EXHIBIT 2
LETTER AGREEMENT
CMCO, INC.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
November 16, 1998
Uniflex, Inc.
000 Xxxx Xxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxxx X. Xxxxx
Dear Xxx:
This letter agreement sets forth the intention of the parties hereto
with respect to the proposed acquisition of all of the outstanding shares of
common stock, $.10 par value per share (the "Common Stock"), and all outstanding
options ("Options"), of Uniflex, Inc., a Delaware corporation (the "Company"),
by an acquisition entity ("Buyer") to be formed by CMCO, Inc., a New York
corporation ("CMCO") and its affiliates, upon the terms and subject to the
conditions set forth herein (the "Acquisition").
By executing this letter agreement, the parties confirm their
intentions specified herein with respect to the Acquisition, but (except for the
provisions of paragraphs 5, 6, 7, 9, 10 and 11 hereof, which are intended to be
legally binding and enforceable upon the execution of this letter agreement and
which shall survive the termination of this letter agreement unless and until
modified or terminated by a definitive Merger Agreement (as defined below)) this
letter agreement is not intended to constitute a contract nor an offer to enter
into a contract nor to be binding upon the parties or create legal obligations
or rights. If the parties fail to execute and deliver a definitive agreement and
plan of merger with respect to the merger of the Company with Buyer or a
subsidiary of Buyer ("Merger Agreement"), subject only to the terms set forth
therein by February 15, 1999, then this letter agreement shall terminate
automatically (except for the provisions of paragraphs 5, 6, 7, 9, 10 and 11 as
aforesaid) without liability on the part of any party and without further action
by the parties.
It is understood and agreed that CMCO has not completed its due
diligence investigation of the Company of the sort contemplated by paragraph
4(b) hereof and that its proposal regarding the Acquisition and this letter
agreement was prepared based upon publicly available information and upon
certain limited information furnished to CMCO by the Company and representatives
of the Company.
Subject to the foregoing, it is the intention of the parties to
proceed with the proposed Acquisition as follows:
1. Form of Acquisition and Purchase Price. The transaction would take the
form of a statutory merger of the Company with Buyer or a subsidiary
of Buyer pursuant to which the holders of the Company's issued and
outstanding Common Stock and Options (exclusive of the shares of
Common Stock exchanged or contributed as contemplated in the next
sentence) would be entitled to receive an aggregate amount of
approximately $33 million in cash (exclusive of any fees and expenses
payable by the Company to Xxxx
13
777188.2
Xxxxxxxx & Company, Inc. ("Xxxx Xxxxxxxx") pursuant to a separate
agreement between the Company and Xxxx Xxxxxxxx), or $7.57 per share
for each of the 4,178,860 shares of Common Stock outstanding and $4.90
per Option for each of the 279,350 Options outstanding based upon a
weighted average exercise price of $2.67 per share. Prior to
consummation of the merger, (i) CMCO and its affiliates who own shares
of Common Stock on the date hereof shall be obligated to exchange or
contribute all of their shares of Common Stock for equity capital of
Buyer; and (ii) officers of the Company, directors and other
affiliates of the Company listed on Schedule 1 hereto shall be
obligated to exchange or contribute no less than 322,000 shares of
Common Stock owned by them for equity capital of Buyer, as set forth
on Schedule 1 hereto.
2. Conditions. Consummation of the Acquisition is conditioned, among
other things, upon certain conditions, including:
a. Approval of the Acquisition by the boards of directors of the
Company and Company.
b. Negotiation and execution of a definitive Merger Agreement in
acceptable form and substance to the Company and Buyer and the
shareholders of the Company exchanging or contributing their
shares of Common Stock for equity capital of Buyer pursuant to
paragraph 1 above, including representations, warranties,
covenants, agreements and conditions as may be mutually agreed
to by the parties hereto and as are customarily set forth in
agreements of this nature and subject, which Merger Agreement
must be approved by the board of directors and stockholders of
the Company.
c. Completion of the due diligence investigations described in
paragraph 4(b) below to the satisfaction of Buyer, its counsel
and other advisors, provided that the Merger Agreement will not
contain a due diligence condition as a condition to the closing
of the Acquisition.
d. Obtaining all third party and governmental approvals and
consents, required for the Acquisition (including, without
limitation, expiration or termination of the waiting period under
the Xxxx-Xxxxx- Xxxxxx Antitrust Improvements Act, if
applicable).
e. The availability of sufficient senior and subordinated mezzanine
debt funds pursuant to financing commitments to enable Buyer to
consummate the Acquisition, which financing commitments shall be
on terms that are commercially reasonable. The financing is
further discussed in paragraph 4(a) herein.
