to 1.0 at any time from
December 31, 1997 and thereafter."
22. Amendment to ARTICLE VII. EVENTS OF DEFAULT. SECTION 7.01. Events of
Default (a).
Section 7.01. (a) of the Agreement is hereby amended by deleting it in its
entirety and substituting therefor the following:
"(a) (i) failure to pay the principal of any Loan as and when due
and payable, (ii) failure to make any payment into the Debt Service
Account required hereunder pursuant to Section 2.02. (a) as and when
due and payable, (iii) failure to make any reimbursement required
hereunder as and when due and payable, or (iv) failure to pay any
interest on any Loan or any Letter of Credit Fee or any other fees
payable under this Agreement as and when due and payable if such
failure shall continue unremedied for a period of five days (with
respect to (iv) only);"
This FOURTH AMENDMENT AND WAIVER shall be construed and enforced in accordance
with the laws of the State of New York.
Capitalized terms used herein and not otherwise defined herein shall have the
same meanings as defined in the Agreement.
Except as expressly amended or consented to hereby, the Agreement shall remain
in full force and effect in accordance with the original terms thereof and is
ratified and confirmed. Without limiting the foregoing, the Company hereby
acknowledges that it is and will continue to be bound by the restrictions
contained in Section 6.01. of the Agreement which prohibit the Company and its
Affiliates from granting any mortgage, pledge, assignment, security interest,
lien, charge or any other encumbrance of any nature whatsoever on any of its
assets now or hereafter owned other than to the extent permitted in Section
6.01. of the Agreement.
The agreements herein contained are limited specifically to the matters set
forth above and do not constitute directly or by implication an amendment or
waiver of any other provision of the Agreement or any default or Event of
Default which may occur or may have occurred under the Agreement.
The Company hereby represents and warrants that, after giving effect to this
FOURTH AMENDMENT AND WAIVER, no Event of Default or default exists under the
Agreement or any other related document.
Please be advised that should there be a need for further amendments or waivers
with respect to these covenants or any other covenants, those requests shall be
evaluated by the Bank when formally requested, in writing, by the Company.
This FOURTH AMENDMENT AND WAIVER may be executed in one or more counterparts,
each of which shall constitute an original, but all of which when taken together
shall constitute but one FOURTH AMENDMENT AND WAIVER. This FOURTH AMENDMENT AND
WAIVER shall become effective upon the satisfaction, as determined by the Bank
in its sole discretion, of each of the following conditions by no later than
March 31, 1997:
(i) when duly executed counterparts hereof which, when taken together,
bear the signatures of each of the parties hereto shall have been
delivered to the Bank;
(ii) upon the receipt by the Bank of the fully executed Amended and
Restated Fourth Amendment and Waiver dated as of March 31, 1997 to
the Term Loan Agreement dated as of June 28, 1995 by and between
Foilmark Manufacturing Corporation and the Chase Manhattan Bank, as
amended;
(iii) upon receipt and satisfactory review by the Bank of amendments and
waivers as to the matters set forth above, as applicable, to the
Commercial Term Loan Agreement dated December 16, 1996 between Fleet
National Bank and Foilmark, Inc.;
(iv) upon the receipt by the Bank of payment in full of all Obligations
(as such term is defined in the Credit Agreement dated as of June
28, 1995, as amended, by and between Foilmark, Inc., Foilmark
Manufacturing Corporation, Kensol-Olsenmark, Inc., West Foils, Inc.,
Imtran Foilmark, Inc., and The Chase Manhattan Bank and Fleet
National Bank of Massachusetts, N.A. (the "Revolving Credit
Agreement")) owing to the Bank by the Company and certain of its
affiliates under the Revolving Credit Agreement including, without
limitation, all principal amounts outstanding, all accrued and
unpaid interest and any other amounts owing pursuant to Section
2.08. (b), Section 2.08. (c) and Section 2.13. of the Revolving
Credit Agreement and cancellation of the Bank's Revolving Credit
Commitment;
(v) upon the execution of an intercreditor agreement by the Bank and
Fleet National Bank, in form and substance satisfactory to the Bank
in all respects, with regard to certain loans owing by the Company
and/or certain of its affiliates to certain individuals which are
currently subordinated by such individuals to (1) indebtedness owing
to the Bank and Fleet National Bank under the Revolving Credit
Agreement and (2) certain other indebtedness owing by the Company
and its affiliates to the Bank;
(vi) upon the receipt by the Bank for its own account of an amendment fee
in the amount of $500; and
(vii) upon payment in full by the Borrower of the legal fees and expenses
of the Bank's outside counsel in connection with the preparation of
this Fourth Amendment and Waiver.
In the event that any of the foregoing conditions are not satisfied on or before
April 9, 1997, the amendments and waivers set forth above shall be null and void
and of no force or effect.
IN WITNESS WHEREOF, the Company and the Bank have caused the FOURTH AMENDMENT
AND WAIVER to be duly executed by their duly authorized officers, all as of the
day and year first above written.
