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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report under Section 13 or 15(d)of the Securities Exchange Act of
1934
For the fiscal year ended November 30, 1997
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[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from to
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Commission file number 1-13484
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COHESANT TECHNOLOGIES INC.
(Exact name of Small Business Issuer in Its charter)
Delaware 34-1775913
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
5845 West 82nd Street, Ste. 102, Indianapolis, Indiana 46278
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (317) 875-5592
Securities registered under to Section 12(b)of the Act: Common Stock, $.001 Par
Value; Common Stock Purchase Warrants, registered on the Boston Stock Exchange
Securities registered under to Section 12(g)of the Act: Common Stock, $.001 Par
Value; Common Stock Purchase Warrants
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $9,830,598.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the average bid and asked prices of such
stock, as of February 17, 1998. $2,057,000.
As of February 17, 1998, the Issuer had 2,688,343 shares of Common
Stock, $.001 par value, outstanding.
Documents incorporated by reference: none
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ITEM 1. BUSINESS
(a) General Development of Business
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Cohesant Technologies Inc. ("Company" or "Cohesant") is engaged in the
design, development, manufacture and sale of specialized two component spray
finishing and coating application equipment, replacement parts and supplies used
in the operation of this equipment and specialty two component epoxy coating and
grout products.
The Company's spray finishing and coating application equipment systems
are designed specifically for use with multiple component formulations such as
fiberglass reinforced plastics and polyurethane foam. These equipment systems
commonly are employed in the construction, transportation and marine industries
to apply insulation, protective coating, sealant and anti-corrosive products and
to create packaging and to fill molds for diverse products such as recreational
boat hulls and plumbing fixtures. The Company also maintains an extensive
inventory of replacement parts and supplies.
The Company manufactures the AquataPoxy and Raven lines of epoxy
coating and grout products. These high performance operator and environmentally
safe formulations provide protection from corrosion caused by infiltration,
atmospheric conditions and chemical attack. Although the Company believes there
are many more uses for the AquataPoxy and Raven products, they have most
prevalently been used in the construction, repair, rehabilitation and
maintenance of water and wastewater treatment, distribution and collection
systems, food & beverage, industrial and recreational facilities.
For the years ended November 30, 1997 and 1996, the Company had net
sales of $9,831,000 and $8,408,000, respectively, of which $8,633,000 and
$7,388,000, respectively, were for equipment systems, replacement parts and
supplies and $1,198,000 and $1,020,000, respectively, were for coating and grout
products. Net sales exclude the Company's discontinued business.
On November 30 1997, the Company's Board of Directors signed an
agreement to sell certain assets of American Chemical Company's ("ACC")
adhesives, private label and toll manufacturing business. Concurrent with this
decision, management decided to discontinue this business.
The Company, which was organized in 1994, conducts business through its
subsidiaries, Glas-Craft, Inc. ("GCI"), an Indiana corporation, and Raven Lining
Systems ("Raven"), a Missouri
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corporation. As used herein, the term "Company" includes the operations of
Cohesant, and its wholly-owned subsidiaries GCI and Raven, unless the context
indicates otherwise.
(b) Narrative Description of Business
---------------------------------
PRODUCTS
Specialized Spray Equipment. The Company designs and manufactures a wide range
of spray and application equipment systems and supplies to spray multi-component
formulations such as fiberglass reinforced plastics and polyurethane foam. Net
sales of spray equipment systems amounted to $4,084,000 and $3,221,000 for the
fiscal years ended November 30, 1997 and 1996, respectively, representing 41.5%
and 38.3%, respectively, of net sales.
Fiberglass reinforced plastic spray equipment. The predecessor to GCI
developed spray and applications equipment systems for the modern method of
fiberglass reinforced plastic product manufacturing known as the `spray up'
method. The spray up manufacturing process is quicker and more cost effective
than the `hand layup' and mass production molding methods of reinforced
fiberglass products manufacturing and can be used to manufacture a wide variety
of products, including such diverse products as boat hulls and plumbing and
bathroom fixtures. The spray up method is ideally suited for small quantity and
custom production.
The United States Occupational Safety and Health Administration ("OSHA") and
environmental regulatory agencies in the United States and abroad regulate the
use of various volatile organic chemicals such as styrene, acetone, methylene
chloride and organic peroxides. These chemicals are often used in the
application of fiberglass by the spray up method. GCI's spray equipment systems
use air assist containment ("AAC") to reduce spray emissions and overspray and
increase transfer efficiency and spray control. Further, improved containment
limits emissions of environmentally and occupationally hazardous chemicals and
greater transfer efficiency results in less waste of product.
Other multi-component spray equipment. The Company also designs and
manufactures spray and applications equipment systems for dispensing
polyurethane and other multi-component materials and foams. Polyurethane is used
for insulation, packaging, flotation devices and many other uses. Foams are used
for insulation and protective coatings and for the manufacture of formed plastic
products such as automobile and aircraft components and marine products. The
Company's technology has
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many applications in the plastics and chemical industries. Consequently, the
Company continuously seeks and develops new and different uses for its
equipment. The Company, when necessary, will modify existing equipment designs
or will design new equipment to meet the requirements of new plastics and other
products as well as changing regulation and manufacturing methods.
Replacement and spare parts. A significant portion of the Company's
equipment business is the sale of replacement and spare parts and supplies for
its current and discontinued spray equipment systems. The Company maintains an
inventory of approximately 4,900 items to enable it to efficiently fill orders
and service repairs. Net sales of replacement and spare parts and supplies
amounted to $4,549,000 and $4,167,000, representing 46.3% and 49.6% of net
sales for the fiscal years ended November 30, 1997 and 1996, respectively.
Raven Lining Systems
In 1996, the Company transferred responsibility for the sales of its
AquataPoxy products into its Raven subsidiary. Both AquataPoxy and Raven product
brands utilize proprietary formulations of and application methods for
solvent-free coatings and grouts that contain no volatile organic compounds
("VOC's"). As with GCI, Raven benefits significantly from increasing government
regulation of VOC's and the resulting trend towards low VOC products.
AquataPoxy Products. The AquataPoxy line of epoxy coating and grout
products is designed to extend the life of a structure by protecting it from
corrosion. These products are formulated with higher performance
characteristics compared with competitive products, including excellent
resistance to moisture, corrosion and chemical attack. AquataPoxy products are
used in the construction, repair, rehabilitation and maintenance of water
storage structures, waste water treatment and collection systems of
municipalities, industrial and recreational facilities. AquataPoxy products are
unique with their high moisture tolerant characteristics that allow them to be
applied to underwater and moisture filled concrete surfaces. AquataPoxy is
ideally suited for the rapidly growing market in underground rehabilitation of
infrastructure. AquataPoxy is therefore being specified for use by many leading
consultants, design engineers and governmental agencies in connection with the
rehabilitation of potable and/or wastewater facilities. The Company is
aggressively demonstrating and testing with other high profile facilities to
expand awareness of AquataPoxy's unique attributes.
AquataPoxy products contain no solvents or VOC's. Properly applied,
AquataPoxy products are inert once cured and do not release harmful by-products
into air, water or the environment.
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Conversely, competitive solvent-borne and isocyanate-based coatings have the
potential to release carcinogens and other hazardous substances into the
environment and generally are not desirable for applications that involve
contact with food, drinking water, animals or people. The Company maintains
certification under the National Sanitation Foundation Standard 61 and with the
United States Department of Agriculture for agricultural applications, food
processing and potable water facilities and marine environments.
Raven Products. The acquisition of Raven, in fiscal 1996, expanded the
Company's presence in the protective coating and lining marketplace. Raven's
unique high performance line of products and network of Certified Applicators
provide access to specialty coating contractors and key end-users in the
wastewater, pulp and paper, petrochemical, power and other industries. Raven's
sprayable epoxies were formulated for ultra high-build (20-250 mils per coat)
application on concrete, masonry and steel surfaces providing protection from
atmospheric and chemical corrosion. The high physical strengths of some Raven
formulations permit the epoxy to enhance the structural integrity of the
structure. Raven products can be quickly applied under harsh environmental
conditions providing quick return to service and substantial savings for
industrial facilities by lessening downtime. The life span of infrastructure
exposed to these conditions can increase dramatically with the use of high
performance protective coatings and linings such as Raven.
Raven coatings and grouts are also solvent-free, 100% solids epoxy
products emitting no VOC's. These products offer safe working environments while
complying with the existing United States Environmental Protection Agency
("EPA") regulations. The Company's acquisition of Raven facilitated expansion of
the Company's product line offerings into this segment of the high performance
coating market.
Net sales of AquataPoxy and Raven products amounted to $1,198,000 and
$1,020,000 representing 12.2% and 12.1% of net sales for the fiscal years ended
November 30, 1997 and 1996, respectively.
RTM Systems, Inc.
GCI has a one-third interest in RTM Systems, Inc. ("RTM"), an Indiana
corporation organized in 1989. RTM markets equipment which produces injection
molded fiberglass reinforced plastic products. The RTM equipment is designed for
low-pressure injection molding, thereby allowing injection of catalyzed resin
under low pressure into a closed mold containing a pre-cut fiberglass mat which
strengthens the finished product. This method, like most molding processes,
permits the resin to
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displace all of the air in the mold, completely saturating the fiberglass mat
which is then allowed to cure. Products manufactured using this process are
characterized by the strength enhancing properties of fiberglass while being
cost effectively produced. RTM also sells products and equipment used to build
molds.
MARKETING
Distributors and Certified Applicators
The Company's products are sold through a growing network of
independent distributors and Certified Applicators in the United States and
overseas.
Generally, the products of GCI are sold through over 100 independent
domestic and foreign equipment distributors. Most of these distributors are
engaged in the sale of polyester resins and gel coats, fiberglass strand and
mat, polyurethane foams and coatings and similar items. Many of the foreign
distributors sell only industrial equipment. For the fiscal years ended November
30, 1997 and 1996, GCI's ten largest distributors accounted for 41% and 42%,
respectively, of equipment system and replacement and spare parts sales. Five of
these distributors are foreign based. Generally, GCI has written distribution
agreements, which are cancelable upon 30 days notice, with its foreign
distributors. GCI provides training to the distributors and customers in the use
of its equipment systems and products.
Raven markets its products, application and spray technology through
domestic and foreign independent distributors and Certified Applicators. Raven
presently has twenty-two domestic Certified Applicators located in seventeen
states. The first international Certified Applicator, located in the Ukraine,
has received their first shipment of material and equipment with training to be
completed in the second quarter of 1998.
Brochures, Advertising and Trade Shows
The Company supports its marketing with internally prepared brochures,
sales catalogues, direct mailings and media insertions in various trade
publications. In connection with coating and grout products, the Company also
prepares media promotion kits and product demonstration kits for use by
Certified Applicators and distributors. Company personnel and distributors
attend trade shows in the United States and overseas. Typically, these shows are
attended by potential customers and distributors. In addition, these shows
afford the Company the opportunity to keep abreast of its competitors' products
and developments in the industry.
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MANUFACTURING AND RAW MATERIALS SUPPLY
The Company assembles its equipment system products from commercially
available components and components manufactured to specification by a variety
of vendors. Minimal fabrication of components is performed by the Company. The
Company is not dependent upon any single vendor for the conduct of its business,
and generally has alternative sources for all necessary components.
Similarly, there are a number of alternative sources of the raw
materials used in the manufacture of the coating and grout products of the
Company. The Company maintains good working relationships with all major resin
suppliers. The Company does not believe that it is dependent on any one vendor
of raw materials for its coating and grout products and the Company believes the
loss of any one supplier would not have a material adverse impact on the
Company.
COMPETITION
The markets for all of the Company's products are highly competitive.
The Company competes with numerous well-established companies, most of which
possess substantially greater financial, marketing, personnel and other
resources than those of the Company.
There are a number of competitive equipment manufacturers, which
include the Binks Manufacturing Company and the Venus-Gusmer division of PMC,
Inc. Competitors of the Company's AquataPoxy and Raven products include
Carboline Company, Tnemec Company, Inc. and International Protective Coatings.
The Company competes by continually broadening awareness of its unique products
through engineering, research and development, by continuing to offer its entire
product line on a price competitive basis, and through acquisition or product
line extensions.
The markets for the Company's products are characterized by changing
technology and industry standards. Accordingly, the ability of the Company to
compete is dependent upon the Company's ability to complete development and
effectively market its state-of-the-art equipment and coating products.
RESEARCH, DEVELOPMENT AND ENGINEERING
The Company has a research and development program to continually
improve all of its existing products, to develop new products and to custom
engineer equipment and products to meet
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specific customer requests. The Company has eleven full-time employees devoted
to engineering, research and development. Virtually all of the products marketed
by the Company were developed internally, either by the Company or its
predecessor companies. Research, development and engineering expenses for the
fiscal year ended November 30, 1997 and 1996 were approximately $848,000 and
$808,000 respectively, or 8.6% and 9.6%, respectively, of net sales. The Company
expects this level of research, development and engineering expense to continue
or slightly increase in the future.
GOVERNMENT REGULATION
The Company is subject to regulations administered by the EPA, OSHA,
various state agencies, county and local authorities acting in cooperation with
Federal and state authorities and foreign governmental regulatory agencies.
Among other things, these regulatory bodies impose restrictions to control air,
soil and water pollution, to protect against occupational exposure to chemicals,
including health and safety risks, and to require notification or reporting of
the storage, use and release of certain hazardous chemicals and substances. The
extensive regulatory framework imposes significant compliance burdens and risks
on the Company's operating subsidiaries. Governmental authorities have the power
to enforce compliance with these regulations and to obtain injunctions or impose
civil and criminal fines in the case of violations.
The Company has in place programs to achieve and maintain substantial
compliance with the currently existing environmental and worker exposure laws
and regulations which materially affect the Company's businesses. As of the date
of this Report, based on its experience and consultations with environmental
consultants, management believes that the Company is taking or has taken all
necessary measures to comply with all applicable Federal, state and local
environmental laws and regulations and worker exposure regulations.
As a product exporter, the Company is subject to regulation by foreign
governments. There can be no assurance that the Company will be in compliance
with or achieve compliance with laws and regulations enacted by foreign
government in the future.
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION
The Company holds eleven U.S. patents and three U.S. patent
applications, of which four patents and one patent application are applicable to
AAC(R) methods and apparatus of the Company. The Company's AAC(R) methods and
apparatus use a flow of compressed air
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to contain and reduce over spray and vapor emissions and increase transfer
efficiency and spray control.
The Company believes that product recognition is an important
competitive factor in the equipment and chemical industries. Accordingly, the
Company promotes the "GLAS-CRAFT" and "RAVEN" trademarks in connection with its
marketing activities and holds a United States trademark registration for
AAC(R).
The Company also relies on proprietary know-how and confidential
information and employs various methods to protect the processes, concepts,
ideas and documentation associated with its products.
EMPLOYEES
As of January 23, 1998, the Company employs approximately 63 full time
and 2 part time persons, 16 of whom are in sales, 9 are in engineering, 4 are in
research and development and service, 4 are in quality control, 21 are in
manufacturing and 11 are in accounting and administration. The Company believes
its relations with its employees are good. The foregoing does not include 28
employees of the ACC discontinued operation, which are expected to be terminated
throughout the second quarter of 1998.
ITEM 2. PROPERTIES
The Company's executive offices are located in Indianapolis, Indiana,
with its principal manufacturing, warehouse and distribution facilities located
in Indianapolis, Indiana and Tulsa, Oklahoma. GCI leases approximately 35,000
square feet of office, manufacturing and warehouse space in Indianapolis,
Indiana through January, 1999. Raven leases approximately 10,000 square feet of
combined office and manufacturing space in Tulsa, Oklahoma through February,
2001. Also, the Company owns two adjacent buildings in St. Louis, Missouri which
are being marketed for sale from the discontinued operations of ACC. The Company
believes it's facilities are adequate to meet their current and prospective
needs.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is subject,
nor to the knowledge of the Company are any legal proceedings threatened, other
than for ordinary, routine proceedings incidental to its business, except as
follows:
On March 5, 1997, a jury verdict was rendered in a lawsuit ACC filed in
1991 against a customer seeking collection for
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amounts owed on open account. The customer filed a counterclaim against ACC
alleging damages arising out of a 1988 distributors agreement. The jury awarded
ACC $123,000 for amounts owed on the trade receivable, but also awarded the
customer $400,000 in compensatory damages and $1,500,000 in punitive damages on
its counterclaim. On June 25, 1997, the trial judge denied the Company's post
trial motions for a judgment notwithstanding the verdict or, in the alternate, a
new trial. To avoid the expense and disruption of continued protracted
litigation, the Company commenced negotiations to settle the matter during the
third quarter of the current fiscal year. A reserve was provided based on an
estimate of the settlement amount. In November 1997, a settlement was reached.
King Adhesives Corporation, a predecessor company to ACC, has been
named by the United States Environmental Protection Agency ("EPA") as a
potentially responsible party ("PRP") for clean-up costs associated with
hazardous substances transshipped from the Enviro-Chem Site to the Great Lakes
Asphalt Site. In January, 1995, the Company received notice from a PRP group
negotiating with the EPA that liabilities regarding the Great Lakes Asphalt Site
had been settled with the EPA and that no further assessments are expected. In
addition, the Company had previously received from such group notice of its
potential liability with regard to hazardous substances shipped to the Third
Site/Enviro-Chem Site. Management cannot currently predict the ultimate outcome
of these matters; however, management believes the outcome will not materially
affect the Company's financial position and its results of operations. In the
past King Adhesives Corporation had settled its alleged liability with regard to
hazardous substances shipped to the Wastex Research, Inc. facility and the
original Enviro-Chem Site. Management believes that it is unlikely that any
further liability will result with regard to these two sites; however, no
assurance can be given that the EPA or any other party will not pursue any
additional or ancillary claims in the future.
In another environmental matter, with the sale of ACC's product lines and
inventories, the Company is proceeding to investigate and, if necessary,
remediate the environmental condition of its St. Louis property in order that
the property can be marketed and sold. This work may include soil remediation
required by the Missouri Department of Natural Resources in connection with the
closure of underground storage tanks. The Company does not expect the cost of
the investigation and any remediation of the St. Louis property to have a
material adverse effect on the Company's financial position or results of
operations. An estimate of costs expected to be incurred for environmental
matters, has been accrued as of November, 30, 1997.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders
during the fourth quarter of the fiscal year ended November 30, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The Common Stock and Warrants of the Company are quoted on NASDAQ under
the symbols "COHT" and "COHTW", respectively. The Company's Common Stock and
Warrants are also listed on the Boston Stock Exchange.
The following table sets forth the high and low closing bid prices of
the Company's Common Stock and Warrants for each quarter in the two year period
ended November 30, 1997, as reported by NASDAQ. Bid quotations represent high
and low prices quoted between dealers, do not reflect retail mark-up, mark-down
or commission, and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock Bid Price
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Year Ended November 30, 1996 High Low
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<S> <C> <C>
First Quarter $2.75 $1.625
Second Quarter 1.875 1.125
Third Quarter 1.375 1.0625
Fourth Quarter 1.25 0.875
Year Ended November 30, 1997
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First Quarter $1.5625 $0.9375
Second Quarter 1.2812 0.8125
Third Quarter 1.8125 0.9375
Fourth Quarter 1.50 1.0625
Warrants
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Year Ended November 30, 1996
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First Quarter $0.4375 $0.125
Second Quarter 0.3125 0.125
Third Quarter 0.3125 0.1562
Fourth Quarter 0.125 0.0312
Year Ended November 30, 1997
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First Quarter $0.125 $0.0625
Second Quarter 0.0937 0.0312
Third Quarter 0.0937 0.0312
Fourth Quarter 0.125 0.0312
</TABLE>
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On January 30, 1998, the Company had approximately 630 beneficial
holders of its Common Stock.
The Company has not paid any cash dividends on its Common Stock to date
and does not anticipate paying any in the foreseeable future. The Board of
Directors intends to retain earnings, if any, to support the growth of the
Company's business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal Year Ended November 30, 1997 as compared to Fiscal Year Ended
November 30, 1996
Net sales for the fiscal year ended November 30, 1997, were $9,831,000
representing an increase of $1,423,000 or 16.9%, from fiscal 1996 net sales of
$8,408,000. The increase consisted of a $1,423,000 increase in sales of
equipment systems and parts attributable to a 22.1% and 12.0% increase in
domestic and foreign sales, respectively. Sales of the coating and grout
products increased to $1,198,000 or $178,000 over the 1996 period. The Company
attributes the increase to the success of a new marketing program.