f. Termination of existing employment agreements with Xxxxxxx Xxxxx,
Chairman of the Board and Chief Executive Officer of the Company
("Xxxxx"), and Xxxxxx X. Xxxxx, President and Chief Operating
Officer of the Company ("Semel"), payment of the change of
control obligations due thereunder (provided that such payments
shall not exceed $1.9 million to Xxxxx and $1.5 million to Semel)
and negotiation and execution of new employment agreements with a
term of three (3) years on terms satisfactory to Buyer and its
counsel, provided that such new employment agreements with Xxxxx
and Semel shall provide for compensation reductions of $289,586
and $171,836, respectively, from the annual compensation levels
estimated to be paid in fiscal 1999 to Xxxxx and Xxxxx, and Buyer
entering into voting agreements with Xxxxx and Semel as
contemplated in paragraph 3 below.
g. There having been filed no material litigation or governmental
proceeding seeking to enjoin or challenging, or seeking damages
in connection with, the Acquisition.
h. There not having occurred any material adverse change in the
Company's business, operating results, financial condition,
properties or prospects.
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3. Agreements with respect to Voting of Shares of Common Stock Owned By
Xxxxx and Xxxxx. Simultaneously with the execution of the Merger
Agreement and as a condition thereto, each of Xxxxx and Semel shall
enter into an agreement with Buyer pursuant to which they will agree,
so long as the Merger Agreement is in effect, to vote all of the
shares of Common Stock and Options owned by them for the merger and
the transactions under the Merger Agreement.
4. Financing; Due Diligence. (a) Funding for the Acquisition will be
provided by a combination of senior and subordinated mezzanine debt
financing and a common equity investment by CMCO and its affiliates
and the persons on Schedule 1 hereto who are contributing or
exchanging their shares of Common Stock for equity capital of Buyer
(the equity portion will be approximately 25%-30%). As part of the
debt financing, CMCO and Buyer intend to obtain for the Company a
significant unfunded revolving credit facility to be used for future
acquisitions, working capital and other purposes. The Company agrees
to cooperate with and assist CMCO and the Buyer in obtaining the
senior and subordinated mezzanine debt financing commitments by
providing information and making available senior management to
prospective financing sources as may be reasonably requested by CMCO
and Buyer. CMCO believes that the senior and subordinated mezzanine
debt financing commitments can be obtained by February 15, 1999. The
Merger Agreement shall contain a senior and subordinated mezzanine
debt financing condition as a condition to the closing of the
Acquisition, provided, however, that the senior and subordinated
mezzanine debt financing commitments shall be obtained prior to, or
simultaneously with, the entering into of the Merger Agreement.
(b) Upon the execution of this letter agreement, it is agreed
that CMCO, Buyer, their financing sources and their representatives
may continue and complete the business, financial, accounting and
legal due diligence investigation of the Company. The parties hereto
acknowledge that prospective debt financing sources of CMCO and Buyer
have not commenced their due diligence investigation of the Company.
With respect to the accounting and financial due diligence,
immediately after execution of this letter agreement CMCO will retain
an accounting firm to perform customary accounting and financial due
diligence and review the financial and accounting records and
information of the Company. The Merger Agreement shall not contain a
due diligence condition as a condition to the closing of the
Acquisition.
5. Confidentiality. In connection with the negotiation and preparation of
the Merger Agreement and other documents referred to herein and CMCO's
and Buyer's due diligence investigation referred to in paragraph 4(b)
above, the Company will make available to CMCO and Buyer and their
respective representatives all information relating to the Company and
senior management personnel which CMCO and Buyer and their respective
representatives may reasonably request. Buyer will make available to
the Company all information relating to Buyer that must, in the
opinion of counsel to the Company, be disclosed to the stockholders of
the Company pursuant to state and/or federal securities laws. Any
information concerning the Company or its affiliates disclosed to
Buyer, its affiliates or their respective representatives or
concerning Buyer or its affiliates disclosed to the Company, its
affiliates or their respective representatives, which has not been
publicly disclosed shall be kept strictly confidential by them and
shall not be disclosed or used by the recipients whether or not the
closing under the Merger Agreement occurs and until publicly disclosed
by the Company or Buyer, as the case may be. In the event that this
letter agreement is terminated or a definitive Merger Agreement is not
executed or is terminated by the parties, all documents, if any, of a
confidential nature, and copies thereof delivered by the Company to
CMCO or Buyer, their affiliates or their respective representatives or
delivered by CMCO or Buyer to the Company, its affiliates or their
respective representatives shall be immediately returned. No press
releases concerning this letter agreement or the Acquisition shall be
issued, nor shall the terms of this letter agreement be disclosed to
third parties, other than to the representatives of the parties as
contemplated in paragraph 4 above, without the mutual consent of the
Company, CMCO and Buyer (which consents will not be unreasonably
withheld), except as may be required by federal and/or
777188.2
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state securities laws and except for a press release to be issued by
the Company upon execution of this letter agreement with respect to
this letter agreement and the Acquisition, provided that if the
Company discloses this letter agreement or its terms in compliance
with such laws, it will consult with CMCO and Buyer as to the contents
and timing of such release. Buyer, CMCO and the Company will agree
upon the timing and nature of the announcement of the transaction to
employees of the Company.