FOILMARK MANUFACTURING
CORPORATION
By: /s/ Philip Leibel
---------------------------
Name: Philip Leibel
Title: Vice President
THE CHASE MANHATTAN BANK
(formerly known as Chemical Bank)
By: /s/ Christopher Zimmermann
---------------------------
Name: Christopher Zimmermann
Title: Vice President
<PAGE>
CONSENT
The undersigned not parties to the Agreement but each a Corporate Guarantor
under a separate Corporate Guaranty dated as of June 28, 1995, hereby accept and
agree to the terms of the FOURTH AMENDMENT AND WAIVER contained herein and each
of the undersigned hereby acknowledges that it is and will continue to be bound
by the covenants contained in Article V and Article VI of the Agreement which
relate to it including, without limitation, the covenant contained in Section
6.01. of the Agreement which prohibits the Company and its Affiliates from
granting any mortgage, pledge, assignment, security interest, lien, charge or
other encumbrance of any nature whatsoever on any of its assets now or hereafter
owned other than to the extent permitted in Section 6.01. of the Agreement.
FOILMARK, INC.
By: /s/ Philip Leibel
---------------------
Name: Philip Leibel
Title: Vice President
KENSOL-OLSENMARK, INC.
By: /s/ Philip Leibel
-----------------------
Name: Philip Leibel
Title: Treasurer
WEST FOILS, INC.
By: /s/ Philip Leibel
---------------------
Name: Philip Leibel
Title: Treasurer
<PAGE>
CONSENT
The undersigned not a party to the Agreement but a Corporate Guarantor under a
separate Corporate Guaranty dated as of August 21, 1995, hereby accepts and
agrees to the terms of the FOURTH AMENDMENT AND WAIVER contained herein and the
undersigned hereby acknowledges that it is and will continue to be bound by the
covenants contained in Article V and Article VI of the Agreement which relate to
it including, without limitation, the covenant contained in Section 6.01. of the
Agreement which prohibits the Company and its Affiliates from granting any
mortgage, pledge, assignment, security interest, lien, charge or other
encumbrance of any nature whatsoever on any of its assets now or hereafter owned
other than to the extent permitted in Section 6.01. of the Agreement.
IMTRAN FOILMARK, INC.
By: /s/ Philip Leibel
---------------------
Name: Philip Leibel
Title: Treasurer
Gregory P. Buscone
Vice President
Commercial Banking
Fleet
Fleet Bank
March 20, 1997 Mail Stop: MA OF D04B
One Federal Street
Mr. Philip Leibel Boston, MA 02110-2010
Chief Financial Officer 617-346-5007
Foilmark, Inc. Fax 617-346-0415
5 Malcolm Hoyt Drive
Newburyport, MA 01950
Dear Phil:
We are in receipt of the preliminary financial statement for Foilmark, Inc. and
affiliate(s) ("the Borrower") for the twelve month period ending December 31,
1996. According to our calculations your company was in violation of the
following:
(1) Section 6.18 Consolidated Tangible Net Worth Plus Subordinated Debt
Divided By Total Debt less Subordinated Debt;
(2) Section 6.14 Consolidated tangible Net Worth Plus Subordinated Debt;
(3) Section 6.15 Consolidated Debt Service Coverage Ratios;
(4) Section 6.09 Waiver of restriction on leases for the twelve (12) month
period ending 12/31/96. Amendment to the limit placed on
leases of $400,000 to $500,000 for the remainder of the
loan agreement;
(5) Section 6.17 Waiver of capital expenditure limit of $600,000 to
$2,328,534 for the twelve month period ending 12/31/96.
These covenants are defined and contained in the loan agreement(s) governing the
Borrower's Commercial loans.
This letter confirms that Fleet National Bank ("Fleet" or the "Bank") has waived
the above cited covenant for the period ended December 31, 1996. All other
terms, conditions, and covenants of the loan agreement between the Borrower and
the Bank remain in effect. Any amendments or modifications not specifically
referenced herein shall also remain in effect.
Very truly yours,
/s/ Gregory P. Buscone
Gregory P. Buscone
Vice President
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made and entered into as of
this 1st day of January, 1997, by and between Foilmark, Inc., a Delaware
corporation (the "Company") having a place of business at 5 Malcolm Hoyt Drive,
Newburyport, Massachusetts 01950 and Edward Sullivan ("Consultant"), an
individual having an address of 257 Promenade East, Montgomery, TX 77356.
W I T N E S S E T H:
WHEREAS, Consultant is presently employed by WestFoils, Inc., a California
corporation, and a wholly-owned subsidiary of Corporation, and
WHEREAS, the term of employee's Employment Agreement runs through December
31, 1998, and
WHEREAS, Consultant and Company have agreed to early termination of the
Employment Agreement and the substitution of this Consulting Agreement in place
thereof, and
WHEREAS, for reasons of personal health, Consultant wishes to relocate his
principal residence from California to Texas, and
WHEREAS, the Company is desirous of retaining the services of Consultant
to advise it in connection with its sales management and strategy and to
continue to generally supervise the WestFoils, Inc. operation.