For the fiscal years ended November 30, 1997 and 1996,respectively,
gross margins as a percentage of net sales were 43.5% and 40.1%, respectively.
This increase in gross margin was due principally to the increase in volume
which favorably impacted production efficiencies. Also favorably impacting
production efficiencies was the transfer of Aquatapoxy manufacturing from the
Company's St. Louis facility to its Tulsa facility.
Research, development and engineering expenses were approximately
$848,000 and $808,000 in the years ended November 30, 1997 and 1996,
respectively. This increase was attributable to a modest increase in personnel
costs.
Selling, general and administrative expenses for the fiscal years ended
November 30, 1997 and 1996, were $3,167,000 and $2,536,000, respectively,
representing an increase of approximately 24.9% or $631,000. Approximately
$297,000 of the increase was due to additional marketing expenses at GCI
reflective of the increased sales volume. Raven's increased marketing costs were
primarily offset by savings from the transfer of accounting responsibilities to
Indianapolis.
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Administrative expenses increased approximately $317,000 and was attributable to
increased staff and professional fees.
Other charges for the fiscal year ended November 30, 1996, were
$293,000, which represented non-recurring costs incurred in connection with the
settlement of certain patent infringement litigation. No comparable charge was
taken in fiscal 1997.
DISCONTINUED OPERATIONS
The Company plans to discontinue its adhesives, private label and toll
manufacturing business. Net sales recorded for the discontinued operations
totaled approximately $5,762,053 and $5,235,633 in 1997 and 1996, respectively.
Total losses from the discontinued operations were $1,712,136 and $639,616 in
1997 and 1996, respectively. This decrease is attributable to the Company
recording a $1,500,000 charge in 1997 related to the settlement of a lawsuit,
the impairment of certain long-lived assets and a reserve for other commitments
partially offset by a gain recognized for insurance proceeds received.
On January 14, 1998, the Company completed the sale of certain of the
assets of the discontinued business. The purchase price estimated at $1,350,000
is subject to a final closing settlement. The purchase price was paid in cash
except for a $300,000 promissory note bearing 8% interest and due in three
years. The Company anticipates selling or otherwise disposing of the remaining
assets and liabilities by November 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
On May 13, 1997, the Company's subsidiary, GCI, entered into a
revolving line of credit agreement with a bank, replacing the Company's previous
unsecured line of credit agreement. This $2,000,000 credit facility is subject
to a borrowing base and accrues interest at the bank's prime lending rate plus
50 basis points (9.00% as of November 30, 1997). Part of the initial advance
under the Credit Facility of $1,077,280 was used to pay off the Company's
previous line of credit.
The Credit Facility limits advances to GCI's affiliate companies to a
maximum of $750,000. The revolving line of credit had an outstanding balance of
$1,552,280 as of November 30, 1997, of which $575,000 was advanced to the
Company. As a result of the proceeds from the sale of ACC's assets, the
outstanding balance of the credit agreement was about $1,000,0000 as of February
13, 1998, of which $0 was advanced to the Company.
The Company has placed $200,000 in short-term U.S. government money
market funds, to secure a continuing contractual payment obligation for ACC. The
Company has classified such funds as restricted, temporary investments under
non-current assets in its financial statements.
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As of November 30, 1997, due primarily to an inventory build at GCI of
new polyurethane products, the Company has working capital of $2,500,151 which
includes cash of $59,863. Inventory levels have increased $917,741 to $3,181,912
at November 30, 1997.
The Company believes that its existing cash resources and working
capital coupled with its bank line will be adequate to meet its capital needs
for the foreseeable future.
NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board (FASB) released a new
accounting standard SFAS No. 128, "Earnings Per Share", which is effective for
fiscal periods ending after December 15, 1997. This statement establishes
standards for computation and presentation of basic and diluted earnings per
share, which replaces primary and fully diluted earnings per share. This
standard requires restatement of all prior period earnings per share data
presented. This standard, which does not permit early adoption, is not expected
to have a material effect on the Company's reported earnings per share.
ITEM 7. FINANCIAL STATEMENTS
This information appears in a separate section of this report following
Part III.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
current Directors and Executive Officers of the Company. Each director holds
office from election until the next annual meeting of stockholders or until
their successors are duly elected and qualified.
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION AND AGE SINCE
----- ---------------------------- --------
<S> <C> <C>
Morton A. Cohen Chairman of the Company and
Chairman and Chief Executive
Officer of Clarion Corp.; age 62 1994
Dwight D. Goodman President and Chief Executive Officer; age 64 1994
</TABLE>
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<TABLE>
<S> <C> <C>
Michael L. Boeckman Chief Financial Officer of Cohen & Co.; age 51 1994
Richard L. Immerman Vice President and Co-Owner of Functional Products Inc.;
age 47 1998
Morris H. Wheeler President of Clarion Management Ltd. and Clarion Capital
Corporation; Age 37 1996
</TABLE>
MORTON A. COHEN has been Chairman of the Board since the Company's
inception in July 1994, and served as the Company's Chief Executive Officer from
July 1994 to January 1998. Mr. Cohen has been Chairman of the Board of Directors
and Chief Executive Officer of Clarion Capital Corporation ("Clarion"), a
private, small business investment company, for more than five years. He is also
a director of Sentex Sensing Technologies, Inc., a manufacturer of
instrumentation measuring devices; Zemex Corporation, an industrial minerals
company; Gothic Energy Corporation, a developer and operator of oil and gas
producing properties and DHB Capital Group, Inc., a holding company with a
diversified portfolio. Mr. Cohen is the father-in-law of Morris H. Wheeler.
DWIGHT D. GOODMAN has been a Director of the Company since its
inception and has been the Chief Executive Officer of the Company since January
1998, President and Chief Operating Officer of the Company since July 1996 and
Chief Financial Officer since May 1996; from May 1996 until July 1996, Mr.
Goodman had been the Company's Executive Vice President and Chief Financial
Officer. Mr. Goodman had been the President and Chief Executive Officer of GCI
from 1984 to 1996.
MICHAEL L. BOECKMAN has been a Director of the Company since its
inception. Mr. Boeckman has been Chief Financial Officer of Cohen & Co., a
Cleveland based accounting firm(no relation to Morton A. Cohen), since December
1996. From May 1996 through December 1996, Mr. Boeckman was a self-employed
business consultant. From July 1994 until May 1996, Mr. Boeckman was the
Company's President and Chief Operating Officer. Prior thereto, Mr. Boeckman was
the Vice President and Chief Financial Officer of Clarion for more than five
years.
RICHARD L. IMMERMAN has been a Director of the Company since January
1998. Mr. Immerman is the Vice President and co-owner of Functional Products
Inc., a specialty chemical company. A position he has held for over five years.
MORRIS H. WHEELER has been a Director of the Company since July 1996.
Mr. Wheeler has been President of Clarion since September 1996, and served as
its Vice President from August 1994 to September 1996. Mr. Wheeler has been
President of Clarion
15
<PAGE> 16
Management Ltd., an investment management and consulting company, since April
1996. Prior to August 1994, Mr. Wheeler was an attorney with the law firm of
Davis, Polk & Wardwell in New York City. Mr. Wheeler is the son-in-law of Morton
A. Cohen.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information relating to the annual and
long-term compensation for the fiscal years ended November 30, 1997, 1996 and
1995 for the Chief Executive Officer and the other two most highly compensated
executives of the Company. No other executive officer received compensation in
excess of $100,000 during such year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------------------------- ------
OTHER ANNUAL SECURITIES ALL OTHER
FISCAL COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (2)
- --------------------------- ------ ------ ------ ------------ ---------- ------------
(SHARES)
<S> <C> <C> <C> <C> <C> <C>
Morton A. Cohen, 1997 $ 0 $ 0 $ 0 0 $ 0
Chairman of the Board 1996 0 0 0 10,000 0
and Chief Executive 1995 0 0 0 1,000 0
Officer
Dwight D. Goodman 1997 121,240 $20,000 $ 0 0 $ 3,706
President and Chief 1996 118,980 0 0 15,000 3,641
Operating Officer 1995 108,000 0 0 15,000 3,703
Douglas R. Elliott(3) 1997 114,990 $ 0 $ 0 0 $ 3,467
Executive Vice 1996 111,240 0 0 5,000 3,339
President and Chief 1995 107,000 0 0 15,000 3,210
Technical Officer
<FN>
(1) Excludes perquisites and other benefits, unless the aggregate amount of such compensation is greater
than 10 percent of the total of annual salary and bonus reported for the named executive officer.
(2) Includes corporate contributions to the Company's 401(k) Plan.
(3) Mr. Elliott resigned his position with the Company effective December 1, 1997.
</FN>
</TABLE>
Mr. Dwight D. Goodman has an agreement pursuant to which he is employed
through May 31, 1998. The employment agreement provides for an annual base
salary, increasing annually based upon the consumer price index and an annual
bonus at the discretion of the Compensation Committee of the Board of Directors
of the Company. In the event Mr. Goodman's employment is terminated without
cause, he will be paid the then current salary for one year.
OPTION GRANTS IN LAST FISCAL YEAR
16
<PAGE> 17
(Individual Grants)
The Company made no grants of stock options during fiscal 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information relating to aggregate option
exercises during the last fiscal year and fiscal year-end option values for the
chief executive officer and the other two most highly compensated executives of
the Company.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
NOVEMBER 30, 1997 NOVEMBER 30, 1997
---------------------- -----------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- -------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Morton A. Cohen 0 0 6,000 5,000 0 0
Dwight D. Goodman 0 0 15,000 15,000 0 0
Douglas R. Elliott 0 0 8,750 11,250 0 0
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the date hereof, certain
information concerning those persons known to the Company, based on information
obtained from such persons, with respect to the beneficial ownership (as such
term is defined in rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of shares of common stock of the Company by (i)each person known by the
Company to be the owner of more than 5% of the outstanding shares; (ii) each
Director, (iii) each executive officer named in the Summary Compensation Table
and (iv) all Directors and executive officers as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF BENEFICIAL PERCENTAGE OF OUTSTANDING SHARES
BENEFICIAL OWNER OWNERSHIP OWNED
- ------------------- --------------------- ------------------------
<S> <C> <C>
Morton A. Cohen
1801 East 9th Street
Cleveland, Ohio 44114 1,312,880(1)(2) 48.7%
Clarion Capital Corporation
1801 East 9th Street
Cleveland, Ohio 44114 1,175,980 43.7%
Dwight D. Goodman 63,155(3) 2.3%
Morris H. Wheeler
1801 East 9th Street
Cleveland, Ohio 44114 1,183,980(4)(6) 44.0%
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C>
Douglas R. Elliott 126,423(5) 4.7%
Richard L. Immerman 12,000 *
Michael L. Boeckman 6,000(4) *
All directors and executive
officers as a group (5 persons) 1,403,035(7) 51.6%
<FN>
* Represents less than 1%
(1) Includes 1,175,980 shares owned of record by Clarion Capital Corporation ("Clarion"), an entity
of which Mr. Cohen is a principal, and 30,500 shares held by various other investment funds of
which Mr. Cohen is deemed a control person.
(2) Includes 6,000 shares issuable upon exercise of options exercisable within 60 days of the date
hereof.
(3) Includes 15,000 shares issuable upon exercise of options exercisable within 60 days of the date
hereof.
(4) Includes 5,000 shares issuable upon exercise of options exercisable within 60 days of the date
hereof.
(5) Includes 8,750 shares issuable upon exercise of options exercisable within 60 days of the date
hereof.
(6) Includes 1,175,980 shares owned of record by Clarion.
(7) Includes 31,000 shares issuable upon exercise of options exercisable within 60 days of the date
hereof.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has a Financial Advisory Agreement with Clarion pursuant to
which Clarion provides management and administrative support. Clarion receives a
quarterly fee of $10,500. Under the agreement, Clarion also performs additional,
specific projects, as requested. Under the agreement, Clarion received $40,900
in fiscal 1997.
18
<PAGE> 19
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C> <C>
2.1 Asset Purchase Agreement by and among TACC International Corporation, American
Chemical Company, and Cohesant Technologies, Inc.
*3.1 Certificate of Incorporation of the Company, as corrected.
**3.2 By-Laws of the Company, as amended.
**4.1 Form of Underwriter's Unit Purchase Option.
**4.2 Form of Public Warrant Agreement.
**4.3 Form of Registration Rights Agreement.
***4.4 Credit and Security Agreement, dated May 13, 1997, by and between Glas-Craft, Inc.
and NBD Bank, N.A.
***4.5 Unconditional Unlimited Continuing Guaranty executed by the Company in favor of NBD
Bank, N.A.
**10.1 The Company's 1994 Employee Stock Option Plan.
**10.2 Employment Agreement between Glas-Craft, Inc. and Dwight D. Goodman.
10.3 Amendment to Goodman Employment Agreement, dated May 1, 1997.
**10.4 Lease Agreement between Glas-Craft, Inc. and Security Capital Industrial, as
Amended.
**10.5 Business Organization Agreement between Glas-Craft, Inc., Plastech Thermoset
Techtronics and Donald Punzer.
**10.6 Deed of Trust by American Chemical Corporation.
**10.7 Lease Agreement between American Chemical Company and Scanlan Partnership dated
October 5, 1994.
****10.8 Financial Advisory Agreement between Clarion Management Ltd. and the Company
dated June 1, 1996.
21.1 Subsidiaries of the Registrant.
27 Financial Data Schedule
<FN>
* Incorporated herein by reference to the Exhibit to the Company's Annual Report on
Form 10-KSB for the year ended November 30, 1995.
** Incorporated here in by reference to the Exhibit included to the Company's
Registration Statement on Form SB-2 dated November 29, 1994 (No. 33-82732).
*** Incorporated herein by reference to the Company's Quarterly report on form 10-QSB for
the quarter ended May 31, 1997.
</FN>
</TABLE>
19
<PAGE> 20
**** Incorporated herein by reference to the Exhibit to the Company's Annual
Report on Form 10-KSB for the year ended November 30, 1996.
(b) Reports on Form 8-K. - none
20
<PAGE> 21
COHESANT TECHNOLOGIES INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of November 30, 1997 and
1996 F-3
Consolidated Statements of Operations for the Years Ended,
November 30, 1997 and 1996 F-5
Consolidated Statements of Shareholders' Equity
for the Years Ended November 30, 1997 and 1996 F-6
Consolidated Statements of Cash Flows for the Years Ended
November 30, 1997 and 1996 F-7
Notes to Consolidated Financial Statements F-9
F-1
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Cohesant Technologies Inc.:
We have audited the accompanying consolidated balance sheets of COHESANT
TECHNOLOGIES INC. (a Delaware corporation) and subsidiaries as of November 30,
1997 and 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Cohesant Technologies Inc. and
subsidiaries as of November 30, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
December 20, 1997.
F-2
<PAGE> 23
COHESANT TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
AS OF NOVEMBER 30, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------------- ------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 59,863 $446,299
Accounts receivable, net of allowance for doubtful accounts of $73,948 and
$99,594 in 1997 and 1996, respectively 1,533,127 1,278,688
Tax refund receivable - 93,700
Inventory 3,181,912 2,264,171
Prepaid expenses 104,684 110,192
Deferred tax assets 165,600 145,500
Current assets - discontinued operations 1,719,047 1,631,406
---------- ----------
Total current assets 6,764,233 5,969,956
Restricted, temporary investments 205,791 203,148
Notes receivable - 15,688
Property, plant and equipment, net of accumulated depreciation of $409,034
and $221,483 in 1997 and 1996, respectively 627,855 555,449
Investment and advances in unconsolidated affiliate 105,502 141,307
Patents and other intangibles, net of accumulated amortization of
$81,243 and $ 66,043 in 1997 and 1996, respectively 135,082 143,220
Goodwill, net of accumulated amortization of $73,752 and $36,876 in 1997 and
1996, respectively 576,556 613,432
Other noncurrent assets 16,409 8,192
Noncurrent assets - discontinued operations 445,396 546,178
---------- ----------
Total assets $8,876,824 $8,196,570
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 24
COHESANT TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
AS OF NOVEMBER 30, 1997 AND 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
LIABILITIES:
Revolving line of credit $ 1,552,280 $ 150,000
Current maturities of long-term liabilities 63,639 50,053
Accounts payable 1,567,432 1,647,944
Accrued wages and benefits 129,488 93,647
Accrued liabilities related to discontinued operation 579,000 -
Other current liabilities 372,243 159,061
---------- ----------
Total current liabilities 4,264,082 2,100,705
Other noncurrent liabilities 62,673 87,919
---------- ----------
Total liabilities 4,326,755 2,188,624
COMMITMENTS AND CONTINGENCIES (Notes 8 and 12)
SHAREHOLDERS' EQUITY:
Common stock ($.001 par value; 10,000,000 shares authorized; issued and
outstanding 2,688,343 shares 2,688 2,688
Additional paid-in capital 6,450,360 6,450,360
Retained deficit (1,902,979) (445,102)
---------- ----------
Total shareholders' equity 4,550,069 6,007,946
---------- ----------
Total liabilities and
shareholders' equity $8,876,824 $8,196,570
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 25
COHESANT TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED NOVEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
NET SALES $ 9,830,598 $ 8,407,751
COST OF SALES 5,559,342 5,039,186
----------- -----------
Gross profit 4,271,256 3,368,565
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES 848,266 807,648
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,166,579 2,535,894
OTHER CHARGES (Note 12) - 293,290
----------- -----------
Income (loss) from operations 256,411 (268,267)
OTHER INCOME (EXPENSE):
Interest expense (82,238) (21,252)
Interest income 11,672 47,888
Equity in earnings (losses) of unconsolidated affiliate 41,452 (31,138)
Other income (expense), net 6,862 (5,684)
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
234,159 (278,453)
INCOME TAX BENEFIT 20,100 47,700
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 254,259 (230,753)
DISCONTINUED OPERATIONS:
Loss from discontinued operations (1,559,136) (639,616)
Loss on disposal of discontinued operations (153,000) -
----------- -----------
(1,712,136) (639,616)
----------- -----------
NET LOSS $ (1,457,877) $ (870,369)
=========== ===========
NET INCOME (LOSS) PER SHARE
CONTINUING OPERATIONS $ 0.10 $ (0.08)
DISCONTINUED OPERATIONS (0.64) (0.24)
----------- -----------
NET LOSS $ (0.54) $ (0.32)
=========== ===========
AVERAGE SHARES OF COMMON STOCK OUTSTANDING 2,688,343 2,681,202
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these consolidated statements.