NOW, THEREFORE, in consideration of the promises and agreements herein
contained and for other good and valuable consideration, the receipt whereof is
hereby acknowledged, it is hereby agreed as follows:
1. Termination of Employment Agreement. Effective December 31, 1996, that
certain Employment Agreement between the said WestFoils, Inc. and the Consultant
is hereby terminated and neither party shall have any further obligation
thereunder, except that said WestFoils, Inc. shall be obligated to pay the
additional compensation referred to in paragraph 4(b) of said Employment
Agreement.
2. Engagement. Corporation hereby engages Consultant to perform the duties
and to provide the services described in this Agreement upon the terms and
conditions set forth herein and the Consultant hereby accepts such engagement.
3. Term. The Consultant's services will commence upon the date hereof and
unless extended or earlier terminated, as hereinafter provided, will continue in
effect until December 31, 1998 (the "Termination Date").
4. Duties. The Consultant will provide advise to the Company in
conjunction with sales management, strategic sales objectives, general
supervision of its WestFoils subsidiary, including the attendance at sales and
other meetings requested by the Company from time to time, and such further
consulting services as the Company may request. The Company acknowledges that
Consultant will not be obligated in any monthly period to provide more than
sixty (60) hours of consulting services, pursuant to this Agreement. The Company
acknowledges that Consultant intends to relocate his principal residence from
California to Texas and, as a result, will not be in a position to provide
day-to-day supervision of its WestFoils, Inc. subsidiary. Consultant agrees to
devote at least one (1) week per month to the supervision of the business and
affairs of WestFoils, Inc.
5. Compensation. For all services rendered hereunder, Company agrees to
pay to Consultant, an amount equal to fifty percent (50%) of the average
compensation payable to Consultant pursuant to his Employment Agreement for the
years 1995 and 1996, including any additional compensation paid or earned by the
Consultant pursuant to paragraph 4(b) of the said Employment Agreement. Such
salary shall be paid in equal bi-weekly installments, the first such installment
to be paid on January 10, 1997. It is understood and agreed that the first and
subsequent payments shall be subject to adjustment to reflect any additional
compensation to which Consultant is otherwise entitled pursuant to paragraph
4(b) of his Employment Agreement when that amount is, in fact, calculated.
Consultant will be entitled to participate in and receive the fringe benefits
offered by the Company to its senior executives.
6. Expenses. Consultant shall be reimbursed on a monthly basis for all
reasonable out-of-pocket travel and telephone expenses incurred by Consultant in
connection with the business of the Company, provided that Consultant provides
the Company with receipt detailing any such expenditures. The Company agrees to
continue any existing lease or to lease or purchase a new automobile for use by
the Consultant in connection with the business of the Company. Maintenance,
insurance and operating expenses shall be paid by the Company or, if paid by the
Consultant, shall be reimbursed by the Company upon presentation of expense
vouchers. This automobile shall be in accordance with the Company's standard
formula and policy for employee automobiles, but shall be at least comparable to
the one presently used by the Consultant. Consultant agrees that except that at
the request of the Company he will not incur any unreasonable out-of-pocket
expenses in connection with any one trip or undertaking.
7. Consultant Responsibilities. The Consultant shall be responsible for
paying all required taxes withholding any amounts required by Federal or state
law for maintaining his own insurance, including, without limitation, Federal
income taxes, Social Security, state tax and other state requirements. The total
cost to the Company's engagement of the Consultant to provide the services
contemplated hereunder shall be the compensation set forth in Section 5 hereof.
8. Termination.
a. The Company may terminate this Agreement: (i) upon Consultant's death;
(ii) at any time, for (A) Consultant's willful failure or refusal to
substantially perform his obligations under this Agreement or other acts or
omissions constituting gross neglect or dereliction of his duties hereunder, or
(B) fraud, dishonesty or other acts or omissions constituting a crime involving
moral turpitude by Consultant, or (iii) upon Consultant's disability, subject to
the provisions of Paragraph 10. Termination under subsection 8(a)(ii) of this
Agreement shall not operate as waiver of the rights and remedies available to
the Company under law.
b. Consultant may terminate this Agreement: (i) at any time, for cause,
upon written notice of willful failure or refusal of the Company to
substantially perform its obligations under this Agreement; (ii) upon
Consultant's disability subject to the provisions of Paragraph 9. Termination
under this provisions shall not operate as a waiver of the rights and remedies
available to the Employee under law.
c. In the event of termination of this Agreement for any reason, in
addition to the other payments that may be required hereunder, the Company shall
be obligated to pay Consultant or his estate, as the case may be, all salary and
other compensation earned or accrued up to the date of termination. In the event
of termination of employment resulting from the Company's willful failure or
refusal to substantially perform its obligations under this Agreement, the
Consultant shall receive the total compensation and other benefits under this
Agreement through December 31, 1998 as liquidated damages.
d. In the event of the death of the Consultant, all salary, bonus or other
payments (if any) due under this Agreement shall be payable to Consultant's
estate.
9. Death. In the event of Consultant's death during the term hereof,
Consultant's legal representative shall be entitled to receive the compensation
due Consultant through the last day of the calendar month in which his death
occurred.