F-5
<PAGE> 26
COHESANT TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-in Capital Deficit Total
------------------ ----------------- ------------- ------------
<S> <C> <C> <C> <C>
BALANCE, November 30, 1995 $2,636 $6,285,417 $425,267 $6,713,320
Issuance of 52,807 shares of common stock (Note 2) 52 164,943 - 164,995
Net loss - - (870,369) (870,369)
------ ---------- --------- ----------
BALANCE, November 30, 1996 2,688 6,450,360 (445,102) 6,007,946
Net loss - - (1,457,877) (1,457,877)
------ ---------- --------- ----------
BALANCE, November 30, 1997 $2,688 $6,450,360 $(1,902,979) $4,550,069
====== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 27
COHESANT TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss- (1,457,877) $ (870,369)
Adjustments to reconcile net loss
to net cash used in continuing operations-
Loss from discontinued operations 1,559,136 639,616
Loss on disposal of discontinued operations 153,000 -
Depreciation and amortization 228,102 233,479
Deferred tax (benefit) provision (20,100) 11,300
Provision for doubtful accounts 84,718 73,197
Equity in (income) loss of unconsolidated
affiliate (41,452) 31,138
Net change in current assets and
current liabilities-
Accounts and notes receivable (323,469) 391,860
Tax refund receivable 93,700 (93,700)
Inventories (1,001,383) (73,174)
Prepaid expenses 5,508 (5,920)
Accounts payable (80,512) (77,382)
Other current liabilities 262,609 (393,032)
(Increase) decrease in other
noncurrent assets (8,404) 12,556
Decrease in other noncurrent
liabilities (12,541) (199,952)
---------- ----------
Net cash used in
continuing operations (558,965) (320,383)
Net cash used in discontinued operations (979,791) (418,251)
---------- ----------
Net cash used in
operating activities (1,538,756) (738,634)
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of Raven - (125,000)
Purchase of patents (9,518) (12,303)
Property and equipment additions (255,355) (131,242)
Property and equipment additions of discontinued operations (249,639) (176,221)
Insurance proceeds related to discontinued operations 200,000 -
Maturity of temporary investment - 246,901
Advances to unconsolidated affiliate 77,257 (7,494)
---------- ----------
Net cash used in investing
activities (237,255) (205,359)
---------- ----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Borrowings under revolving line of credit 1,402,280 150,000
Principal payments under capital
lease obligations (12,705) (6,769)
---------- ----------
Net cash provided by
financing activities 1,389,575 143,231
---------- ----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (386,436) (800,762)
CASH AND CASH EQUIVALENTS, at beginning of
period 446,299 1,247,061
---------- ----------
CASH AND CASH EQUIVALENTS, at end of period $ 59,863 $ 446,299
========== ==========
</TABLE>
F-7
<PAGE> 28
<TABLE>
SUPPLEMENTAL DISCLOSURES:
<S> <C> <C>
Cash paid during the year for-
Interest $ 90,795 $ 31,140
========== ==========
Income taxes 0 $ 18,000
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated statements.
F-8
<PAGE> 29
COHESANT TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
1. NATURE OF BUSINESS
------------------
Cohesant Technologies Inc. (the "Company" or "Cohesant") is engaged in the
design, development, manufacture and sale of specialized spray finishing and
coating application equipment, replacement parts and supplies used in the
operation of the equipment and specialty coating and grout products.
The Company's products are sold through a network of independent distributors
and Certified Applicators in the United States and overseas. Industries served
include: construction, transportation and marine.
The Company's executive offices are located in Indianapolis, Indiana with its
principal manufacturing, warehouse and distribution facilities located in
Indianapolis, Indiana and Tulsa, Oklahoma.
2. BUSINESS COMBINATIONS
---------------------
On December 13, 1995, the Company, through a newly organized subsidiary, Raven
Lining Systems ("Raven"), acquired substantially all of the assets and assumed
approximately $713,000 of liabilities of Raven Management Services, Inc., for an
initial total purchase price of approximately $1,003,000, including assumed
debt. The initial purchase price was paid by the issuance of 52,807 shares of
the Company's common stock valued at $165,000 and cash of $125,000. The
agreement also provides for a contingent payment, not to exceed $600,000,
payable in cash or the Company's stock, based on profitability of the newly
formed subsidiary, Raven, over the next five years. No payment was due related
to the fiscal years ended November 30, 1997 and 1996.
The Company's acquisition of Raven has been accounted for as a purchase, and
accordingly, the purchase price was allocated to the assets and liabilities of
the acquired company based on their fair values at the acquisition date. The
purchase price in excess of identifiable assets of approximately $650,000 was
allocated to goodwill and is being amortized on a straight-line basis over 17
years. Operating results of Raven are included in the consolidated results
beginning subsequent to the purchase date.
During 1997, the Company transferred the manufacturing of its AquataPoxy product
to its Tulsa facility.
F-9
<PAGE> 30
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
a. Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Company and
its direct, wholly owned subsidiaries, Glas-Craft Inc. ("GCI") and Raven Lining
Systems Inc., ("Raven"). The adhesives, private label and toll manufacturing
operations of American Chemical Company ("ACC") also have been included in the
accompanying financial statements but are presented as discontinued operations
(Note 14). Intercompany accounts and transactions have been eliminated. The
Company's noncontrolling investment in an affiliate is accounted for under the
equity method.
b. Income Taxes
------------
The Company files a consolidated Federal income tax return with its wholly owned
subsidiaries. Income taxes are provided based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes." The liability method measures the effective
tax impact of future taxable income or deductions resulting from differences in
the tax and financial reporting bases of assets and liabilities reflected in the
consolidated balance sheets and the expected tax impact of carryforwards for tax
purposes.
c. Earnings Per Share
------------------
Earnings per share of common stock are based on the weighted average number of
common shares outstanding. The stock options, the warrants, the underwriter's
purchase option and related warrants were not included in the calculation of
earnings per share because they would have an antidilutive effect.
d. Statements of Cash Flows
------------------------
For purposes of the Statements of Cash Flows, all highly liquid investments
purchased with an original maturity of 90 days or less are classified as cash
and cash equivalents. Cash equivalents consist of securities of the U.S.
Government and its agencies.
Certain noncash investing activities are described below:
During the fiscal year ended November 30, 1996, the Company exchanged 52,807
shares of its common stock in connection with the acquisition of Raven.
Additionally, during fiscal 1997 and 1996, the Company transferred $83,642 and
$21,293 of inventory to property and equipment, respectively.
F-10
<PAGE> 31
e. Inventories
-----------
Inventories are stated at the lower of cost or market, with cost determined
using the first-in, first-out method. Inventory costs include raw material,
labor (including material handling) and overhead costs. An inventory reserve is
provided for obsolete and slow-moving inventory to reduce the carrying amount to
its estimated net realizable value. The inventory reserve is not material.
At November 30, 1997 and 1996, the net carrying value of inventories consisted
of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw materials $2,676,953 $1,900,010
Work-in-process 73,156 67,075
Finished goods 431,803 297,086
---------- ----------
$3,181,912 $2,264,171
========== ==========
</TABLE>
f. Property, Plant and Equipment
-----------------------------
Property and equipment are carried at cost. Depreciation of property, plant and
equipment is provided by use of the declining balance and straight-line methods
over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment 3-10 years
Furniture and fixtures 5-10 years
Leasehold improvements 3-5 years
Displays, demos and lab equipment 3-5 years
</TABLE>
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Leasehold improvements $79,031 $70,907
Machinery and equipment 735,024 576,625
Displays, demos and lab equipment 222,834 129,400
----------- -----------
1,036,889 776,932
Less - accumulated deprecation (409,034) (221,483)
----------- -----------
$627,855 $555,449
=========== ===========
</TABLE>
F-11
<PAGE> 32
g. Intangible Assets
-----------------
The purchase price in excess of identifiable assets of Raven, goodwill, is being
amortized on a straight-line basis over 17 years.
The cost of patents is being amortized using the straight-line method over their
estimated useful lives (approximately 3 to 10 years). Other intangibles consist
of the cost of certain product certifications. Amortization of deferred
certification costs is provided by use of the straight-line method over the
estimated future period of benefit (approximately 5 to 8 years).
h. Impairment of Long-Lived Assets
-------------------------------
The Company continually evaluates its long-lived assets in light of events and
circumstances that may indicate that the remaining estimated useful life may
warrant revision or that the remaining value may not be recoverable. When
factors indicate that long-lived assets should be evaluated for possible
impairment, the Company uses an estimate of the related cash flows over the
remaining life of the asset in measuring whether that asset is recoverable. To
the extent an impairment has occurred, the excess of the carrying value of the
long-lived assets over their estimated recoverable value will be charged to
operations.
The Company accounts for the impairment of long-lived assets and for long-lived
assets to be disposed of in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
Under the provisions of the statement, impairments, measured using fair market
value, are recognized whenever events or changes in circumstances indicate that
the carrying amount of long-lived assets may not be recoverable and the future
undiscounted cash flows attributable to the asset are less than its carrying
value.
i. Research and Development
------------------------
The costs associated with research and development programs for new products and
significant improvements, which totaled approximately $848,266 and $807,648 in
1997 and 1996, respectively, are expensed as incurred.
j. Estimates
---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of sales and expenses during the reporting period. Actual results could
differ from those estimates.
k. Stock Options
-------------
During 1997, the Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation." In accordance with SFAS No. 123,
the Company
F-12
<PAGE> 33
uses the intrinsic value method to account for stock options, consistent with
the existing rules established by Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation expense
has been recognized for stock options granted to employees.
l. Fair Values of Financial Instruments
------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of fair value information
for certain financial instruments. The carrying amounts of cash and cash
equivalents, temporary investments, accounts and notes receivable, accounts
payable and noncurrent liabilities (excluding capital lease obligations)
approximate fair value because of the short maturity of these instruments.
m. New Accounting Standard
-----------------------
The Financial Accounting Standards Board (FASB) released a new accounting
standard SFAS No. 128, "Earnings Per Share", which is effective for fiscal
periods ending after December 15, 1997. This statement establishes standards for
computation and presentation of basic and diluted earnings per share, which
replaces primary and fully diluted earnings per share. This standard requires
restatement of all prior period earnings per share data presented. This
standard, which does not permit early adoption, is not expected to have a
material effect on the Company's reported earnings per share.
n. 1996 Financial Statements
-------------------------
Certain reclassifications have been made to the 1996 financial statements to
conform to the 1997 presentation. Such reclassifications have no effect on
previously reported net income.
4. STOCK OPTION PLAN
-----------------
The Company has adopted a Stock Option Plan (the "Option Plan") to provide for
the grant of options to purchase shares of common stock to qualified employees
(including officers and directors). The exercise price of any options granted
under the plan shall be 100% of the fair market value of the common stock as of
the date of grant (or 110% of the fair market value of the common stock if the
grant is an "incentive stock option," as defined by the Internal Revenue Code,
to an employee who owns more than 10% of the Company's outstanding common
stock). Options may not be exercised more than ten years after the date of grant
(five years if the grant is an incentive stock option to any employee who owns
more than 10% of the Company's outstanding common stock). The Company has
reserved 250,000 shares of common stock for issuance upon exercise of stock
options. At November 30, 1997, there were 77,375 exercisable options and 64,500
options available for grant. No options were granted during 1997. There were
124,500 options granted during July 1996 with an exercise price of $1.25.
The Company accounts for this plan under APB Opinion No. 25, under which no
compensation expense is recognized for options issued at or above the market
price on the date of the grant.
F-13
<PAGE> 34
Accordingly, no compensation expense has been recorded. Had compensation expense
been determined under the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation", income(loss) from continuing operations would have
been reduced to $240,317 and $(236,245) in 1997 and 1996, respectively. Net loss
would have been increased to $(1,471,819) and $(875,861) in 1997 and 1996,
respectively.
The fair value of options granted during 1996 was $.60 per share. The fair value
of the options granted was estimated on the date of the grant using the
Black-Sholes option pricing model with the following assumptions: risk-free
interest rate of 6.7%, expected volatility of 64.1%, no expected dividend yield
and an expected life of 5 years for all options granted.
Stock option activity under the plan was as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
OPTIONS SHARES EXERCISE PRICE
- ------- -------- -----------------
<S> <C> <C>
November 30, 1995 131,000 $5.00
Granted 124,500 $1.25
Canceled (63,000) $5.00
--------
November 30, 1996 192,500 $2.57
Canceled (6,000) $1.25
Canceled (1,000) $5.00
--------
November 30, 1997 185,500 $2.32
Shares Exercisable 77,375 $2.90
</TABLE>
5. WARRANTS
--------
The Company was organized in Delaware in July 1994, and commenced operations on
November 30, 1994. On December 7, 1994, the Company completed its initial public
stock offering ("Offering") of 1,100,000 units ("Units") at $5.00 per Unit. In
January 1995, the underwriter acquired an additional 150,000 Units at $5.00 per
Unit under terms of the Offering's over-allotment option. Each Unit consists of
one share of common stock and one redeemable common stock purchase warrant
("Warrant"). Each Warrant entitles the holder to purchase one share of common
stock for $5.75 during the four-year period commencing one year after the
Offering. The Company may call the Warrants for redemption under certain
conditions. The Warrants and common stock comprising the Units are immediately
detachable and separately transferable. The Company also sold to the underwriter
for $100 a purchase option to purchase up to 110,000 Units. The purchase option
is exercisable at $7.75 per Unit (155% of the initial public offering price of
the Units) for a period of four years commencing one year from the Offering.
6. INVESTMENT AND ADVANCES IN UNCONSOLIDATED AFFILIATE
---------------------------------------------------
F-14
<PAGE> 35
In February 1989, GCI invested $24,000 to become a one-third owner of RTM
Systems, Inc. (RTM). The Company is accounting for this investment under the
equity method. An additional reserve is provided when necessary to adjust the
Company's investment and advances in RTM to expected net realizable value.
GCI provides management and accounting services to RTM. The Companies also share
office facilities and personnel. Glas-Craft's allocated share of common expenses
and fees charged by RTM totaled $10,100 in fiscal 1997. RTM's allocated share of
common expenses and fees charged by Glas-Craft totaled $35,439 in fiscal 1996.
The Company also sells dispensing systems to RTM. Sales to RTM totaled $25,068
and $49,774 in fiscal 1997 and 1996, respectively. Included in these sales are
profits to the Company of $3,287 and $11,538 in fiscal 1997 and 1996,
respectively.
7. LONG-TERM LIABILITIES
---------------------
a. Revolving Line of Credit
------------------------
On May 13, 1997, the Company's subsidiary, GCI, entered into a revolving line of
credit agreement with a bank. This $2,000,000 credit facility is subject to a
borrowing base and accrues interest at the bank's prime lending rate plus 50
basis points (9.0% as of November 30, 1997). Part of the initial advance under
the credit facility was used to pay off the Company's previous line of credit.
The credit facility is fully secured by a lien on all the assets of the Company
and its operating subsidiaries. The credit facility, which is renewable, expires
on May 1, 1998.
This agreement requires that GCI meet certain covenants including financial
ratios. As of November 30, 1997, GCI is in compliance with these financial
covenants.
The credit facility limits advances to GCI's affiliate companies to a maximum of
$750,000. As of November 30, 1997, the outstanding balance under this agreement
was $1,552,280 of which $575,000 has been advanced to affiliated companies.
The Company's previous credit facility expired on May 31, 1997, and had an
outstanding balance at November 30, 1996, of $150,000.
b. Capital Leases
--------------
The Company leases certain machinery and equipment under agreements which are
classified as capital leases. Future minimum payments, by year, under these
noncancellable capital leases consist of the following at November 30, 1997:
F-15
<PAGE> 36
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1998 $28,355
1999 29,735
2000 26,535
-------
Minimum lease payments 84,625
Less- Amount representing
interest 12,391
-------
Present value of future
minimum lease payments 72,234
Less- Amount included in
current maturities of
long-term liabilities 20,351
-------
Long-term portion $51,883
=======
</TABLE>
c. Other Noncurrent Liabilities
----------------------------
At November 30, 1997 and 1996, other noncurrent liabilities, excluding capital
lease obligations, consisted of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Obligation arising from the acquisition
of deferred formula costs and
customer lists, payable in minimum
monthly installments of $2,250,
including interest imputed at 10%
through March 1999 $ 32,992 $ 57,666
Noninterest bearing deferred
compensation obligation, payable
to the wife of the founder of a
predecessor of ACC in annual
installments of approximately
$25,000, including interest imputed
at 12% for her lifetime, estimated
to be through 1998; collateralized
by a $200,000 restricted temporary
investment (Note 8) 21,086 21,086
Other - 2,946
------- --------
54,078 81,698
</TABLE>
F-16
<PAGE> 37
<TABLE>
<S> <C> <C>
Less- Current portion 43,288 43,288
------- --------
Long-term portion $ 10,790 $ 38,410
======= ========
</TABLE>
Other long-term liabilities as of November 30, 1997, mature during 1999.
8. COMMITMENTS
-----------
The Company leases its office, a portion of its manufacturing and warehouse
facilities, computer equipment and Company cars under noncancellable operating
leases expiring at various dates through November 2001. Future minimum rental
payments required under these noncancellable operating leases are summarized as
follows:
<TABLE>
<CAPTION>
Fiscal
Year Amount
------ ------
<S> <C>
1998 303,418
1999 129,190
2000 78,950
2001 22,971
</TABLE>
Rent expense totaled $429,000 and $379,000 for the years ended November 30, 1997
and 1996, respectively.
The Company holds $200,000 in short-term U.S. government money market funds, to
secure a continuing contractual payment obligation of the Company stemming from
its acquisition of ACC. As a consequence of this agreement, the Company has
classified such funds and the interest earned thereon as Restricted, Temporary
Investments under noncurrent assets on the accompanying Consolidated Balance
Sheet.
9. RETIREMENT PLANS
----------------
The Company has a defined benefit pension plan covering certain employees of its
discontinued operation. Contributions for the years ended November 30, 1997 and
1996, were not significant. A comparison of accumulated plan benefits and net
assets available for benefits as of July 1, 1996, (date of last actuarial
review) and July 1, 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Actuarial present value of
accumulated plan benefits $96,479 $82,947
</TABLE>
F-17
<PAGE> 38
<TABLE>
<S> <C> <C>
Net assets available for
benefits 121,436 111,466
</TABLE>
The discount rates used in determining the actuarial present value of
accumulated plan benefits were 7.3% and 7.5% for 1996 and 1995, respectively.
The Company has defined contribution profit sharing plans for all nonunion
employees meeting minimum eligibility requirements. It is the Company's policy
to contribute up to 3% of total wages for each employee who makes certain
minimum contributions. The amounts contributed by the Company during 1997 and
1996 were $70,399 and $58,224, respectively.
10. INCOME TAXES
------------
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
CURRENT
Federal $0 $ (46,800)
State 0 (12,200)
-------- --------
Total current 0 (59,000)
DEFERRED
Total deferred (20,100) 11,300
-------- --------
INCOME TAX (BENEFIT) $(20,100) $ (47,700)
======== ========
</TABLE>
During fiscal 1996, the Company carried back a portion of fiscal 1996 net
operating losses to recover taxes paid in the prior year.
Temporary differences, credits and carryforwards which give rise to the net
deferred tax asset at November 30, 1997 and 1996, are as follows:
F-18
<PAGE> 39
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Financial reporting reserves not
yet deductible $430,600 $166,600
Depreciation and amortization (89,800) (36,800)
Net operating loss carryforwards
attributable to:
ACC 556,900 348,600
Cohesant 116,900 189,700
General business credits 145,600 145,600
AMT credit carryforward 3,500 3,500
----------- -----------
1,163,700 815,400
Less- Valuation allowance (998,100) (669,900)
----------- -----------
NET DEFERRED TAX ASSET $165,600 $145,500
=========== ===========
</TABLE>
At November 30, 1997, for Federal income tax purposes, ACC has net operating
loss (NOL) carryforwards of $915,000 available to reduce future taxable income
which expire through 2003. The amount of this separate return limitation year
(SRLY) NOL which can be utilized annually is limited to approximately $4,000. A
valuation allowance has been provided to reduce the related deferred tax asset
to its estimated realizable value of $14,000 at November 30, 1997. At November
30, 1997, the Company has net operating loss carryforwards of $1,821,000 for
Federal income tax purposes which expire through 2012. GCI has general business
credits totaling approximately $145,600 which expire through fiscal 2009. A full
valuation allowance has been provided for the Company's NOL's and GCI's general
business credits.
11. RELATED PARTY TRANSACTIONS
--------------------------
From December 1994 to May 31, 1996, the Company was party to a cost sharing
arrangement ("arrangement"), with Clarion Capital Corporation ("CCC"), the
company's majority shareholder, that provided for reimbursement by the Company
of certain occupancy, leased equipment, and other administrative costs incurred
by CCC as a result of shared facilities. In April 1996, upon the formation of
Clarion Management Ltd. ("CML"), an affiliate of CCC, the arrangement was
assigned to CML. Commencing June 1, 1996, the arrangement was replaced by a
management agreement ("agreement") which recognized the increased role played by
CML and its managing member in the affairs of the Company following the
resignation of the Company's prior president in May 1996. The agreement provides
that CML will provide management assistance and general administrative support
for the Company and shall be paid $10,500 per fiscal quarter. Pursuant to the
agreement, CML was paid $40,900 and $14,000, net of expenses for shared
personnel during the fiscal years ended November 30, 1997 and 1996,
respectively. For the years ended November 30, 1997 and 1996, the Company
reimbursed the
F-19
<PAGE> 40
Clarion entities $ -0- and $7,800, respectively, for expenses relating to the
occupancy and use of shared facilities and equipment.