10. Disability. The Company or Consultant shall have the right to
terminate this Agreement, if Consultant shall be ill or so disabled as to
substantially impair his ability to discharge his obligations under this
Agreement for a period of four (4) successive months or eight (8) months in the
aggregate during the term hereof. The right to terminate this Agreement, if
because of disability, to be effective, must be exercised while Consultant's
disability continues.
11. Disclosure of Information.
a. For purposes of this Agreement, Proprietary Information is all
information utilized by the Company, and its Affiliates in their business.
Proprietary Information shall not include information which (i) is now or
hereafter in the public domain, (ii) was known to Consultant, other than as a
result of his ownership or employment by the Company, prior to the date hereof,
or (iii) is disclosed to Consultant by a third party not bound by any duty of
confidentiality to the Company. Proprietary Information shall specifically (but
not exclusively) include the following: the identification of all customers,
suppliers, products, or employees; all contracts; all financial affairs; all
business records or reports; all inventions, trade secrets, processes, or
methods of design, distribution, procurement or manufacturer. Proprietary
Materials shall mean all documents, papers, or other materials containing
Proprietary Information.
b. Consultant agrees that any Proprietary Information which Consultant
obtains, develops, or otherwise acquires in the course of the performance of his
duties hereunder shall be deemed to be confidential in character. Consultant
will not use any Proprietary Information or disclose it to any other party at
any time, except in the ordinary course of his duties with the Company or with
the written consent of the Board of Directors of the Company or as may be
required under any state or federal law, rule or regulation or by a court of
competent jurisdiction. This restriction shall apply during the period of this
Agreement and thereafter.
c. All Proprietary Materials shall be the exclusive property of the
Company and its Affiliates. Upon termination of this Agreement for any reason
whatsoever, Consultant agrees to not take any Proprietary Materials with him,
and to turn over to the Company all Proprietary Materials in his possession and
control.
d. This paragraph shall be binding upon Consultant's heirs, successors,
and legal representatives.
12. Inventions.
a. Any and all inventions, products, improvements, processes,
manufacturing methods or techniques, formulas, designs or styles (collectively
hereinafter referred to as "inventions"), made, developed or created by
Consultant (alone or in conjunction with others, during regular hours of work or
otherwise) during the term of this Agreement which may be directly or indirectly
useful in, or relate to, any business of the Company or its Affiliates or tests
being carried on by them, shall be the Company's exclusive property and at all
times shall be made available to the Board of Directors of the Company or such
persons as may be so designated by the Board of Directors.
b. Consultant will, upon the Company's request, execute any documents
reasonably necessary or advisable in the opinion of the Company's counsel to
direct issuance of patents to the Company or its Affiliates with respect to such
inventions as are to be the Company's exclusive property under this section or
to vest in the Company or its Affiliates title to such inventions, the expense
of securing any patents, however, to be borne by the Company.
c. Consultant will keep confidential and will hold for the Company's and
its Affiliates' sole benefit any invention which is to be theirs exclusively
under this section for which no patent is issued.
d. This nondisclosure provisions contained in Paragraph 12 of this
Agreement shall specifically apply to said Inventions.
13. Non-Competition. Consultant recognizes that the services to be
rendered by his pursuant to the terms of this Agreement are special, unique and
of an extraordinary character. Consultant therefore agrees that during the term
of this Agreement and for three (3) years following the date of termination,
Consultant agrees that he will not, directly or indirectly, alone or as a member
of a partnership or as an officer, director, stockholder, agent or employee of
any other corporation:
a. Intentionally do any act which is likely or intended to impair the
business or good will of the Company or its Affiliates.
b. Intentionally do any act or thing which is likely or intended to
deprive the Company or its Affiliates of the goodwill of suppliers, customers,
employees and others having business relations.
c. Solicit the employment of or otherwise induce any person who is
currently employed by the Company or its Affiliates to leave the Company.
d. Solicit sales of products of the type sold by the Company and its
Affiliates from any present or former customers of the Company or its
Affiliates.
e. Engage in competition with the business of the Company or its
Affiliates.
f. Consultant understands and agrees that the covenants made by him in
paragraph 11 through 13 of this Agreement are being made in view of the unique
and essential nature of the services Consultant is to perform hereunder and the
irreparable injury that would befall the Company and its Affiliates should
Consultant compete with or serve a competitor of the Company or its Affiliates.
14. Affiliates of the Company. "Affiliates" shall mean Foilmark, Inc. and
its U.S.-based subsidiaries which are controlled or under common control by
Foilmark.
15. No Prior Restrictions. Consultant warrants that he is not subject to
any restrictive covenants or non-disclosure agreements with any former employers
or other third parties that will in any way interfere with his performance under
this Agreement, and agrees to indemnify the Company and its Affiliates from any
such claims.
16. Effect of Waiver. The waiver of either party or a breach of any
provisions of this Agreement shall not operate or be construed as a waiver of
any subsequent breach thereof.