12. CONTINGENCIES
-------------
On March 5, 1997, a jury verdict was rendered in a lawsuit ACC filed in 1991
against a customer seeking collection for amounts owed on open account. The
customer filed a counterclaim against ACC alleging damages arising out of a 1988
distributors agreement. The jury awarded ACC $123,000 for amounts owed on the
trade receivable, but also awarded the customer $400,000 in compensatory damages
and $1,500,000 in punitive damages on its counterclaim. On June 25, 1997, the
trial judge denied the Company's post trial motions for a judgment
notwithstanding the verdict or, in the alternate, a new trial. To avoid the
expense and disruption of continued protracted litigation, the Company commenced
negotiations to settle the matter during the third quarter of the current fiscal
year. A reserve was provided based on an estimate of the settlement amount. In
November, a settlement was reached. Terms of the settlement include payment of
$600,000 to the plaintiff.
In September 1996, the patent infringement case between GCI and Magnum
Industries of Clearwater, Florida was settled. The settlement does not involve
payment by either party or require a change in either party's existing products.
In connection with this suit, the Company incurred approximately $0 and $295,000
in legal costs for the years ended November 30, 1997 and 1996. This charge has
been included as Other Charges in the Consolidated Statements of Operations.
In July 1996, the Company settled a dispute with its product liability insurer,
St. Paul, over claims previously paid by St. Paul. ACC agreed to pay St. Paul
$85,000 in connection with the settlement agreement.
In conjunction with the sale of ACC's adhesives, private label and toll
manufacturing business, the Company is proceeding to investigate and, if
necessary, remediate the environmental condition of its St. Louis property in
order that the property can be marketed and sold. This work may include soil
remediation required by the Missouri Department of Natural Resources in
connection with the closure of underground storage tanks. The Company does not
expect the cost of the investigation and any remediation of the St. Louis
property to have a material adverse effect on the Company's financial position
or results of operations.
The Company is a party to other legal and environmental matters which have
arisen in the ordinary course of business. Management believes the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
13. IMPAIRMENT
----------
As a result of the customer litigation described in Note 12 and continued
operating losses generated, the Company considered several alternatives for
ACC's adhesives, private label and toll manufacturing business including
continuation of the current business, a bankruptcy filing
F-20
<PAGE> 41
for the business, a sale of these operations, or a liquidation sale of the
operations. In connection with these considerations, the Company received an
offer from a third party to purchase selected assets of the adhesives, private
label and toll manufacturing business. Although no formal decision was made
during the third quarter, the Company concluded that it was unlikely that the
financial benefit, if any, which would inure to the benefit of the shareholders
justified the effort and related costs necessary to turnaround ACC's operations.
All of these factors were indications to management of the possibility that the
assets of ACC were impaired. Management's estimate of future cashflows resulted
in an amount which was less than the carrying value of ACC assets. Accordingly,
during the third quarter of the current fiscal year, the Company recorded a
$324,000 impairment reserve to adjust the long-lived assets of ACC to an
estimate of their net realizable value. The impairment reserve was based upon
the Company's estimate of amounts to be realized upon sale or possible
liquidation of the assets. Management believed that for the foreseeable future
positive cashflow from operations was unlikely.
14. DISCONTINUED OPERATIONS
-----------------------
On November 30, 1997, the Company's Board of Directors signed an agreement to
sell certain assets of ACC's adhesive, private label and toll manufacturing
business. Concurrent with this decision, management decided to discontinue this
business. The Company anticipates that the business will be disposed of by
November 30, 1998. This line of business has been accounted for as a
discontinued operation in accordance with Accounting Principles Board No. 30,
Reporting the Results of Operations - Reporting the Effects of a Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions.
Accounts receivable, inventory and other current assets of the adhesives,
private label, and toll manufacturing business have been segregated in the
accompanying Consolidated Balance Sheet as Current Assets - Discontinued
Operations. Net property, plant and equipment and other noncurrent assets of the
adhesives, private label, and toll manufacturing segment have been segregated in
the accompanying Consolidated Balance Sheet as Noncurrent Assets Discontinued
Operations. Inventory and certain intangibles were sold pursuant to the
agreement described in Note 15.
Summarized financial results of the discontinued operations were:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net Sales $5,762,053 $5,235,633
Loss from discontinued operations 1,559,136 639,616
Loss on disposal of discontinued operations 153,000 -
</TABLE>
Included in the 1997 Loss from Discontinued Operations is the settlement of the
litigation (Note 12), the reserve for impairment of long-lived assets (Note 13),
and additional amounts reserved aggregating approximately $425,000 related to
environmental contingencies and other commitments. The Loss on Disposal of
Discontinued Operations in the accompanying Consolidated Statement of Operations
reflects an estimate of operating losses expected to occur
F-21
<PAGE> 42
related to the discontinued segment from the measurement date to the anticipated
date of disposal. Management believes, at this time, that it is not more
likely than not that the NOL carryforwards will be utilized in a future period.
Accordingly, no tax benefit has been provided related to the losses from
discontinued operations as a full valuation allowance has been provided.
15. SUBSEQUENT EVENT (UNAUDITED)
----------------------------
On November 30, 1997, the Company, ACC and a third party signed a definitive
agreement to sell certain assets (inventory and certain intangibles) of the
discontinued business and executed a three-year noncompete agreement. This
transaction closed on January 14, 1998. The purchase price of approximately
$1,350,000, which is subject to post closing adjustments, includes a $300,000
promissory note bearing 8% interest and due in three years and $350,000, for a
three-year non-compete agreement with the buyer.
F-22
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 20, 1998
COHESANT TECHNOLOGIES INC.
BY: /s/ Morton A. Cohen
-------------------
Morton A. Cohen
Chairman of the Board of Directors
PURSUANT to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Morton A. Cohen Chairman of the Board February 20, 1998
- ------------------------ of Directors
Morton A. Cohen
/s/ Dwight D. Goodman President and Chief February 20, 1998
- ------------------------ Executive Officer
Dwight D. Goodman (Principal Executive
and Financial Officer),
and Director
/s/ Michael L. Boeckman Director February 20, 1998
- ------------------------
Michael L. Boeckman
/s/ Morris H. Wheeler Director February 20, 1998
- ------------------------
Morris H. Wheeler
/s/ Richard L. Immerman Director February 20, 1998
- ------------------------
Richard L. Immerman
/s/ Robert W. Pawlak Principal Accounting February 20, 1998
- ------------------------ Officer
Robert W. Pawlak
<PAGE> 1
Exhibit 2.1
ASSET PURCHASE AGREEMENT
among
TACC INTERNATIONAL CORPORATION
AMERICAN CHEMICAL COMPANY
and
COHESANT TECHNOLOGIES INC.
November 30, 1997
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I-PURCHASE AND SALE...................................................................5
SECTION 1.01 Transfer of Assets.....................................................5
SECTION 1.02 Assumption of Liabilities..............................................6
SECTION 1.03 Purchase Price; Allocation of Purchase Price...........................7
SECTION 1.04 Post-Closing Adjustments...............................................8
SECTION 1.05 Closing................................................................9
SECTION 1.06 Further Assurances....................................................11
ARTICLE II-REPRESENTATIONS AND WARRANTIES OF THE SELLERS.....................................11
SECTION 2.01 Organization and Qualification........................................11
SECTION 2.02 Corporate Power and Authority; Title..................................11
SECTION 2.03 No Conflict...........................................................11
SECTION 2.04 Financial Statements..................................................12
SECTION 2.05 Absence of Undisclosed Liabilities....................................13
SECTION 2.06 Absence of Adverse Change; Conduct of Business........................13
SECTION 2.07 Inventories...........................................................15
SECTION 2.08 Environmental Matters.................................................15
SECTION 2.09 Taxes.................................................................16
SECTION 2.10 Litigation............................................................16
SECTION 2.11 Certain Practices.....................................................17
SECTION 2.12 Compliance with Law...................................................17
SECTION 2.13 Licenses and Permits..................................................17
SECTION 2.14 No Liens Arising From Employee Benefits...............................18
SECTION 2.15 Insurance.............................................................18
SECTION 2.16 Outstanding Commitments...............................................18
SECTION 2.17 Intangibles and Intellectual Property.................................19
SECTION 2.18 Significant Suppliers.................................................20
SECTION 2.19 Significant Customers.................................................20
SECTION 2.20 Governmental Approvals................................................20
SECTION 2.21 Transactions With Affiliates..........................................21
SECTION 2.22 No Broker or Finder...................................................21
SECTION 2.23 Claims................................................................21
SECTION 2.24 Disclosure............................................................21
ARTICLE III-REPRESENTATIONS AND WARRANTIES OF BUYER..........................................22
SECTION 3.01 Organization..........................................................22
SECTION 3.02 Buyer Power and Authority.............................................22
SECTION 3.03 No Conflict...........................................................22
SECTION 3.04 Litigation............................................................22
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 3.05 No Broker or Finder...................................................22
ARTICLE IV-COVENANTS OF THE SELLERS..........................................................23
SECTION 4.01 Best Efforts Cooperation..............................................23
SECTION 4.02 Access................................................................23
SECTION 4.03 Insurance.............................................................23
SECTION 4.04 Compliance with Laws..................................................23
SECTION 4.05 Keeping of Books and Records..........................................24
SECTION 4.06 Actions Prior to Closing..............................................24
SECTION 4.07 Notice of Changes.....................................................24
SECTION 4.08 Preservation of Business..............................................24
SECTION 4.09 Litigation............................................................24
SECTION 4.10 Continued Effectiveness of Representations and Warranties.............24
SECTION 4.11 No Negotiations.......................................................25
SECTION 4.12 Confidentiality.......................................................25
SECTION 4.13 Regulatory and Other Authorizations; Consents.........................25
SECTION 4.14 Risk of Loss..........................................................25
SECTION 4.15 Sale of Name..........................................................26
SECTION 4.16 Transfer of Formulations..............................................26
ARTICLE V-CONDITIONS TO THE BUYER'S OBLIGATIONS..............................................26
SECTION 5.01 Consents and Approvals................................................26
SECTION 5.02 Representations and Warranties to be True and Correct.................26
SECTION 5.03 Performance...........................................................26
SECTION 5.04 No Adverse Change.....................................................27
SECTION 5.05 Opinion of Counsel....................................................27
SECTION 5.06 Lien Obligations of the Company.......................................27
SECTION 5.07 No Actions, Suits or Proceedings......................................27
SECTION 5.08 Due Diligence Review..................................................27
SECTION 5.09 Noncompetition Agreement..............................................27
SECTION 5.10 Organizational Documents..............................................27
SECTION 5.11 Good Standing; Qualification to do Business...........................28
SECTION 5.12 Tolling Agreement.....................................................28
ARTICLE VI-CONDITIONS TO THE SELLER'S OBLIGATIONS............................................28
SECTION 6.01 Representations and Warranties to be True and Correct.................28
SECTION 6.02 Performance...........................................................28
SECTION 6.03 No Actions, Suits or Proceedings......................................28
SECTION 6.04 Organizational Documents..............................................29
SECTION 6.05 Good Standing; Qualification to do Business...........................29
SECTION 6.06 Tolling of Operations.................................................29
SECTION 6.07 Buyer's Financial Condition...........................................29
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VII-INDEMNIFICATION..................................................................29
SECTION 7.01 Indemnification by Buyer..............................................29
SECTION 7.02 Indemnification by the Sellers........................................30
SECTION 7.03 Limitations on Indemnification........................................31
SECTION 7.04 Claims for Indemnification............................................31
SECTION 7.05 Miscellaneous.........................................................32
ARTICLE VIII-TERMINATION.....................................................................33
SECTION 8.01 Termination...........................................................33
SECTION 8.02 Effect of Termination.................................................34
ARTICLE IX-ADDITIONAL AGREEMENTS.............................................................35
SECTION 9.01 Tax Matters...........................................................35
SECTION 9.02 Payment of Liabilities................................................35
SECTION 9.03 Bulk Sales Laws.......................................................36
SECTION 9.04 Accounts Receivable...................................................36
SECTION 9.05 Contact with Customers and Suppliers..................................36
ARTICLE X-MISCELLANEOUS......................................................................36
SECTION 10.01 Notices..............................................................36
SECTION 10.02 Entire Agreement.....................................................37
SECTION 10.03 Modifications and Amendments.........................................38
SECTION 10.04 Waivers and Consents.................................................38
SECTION 10.05 Assignment...........................................................38
SECTION 10.06 Parties in Interest..................................................38
SECTION 10.07 Governing Law........................................................38
SECTION 10.08 Jurisdiction and Service of Process..................................38
SECTION 10.09 Severability.........................................................39
SECTION 10.10 Interpretation.......................................................39
SECTION 10.11 Headings and Captions................................................39
SECTION 10.12 Enforcement..........................................................39
SECTION 10.13 Reliance.............................................................40
SECTION 10.14 Expenses.............................................................40
SECTION 10.15 Survival.............................................................40
SECTION 10.16 Announcements........................................................40
SECTION 10.17 Counterparts.........................................................40
EXHIBITS ....................................................................................42
SCHEDULES....................................................................................43
</TABLE>
iii
<PAGE> 5
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement (this "Agreement") is entered as of
November 30, 1997, by and among TACC International Corporation, a Delaware
corporation (the "Buyer"), American Chemical Company, a Missouri corporation
(the "Company"), and Cohesant Technologies Inc., a Delaware corporation (the
"Parent" and together with the Company, the "Sellers").
WHEREAS, the Company is engaged in the business of manufacturing,
distributing, developing, marketing and selling certain adhesives, sealants, and
coatings (the "Business");
WHEREAS, the Parent owns all of the outstanding capital stock (or
securities or rights convertible into capital stock) of the Company; and
WHEREAS, the Company desires to sell to Buyer, and Buyer desires to
purchase from the Company, certain assets used in the Business on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Buyer and Sellers hereby agree as follows:
ARTICLE I
---------
PURCHASE AND SALE
-----------------
SECTION 1.01 TRANSFER OF ASSETS. On the terms and subject to the
conditions of this Agreement, the Company agrees to sell, convey, transfer,
assign and deliver to Buyer, and Buyer agrees to purchase from the Company, on
the Closing Date (as hereinafter defined) the following assets owned by the
Company or in which the Company has a right or interest, as the same shall exist
at the close of business on the Closing Date (the assets being transferred
hereunder are collectively referred to as the "Assets"):
(a) To the extent their transfer is permitted by law or by contract,
all right, title and interest in and to the permits and licenses and third party
qualifications and approvals relating to the Assets listed on SCHEDULE 2.13 (the
"Approvals");
(b) All Claims, causes of action, chose in action, rights of recovery
and rights of set-off of any kind to the extent transferable (including rights
under and pursuant to all warranties,
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representations and guarantees made by suppliers of inventory), pertaining to,
arising out of, and inuring to the benefit of the Company in connection with the
Business;
(c) All of the Company's inventory of samples, finished goods, raw
materials, packaging materials and shipping and other supplies with respect to
the Business which are good and usable within 120 days after the Closing (or, in
the case of packaging materials only, 180 days), together with such additional
inventories, if any, as Buyer elects to purchase (collectively, the "Purchased
Inventory");
(d) All rights, title and interest of the Company in, to and under the
Intellectual Property (as defined in Section 2.18 below), including, but not
limited to, product formulations, and the trade names "KINGCO", "King
Adhesives", "American Chemical", "MagicNails" and "GlenKote", and all goodwill
associated therewith (the "Intangible Assets");
(e) All invoices, shipping records, sales cost production records,
customer and supplier lists, correspondence and other documents, records and
files relating to customers or suppliers and all computer software and programs
to the extent transferable and any rights thereto owned, associated with or
employed by the Company or used in, or relating to, the Business;
(f) All personnel records of those individuals, if any, hired by the
Buyer; and
(g) All sales and promotional literature, customer lists and other
sales-related materials owned, used, associated with or employed by the
Business.
At Closing, the Assets shall be conveyed to the Buyer free and clear of
all claims, charges, liens, contracts, rights, options, security interests,
mortgages, encumbrances and restrictions whatsoever (collectively, "Claims") or
encumbrances pursuant to a Bill of Sale in the form of EXHIBIT 1.01(a) attached
hereto and other instruments of transfer reasonably requested by the Buyer.
SECTION 1.02 ASSUMPTION OF LIABILITIES.
(a) The only obligations and liabilities to be assumed by the Buyer in
connection with its acquisition of the Assets are the obligations of the Company
under those sales representative agreements specifically listed on SCHEDULE
1.02(a) (the "Sales Rep Agreements"), together with the other agreements listed
on Schedule 1.02(a) (collectively, the "Assumed Contracts"). The Buyer is not
assuming any other obligations or liabilities of the Sellers hereunder. These
other assumed contracts include only the obligation under Paragraph 2 of the
Agreement for Settlement of Dispute, dated October 3, 1991 and the
month-to-month public warehouse leases.
(b) The Buyer shall not assume or be responsible for any Excluded
Liability and the Company and/or the Parent, as the case may be, shall promptly
pay or shall cause their affiliates to pay for all Excluded Liabilities as they
become due and payable. "Excluded Liability" means any liability or obligation
of the Company or the Parent, or with respect to the Business or the Assets
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whatsoever, except for those liabilities incurred by the Buyer in connection
with the ownership of the Assets after the Closing Date, whether accrued,
absolute, contingent or otherwise, whether due or to become due, whether
existing as of the date hereof or arising out of any act or omission occurring
on or before the Closing Date and whether or not disclosed on any Schedule or
Exhibit hereto, including, without limiting the generality of the foregoing, the
following:
(i) all Taxes (as defined in Section 2.09) imposed or
hereafter owed by the Company, the Parent or any of the other
subsidiaries of the Parent, or attributable to the Business or the
Assets, relating to any period, or any portion of any period, ending on
or prior to the Closing Date;
(ii) all liabilities and obligations relating to employees of
the Company and any employee benefit plans and other employee matters;
(iii) breaches or defaults or events that occurred with
respect to products sold or services provided (including, without
limitation, any product liability or claim for injury) by or on behalf
of the Company prior to the Closing Date ("Product Liability Claims");
(iv) all accounts payable of the Company;
(v) any environmental liability or obligation of the Sellers,
whether now in existence or hereafter arising, including, but not
limited to those arising from the EnviroChem Sites, the Great Lakes
Asphalt Site or any other site, as defined in and further described on
SCHEDULE 2.08; and
(vi) any amounts payable as of the Closing Date under any of
the Sales Rep Agreements or other Assumed Contracts relating to
services provided prior to the Closing Date;
(vii) all liabilities and obligations arising from any action,
claim, proceeding, arbitration or governmental inquiry;
(viii) all liabilities, obligations, damages, costs and
expenses payable to judgment creditors or other third parties,
including, but not limited to, those resulting from the verdict
rendered in and subsequent settlement of the case of AMERICAN CHEMICAL
CO. v. SUPERIOR COATINGS, INC., No. 912-00332, Missouri Circuit Court,
22nd Judicial Circuit (1997) (collectively, the "Superior Coatings
Verdict"); and
(ix) all other liabilities or obligations of the Company,
contingent or otherwise, relating to or arising out of the ownership of
the Assets prior to the Closing Date or the operation or conduct of the
Business, including, without limitation, all sums due or other
liabilities payable to Parent or any of Parent's affiliates.
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The parties hereto acknowledge that the Buyer shall not be obligated to
offer to hire any employees of or consultants to the Company or any of its
subsidiaries or affiliates.
SECTION 1.03 PURCHASE PRICE; ALLOCATION OF PURCHASE PRICE.
(a) In consideration of the transfer, conveyance and assignment by the
Company to the Buyer of the Assets to be sold and the execution of the
additional related agreements specified in this Agreement, Buyer agrees that the
aggregate purchase price (the "Purchase Price") shall be the sum of the
following:
(i) The value of the Purchased Inventory determined at the
lower of cost or market in accordance with GAAP; plus
(ii) Three Hundred Fifty Thousand Dollars ($350,000) for the
Intangible Assets.
On the Closing Date, or on such prior date as the parties shall
mutually agree, the parties shall estimate the Closing Date value of the
Purchased Inventory (the "Preliminary Value").
(b) The Purchase Price (based on the Preliminary Value) shall be paid
to the Company at the Closing in cash, provided, however, that (i) only ninety
percent (90%) of the value of the Purchased Inventory shall be paid at Closing
(with the balance paid pursuant to Section 1.04 hereof) and (ii) Three Hundred
Thousand Dollars ($300,000) of the Purchase Price shall be payable pursuant to a
three (3) year promissory note with interest at the fixed rate of eight percent
(8%) per annum in the form attached hereto as EXHIBIT 1.03(b)(ii) (the
"Promissory Note"). The Promissory Note shall be payable as follows:
(i) interest only, paid quarterly in arrears, through December 31,
1998,
(ii) a principal payment of $100,000 on December 31, 1998, and
(iii) thereafter in eight (8) equal quarterly installments of
principal and interest commencing on March 31, 1999 with the
last payment due December 31, 2000.
(c) For all tax purposes, the Buyer and the Sellers agree to report the
transactions contemplated in this Agreement in a manner consistent with the
terms of this Agreement, and agree that none of them will take any position
inconsistent therewith in any tax return, in any refund claim, in any
litigation, or otherwise.
SECTION 1.04 POST-CLOSING ADJUSTMENTS. The Purchase Price shall be
subject to adjustment as follows:
(a) The Company shall cause to be taken a physical count of the
Purchased Inventory as of the Closing Date and the Buyer shall have the right,
at its expense, to observe or have its representatives observe such physical
count. Such count will be used as the definitive basis for the
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Purchased Inventory quantities for purposes of the Closing Inventory Statement
(as such term is defined below). The Company shall cooperate with the Buyer in
connection with taking such physical count prior to the Closing Date, including,
without limitation, to stop production during the taking of the physical count
and to have the employees of the Company, at the Company's expense, organize the
inventory and take the physical count thereof.
(b) Within a period of sixty (60) days after the Closing Date, Grant
Thornton LLP (the "Accountant") shall cause to be prepared and delivered to the
Buyer and the Sellers a statement of the Net Asset Value purchased hereunder
(the "Closing Inventory Statement") prepared in accordance with generally
accepted accounting principles ("GAAP") except as otherwise provided herein.
"Net Asset Value" means an amount equal to the sum of (i) the Purchased
Inventory determined in accordance with GAAP on a basis consistent with the
Statements (as such term is defined in Section 2.04 herein) as of the Closing
Date, provided, however, that the Purchased Inventory shall be valued at the
lower of cost or market, determined on a first-in, first-out basis, with market
being determined based on the inventory being good and saleable within one
hundred twenty (120) days of the Closing Date, and (ii) $350,000 for the
Intangible Assets. The Buyer and the Accountant shall have reasonable access
during normal business hours to all of the Company's current accountant's books,
records and work papers containing financial information of the Company. The
Company shall be entitled, at its cost and expense, to have its representative
observe all procedures conducted by the Accountant at the Company's premises or
warehouse locations. The fees and expenses of the Accountant shall be borne
solely by the Buyer.
The Closing Inventory Statement shall be conclusive and binding upon
the parties hereto unless the Company or the Buyer objects in writing to any
item or items shown on the Closing Inventory Statement within fifteen (15) days
after delivery of the Closing Inventory Statement. Such writing, which shall be
delivered to the Accountant and to the other parties, shall assert that the
Closing Inventory Statement is in error specifying in reasonable detail the
amount in dispute and the basis for such dispute. If the parties shall not agree
within fifteen (15) days thereafter as to the amount, such amount or amounts
shall be conclusively determined in accordance with this Agreement within thirty
(30) days by Ernst & Young (the "Arbiter") or, if the Arbiter does not accept
such engagement, another of the six largest United States accounting firms, to
be mutually agreed to by the parties hereto. The Arbiter shall only determine
amounts that have been disputed in the manner provided herein. The fees and
expenses of the Arbiter shall be borne proportionately by the Sellers, jointly
and severally, on the one hand, and the Buyer, on the other hand, on the basis
of the Arbiter's determination of the amounts in dispute and the relation
thereof to such amounts respectively asserted by the Buyer and the Sellers to
exist as of the Closing Date.
(c) In the event that as of the Closing Date, the Net Asset Value as
set forth on the Closing Inventory Statement as finally determined in the manner
provided in Paragraph (b) above is less than or greater than the portion of the
Purchase Price (based on the Preliminary Value) paid at the Closing; the
Purchase Price shall be adjusted to reflect such decrease or increase, as the
case may be, on a dollar for dollar basis. Any decrease will be promptly repaid
by the Sellers, jointly and
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severally, to the Buyer in cash within five (5) business days thereafter. Any
increase will be promptly paid by the Buyer to the Company in cash within five
(5) business days thereafter.
(d) The Sellers shall jointly and severally promptly reimburse the
Buyer for any and all of the Buyer's costs and expenses incurred in connection
with returns of products sold by the Company on or prior to the Closing Date,
including, without limitation, costs and expenses related to shipping, materials
and refunds on credits, provided that the Sellers shall receive a credit for
such returned products, to the limited extent that the Buyer is able to recover
value through the resale of such returned products. Such reimbursement shall be
made within ten (10) business days of the Company's receipt of an invoice
therefore.
SECTION 1.05 CLOSING. Upon the terms and subject to the conditions of
this Agreement, the sale, transfer, conveyance and assignment of the Assets
contemplated by this Agreement shall take place at a closing (the "Closing") to
be held at the offices of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., One
Financial Center, Boston, Massachusetts at 10:00 A.M. Boston time on December
30, 1997, or at such other place or at such other time or on such other date as
the Company and the Buyer may mutually agree upon in writing (the day on which
the Closing takes place being the "Closing Date").
At the Closing:
(a) The Company shall deliver to the Buyer or cause to be delivered to
the Buyer the following:
(i) The Bill of Sale in the form attached hereto as EXHIBIT
1.01(a) and such other instruments of transfer and assignment,
in form and substance satisfactory to the Buyer.
(ii) An opinion of Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A.,
counsel to the Sellers, in the form attached hereto as EXHIBIT
5.05;
(iii) All of the consents, approvals or authorizations of
Governmental Authorities (as such term is defined in Article
II) and other third parties, if any, necessary in connection
with the consummation of the transactions contemplated hereby;
(iv) The certificates and other documents and instruments required
by Article V herein;
(v) The Noncompetition Agreement among the Company, the Parent and
the Buyer in the form attached hereto as EXHIBIT 5.10 (the
"Noncompetition Agreement");
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(vi) The Tradename and Trademark Transfer Agreement in the form
attached hereto as EXHIBIT 1.05;
(vii) The Toll Manufacturing Agreement in the form attached hereto
as EXHIBIT 5.12 (the "Tolling Agreement");
(viii) An Assignment and Assumption of the Sales Rep Agreements and
Other Assumed Contracts.
(b) Simultaneously with the execution hereof, the Buyer shall deliver
or cause to be delivered to the Sellers:
(i) The Purchase Price (based on the Preliminary Value) and
$350,000 required pursuant to the Noncompetition Agreement,
less the Promissory Note, shall be paid by the Buyer to the
Company by wire transfer in accordance with wire transfer
instructions provided by the Company to the Buyer at least two
(2) Business Days prior to the Closing Date;
(ii) The Noncompetition Agreement;
(iii) The certificates and other documents and instruments required
by Article VI hereto;
(iv) The Tradename and Trademark Transfer Agreement;
(v) The Tolling Agreement;
(vi) The Promissory Note;
(vii) An Agreement and Assumption of the Sales Rep Agreement and
Other Assumed Contracts.
SECTION 1.06 FURTHER ASSURANCES. At any time and from time to time
after the date hereof and/or after the Closing Date, each of the parties hereto,
at the request of any other party hereto and without further consideration, will
execute and deliver such other instruments of sale, transfer, conveyance,
assignment, confirmation and other instruments as may be reasonably requested in
order to more effectively transfer, convey and assign to the Buyer and to
confirm the Buyer's title to the Assets and to effectuate the transactions
contemplated herein.
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ARTICLE II
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REPRESENTATIONS AND WARRANTIES OF THE SELLERS
---------------------------------------------
As an inducement to the Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, the Sellers hereby jointly and
severally represent and warrant to the Buyer as follows:
SECTION 2.01 ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Missouri. The Company is not required to be licensed or
qualified to transact business as a foreign corporation in any other
jurisdiction. The Parent is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
SECTION 2.02 CORPORATE POWER AND AUTHORITY; TITLE. The Company has all
of the necessary corporate power and authority to own, operate or lease the
properties and assets now owned, operated or leased by it and to carry on the
Business as it has been conducted and as it is proposed to be conducted. Each of
the Sellers has the corporate power and authority to execute, deliver and
perform this Agreement and the other documents and instruments contemplated
hereby. The execution, delivery and performance of this Agreement and the
documents contemplated hereby and the consummation of the transactions
contemplated hereby and thereby have been duly authorized and approved by each
of the Sellers. This Agreement, and each of the other agreements, documents and
instruments to be executed and delivered by the Company and the Parent have been
duly executed and delivered by, and constitute the legal, valid and binding
obligation of the Company and the Parent enforceable against the Company and the
Parent, as the case may be, in accordance with their terms. As of the Closing
Date, the Company will have good and marketable title to the Assets, free and
clear of all liens and encumbrances whatsoever.
SECTION 2.03 NO CONFLICT. Neither the execution and delivery of this
Agreement and the other documents and instruments contemplated hereby by the
Sellers, the consummation of the transactions contemplated hereby or thereby,
nor the performance of this Agreement and such other agreements in compliance
with the terms and conditions hereof and thereof will (i) violate, conflict with
or result in any breach of any of the Sellers' Certificates of Incorporation, or
By-Laws or any judgment, decree, order, statute or regulation applicable to the
Company or the Parent, (ii) require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, (iii) violate, conflict with or result in a breach, default or
termination or give rise to any right of termination, cancellation or
acceleration of the maturity of any payment date of any of the obligations of
the Company or of the Parent or increase or otherwise affect the obligations of
the Company or of the Parent under any law, rule, regulation or any judgment,
decree, order, governmental permit, license or order or any of the terms,
conditions or provisions of any mortgage, indenture, note, license, agreement or
other instrument or obligation related to the Company or the Parent or to the
Company's or the Parent's ability to consummate the transactions contemplated
hereby, except for such defaults (or rights of termination, cancellation or
acceleration) as to which
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requisite waivers or consents have been obtained in writing and provided to the
Buyer, (iv) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company or the Parent or (v) result in the creation
of any Claim upon any of the Assets.
SECTION 2.04 FINANCIAL STATEMENTS. Attached hereto as SCHEDULE 2.04 are
the unaudited financial statements, including the income statements of the
Company for the years ended November 30, 1996 and November 30, 1995, and the
balance sheet and income statement for the ten month period ended September 30,
1997 (collectively the "Statements"). The Statements have been prepared in
accordance with GAAP (exclusive of any footnotes) consistently applied and were
prepared from the books and records of the Company, which books and records are
complete and correct in all material respects and accurately reflect all
transactions of the Business. The Statements fairly and accurately present the
financial position of the Company as of the dates thereof and the results of its
operations for the periods ended on the dates thereof and have been prepared in
accordance with the Company's historical principles and practices consistently
applied except as to the impairment reserves set forth on the September 30, 1997
balance sheet and related expense shown on the income statement. The Statements
reflect reserves appropriate and adequate for all liabilities and anticipated
losses as required by GAAP, except as noted therein and subject to normal
year-end adjustments which are not material. Since the date of the September 30,
1997 Statement, (a) there has been no change in the assets, liabilities or
financial condition of the assets of the Company from that reflected in the
Statements except for changes in the ordinary course of business consistent with
past practice and which have not been materially adverse and (b) none of the
business, prospects, financial condition, operations, property or affairs of the
Company has been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against.
SECTION 2.05 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the
extent of the amounts specifically reflected or reserved against in the
Statements or as set forth on SCHEDULE 2.05, the Company has no liabilities or
obligations of any nature whatsoever, due or to become due, accrued, absolute,
contingent or otherwise, except for liabilities and obligations incurred in the
ordinary course of business and consistent with past practice. The Sellers do
not know of, and have no reason to know of, any basis for the assertion against
the Company of any liability or obligation not fully reflected or reserved
against in the Statements or incurred in the ordinary course of business and
consistent with past practice since the date thereof.
SECTION 2.06 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS. Except as
disclosed on SCHEDULE 2.06, since September 30, 1997, the Company has carried on
the Business only in the ordinary course and consistent with past practices and
there has been no material adverse change in the Business and there is no
condition or development or contingency of any kind existing or in prospect
which, so far as reasonably can be foreseen by the Company, may result in any
such material adverse change. Without limiting the foregoing, since September
30, 1997, there has not been, occurred or arisen:
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(a) Any damage, destruction or loss to any of the assets of the Company
(whether tangible or intangible and whether or not covered by insurance) that,
individually or in the aggregate, would have a material adverse effect on the
business or prospects of the Business;
(b) Any change in the business or operations of the Business including,
without limitation, practices and policies relating to manufacturing,
purchasing, inventories, marketing, selling and pricing; or in the manner of
conducting the Business or sale or other disposition of any right, title or
interest in or to any assets or properties used in the Business or any revenues
derived therefrom other than in the ordinary course of business;
(c) Any material adverse change in the Assets, Sales Rep Agreements,
Business, operations or prospects of the Company or any binding commitments
related to same in excess of $10,000 in any instance;
(d) Any loan, advance, agreement, arrangement or transaction between
the Company and any officers, employees or stockholders of the Company or its or
their affiliates, or any business or entity in which the Company, its
affiliates, officer or employee of either has any direct or indirect interest,
except for compensation at rates not exceeding the rates of compensation in
effect as of September 30, 1997, and advances made to employees of the Business
for ordinary and customary business expenses in reasonable amounts in the
ordinary course of the Business consistent with past practice;
(e) Any sale, assignment or transfer of any of the Assets used by the
Company except in a bona fide transaction to an unaffiliated party for fair
value and in the ordinary course of business consistent with past practice, or
cancellation of any debt or Claim owing to or owed by the Company;
(f) Any sale, assignment, transfer or grant of any license or
sublicense with respect to any trademark, trade name, service mark, copyright,
trade secret or other intangible asset used or useful in the Business;
(g) Any loans or the guarantee of any obligations of any person or
entity, including any employees, officers or stockholders of the Company or its
or their affiliates;
(h) The creation or sufferance to exist of any Claims on the Assets;
(i) Any institution, settlement or agreement to settle any litigation,
action or proceeding before any person, entity or Governmental Authority
relating to the Business or the Assets (excluding the Superior Coatings
Verdict);
(j) Any material transaction except in the ordinary course of business;
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(k) Any amendment or modification of, or waiver of any claim or right
of substantial value under, any of the Assumed Contracts;
(l) any writing up or writing down (or failure to write up or write
down on a basis consistent with past practices of the Company) the value of any
Purchased Inventory other than in the ordinary course of business consistent
with past practices of the Company;
(m) any change in any method of accounting or accounting practice or
policy used by the Company;
(n) any agreement to incur, assume or become subject to, any
liabilities or obligations for returns or allowances, other than in the ordinary
and usual course of business and consistent in nature of item and amount with
past practice, or increased, or experienced any change in any assumption
underlying, or methods of calculating, any bad debt, contingency or other
reserve;
(o) any agreement to pay, discharge or satisfy, any payment, discharge
or satisfaction of any material claim, liability or obligation (absolute,
accrued, contingent or otherwise), other than the payment, discharge or
satisfaction of liabilities and obligations reflected or reserved against in the
Statements or incurred in the ordinary and usual course of business consistent
with past practices;
(p) any prepayment of any obligation having a fixed maturity of more
than 90 days from the date such obligation was issued or incurred, or not paid,
when due, any account payable, or sought the extension of the payment date of
any account payable, other than any account payable which was (until paid) or is
being contested in good faith; or
(q) Any commitment (contingent or otherwise) to do any of the
foregoing.
SECTION 2.07 INVENTORIES. All of the Company's inventory reflected in
the Statements or thereafter acquired (and not subsequently sold in the ordinary
course of business) consist of items of quality and quantity usable or
merchantable in the ordinary course of the Company's Business as first quality
goods at prices at least equal to the amounts reflected in the Statements or,
with respect to after-acquired inventory, at least equal to the cost thereof
plus markups consistent with past practice. Each item of such inventory is
valued in the Statements at the lower of cost or market in accordance with GAAP
in accordance with historic inventory practices of the Company. Any item of the
Purchased Inventory that is, at the Closing Date, obsolete, damaged or
slow-moving (the "Slow-Moving Inventory") will be adequately reserved for on the
Statements. The Purchased Inventory now in existence and thereafter acquired are
expected to be used in the ordinary course of the Business within a period of
four (4) months from the date hereof (six (6) months in the case of packaging
materials), except for any Slow-Moving Inventory. The parties acknowledge Buyer
is not required to purchase any Slow-Moving Inventory. The current level of
inventories and supplies are at normal and adequate levels for the continuation
of the Business in the ordinary course and consistent with the Company's past
practices. The inventories do not and will not consist of any goods held on
consignment. The Company is not under any obligation or liability with respect
to
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accepting returns of items of inventory or merchandise in the possession of its
customers other than in the ordinary course of business consistent with past
practice and the policies of the Company. The Company has not committed and will
not commit to acquire inventory for sale which is not of a quality and quantity
usable in the ordinary course of the Business within a reasonable period of time
consistent with past practice, nor has the Company changed or will change the
price of any inventory except for (i) price reductions to reflect any reduction
in the cost thereof to the Company, (ii) reductions and increases responsive to
normal competitive conditions and consistent with the Company's past sale
practices, and (iii) increases to reflect any increase in the cost thereof to
the Company.
SECTION 2.08 ENVIRONMENTAL MATTERS. (a) To the Sellers' knowledge,
except as disclosed in Schedule 2.08 hereto:
(i) The Company and all real and leased property owned or
operated by it, are in compliance with all applicable statutes, rules,
regulations, orders, judgments and decrees of all federal, state and
local governmental authorities relating to pollution or protection of
human health or the environment ("Environmental Laws") and the Company
is not in violation of Environmental Laws with respect to the premises
in or near the real and leased property owned or operated by the
Company; and
(ii) The Company has not released Substances into the
environment in violation of Environmental Laws. The environment at the
real or leased property is not contaminated with Substances in amounts
or concentrations violative of Environmental Laws. Neither the real or
leased property owned or operated by the Company, nor, any property to
or at which the Company has arranged for transportation , treatment,
storage, or disposal of a hazardous substance, as defined in any
presently enacted Environmental Law, is listed or has been proposed for
listing on the National Priorities List, 40 C.F.R. Part 300, Appendix
B, or on similar lists established pursuant to state or other law. The
term "Substances" shall mean any pollutant, contaminant, hazardous
substance, hazardous material, oil (including petroleum or petroleum
products, crude oil, natural gas or synthetic gas useable for fuel)
hazardous waste or toxic waste, as defined in any presently enacted
Environmental Law.
(b) Except as disclosed in Schedule 2.08 hereto and except as would not
reasonably be expected to result in a material adverse effect, the Company has
obtained and holds and is in compliance with all registrations, permits,
licenses, and approvals issued by or on behalf of any federal, state or local
government body or agency ("Environmental Permits"), that are required under the
Environmental Laws in connection with the discharge or emission of Substances
from the facilities or plants operated by the Company or the generation,
treatment, storage, transportation, or disposal of any such Substances, in each
case as the facilities of the Company are currently operated. Such Environmental
Permits are listed on Schedule 2.08 hereto. Except as disclosed in Schedule 2.08
hereto, the Sellers have not received written notice of any claim, action, suit,
proceeding, hearing or investigation or of potential responsibility, based on or
related to Environmental Laws with respect to the Company.