17. Binding/Assignment. This Agreement shall be binding upon Consultant,
his heirs, executors, administrators and legal representatives. The rights and
benefits of the Company under this Agreement shall be transferable, and all
covenants and agreements hereunder shall inure to the benefit of an be
enforceable by or against its successors and assigns. However, such transfer
shall not relieve the Company of any liability under the terms of the Agreement.
18. Notice. Any notice required or permitted to be given under this
Agreement shall be given in writing and sent by certified or registered mail or
delivered in person; in the case of the Company, at Foilmark, Inc.'s offices in
Melville, New York, and in the case of Consultant to Consultant's residence as
indicated in the Company records, or to such other address as the parties hereto
may hereafter designate in writing.
19. Entire Agreement. This Agreement contains the entire agreement between
the parties respecting the engagement of Consultant by the Company and
supersedes any and all prior employment agreements existing between Consultant
and the Company, whether oral or written, and shall govern all subsequent
relationships between them. This Agreement may be changed only by an agreement
in writing signed by the party against whom enforcement of any change is sought.
20. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts. In the event any provision of this Agreement is
invalid, illegal or unenforceable for any reason, such provision shall be
ineffective to the extent of such invalidity, illegality or unenforceability
without affecting or impairing the remainder of such provision or any other
provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first-above mentioned.
FOILMARK, INC.
By: /s/ Frank J. Olsen, Jr.
------------------------------
Frank J. Olsen, Jr., President
By: /s/ Edward Sullivan
-----------------------------
Edward Sullivan, Consultant
AMENDED AND RESTATED FOURTH AMENDMENT
AND WAIVER (the "Fourth Amendment and
Waiver"), dated as of March 31, 1997 to
the Term Loan Agreement dated as of June
28, 1995, as amended by the First
Amendment and Waiver dated as of March
5, 1996, the Second Amendment and Waiver
dated as of July 23, 1996 and the Third
Amendment and Waiver dated as of
February 7, 1997 (the "Agreement") by
and among Foilmark Manufacturing
Corporation, (the "Borrower") and The
Chase Manhattan Bank (the "Bank").
WHEREAS, each of the parties hereto is a party to the Fourth Amendment and
Waiver dated as of March 27, 1997 (the "Prior Fourth Amendment") to the
Agreement pursuant to which the Bank agreed, subject to the terms and conditions
of the Prior Fourth Amendment, to waive and amend certain provisions of the
Agreement to the extent set forth therein;
WHEREAS, the parties hereto wish to amend and restate in its entirety the Prior
Fourth Amendment;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements
herein contained, the parties hereto agree to amend and restate the Prior Fourth
Amendment in its entirety as follows:
1. Waiver of ARTICLE V. AFFIRMATIVE COVENANTS. SECTION 5.03. Financial
Statements, Reports.
Compliance with Section 5.03. (a) of the Agreement is hereby waived for
the fiscal year ended December 31, 1996 to permit the late receipt by
the Bank of the audited consolidated financial statements of Foilmark
and its Subsidiaries for such fiscal year and the unaudited
consolidating financial statements of Foilmark and its Subsidiaries for
such fiscal year, which were to be delivered to the Bank on or before
March 31, 1997 provided, however, such financial statements are
received by the Bank no later than April 15, 1997.
Compliance with Section 5.03 (c) of the Agreement is hereby waived for
the fiscal year ended December 31, 1996 to permit the late receipt by
the Bank of the certificate of non-default relating to such fiscal
year, prepared and signed by the Auditor and the Chief Financial
Officer of Foilmark and each of its Subsidiaries, which was to be
delivered to the Bank on or before March 31, 1997 provided, however,
such certificate is delivered to the Bank no later than April 15, 1997.
2. Waiver of ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.01. Liens.
Compliance with Section 6.01. of the Agreement is hereby waived to
permit Kensol-Olsenmark, Inc., a New York corporation and
Kensol-Olsenmark, Inc., a Delaware corporation to have granted a first
mortgage lien on certain real property owned by each of such entities
respectively, and located at 40 Melville Park Road, Melville, New York
and 692 Pleasant Street, Norwood, Massachusetts, respectively, solely
to secure a guaranty delivered to Fleet National Bank by each such
entity on December 16, 1996 of certain Indebtedness owing by Foilmark,
Inc. to Fleet National Bank in the original principal amount of
$1,997,500 and funded on December 16, 1996.
3. Waiver of ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.02.
<PAGE>
Indebtedness.
Compliance with Section 6.02. of the Agreement is hereby waived to
permit Foilmark, Inc. to have incurred Indebtedness from Fleet National
Bank pursuant to a Commercial Term Loan Agreement and Commercial Term
Promissory Note entered into on December 16, 1996 with respect to a ten
(10) year term loan in the original principal amount of $1,997,500,
payable in consecutive quarterly installments of $33,291.66 each,
commencing March 16, 1997, with the then outstanding balance of such
term loan due and payable in full on December 16, 2006.