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SECTION 2.09 TAXES. All federal, state, local and foreign tax returns
and tax reports required to be filed by the Company on or before the date hereof
have been timely filed with the appropriate governmental agencies in all
jurisdictions in which such returns and reports are required to be filed and all
amounts shown as owing thereon have been paid. All taxes including, without
limitation, income, accumulated earnings, property, sales, use, franchise, value
added, fuel, employees' income withholding and social security taxes ("Taxes"),
(i) which have become due or payable and all interest and penalties thereon,
whether disputed or not, have been paid in full and (ii) which are required to
be collected or withheld by the Company have been so collected or withheld. All
deposits required by law to be made by the Company with respect to employees'
withholding taxes have been duly made. The Company is not on the date hereof
liable for the payment of any taxes and the Buyer shall have no liability for
any taxes related to the ownership or operation of the Assets or the Company's
Business prior to the date hereof. The Company has delivered to the Buyer true
and complete copies of the Company's federal and state income tax returns for
the three prior fiscal periods and all reports and results of federal and state
income tax audits, if any, related thereto. The Company has not taken or failed
to take any action which could create any tax lien on any of the Assets. Except
as so reflected and provided for, no tax liabilities, disallowances, or
assessments have been assessed or proposed which remain unpaid and, to the best
knowledge of the Sellers, no fact or state of facts exists or has existed which
would constitute the grounds for the assessment of any tax liability other than
so reflected and provided for. No examinations of the Federal, state or other
tax returns, forms or information of the Company are currently in progress or,
to the best knowledge of the Sellers, are threatened. The Sellers have not given
any waiver of extension of any period of limitation governing the time of
assessment or collection of any Tax for any year which is still open for
assessment or remains in effect.
SECTION 2.10 LITIGATION. Except as set forth on SCHEDULE 2.10, there
has not been in the five (5) years prior to the date hereof and there is not
currently any (a) action, suit, claim, proceeding or investigation pending or,
to the Sellers' knowledge, threatened against or affecting the Company (whether
or not the Company is a party or prospective party thereto), at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (b) arbitration proceeding relating to the Company or (c) governmental
inquiry pending or threatened against or involving the Company, and there is no
basis for any of the foregoing. There are no outstanding orders, writs,
judgments, injunctions or decrees of any court, governmental agency or
arbitration tribunal against, involving or affecting the Company, and there are
no facts or circumstances which may result in institution of any action, suit,
claim or legal, administrative or arbitration proceeding or investigation
against, involving or affecting the Company or the transactions contemplated
hereby. The Company is not in default with respect to any order, writ,
injunction or decree known to or served upon them from any court or of any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign. Except as set forth on
SCHEDULE 2.10, there is no action or suit by the Company pending or threatened
against others and there is no basis for any of the foregoing.
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SECTION 2.11 CERTAIN PRACTICES. Neither the Company nor any of the
officers, directors or employees of the Company has, directly or indirectly,
given or agreed to give any significant rebate, gift or similar benefit to any
supplier, customer, governmental employee or other person who was, is or may be
in a position to help or hinder the Company (or assist in connection with any
actual or proposed transaction) which (i) could subject the Company or the Buyer
to any damage or penalty in any civil, criminal or governmental litigation or
proceeding, or (ii) if not continued in the future, could have an adverse effect
on the Business.
SECTION 2.12 COMPLIANCE WITH LAW. The Company is not subject to any
judgment, order, writ, injunction, or decree that adversely affects,
individually or in the aggregate, its businesses, operations, properties, assets
or condition (financial or otherwise). The Company has complied, in all material
respects, with and is not in default under, any federal, state, local or foreign
laws (whether statutory or otherwise), ordinances, legal requirements, rules,
regulations and orders applicable to it, its operations, properties, assets,
products and services. There is no existing law, rule, regulation or order, and
the Sellers are not aware of any proposed law, rule, regulation or order,
whether federal, state, local or foreign which would prohibit or materially
restrict Buyer from, or otherwise materially adversely affect the Buyer in
conducting the Business in any jurisdiction in which such business is now
conducted.
SECTION 2.13 LICENSES AND PERMITS. SCHEDULE 2.13 contains a complete
and accurate list and description of all licenses, permits, pending
applications, consents, qualifications, approvals and authorizations of or from
any public or governmental agency or other third-parties, used in or otherwise
necessary for the operation of the Assets in the conduct of the Business
(collectively, the "Permits"). Schedule 2.13 shall designate those Permits that
may be validly transferred to the Buyer and those Permits, if any, that are not
transferable. No other Permits are required in connection with the operation of
the Assets. The Company has complied with all conditions and requirements
imposed by the Permits and the Company has not received any notice of, and none
of the Sellers have any reason to believe, that any appropriate authority
intends to cancel or terminate any of the Permits or that valid grounds for such
cancellation or termination exist. The Company owns or has the right to use the
Permits in accordance with the terms thereof without any conflict or alleged
conflict or infringement with the rights of others and subject to no Claim, and
each Permit is valid and in full force and effect, and will not be terminated or
adversely affected by the transactions contemplated hereby.
SECTION 2.14 NO LIENS ARISING FROM EMPLOYEE BENEFITS. No circumstance
exists, or as a result of the consummation of the transactions contemplated by
this Agreement, will exist that could result in the creation or existence of a
lien on any of the Assets or the imposition of any tax, penalty or other
liability on the Buyer or any assets of the Buyer under any provision of the
Internal Revenue Code, ERISA, or any other law applicable to any employee
benefit plan.
SECTION 2.15 INSURANCE.
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(a) SCHEDULE 2.15 contains an accurate and complete list of all
policies of casualty, general liability and products liability insurance owned
or held by or beneficially for the Company. All such policies are in full force
and effect and will not be canceled or modified by the Company prior to Closing
without the express written consent of the Buyer (except to extend the maturity
dates thereof), no premiums with respect thereto are past due and no notice of
cancellation or termination has been received by the Company with respect to any
such policy.
(b) The aforesaid policies are sufficient for Company's compliance with
all requirements of applicable law and of all agreements to which they are a
party; are valid, outstanding and enforceable policies; are in amounts
customarily deemed to be adequate and cover all risks customarily insured
against by companies conducting businesses similar to the Business; and have
been issued by reputable insurance companies which are in good standing,
adequately capitalized and actively engaged in the insurance business. The
insurance policies cover all incidents of loss which have occurred prior to the
date hereof or which may occur resulting from the Company's products sold prior
to the date hereof.
SECTION 2.16 OUTSTANDING COMMITMENTS. SCHEDULE 2.16 sets forth a
description of all existing contracts, agreements, commitments, licenses,
purchase orders, powers of attorney and franchises (collectively "Agreements")
relating to the Assets or the customers and suppliers of the Company. The
Company has delivered or made available to the Buyer true, correct and complete
copies of all of the Agreements specified on SCHEDULE 2.16 which are in writing,
and SCHEDULE 2.16 contains an accurate and complete description of all
Agreements which are not in writing. The Company has timely paid all amounts due
as of the date hereof under each Agreement identified in SCHEDULE 2.16 and, to
the best of its knowledge, the Company and each other party thereto have
performed all the obligations required to be performed by them to date, have
received no notice of default and are not in default (with due notice or lapse
of time or both) under any Agreement. The Company has no knowledge of any breach
or anticipated breach by the other party to any contract or commitment to which
the Company is a party. None of such Agreements has been terminated and the
Company is not aware of any intention or right of any party to default another
party to any such Agreement. There exists no actual or, to the knowledge the
Company, threatened termination, cancellation or limitation of the business
relationship of the Company with any party to any such Agreement.
SECTION 2.17 INTANGIBLES AND INTELLECTUAL PROPERTY.
(a) SCHEDULE 2.17 lists all Proprietary Rights (as such term is defined
below) and sets forth any licenses related thereto and whether, where and when
each such Proprietary Right has been registered or filed with the United States
Patent and Trademark Office or the United States Copyright Office or the
corresponding office of any other jurisdictions. The Company owns or has a valid
right to use the Proprietary Rights being used and proposed to be used to
conduct the Business as now conducted and as proposed to be conducted free and
clear of any Claims. Except as specified on SCHEDULE 2.17, the Company has (i)
no obligation to compensate any person or entity for the use of any such
Proprietary Rights and (ii) not granted or assigned to, or become obligated to
grant or
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assign to, any person or entity, including any affiliate of the Company, any
license or other right to use any of the Proprietary Rights, or otherwise
licensed from others the Proprietary Rights of third parties, whether or not
requiring the payment of royalties or fees. All of the Proprietary Rights will
be owned or available for use by the Buyer on identical terms and conditions
immediately following the Closing Date.
(b) Except as set forth on SCHEDULE 2.17(b), no Claims have been made
or proceedings instituted or are pending or, to the best of the Company's
knowledge, after due inquiry, threatened which challenge the validity of the
ownership or use by the Company of any of the Proprietary Rights and, to the
best of the Company's knowledge, after due inquiry, no facts or circumstances
exist which would form the basis for such Claims or proceedings.
(c) The Company has the unencumbered right to use, free and clear of
any Claims, its Proprietary Rights. None of the Company's customer lists have
been sold, leased, licensed or otherwise disclosed either in whole or in part to
any person or entity and no person or entity has any right to use or interest in
the customer list or any information therein.
(d) The Company has no knowledge of the infringing use of any
Proprietary Rights or the infringement of any such Proprietary Rights by any
other person.
(e) "Proprietary Rights" means (a) trademarks, service marks, trade
dress, logos, trade names and corporate names, whether or not registered,
including all common law rights, and registrations and applications for
registration thereof, including, but not limited to, all marks registered in the
United States Patent and Trademark Office, the Trademark Offices of the States
and Territories of the United States Patent and Trademark Office, the Trademark
Offices of the States and Territories of the United States of America, and the
Trademark Offices of other nations throughout the world, and all rights therein
provided by multinational treaties or conventions, (b) copyrights (registered or
otherwise) and registrations and applications for registration thereof, and all
rights therein provided by multinational treaties or conventions, (c) computer
software, including, without limitation, source code, operating systems and
specifications, data, data bases, files, documentation and other materials
related thereto, data and documentation, (d) trade secrets and confidential,
technical or business information (including ideas, formulas, compositions,
inventions and conceptions of inventions whether patentable or unpatentable and
whether or not reduced to practice), (e) whether or not confidential, technology
(including know-how and show-how), manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial,
marketing and business data, pricing and cost information, business and
marketing plans and customer and supplier lists and information, (f) copies and
tangible embodiments of all the foregoing, in whatever form or medium, (g)
issued patents and patent applications, (h) all rights to obtain and rights to
apply for patents, and to register trademarks and copyrights, and (i) all rights
to sue and recover and retain damages and costs and attorneys' fees for present
and past infringement of any of the Proprietary Rights hereinabove set out.
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SECTION 2.18 SIGNIFICANT SUPPLIERS. Set forth on SCHEDULE 2.18 is a
list of the ten largest suppliers to the Company for the twelve-month period
ended November 30, 1996 and for the eleven month period ended October 31, 1997,
together with the amount of purchases attributable to such suppliers expressed
in dollars and as a percentage of total purchases. No supplier, including,
without limitation, the suppliers listed on SCHEDULE 2.18 which were significant
to the Company during the past three years, has terminated, materially reduced
or threatened to terminate or materially reduce its provision of merchandise or
services to the Company. The Company has no reason to believe that the
transactions contemplated hereby will adversely affect the existing relationship
with any of the Company's suppliers.
SECTION 2.19 SIGNIFICANT CUSTOMERS. Set forth on SCHEDULE 2.19 is a
list of the ten largest customers of the Company for the twelve-month period
ended November 30, 1996 and for the eleven month period ended October 31, 1997,
together with the amount of purchases attributable to such customers expressed
in dollars and as a percentage of total sales. No customer, including, without
limitation, the customers listed on SCHEDULE 2.19 which were significant to the
Company during the past three years, has terminated, materially reduced or
threatened to terminate or materially reduce its purchases of the products or
services of the Company. The Company has no reason to believe that the
transactions contemplated hereby will adversely affect the existing relationship
with any of the Company's customers. The Company has not participated in any
trade programs, whether or not in the ordinary and usual course of business or
consistent with past practice, which may result in Claims against the Company
for money, credit or goods, including but not limited to bonuses, billback's
in-house programs, accruals, other sales and commission incentives or
allowances, discounts, returns, credits, allowances and contests.
SECTION 2.20 GOVERNMENTAL APPROVALS. No registration or filing with, or
consent or approval of or other action by, any Governmental Authority is or will
be necessary for the valid execution, delivery and performance by either of the
Sellers of this Agreement or the operation of the Business immediately after the
Closing in a manner consistent with its operations as of the date hereof.
"Governmental Authority" means any public body, governmental, administrative or
regulatory authority, agency, instrumentality or commission, including courts of
competent jurisdiction and arbitral tribunals, whether federal, state, local or
foreign.
SECTION 2.21 TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.21, no director, officer or employee of the Company or the Parent, or
member of the family of any such person, or any corporation, partnership, trust
or other entity in which any such person, or any member of the family of any
such person, has a substantial interest or is an officer, director, trustee,
partner or holder of any equity interest, is a party to any transaction with the
Company.
SECTION 2.22 NO BROKER OR FINDER. No broker, finder or other financial
consultant has acted on behalf of the Company in connection with this Agreement
or the transactions contemplated hereby in such a way as to create any liability
on the Buyer.
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SECTION 2.23 CLAIMS. The Company has not extended or granted any
warranties whether express or implied, other than standard terms and conditions
summarized in SCHEDULE 2.23. Except as set forth on SCHEDULE 2.23, neither of
the Sellers has received any written notice, nor has any knowledge of any oral
notice, of any claim (actual or threatened) in connection with any product
manufactured, sold, leased or delivered by the Company other than Claims in the
ordinary course of business and not in excess of $5,000 and, after due inquiry,
none of the Sellers has knowledge of any fact or circumstance which would form
the basis for any liability arising out of injury to individuals or property as
a result of the ownership, possession or use of any product manufactured, sold,
leased or delivered by the Company. SCHEDULE 2.23 also sets forth each material
pending claim against the Company in connection with any product manufactured,
sold, leased or delivered by the Company.
SECTION 2.24 DISCLOSURE. All documents and schedules delivered or to be
delivered by or on behalf of the Sellers in connection with this Agreement and
the transactions contemplated hereby are true, complete and correct. Neither the
Company nor the Parent is aware of any facts pertaining to the Company, the
Assets or the Business which is reasonably likely to have a material adverse
effect on the Assets and the Business and which have not been disclosed in this
Agreement, the Schedules or the Statements or otherwise disclosed to the Buyer
by the Company or the Parent in writing. Neither this Agreement, nor any
Schedule or other documents in connection herewith contains any untrue statement
of a material fact or omits a material fact necessary to make the statements
contained herein or therein, in light of the circumstances in which made, not
misleading.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
The Buyer represents and warrants to the Sellers as follows:
SECTION 3.01 ORGANIZATION. The Buyer is duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.
SECTION 3.02 BUYER POWER AND AUTHORITY. The Buyer has the corporate
power and authority to execute, deliver and perform this Agreement and the other
documents and instruments contemplated hereby. The execution, delivery and
performance of this Agreement by the Buyer and the documents contemplated hereby
and the consummation of the transactions contemplated hereby have been duly
authorized and approved by the Buyer. This Agreement, and each of the other
agreements, documents and instruments to be executed and delivered by the Buyer
have been duly executed and delivered by, and constitute the valid and binding
obligation of the Buyer enforceable against the Buyer in accordance with their
terms.
SECTION 3.03 NO CONFLICT. Neither the execution and delivery of this
Agreement and the other documents and instruments contemplated hereby by the
Buyer, the consummation of the
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transactions contemplated hereby or thereby, nor the performance by the Buyer of
this Agreement and such other agreements in compliance with the terms and
conditions hereof and thereof will (i) conflict with or result in any breach of
the Certificate of Incorporation, as amended, or By-Laws of the Buyer or any
judgment, decree, order, statute or regulation applicable to the Buyer, (ii)
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, (iii) result in a
breach of or default (or give rise to any right of termination, cancellation or
acceleration) under any law, rule or regulation or any judgment, decree, order,
governmental permit, license or order or any of the terms, conditions or
provisions of any mortgage, indenture, note, license, agreement or other
instrument to which the Buyer is a party which would materially impair the
Buyer's ability to consummate the transactions contemplated hereby or (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Buyer.
SECTION 3.04 LITIGATION. There is no (a) action, suit, claim,
proceeding or investigation pending or, to the best of the Buyer's knowledge,
threatened against or affecting the Buyer (whether or not the Buyer is a party
or prospective party thereto), at law or in equity, or before or by any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, (b) arbitration proceeding
relating to the Company or (c) governmental inquiry pending or threatened
against or involving the Buyer, which in each case would materially impair the
Buyer's ability to consummate the transactions contemplated hereby.
SECTION 3.05 NO BROKER OR FINDER. Other than Einhorn Associates, Inc.
(whose fees shall be paid by the Buyer), no broker, finder or other financial
consultant has acted on behalf of the Buyer in connection with this Agreement or
the transactions contemplated hereby in such a way as to create any liability on
the Sellers.
ARTICLE IV
----------
COVENANTS OF THE SELLERS
------------------------
The Sellers covenant and agree with the Buyer as follows:
SECTION 4.01 BEST EFFORTS COOPERATION. The Sellers shall use their best
efforts to perform and fulfill, all conditions and obligations to be fulfilled
or performed by them hereunder, to the end that the transactions contemplated
hereby will be fully and timely consummated.
SECTION 4.02 ACCESS. Until the Closing, the Company shall give the
Buyer, its attorneys, accountants and other authorized representatives complete
access, upon reasonable notice and at reasonable times, to each of the Company
offices, properties, customers, suppliers, employees, products, technology,
business and financial records, contracts, business plans, budgets and
projections, agreements, commitments and other documents and information
concerning the Company and persons employed by or doing business with the
Company. Following the Closing, the Company shall provide the Buyer with access
to any and all records relating to the Company
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which remain in the possession of accountants, attorneys and other third parties
and which the Buyer may reasonably require to carry out the Business. In order
that the Buyer may have full opportunity to make such examination and
investigation as it may desire of the business and affairs of the Company, the
Company will furnish the Buyer and its representatives during such period with
all such information as such representatives may reasonably request and cause
the respective officers, employees, consultants, agents, accountants and
attorneys of the Company and the Parent to cooperate fully with the
representatives of the Buyer in connection with such review and examination and
to make full disclosure to the Buyer of all material facts affecting the
Company's financial condition, business operations, properties and prospects;
PROVIDED, however, that the Buyer will hold the documents and information
concerning the Company confidential in accordance with the provisions of the
Non-Competition Agreement and Letter of Intent, dated September 9, 1997, as
amended.
SECTION 4.03 INSURANCE. Until the Closing, the Company shall maintain
with financially sound and reputable insurers, insurance against such casualties
and contingencies and of such types and in such amounts as is customary for
companies similarly situated.
SECTION 4.04 COMPLIANCE WITH LAWS. Until the Closing, the Company shall
conduct the Business in compliance, in all material respects, with all
applicable laws, rules, regulations and orders.
SECTION 4.05 KEEPING OF BOOKS AND RECORDS. Until the Closing, the
Company shall keep adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial transactions and in which all
proper reserves for depreciation, depletion, obsolescence, amortization, taxes,
bad debts and other purposes in connection with its business shall be made.
SECTION 4.06 ACTIONS PRIOR TO CLOSING. The Company shall conduct the
Business pending the Closing only in the ordinary and usual course of business
consistent with past practice. Without limiting the generality of the foregoing,
the Company shall keep in full force and effect its insurance coverage, continue
advertising its business in accordance with past practice, use reasonable best
efforts to maintain in accordance with good business practice its present
employees and its relationships with its suppliers and customers so that they
will be preserved for the Buyer after the Closing, maintain its inventory at
levels consistent with its past practices, and continue to pay its accounts
payable and collect its accounts receivables in a manner consistent with its
past practices.
SECTION 4.07 NOTICE OF CHANGES. Until the Closing, the Sellers shall
notify the Buyer of any material change in the business of the Company as soon
as it becomes apparent to any of the Sellers that any such change has occurred
or may occur.
SECTION 4.08 PRESERVATION OF BUSINESS. Until the Closing, the Company
will use reasonable best efforts to preserve the Company's business organization
intact, and to preserve its goodwill. Without limiting the generality of the
foregoing, the Company will, and the Parent will
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cause the Company to, timely perform all obligations required of the Company
under the contracts and permits listed on the Schedules to this Agreement.
SECTION 4.09 LITIGATION. The Sellers will promptly notify the Buyers of
any lawsuits, Claims, proceedings or investigations which are threatened or
commenced against or by the Company, the Sellers or their affiliates, or against
any employee, consultant or director of the Company.
SECTION 4.10 CONTINUED EFFECTIVENESS OF REPRESENTATIONS AND WARRANTIES.
From the date hereof up to and including the Closing Date, (i) the Company will
and the Parent will cause the Company to conduct the Business in a manner such
that the representations and warranties contained herein shall continue to be
true and correct on and as of the Closing Date as if made on and as of the
Closing Date, except for changes and the consequences of events arising in the
ordinary and usual course of business consistent with past practice after the
date hereof and none of which would have an adverse effect on the properties,
assets, operations or condition (financial or otherwise) or prospects of the
Company or its Business; and (ii) the Sellers will advise the Buyer promptly in
writing of any condition or circumstance occurring from the date hereof up to
and including the Closing Date which could cause any representations or warranty
of the Sellers to become untrue in any material respect.
SECTION 4.11 NO NEGOTIATIONS. Until the later to occur of December 31,
1997, or the termination of this Agreement in accordance with its terms, the
Sellers shall not and shall not permit any of their respective officers,
directors, employees, agents, or representatives to solicit, initiate or
encourage inquiries or proposals, or conduct any negotiations, concerning any
acquisition or purchase of all or any substantial portion of the Business,
assets or capital stock of the Company; provided that the Sellers may solicit
bidders for the equipment and real property of the Company. The Sellers shall
immediately advise the Buyer of his, its or their receipt of any such inquiry or
proposal. Each of the Sellers agree not to, without the prior written consent of
the Buyer, release any person from, or waive any provision of, any
confidentiality or standstill agreement to which the Company is a party and
agree to require the return of all confidential information that may have been
provided to a third party involved with a potential sale or acquisition of the
Company.
SECTION 4.12 CONFIDENTIALITY. The Sellers agree not to divulge,
communicate or disclose, except as may be required by law or for the performance
of this Agreement, or use to the detriment of the Buyer or for the benefit of
any other person or persons, or misuse in any way, any confidential information
of the Company and the Business (whether such confidential information relates
to the operation of the Business before or after the date hereof), including any
trade or business secrets with respect to the Business and any technical or
business materials that are confidential or proprietary, including without
limitation information (whether in written, oral or machine-readable form)
concerning: general business operations; methods of doing business; customer and
supplier relations; advertising and promotion plans; financial information
including costs, profits and sales; pricing and marketing strategies; names of
suppliers, personnel and customers (including customer
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lists); software programs, however embodied; and information obtained by or
given to the disclosing party about or belonging to third parties.
SECTION 4.13 REGULATORY AND OTHER AUTHORIZATIONS; CONSENTS. (a) The
Sellers shall give promptly such notices to third parties and use their best
efforts to obtain such third party consents as are necessary in connection with
the transactions contemplated by this Agreement, including, without limitation,
all necessary approvals from the Missouri Department of Environmental Protection
in connection with the sale of the Assets and the Buyer's ability to operate the
Business on and after the Closing Date.
(b) The Buyer and the Sellers shall cooperate and use all reasonable
efforts to assist each other in giving such notices and obtaining such consents;
PROVIDED, HOWEVER, that the Buyer shall not have any obligation to give any
guarantee or other consideration of any nature in connection with any such
notice or consent or to consent to any change in the terms of any agreement or
arrangement which the Buyer in its sole and absolute discretion may deem adverse
to the interests of the Buyer, the Company or the Business.
SECTION 4.14 RISK OF LOSS. Prior to the Closing Date, the risk of loss
or damage to or destruction of any or all of the Business or the Assets shall
remain with the Company.
SECTION 4.15 SALE OF NAME. On the Closing Date, the Company shall
assign the name of "American Chemical Company" to the Buyer. The Company shall
execute such applications to governmental authorities, consents and other
documents and take such other action as the Buyer may reasonably request in
order (a) to change the Company's corporate name to one not involving the use of
the words "American Chemical Company" or "KINGCO", or any confusingly similar
variation thereof, and not descriptive of, or related to, the Business
thereafter being conducted by the Buyer with the Assets and (b) to enable the
Buyer to use and register, as the Buyer may desire, such name and any variation
thereof.
SECTION 4.16 TRANSFER OF FORMULATIONS. On the date hereof, the Company
shall provide to the Buyer copies of all product formulations necessary for the
Buyer to immediately after the Closing Date commence production of any or all
products of the Company. Buyer shall hold the formulations in confidence and
shall return them to the Company and not utilize them in the event, for any
reason, that the transaction contemplated by this Agreement fails to occur.
ARTICLE V
---------
CONDITIONS TO THE BUYER'S OBLIGATIONS
-------------------------------------
The obligation of the Buyer to pay the Purchase Price on the Closing
Date and to consummate the other transactions contemplated hereby is subject to
the satisfaction, on or before
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the Closing Date, of the following conditions each of which may be waived by the
Buyer in its sole discretion:
SECTION 5.01 CONSENTS AND APPROVALS. The Buyer shall have received,
each in form and substance reasonably satisfactory to the Buyer in its sole
discretion, all authorizations, consents, orders and approvals of all
Governmental Authorities and officials and all third party consents and estoppel
certificates which the Buyer deems necessary for the consummation of the
transactions contemplated by this Agreement.
SECTION 5.02 REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. All
of the representations and warranties of the Sellers contained in this Agreement
or in any Schedules or other documents attached hereto or referred to herein or
delivered pursuant hereto or in connection with the transactions contemplated
hereby shall be true, correct and complete in all material respects on and as of
the Closing Date, as if made on and as of the Closing Date and the Sellers shall
have executed and delivered to the Buyer a certificate, in form and substance
reasonably satisfactory to the Buyer and its counsel, to such effect.
SECTION 5.03 PERFORMANCE. The Sellers shall have performed and complied
with all covenants and agreements contained herein required to be performed or
complied with by each of them prior to or at the Closing Date. The Sellers shall
have executed and delivered to the Buyer a certificate, in form and substance
reasonably satisfactory to the Buyer and its counsel, in writing to such effect
and to the further effect that all of the conditions set forth in this Article V
have been satisfied.
SECTION 5.04 NO ADVERSE CHANGE. There shall have been no material
adverse change in the Business, assets, liabilities, operations, prospects,
properties or condition, financial or otherwise, of the Company and no material
transactions involving the Company shall have occurred prior to the Closing Date
other than in the ordinary course of business.
SECTION 5.05 OPINION OF COUNSEL. The Buyer shall have received the
opinion of Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A., counsel to the
Sellers, in substantially the form attached hereto as EXHIBIT 5.05 dated as of
the Closing Date.
SECTION 5.06 LIEN OBLIGATIONS OF THE COMPANY. All liens against the
Assets shall have been released and appropriate UCC termination statements
filed.
SECTION 5.07 NO ACTIONS, SUITS OR PROCEEDINGS. As of the Closing Date,
no action, suit, investigation or proceeding brought by any person, corporation,
governmental agency or other entity shall be pending or, to the knowledge of any
of the parties to this Agreement, threatened, before any court or governmental
body (i) to restrain, prohibit, restrict or delay, or to obtain damages or a
discovery order in respect of this Agreement or the consummation of the
transactions contemplated hereby, or (ii) which has had or may have a materially
adverse effect on the Assets or the condition, financial or otherwise, or
prospects of the Business. No order, decree or judgment of any court or
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governmental body shall have been issued restraining, prohibiting, restricting
or delaying, the consummation of the transactions contemplated by this
Agreement. No insolvency proceeding of any character including without
limitation, bankruptcy, receivership, reorganization, dissolution or arrangement
with creditors, voluntary or involuntary, affecting the Company or the Parent
shall be pending, and neither the Company nor the Parent shall have taken any
action in contemplation of, or which would constitute the basis for, the
institution of any such proceedings.
SECTION 5.08 DUE DILIGENCE REVIEW. The results of the Buyer's due
diligence review, including, without limitation, the review of the all material
documents and discussions with the Company's suppliers and customers, shall be
satisfactory to the Buyer in its sole discretion. The due diligence review
period shall end on December 19, 1997. Unless Buyer gives Sellers written notice
of its intention to terminate this Agreement as a result of its due diligence on
or prior to December 19, 1997, this condition shall be deemed waived.
SECTION 5.09 NONCOMPETITION AGREEMENT. Each of the Company and the
Parent shall have entered into the Noncompetition Agreement with the Buyer in
the form attached hereto as EXHIBIT 5.09.
SECTION 5.10 ORGANIZATIONAL DOCUMENTS. The Buyer shall have received a
copy of (i) the Certificate of Incorporation, as amended (or similar
organizational document), of the Company, certified by the Secretary of State of
the jurisdiction in which the Company is incorporated or organized, as of a date
not earlier than five Business Days prior to the Closing Date and accompanied by
a certificate of the Secretary or Assistant Secretary of the Company, dated as
of the Closing Date, stating that no amendments have been made to such
Certificate of Incorporation (or similar organizational documents) since such
date; (ii) the By-laws (or similar organizational documents) of the Company,
certified by the Secretary or Assistant Secretary of the Company stating that no
amendments have been made to such By-laws; and (iii) such other closing
documents as the Buyer may reasonably require.
SECTION 5.11 GOOD STANDING; QUALIFICATION TO DO BUSINESS. The Buyer
shall have received good standing certificates for the Company from the
Secretary of State of the jurisdiction in which the Company is incorporated or
organized and from the Secretary of State in each jurisdiction listed in
SCHEDULE 2.01, in each case dated not earlier than five Business Days prior to
the Closing Date. The Buyer shall also have received a tax good standing
certificate from the department of revenue of each jurisdiction in which the
Company has filed a Return.
SECTION 5.12 TOLLING AGREEMENT. The Company shall have entered into the
Tolling Agreement with the Buyer.
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ARTICLE VI
----------
CONDITIONS TO THE SELLER'S OBLIGATIONS
--------------------------------------
The obligation of the Company to sell the Assets to Buyer and to
consummate the other transactions contemplated hereby is subject to the
satisfaction, on or before the Closing Date, of the following conditions, each
of which may be waived by the Sellers in their sole discretion:
SECTION 6.01 REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
Buyer's representations and warranties contained in Article III shall be true,
complete and correct in all material respects, on and as of the Closing Date, as
if made on and as of such date, and the Buyer shall have delivered to the
Sellers a certificate, in form and substance reasonably satisfactory to the
Sellers and its counsel, to such effect.
SECTION 6.02 PERFORMANCE. The Buyer shall have performed and complied
with all agreements contained herein required to be performed or complied with
by it prior to or at the Closing Date, and the Buyer shall have executed and
delivered a certificate to the Sellers, in form and substance reasonably
satisfactory to the Sellers and its counsel to such effect.
SECTION 6.03 NO ACTIONS, SUITS OR PROCEEDINGS. As of the Closing Date,
no action, suit, investigation or proceeding brought by any person, corporation,
governmental agency or other entity shall be pending or, to the knowledge of the
parties to this Agreement, threatened, before any court or governmental body to
restrain, prohibit, restrict or delay, or to obtain damages or a discovery order
in respect of this Agreement or the consummation of the transactions
contemplated hereby. No order, decree or judgment of any court or governmental
body shall have been issued restraining, prohibiting, restricting or delaying,
the consummation of the transactions contemplated by this Agreement. No
insolvency proceeding of any character including without limitation, bankruptcy,
receivership, reorganization, dissolution or arrangement with creditors,
voluntary or involuntary, affecting the Buyer shall be pending, and the Buyer
shall not have taken any action in contemplation of, or which would constitute
the basis for, the institution of any such proceedings.
SECTION 6.04 ORGANIZATIONAL DOCUMENTS. The Sellers shall have received
a copy of (i) the Certificate of Incorporation, as amended (or similar
organizational document), of the Buyer, certified by the Secretary of State of
the State of Delaware, as of a date not earlier than five business days prior to
the Closing Date and accompanied by a certificate of the Secretary or Assistant
Secretary to the Buyer, dated as of the Closing Date, stating that no amendments
have been made to such Certificate of Incorporation (or similar organizational
documents) since such date; (ii) the By-laws (or similar organizational
documents) of the Buyer, certified by the Secretary or Assistant Secretary of
the Company stating that no amendments have been made to such By-laws since such
date; and (iii) such other Closing Documents as the Sellers may reasonably
require.
SECTION 6.05 GOOD STANDING; QUALIFICATION TO DO BUSINESS. The Sellers
shall have received a good standing certificate for the Buyer from the Delaware
Secretary of State.
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SECTION 6.06 TOLLING OF OPERATIONS. The Company shall enter into the
Tolling Agreement with the Buyer.
SECTION 6.07 BUYER'S FINANCIAL CONDITION. Buyer shall have furnished to
Parent evidence, in such form as shall be reasonably acceptable to Parent,
showing Buyer's ability to pay the Promissory Note. BUYER AGREES THAT SUCH
EVIDENCE SHALL BE SUPPLEMENTED ON AN ANNUAL BASIS, UNTIL THE PROMISSORY NOTE IS
PAID IN FULL.
ARTICLE VII
-----------
INDEMNIFICATION
---------------
SECTION 7.01 INDEMNIFICATION BY BUYER. The Buyer hereby agrees to
indemnify, defend and hold harmless the Company and its Affiliates (as such term
is defined under Rule 405 of the Rules and Regulations of the Securities Act of
1933, as amended) and their respective officers, directors, employees,
shareholders and agents of the foregoing, and their successors and assigns,
from, against and with respect to any claim, liability, obligation, loss,
damage, assessment, judgment, cost and expense (including, without limitation,
reasonable attorneys' and accountants' fees and costs and expenses reasonably
incurred in investigating, preparing, defending against or prosecuting any
litigation or claim, action, suit, proceeding or demand) of any kind or
character (hereinafter collectively referred to as "Damages") arising out of or
in any manner incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of warranty of the
Buyer contained in this Agreement or in any certificate, instrument of transfer
or other document or agreement executed by the Buyer in connection with this
Agreement or otherwise made or given in connection with this Agreement;
(b) Any failure by the Buyer to perform or observe, or to have
performed or observed, in full, any covenant, agreement or condition to be
performed or observed by it under this Agreement or under any certificates or
other documents or agreements executed by the Buyer in connection with this
Agreement; and
(c) Any liability arising directly from Buyer's operation of the Assets
after the Closing Date, subject to the terms and provisions of the Tolling
Agreement.
SECTION 7.02 INDEMNIFICATION BY THE SELLERS. Each of the Sellers agrees
jointly and severally to indemnify, defend and hold harmless the Buyer and its
Affiliates (as such term is defined under Rule 405 of the Rules and Regulations
of the Securities Act of 1933, as amended) and the respective officers,
directors, employees, shareholders and agents of the foregoing, and their
successors and assigns from, against and with respect to any and all Damages
arising out of or in any manner incident, relating or attributable to:
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<PAGE> 31
(a) Any inaccuracy in any representation or breach of warranty of any
of the Sellers contained in this Agreement or in any certificate, instrument of
transfer or other document or agreement or any of the Sellers in connection with
this Agreement or otherwise made or given in connection with this Agreement;
(b) Any failure by any of the Sellers to perform or observe, or to have
performed or observed, in full, any covenant, agreement or condition to be
performed or observed by any of them under this Agreement or under any
certificates or other documents or agreements executed by any of the Sellers in
connection with this Agreement;
(c) Reliance by the Buyer on any books or records of the Company or
reliance by the Buyer on any information furnished to the Buyer pursuant to this
Agreement by any Seller;
(d) The Excluded Liabilities;
(e) The operation by the Company of the Assets prior to the Closing and
all operations conducted by Seller with respect to the Business pre-closing and
post-closing; and
(f) The tolling obligations of the Company, subject to the terms of the
Tolling Agreement.
SECTION 7.03 LIMITATIONS ON INDEMNIFICATION. The provisions set forth
in this Article VII shall not be subject to any time limitations generally
governing this Agreement, except as specifically set forth in this Section 7.03
as follows:
(a) TIME LIMITATION. (i) The indemnification obligations of Buyer
contained in Section 7.01 shall expire on December 31, 1998, and (ii) the
indemnification obligations of Sellers contained in Section 7.02 shall expire on
December 31, 1998, except for the indemnity obligations arising out of a breach
by Sellers of any representation and warranty contained in (i) Section 2.01
(Organization), Section 2.02 (Authority and Title), and Section 2.09 (Taxes)
(collectively, the "Excluded Claims"), which shall have no time limitation and
(ii) Section 2.08 ("Environmental Claims") and "Product Liability Claims" which
shall survive for a period of three (3) years following the Closing Date. The
foregoing limitations shall not apply with respect to those pending Claims for
indemnification for which written notice was given by the Indemnified Party to
the Indemnifying Party on or prior to December 31, 1998 (December 31, 2000, in
the case only of an Environmental Claim), which written notice shall have the
effect of continuing the applicable indemnity obligations until such Claim(s)
are resolved and all required payments in respect thereof, as applicable, are
made.
(b) DOLLAR LIMITATIONS. Except with respect to Excluded Claims and
Excluded Liabilities (with respect to which there will be no "basket"), Buyer
shall not be entitled to indemnification from Sellers, and Sellers shall not be
required to pay to Buyer for, any Claims unless and until the aggregate amount
of all Claims exceeds Twenty-Five Thousand Dollars ($25,000) (the "Basket
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<PAGE> 32
Amount"). In the event Buyer's Claims exceed the Basket Amount, subject to the
limitations in paragraph (a) above, Buyer shall be entitled to indemnification
for such Claims in excess of the Basket Amount; PROVIDED, FURTHER, that Sellers'
aggregate liability for any Claims by Buyer (i.e., the amount of such Claims in
excess of the Basket Amount) shall in no event exceed the unpaid principal
amount and accrued interest on the Promissory Note (the "Cap"), except as to
Excluded Claims and Environmental Claims which shall not be subject to the Cap.
(c) OTHER LIMITATIONS. Notwithstanding anything contained in this
Article VII to the contrary, neither Sellers nor Buyer shall be liable for
punitive damages.
SECTION 7.04 CLAIMS FOR INDEMNIFICATION. In the event of the occurrence
of any event which any party asserts is an identifiable event pursuant to this
Article VII, the party claiming indemnification (the "Indemnified Party") shall
provide prompt notice to the party required to provide indemnification (the
"Indemnifying Party"), specifying in detail the facts and circumstances with
respect to such claim and the basis for which indemnification is available
hereunder, PROVIDED, HOWEVER, that the failure to provide such notice shall only
release the applicable Indemnifying Party from any of its obligations under this
Article VII to the extent such Indemnifying Party is prejudiced by such failure.
If such event involves the claim of any third party and if the Indemnifying
Party acknowledges in writing its obligation to indemnify the Indemnified Party
hereunder against any Damages that may result from such third party claim, the
Indemnifying Party shall have the right to control the defense or settlement of
such claim; provided, however, that (a) the Indemnified Party shall be entitled
to participate in the defense of such claim at its own expense, (b) the
Indemnifying Party shall obtain the prior written approval of the Indemnified
Party (which approval shall not be unreasonably withheld or delayed) before
entering into any settlement of such claim if, pursuant to or as a result of
such settlement, injunctive or other non-monetary relief would be imposed
against the Indemnified Party, (c) the Indemnifying Party shall not be entitled
to control (but shall be entitled to participate at its own expense in the
defense of), and the Indemnified Party shall be entitled to have sole control
over, and shall assume all expense with respect to the defense or settlement of
any claim to the extent such claim seeks an order, injunction or other equitable
relief against the Indemnified Party which, if successful, could materially
interfere with the business, operations, assets, condition (financial or
otherwise) or prospects of the Indemnified Party, provided that the Indemnified
Party shall provide written notice to the Indemnifying Party of its election to
assume control over the defense of such claim pursuant to this Section 7.04(c),
(d) if there exists or is reasonably likely to exist a conflict of interest that
would make it inappropriate in the reasonable judgment of the Indemnified Party
for the same counsel to represent both the Indemnified Party and the
Indemnifying Party, then the Indemnified Party shall be entitled to retain its
own counsel, in each jurisdiction for which the Indemnified Party determines
counsel is required, at the expense of the Indemnifying Party; PROVIDED,
HOWEVER, that in no event shall the Indemnifying Party be liable for the
expenses of more than one counsel in addition to local counsel and (e) if the
Indemnifying Party is entitled but fails to assume control over the defense of a
claim as provided in this Section 7.04, provided that the Damages associated
with such claim are covered by the indemnity provisions of Section 7.01 or 7.02,
the Indemnified Party shall have the right to defend such claim, provided,
further, that the Indemnified Party shall obtain the prior written approval of
the Indemnifying Party
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(which approval shall not be unreasonably withheld or delayed) before entering
into any settlement of such claim if, pursuant to or as a result of such
settlement, injunctive or other non-monetary relief would be imposed against the
Indemnifying Party.