4. Waiver of ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.04. Guarantees.
Compliance with Section 6.04. of the Agreement is hereby waived to
permit Kensol-Olsenmark, Inc., a New York corporation and
Kensol-Olsenmark, Inc., a Delaware corporation to have guaranteed
certain Indebtedness of Foilmark, Inc. owing to Fleet National Bank
pursuant to a Commercial Term Loan Agreement and Commercial Term
Promissory Note entered into on December 16, 1996 with respect to a ten
(10) year term loan in the original principal amount of $1,997,500,
payable in consecutive quarterly installments of $33,291.66 each,
commencing March 16, 1997, with the then outstanding balance of such
term loan due and payable in full on December 16, 2006.
5. Waiver of ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.09. Leases.
Compliance with Section 6.09. of the Agreement is hereby waived for the
fiscal year ended December 31, 1996 to permit the aggregate amount of
all rents paid by the Borrower and its Affiliates under operating
leases to exceed $400,000 during such fiscal year provided, however,
the aggregate amount of all such rents paid during such fiscal year was
not in excess of $438,000.
6. Waiver of ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.14. Consolidated
Tangible Net Worth plus Consolidated Subordinated Debt.
Compliance with Section 6.14. of the Agreement is hereby waived for the
fiscal year ended December 31, 1996 to permit the Consolidated Tangible
Net Worth plus Consolidated Subordinated Debt to be less than
$13,892,000 as of such fiscal year end provided, however, the
Consolidated Tangible Net Worth plus Consolidated Subordinated Debt was
not less than $12,7000,000 as of such fiscal year end.
7. Waiver of ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.15. Consolidated
Debt Service Coverage Ratio.
Compliance with Section 6.15. of the Agreement is hereby waived for the
fiscal year ended December 31, 1996 to permit the Consolidated Debt
Service Coverage Ration to be less than 1.25 to 1.0 as of such fiscal
year end provided, however, the Consolidated Debt Service Coverage
Ratio was not less than 0.65 to 1.0 as of such fiscal year end.
8. Waiver of ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.17. Consolidated
Capital Expenditures.
Compliance with Section 6.17. of the Agreement is hereby waived for the
fiscal year ended December 31, 1996 to permit the Consolidated Capital
Expenditures of Foilmark and its Subsidiaries to be greater than
$6000,000 during such fiscal year provided, however, the Consolidated
Capital Expenditures of Foilmark and its Subsidiaries during such
fiscal year were not in Excess of $2,330,000.
<PAGE>
9. Waiver of ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.18. Consolidated
Total Unsubordinated Liabilities to Consolidated Tangible Net Worth
plus Consolidated Subordinated Debt.
Compliance with Section 6.18. of the Agreement is hereby waived for the
fiscal year ended December 31, 1996 to permit the ratio of Consolidated
Total Unsubordinated Liabilities to Consolidated Tangible Net Worth
plus Consolidated Subordinated Debt to be greater than 1.50 to 1.0 as
of such fiscal year end provided, however, such ratio was not greater
than 1.67 to 1.0 as of such fiscal year end.
10. Amendment to ARTICLE V. AFFIRMATIVE COVENANTS. SECTION 5.03.
Financial Statements, Reports.
Section 5.03. of the Agreement is hereby amended by (1) deleting the
word "and" at the end of subsection (f) thereof, (2) re-designating
subsection (g) thereof as subsection (h) and (3) adding a new
subsection (g) as follows:
"(g) (1) promptly provide to the Bank copies of all material pleadings,
motions and other filings made by any party with respect to the
Proceedings (which shall mean the pending litigation outlined in the
letter dated July 1, 1996 from Hinckley, Allen & Snyder, counsel to the
Borrower and its affiliates, to the Bank, as updated by letters to the
Bank from Hinckley, Allen & Snyder on October 23, 1996, January 15,
1997 and March 15, 1997, and all other litigation or proceedings to
which the Borrower or any of its affiliates are a party which arise out
of the incident which is the basis for the foregoing pending
litigation) promptly after receipt thereof and promptly notify the Bank
of any change in the status of the Proceedings including any decisions
or orders of the court in which such Proceedings are held and (2)
provide a detailed update of the Proceedings from counsel to the
Borrower and its affiliates addressed to the Bank, on the 15th day of
each month commencing April 15, 1997.
11. Amendment to ARTICLE V. AFFIRMATIVE COVENANTS.
Article V. of the Agreement is hereby amended by adding a new SECTION
5.13 as ffollows:
"SECTION 5.13. Proceedings. Cause the counsel to the Borrower and its
affiliates with respect to the Proceedings (as defined in Section 5.03.
(g) hereof) to be available for conferences with respect to the status
of the Proceedings from time to time at the request of the Bank."
12. Amendment to ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.01. Liens.
Section 6.01. of the Agreement is hereby amended by deleting the work
"and" at the end of subsection (d) thereof, deleting the period at the
end of subsection (e) thereof and substituting therefor the phrase ";
and" and inserting a new subsection "(f)" as follows:
"(f) (1) in the case of Kensol-Olsenmark, Inc., a New York corporation,
a first mortgage Lien granted to Fleet National Bank covering real
property located at 40 Melville Park Road, Melville, New York to secure
a guaranty issued by such entity to Fleet National Bank on December 16,
1996 as permitted in Section 6.04 (e) (1) hereof and (2) in the case of
Kensol-Olsenmark, Inc., a Delaware corporation, a first mortgage Lien
granted to Fleet National Bank covering real property located at 692
Pleasant Street, Norwood, Massachusetts solely to secure a guaranty
issued by such entity to Fleet National Bank on December 16, 1996 as
permitted in Section 6.04 (e) (2) hereof, but not including any
renewals or extensions of such mortgage Liens."
13. Amendment to ARTICLE VI. NEGATIVE COVENANTS SECTION 6.02.
<PAGE>
Indebtedness.
Section 6.02 (h) of the Agreement is hereby amended by deleting the
date "March 31, 1997" contained therein and substituting therefor the
date "April 30, 1997".
Section 6.02 of the Agreement is hereby further amended by deleting the
word "and" at the end of subsection (g) contained therein, deleting the
period at the end of subsection (h) contained therein and substituting
therefor the phrase "; and: and inserting a new subsection "(i)" and a
new subsection "(j)" as follows:
"(i) Unsecured Indebtedness owing by Foilmark, Inc. to Fleet
National Bank under a $6,000,000 revolving credit facility
provided such facility shall expire and all such Indebtedness
be repaid to Fleet National Bank no later than June 30, 1998;
and
(j) Indebtedness owing by Foilmark, Inc. to Fleet National Bank
pursuant to a Commercial Term Loan Agreement and Commercial
Term Promissory Note entered into on December 16, 1996 with
respect to a ten (10) year term loan in the original principal
amount of $1,997,500, payable in consecutive quarterly
installments of $33,291.66 each, commencing March 16, 1997,
with the then outstanding balance of such term loan due and
payable in full on December 16, 2006, but not including any
renewals, amendments, extensions or modifications thereof."
14. Amendment to ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.04.
Guarantees.
Section 6.04. of the Agreement is hereby amended by deleting the word
"and" at the end of subsection (c) thereof, deleting the period at the
end of subsection (d) thereof and substituting therefor the phrase ";
and" and inserting a new subsection "(e)" as follows:
"(e) (1) in the case of Kensol-Olsenmark, Inc., a New York corporation,
a guaranty dated December 16, 1996 of certain Indebtedness of Foilmark,
Inc. owing to Fleet National Bank as permitted pursuant to Section
6.02. (j) hereof and (2) in the case of Kensol-Olsenmark, Inc., a
Delaware corporation, a guaranty dated December 16, 1996 of certain
Indebtedness of Foilmark, Inc. owing to Fleet National Bank as
permitted pursuant to Section 6.02. (j) hereof, but not including any
renewals, amendments, extensions or modifications of such guarantys."
15. Amendment to ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.09. Leases.
Section 6.09. of the Agreement is hereby amended by deleting the number
"$400,000" contained therein and substituting therefor the number
"$500,000".
16. Amendment to ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.14.
Consolidated Tangible Net Worth plus Consolidated Subordinated Debt.
Section 6.14 of the Agreement is hereby amended by deleting it in its
entirety and substituting the following therefor:
"SECTION 6.14. Consolidated Tangible Net Worth plus Consolidated
Subordinated Debt.
Permit Consolidated Tangible Net Worth plus Consolidated Subordinated
Debt ("TNW"), at any time to be less than the amount set forth below
opposite the relevant period:
<PAGE>
Period Amount
------ ------
December 31, 1996 through June 29, 1997 $12,700,000
June 30, 1997 through December 30, 1997 $13,000,000
December 31, 1997 through December 30, 1998 The greater of (a) 13,500,000
and (b) the actual TNW as of
December 31, 1997
and for each comparable thereafter, commencing December 31 through and including
December 30 of the following year, an amount not less than the actual
Consolidated Tangible Net Worth plus Consolidated Subordinated Debt as of the
immediately prior December 31 plus $500,000."
17. Amendment to ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.15
Consolidated Debt Service Coverage Ratio.
Section 6.15 of the Agreement is hereby amended by deleting it in its
entirety and substituting therefor the following:
"SECTION 6.15. Consolidated Debt Service Coverage Ratio. Permit the
Consolidated Debt Service Coverage Ratio to be less 0.65 to 1.0 at any
time from December 31, 1996 through March 30, 1997; 0.90 to 1.0 at any
time from March 31, 1997 to September 29, 1997; 0.95 to 1.0 at any time
from September 30, 1997 to December 30, 1997 and 1.25 to 1.0 at any
time from December 31, 1997 and thereafter."
18. Amendment to ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.17.
Consolidated Capital Expenditures.
Section 6.17. of the Agreement is hereby amended by deleting such
section in its entirety and substituting therefor the following:
"SECTION 6.17. Consolidated Capital Expenditures. Permit Consolidated
Capital Expenditures (including, without limitation, obligations under
Finance Leases) of Foilmark and its Subsidiaries to be greater than
$700,000 in any fiscal year."
19. Amendment to ARTICLE VI. NEGATIVE COVENANTS. SECTION 6.18. Consolidated
Total Unsubordinated Liabilities to Consolidated Tangible Net Worth
plus Consolidated Subordinated Debt.