In the event that the Indemnifying Party shall be obligated to
indemnify the Indemnified Party pursuant to this Article VII, the Indemnifying
Party shall, upon payment of such indemnity in full, be subrogated to all rights
of the Indemnified Party with respect to the claim to which such indemnification
relates.
SECTION 7.05 MISCELLANEOUS. The Sellers and the Buyer agree to treat
all payments made by any of them to or for the benefit of the other (including
any payments to the Company) under this Agreement and for any misrepresentations
or breaches of warranties of covenants as adjustments to the Purchase Price or
as capital contributions for tax purposes and that such treatment shall govern
for purposes hereof except to the extent that the Laws of a particular
jurisdiction provide otherwise, in which case such payments shall be made in an
amount sufficient to indemnify the relevant party on an after-tax basis.
ARTICLE VIII
------------
TERMINATION
-----------
SECTION 8.01 TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) By mutual written consent duly authorized by the Buyer and the
Sellers;
(b) By the Buyer or the Sellers if:
(i) any court of competent jurisdiction or other governmental
body shall have issued an order, decree or ruling, or taken any other
action restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby, provided that this Agreement shall not be
terminated pursuant to this paragraph unless the party terminating this
Agreement has utilized its reasonable best efforts to oppose the
issuance of such order, decree or ruling or the taking of such action;
(ii) the Closing has not occurred on or prior to December 31,
1997 for any reason other than the breach of any provision of this
Agreement by the party terminating this Agreement;
(iii) the other party breaches any of its representations,
warranties or covenants attached hereto.
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(c) By the Buyer if:
(i) Any of the conditions set forth in Article V hereof has
not been satisfied on or before December 31, 1997 (December 19, 1997 in
the case of the condition in Section 5.08) or shall have become
incapable of fulfillment and shall not have been waived by the Buyer,
for any reason other than a breach by the Buyer of any of its
representations, warranties or agreements hereunder;
(ii) If in the Buyer's good faith judgment there is any
inaccuracy in any representations or breach of any warranty contained
therein, or any failure by any the Sellers to perform any commitment,
covenant or condition contained in this Agreement, or there exists any
error, misstatement or omission with regard to any of the Exhibits,
Schedules or other documents referred to herein, or the Buyer in its
sole judgment is not satisfied with the results of its investigation or
the contents of any of the Exhibits, Schedules, information or other
documents, or with the results of its examination of the business and
condition (financial or otherwise) of the Company; or
(d) By the Sellers if any of the conditions set forth in Article VI
hereof have not been satisfied on or before December 31, 1997 or shall have
become incapable of fulfillment and shall not have been waived by the Sellers,
for any reason other than a breach by any Seller of any of its representations,
warranties or agreements hereunder;
Upon the occurrence of any of the events specified in this Section 8.01
(other than paragraph A hereof), written notice of such event shall forthwith be
given to the other parties to this Agreement, whereupon this Agreement shall
terminate.
SECTION 8.02 EFFECT OF TERMINATION.
(a) In the event of the termination and abandonment of this Agreement
pursuant to Section 8.01, this Agreement, except for the provisions of Section
4.11, Section 4.16 and Articles VIII and X shall forthwith become void and be of
no effect, without any liability on the part of any party or its directors,
officers or shareholders. Nothing in this Section 8.02 shall relieve any party
to this Agreement of liability for breach of this Agreement.
(b) If either of the Sellers fails to fulfill its obligations hereunder
for any reason not excused by an express provision of this Agreement, then the
Buyer shall, in addition to any other remedies that it may have, have the right
to bring an action in any court of competent jurisdiction to obtain specific
performance of this Agreement, it being understood that the parties agree that
failure of the Sellers to consummate the transactions contemplated hereunder or
failure of the Sellers to perform any of their obligations contemplated by this
Agreement (except for a failure excused by an express provision of this
Agreement) would cause irreparable injury to the Buyer and that money damages
would not provide an adequate remedy to the Buyer. The Sellers therefore waive
all objections to the award of equitable relief for such failure.
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<PAGE> 35
(c) If Buyer fails to fulfill its obligations hereunder for any reason
not excused by an express provision of this Agreement, then the Sellers shall,
in addition to any other remedies that they may have, have the right to bring an
action in any court of competent jurisdiction to obtain specific performance of
this Agreement, it being understood that the parties agree that failure of the
Buyer to consummate the transactions contemplated hereunder or failure of the
Buyer to perform of its obligations contemplated by this Agreement (except for a
failure excused by an express provision of this Agreement) would cause
irreparable injury to the Sellers and that money damages would not provide an
adequate remedy to the Sellers. The Buyer therefore waives all objections to the
award of equitable relief for such failure.
ARTICLE IX
----------
ADDITIONAL AGREEMENTS
---------------------
SECTION 9.01 TAX MATTERS.
(a) The Company shall cause to be prepared and timely filed, at its
sole expense, all of its required tax returns for all periods up to and
including the Closing Date. The Sellers shall be jointly and severally
responsible for the payment of, and will indemnify, defend and hold the Buyer
harmless against all taxes due or assessed which relate to (i) the operations of
the Business for all periods up to and including the Closing Date and (ii) the
transactions contemplated by this Agreement.
(b) The Sellers and the Buyer will provide each other with such
cooperation and information as any of them reasonably may request of the other
in filing any return, amended return or claim for refund, determining a
liability for Taxes or a right to a refund of Taxes, participating in or
conducting any audit or other proceeding in respect of Taxes or making
representations to or furnishing information to parties subsequently desiring to
purchase any part of the Assets or the Business from the Buyer. The Sellers and
the Buyer shall retain all returns, schedules and work papers, records and other
documents in its possession relating to Tax matters of the Business, or with
respect to the Assets, for each taxable period first ending after the Closing
Date and for all prior taxable periods until the later of (i) the expiration of
the statute of limitations of the taxable periods to which such returns and
other documents relate, without regard to extensions except to the extent
notified by the other party in writing of such extensions for the respective Tax
periods, or (ii) six years following the due date (without extension) for such
returns. Any information obtained under this Section 9.02(b) shall be kept
confidential except as may be otherwise necessary in connection with the filing
of returns or claims for refund or in conducting an audit or other proceeding.
(c) Neither the Sellers nor the Buyer shall file any return, or take a
position with a Tax authority, that is inconsistent with the allocation of the
Purchase Price set forth in Section 1.03, or that treats the transaction
contemplated in this Agreement in a manner inconsistent with the terms of this
Agreement.
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(d) The Company shall prepare and file any required Tax returns in
connection with all sales, use, or transfer or similar Taxes incurred as a
result of the sale of the Assets contemplated by this Agreement and shall pay
the amount of such Taxes required to be remitted with such Tax returns. The
Company shall provide the Buyer with copies of such returns and evidence of the
payment of Taxes thereunder.
SECTION 9.02 PAYMENT OF LIABILITIES. The Company and/or the Parent, as
the case may be, shall promptly pay and satisfy in full or shall cause their
affiliates to promptly pay and satisfy in full all of the Excluded Liabilities
as they become due and payable.
SECTION 9.03 BULK SALES LAWS. The Company shall take all actions
necessary before and after the Closing Date to comply with the applicable bulk
sales laws, and the Company shall provide the Buyer with reasonable
documentation evidencing such compliance.
SECTION 9.04 ACCOUNTS RECEIVABLE. The parties acknowledge that Buyer is
not acquiring any of Seller's accounts receivable. Buyer agrees to cooperate
with the Company in the Company's collection efforts of the Company's accounts
receivable, provided that Buyer shall not be obligated to pay any sums or
commence any legal action in connection with such assistance. Each party agrees
to promptly remit to the other, in precisely the form received, with
endorsement, if necessary, any and all payments received by such party that is
actually due and owing to the other party, and any such sums erroneously paid by
the customer to such party shall be held in trust for the other party. Each
party agrees to furnish the other access to customer correspondence and other
documents upon the reasonable request of such other party in order to verify the
prompt remittance of all sums required to be remitted to the other party
pursuant to this Section 9.04.
SECTION 9.05 CONTACT WITH CUSTOMERS AND SUPPLIERS. In conducting the
due diligence permitted under Section 5.08 hereof, Buyer shall not contact any
customers or suppliers of the Company, without prior notice to Harry Prater,
President of the King Adhesive division of the Company. All such contacts shall
be coordinated with Mr. Prater and Mr. Prater shall provide all reasonable
assistance that Buyer deems necessary to complete such aspect of its due
diligence.
ARTICLE X
---------
MISCELLANEOUS
-------------
SECTION 10.01 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) made by telex, telecopy or facsimile transmission, (iii) sent by recognized
overnight courier, or (iv) sent by registered or certified mail, return receipt
requested, postage prepaid.
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If to the Buyer: TACC International Corporation
Air Station Industrial Park
Rockland, Massachusetts 02370
Attn: Mr. Michael A. D'Amelio, President
Fax: (781) 871-6727
with a copy to: Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Steven P. Rosenthal, Esq.
Fax: (617) 542-2241
If to either of the Sellers: American Chemical Company
c/o Glas-Craft, Inc.
5845 West 82nd Street
Suite #102
Indianapolis, IN 46278
Attn: Dwight Goodman, Chairman
Fax: (317) 875-5456
with copies to: Cohesant Technologies, Inc.
1801 E. 9th St., Ste. 510
Cleveland, OH 44114
Attn: Morris Wheeler
Fax: (216) 694-3545
and
Kahn, Kleinman, Yanowitz &
Arnson Co., L.P.A.
The Tower at Erieview, Suite 2600
Cleveland, OH 44114-1824
Attn: Michael A. Ellis, Esq.
Fax: (216) 696-1009
All notices, requests, consents and other communications hereunder shall be
deemed to have been (i) if by hand, at the time of the delivery thereof to the
receiving party at the address of such party set forth above, (ii) if made by
telex, telecopy or facsimile transmission, at the time that receipt thereof has
been acknowledged by electronic confirmation or otherwise, (iii) if sent by
overnight courier, on the next business day following the day such notice is
delivered to the courier service, or (iv) if sent by registered or certified
mail, on the fifth business day following the day such mailing is made.
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SECTION 10.02 ENTIRE AGREEMENT. This Agreement together with the
Exhibits and Schedules hereto and the other documents executed in connection
herewith (together, the "Documents") embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof, including, without limitation, the Letter
of Intent between the Buyer and the Company dated September 9, 1997, other than
Section 9 thereof (with respect to confidentiality). No statement,
representation, warranty, covenant or agreement of any kind not expressly set
forth in the Documents shall affect, or be used to interpret, change or
restrict, the express terms and provisions of this Agreement.
SECTION 10.03 MODIFICATIONS AND AMENDMENTS. The terms and provisions of
this Agreement may be modified or amended only by written agreement executed by
all parties hereto.
SECTION 10.04 WAIVERS AND CONSENTS. No failure or delay by a party
hereto in exercising any right, power or remedy under this Agreement, and no
course of dealing between the parties hereto, shall operate as a waiver of any
such right, power or remedy of the party. No single or partial exercise of any
right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand. The terms and provisions of this Agreement may be waived,
or consent for the departure therefrom granted, only by written document
executed by the party entitled to the benefits of such terms or provisions. No
such waiver or consent shall be deemed to be or shall constitute a waiver or
consent with respect to any other terms or provisions of this Agreement, whether
or not similar. Each such waiver or consent shall be effective only in the
specific instance and for the purpose for which it was given, and shall not
constitute a continuing waiver or consent.
SECTION 10.05 ASSIGNMENT. Neither this Agreement, nor any right
hereunder, may be assigned by any of the parties hereto without the prior
written consent of the other parties, except that the Buyer may assign all or
part of its rights and obligations under this Agreement to one or more direct or
indirect subsidiaries or affiliates (in which event, representations and
warranties relating to the Buyer and the opinion of counsel to be delivered by
the Buyer shall be appropriately modified).
SECTION 10.06 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their permitted
assigns, and nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement. Nothing in this Agreement shall be
construed to
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create any rights or obligations except among the parties hereto, and no person
or entity shall be regarded as a third-party beneficiary of this Agreement.
SECTION 10.07 GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
governed by the internal laws of The Commonwealth of Massachusetts, without
giving effect to the conflict of law principles thereof.
SECTION 10.08 JURISDICTION AND SERVICE OF PROCESS. Any legal action or
proceeding with respect to this Agreement shall be brought in the courts of The
Commonwealth of Massachusetts or of the United States of America for the
District of Massachusetts. By execution and delivery of this Agreement, each of
the parties hereto accepts for itself or himself and in respect of its or his
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. The parties hereby irrevocably waive any objection or defense that they
may now or hereafter have to the assertion of personal jurisdiction by any such
court in any such action or to the laying of the venue of any such action in any
such court, and hereby waive, to the extent not prohibited by law, and agree not
to assert, by way of motion, as a defense, or otherwise, in any such proceeding,
any claim that it or he is not subject to the jurisdiction of the above-named
courts for such proceedings. Each of the parties hereto irrevocably consents to
the service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered mail, postage prepaid,
to the party at its or his address set forth in Section 10.01 hereof and
irrevocably waive any objection or defense that it or he may now or hereafter
have to the sufficiency of any such service of process in any such action.
Nothing in this Section 10.08 shall affect the rights of the parties to commence
any such action in any other forum or to serve process in any such action in any
other manner permitted by law.
SECTION 10.09 SEVERABILITY. In the event that any court of competent
jurisdiction shall finally determine that any provision, or any portion thereof,
contained in this Agreement shall be void or unenforceable in any respect, then
such provision shall be deemed limited to the extent that such court determines
it enforceable, and as so limited shall remain in full force and effect. In the
event that such court shall determine any such provision, or portion thereof,
wholly unenforceable, the remaining provisions of this Agreement shall
nevertheless remain in full force and effect.
SECTION 10.10 INTERPRETATION. The parties hereto acknowledge and agree
that: (i) each party and its or his counsel reviewed and negotiated the terms
and provisions of this Agreement and the documents referred to herein and have
contributed to their revision; (ii) the rule of construction to the effect that
any ambiguities are resolved against the drafting party shall not be employed in
the interpretation of this Agreement; and (iii) the terms and provisions of this
Agreement shall be construed fairly as to all parties hereto and not in favor of
or against any party, regardless of which party was generally responsible for
the preparation of this Agreement.
SECTION 10.11 HEADINGS AND CAPTIONS. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only and
shall in no way modify,
35
<PAGE> 40
or affect, or be considered in construing or interpreting the meaning or
construction of any of the terms or provisions hereof.
SECTION 10.12 ENFORCEMENT. Each of the parties hereto acknowledges and
agrees that the rights acquired by each party hereunder are unique and that
irreparable damage would occur in the event that any of the provisions of this
Agreement to be performed by the other party were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, in addition
to any other remedy to which the parties hereto are entitled at law or in
equity, each party hereto shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other party and to enforce
specifically the terms and provisions hereof in any federal or state court to
which the parties have agreed hereunder to submit to jurisdiction.
SECTION 10.13 RELIANCE. The parties hereto agree that, notwithstanding
any right of any party to this Agreement to investigate the affairs of any other
party to this Agreement, the party having such right to investigate shall have
the right to rely fully upon the representations and warranties of the other
party expressly contained in this Agreement and on the accuracy of any schedule
or other document attached hereto or referred to herein or delivered by such
other party or pursuant to this Agreement.
SECTION 10.14 EXPENSES. Each of the parties hereto shall pay its own
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated.
SECTION 10.15 SURVIVAL. The representations, warranties, covenants,
agreements and indemnifications set forth or otherwise provided for in this
Agreement shall survive the consummation of the transactions contemplated hereby
and shall not be deemed waived or otherwise affected by any investigation made
by or on behalf of any party hereto.
SECTION 10.16 ANNOUNCEMENTS. Prior to the Closing, the parties hereto
agree that there shall be no announcements, either publicly or internally,
regarding the transactions contemplated herein unless the parties hereto consent
in writing to the content, wording, timing and forum of such announcements.
SECTION 10.17 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by different parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
35
<PAGE> 41
IN WITNESS WHEREOF, the Buyer and the Sellers have executed
this Agreement under seal as of the day and year first above written.
TACC INTERNATIONAL CORPORATION
By:
--------------------------------------
Michael A. D'Amelio, President
AMERICAN CHEMICAL COMPANY
By:
--------------------------------------
David A. Kennedy, President
COHESANT TECHNOLOGIES, INC.
By:
--------------------------------------
Dwight Goodman, President
36
<PAGE> 42
EXHIBITS
--------
37
<PAGE> 43
SCHEDULES
---------
38
<PAGE> 1
Exhibit 10.3
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------
This First Amendment to Employment Agreement, entered into as of this
1st day of May, 1997, by and between GLAS-CRAFT, INC., an Indiana corporation
(the "Company") and DWIGHT D. GOODMAN ("Employee") is to evidence the following
agreements and understandings:
WITNESSETH
----------
WHEREAS, the Company entered into an Employment Agreement dated as of
November 30, 1994 that provided, subject to certain restrictions contained in
the Employment Agreement, for Employee's term of employment to terminate on the
third anniversary of such Employment Agreement; and
WHEREAS, the parties hereto desire to amend the Employment Agreement to
provide for the term of employment of Employee to be extended for six (6) months
to May 31, 1998.
NOW THEREFORE, in consideration of the mutual promises contained herein
and for other good and valuable consideration, the receipt, adequacy and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. The first sentence of Section 2 of the Employment Agreement is
hereby amended to read as follows:
The term of this Agreement shall commence on the effective
date of COHT's initial public offering and shall terminate on
May 31, 1998, subject to the termination provisions of
Sections 6 and 10 and the other provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to Employment Agreement as of the day and year first written above.
GLAS-CRAFT, INC.
By: /s/ Robert Pawlak
------------------------------------
Robert Pawlak, Assistant Secretary
/s/ Dwight D. Goodman
----------------------------------------
Dwight D. Goodman
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Incorporation
------------------ ----------------------
1) Glas-Craft, Inc. Indiana
2) Raven Lining Systems, Inc. Missouri
3) Cohesant Export, Inc. Barbados
4) Cohesant of Missouri, Inc. Missouri
(F/K/A American Chemical Company)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000928420
<NAME> COHESANT TECHNOLOGIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<CASH> 59,863
<SECURITIES> 0
<RECEIVABLES> 1,607,075
<ALLOWANCES> 73,948
<INVENTORY> 3,181,912
<CURRENT-ASSETS> 6,764,233
<PP&E> 1,036,889
<DEPRECIATION> 409,034
<TOTAL-ASSETS> 8,876,824
<CURRENT-LIABILITIES> 4,264,082
<BONDS> 0
0
0
<COMMON> 2,688
<OTHER-SE> 4,547,381
<TOTAL-LIABILITY-AND-EQUITY> 8,876,824
<SALES> 9,830,598
<TOTAL-REVENUES> 9,830,598
<CGS> 5,559,342
<TOTAL-COSTS> 6,407,608
<OTHER-EXPENSES> (6,862)
<LOSS-PROVISION> 84,718
<INTEREST-EXPENSE> 82,238
<INCOME-PRETAX> 234,159
<INCOME-TAX> (20,100)
<INCOME-CONTINUING> 254,259
<DISCONTINUED> (1,712,136)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,457,877)
<EPS-PRIMARY> (0.54)
<EPS-DILUTED> 0
</TABLE>