Section 6.18 of the Agreement is hereby amended by deleting it in its
entirety and substituting therefor the following:
"SECTION 6.18. Consolidated Total Unsubordinated Liabilities to
Consolidated Tangible Net Worth plus Consolidated Subordinated Debt.
Permit the ratio of Consolidated Total Unsubordinated Liabilities to
Consolidated Tangible Net Worth plus Consolidated Subordinated Debt to
be greater than (1) 1.67 to 1.0 at any time from December 31, 1996
through December 30, 1997 and (2) 1.50 to 1.0 at any time from December
31, 1997 and thereafter."
This FOURTH AMENDMENT AND WAIVER shall be construed and enforced in accordance
with the laws of the State of New York.
Capitalized terms used herein and not otherwise defined herein shall have the
same meanings as defined in the Agreement.
Except as expressly consented to hereby, the Agreement shall remain in full
force and effect in accordance with the original terms thereof and is ratified
and confirmed. Without limiting the foregoing, the
<PAGE>
Borrower hereby acknowledges that it is and will continue to be bound by the
restrictions contained in Section 6.01. of the Agreement which prohibit the
Borrower and its Affiliates from granting any mortgage, pledge, assignment,
security interest, lien, charge or other encumbrance of any nature whatsoever on
any of its assets now or hereafter owned other than to the extent permitted in
Section 6.01. of the Agreement.
The agreements herein contained are limited specifically to the matters set
forth above and do not constitute directly or by implication an amendment or
waiver of any other provision of the Agreement or any default or Event of
Default which may occur or may have occurred under the Agreement.
The Borrower hereby represents and warrants that, after giving effect to this
FOURTH AMENDMENT AND WAIVER, no Event of Default exists under the Agreement or
any other related document.
Please be advised that should there be a need for further amendments or waivers
with respect to these covenants or any other covenants, those requests shall be
evaluated by the Bank when formally requested, in writing, by the Borrower.
This FOURTH AMENDMENT AND WAIVER may be executed in one or more counterparts,
each of which shall constitute an original, but all of which when taken together
shall constitute but one FOURTH AMENDMENT AND WAIVER. This FOURTH AMENDMENT AND
WAIVER shall become effective (i) when duly executed counterparts hereof which,
when taken together, bear the signatures of each of the parties hereto shall
have been delivered to the Bank and (ii) upon the receipt by the Bank of the
fully executed Amended and Restated Fourth Amendment and Waiver dated as of
March 31, 1997 to the Letter of Credit, Reimbursement and Loan Agreement dated
as of June 28, 1995, as amended, by and between Foilmark Manufacturing
Corporation and The Chase Manhattan Bank and such Amended and Restated Fourth
Amendment and Waiver shall have become effective. In the event that either of
the foregoing conditions are not satisfied on or before April 9, 1997, the
amendments and waivers set forth above shall be null and void and of no force
and effect.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this FOURTH AMENDMENT
AND WAIVER to be duly executed by their duly authorized officers, all as of the
day and year first above written.
FOILMARK MANUFACTURING
CORPORATION
By:/s/ Philip Leibel
--------------------------
Name: Philip Leibel
Title: Vice President
THE CHASE MANHATTAN
BANK
By:/s/ Christopher Zimmermann
--------------------------
Name: Christopher Zimmermann
Title: Vice President
<PAGE>
CONSENT
The undersigned, not parties to the Agreement but each a Corporate Guarantor
under a separate Corporate Guaranty dated as of June 28, 1995, hereby accept and
agree to the terms of the FOURTH AMENDMENT AND WAIVER contained herein and each
of the undersigned hereby acknowledges that it is and will continue to be bound
by the covenants contained in Article V and Article VI of the Agreement which
relate to it including, without limitation, the covenant contained in Section
6.01. of the Agreement which prohibits the Borrower and its Affiliates from
granting any mortgage, pledge, assignment, security interest, lien, charge or
other encumbrance of any nature whatsoever on any of its assets now or hereafter
owned other than to the extent permitted in Section 6.01. of the Agreement.
FOILMARK, INC.
By: /s/ Philip Leibel
----------------------
Name: Philip Leibel
Title: Vice President
KENSOL-OLSENMARK, INC.
By: /s/ Philip Leibel
----------------------
Name: Philip Leibel
Title: Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 199,923
<SECURITIES> 0
<RECEIVABLES> 6,269,924
<ALLOWANCES> 539,000
<INVENTORY> 13,910,815
<CURRENT-ASSETS> 21,300,775
<PP&E> 21,253,534
<DEPRECIATION> 8,734,982
<TOTAL-ASSETS> 40,332,117
<CURRENT-LIABILITIES> 8,518,720
<BONDS> 0
0
0
<COMMON> 41,517
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 40,332,117
<SALES> 37,190,611
<TOTAL-REVENUES> 37,402,331
<CGS> 28,525,964
<TOTAL-COSTS> 37,700,717
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 914,711
<INCOME-PRETAX> (1,518,097)
<INCOME-TAX> (477,971)
<INCOME-CONTINUING> (1,040,126)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,040,126)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