6. No-Shop. (a) In recognition of the substantial time and effort which
CMCO has invested, and Buyer and CMCO will hereafter invest, in
investigating the Company and its business and in addressing the
matters related to the proposed Acquisition and the financing of the
proposed Acquisition, each of which may preempt or delay conduct of
other business activities by CMCO and its affiliates, the Company
agrees as follows:
(i) the Company and it officers, directors, employees,
representatives and agents shall cease any discussions or negotiations
with any parties conducted prior to the date hereof (such parties
referred to herein as the "Existing Non-CM Parties") other than CMCO
with respect to any Acquisition Transaction (as hereafter defined);
and
(ii) the Company and its subsidiaries, their respective officers,
directors, stockholders, employees and investment bankers, attorneys,
accountants or other representatives or agents will not solicit,
initiate, encourage, continue or enter into negotiations, directly or
indirectly, with, any person, firm, corporation or other entity
relating to an Acquisition Transaction, including any person, firm,
corporation or other entity with whom the Company is currently
negotiating, other than Buyer and CMCO, with respect to an offer for
the sale of the Company, or any of the Company's business or assets,
or the Company's Common Stock or the capital stock of any of its
subsidiaries, directly, by merger, consolidation or otherwise until
February 15, 1999, provided, however, that in the good faith exercise
of their fiduciary responsibilities, the Board of Directors of the
Company may furnish information with respect to the Company and may
negotiate with any third party concerning an Acquisition Transaction
in response to any unsolicited inquiry, proposal or offer received
after the date hereof, including any unsolicited inquiry, proposal or
offer received after the date hereof from an Existing Non-CM Party
(all of such proposals or offers referred to herein collectively as
the "Proposals" or singularly as a "Proposal"). The Company shall
promptly notify in writing Buyer and CMCO with respect to any such
Proposal with respect to an Acquisition Transaction. If the Company's
Board of Directors shall approve a Proposal or an agreement with any
person or entity providing for an Acquisition Transaction or shall
recommend acceptance of, or shall fail to recommend rejection of, a
tender offer or exchange offer that, if successful, would result in an
Acquisition Transaction, or an Acquisition Transaction otherwise shall
have been consummated (each, a "Payment Event") then the Company shall
pay to Buyer or CMCO, the Acquisition Expenses (as defined in
paragraph 7), and the No-Shop Amount (as defined in paragraph 7). For
purposes hereof, "Acquisition Transaction" shall mean any bona fide
proposal made by a third party to acquire (a) beneficial ownership (as
defined under Rule 13d-3 of the Securities Exchange Act of 1934, as
amended) of a majority or greater interest in the Company pursuant to
a merger, consolidation or other business combination, sale of shares
of capital stock, tender offer or exchange offer or similar
transaction involving the Company including, without limitation, any
single or multi-step transaction or series of related transactions
which is structured in good faith to permit such third party to
acquire beneficial ownership of a majority or greater equity interest
in the Company, or (b) 50% or more of the Company's business (measured
by revenues for the preceding fiscal year or the current fiscal year
through the last complete fiscal quarter preceding such proposal) or
consolidated assets of the Company (other than the transactions
contemplated hereby). The Merger Agreement shall also contain a
no-shop provision similar to that set forth in this paragraph 6(a) and
provide for the payment of the Acquisition Expenses and No-Shop Amount
pursuant to paragraph 7.
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(b) The Company agrees, pending execution of the Merger
Agreement, to use its best efforts consistent with sound business
practices to conduct its business (including the business of its
subsidiaries) only in the ordinary course and consistent with past
practice and to preserve intact its business organization and
goodwill, keep available the services of its officers and employees
and maintain satisfactory relationships with suppliers, customers and
others having a business relationship with the Company. The Company
agrees not to take or permit any subsidiary to take any action which
would or which might reasonably be expected to hinder the proposed
Acquisition or render it less desirable to Buyer or CMCO
7. Fees and Expenses. If the Acquisition shall not be consummated, (i)
for any reason (other than the termination of this letter agreement
pursuant to paragraphs 9(b), 9(c), or 9(d) below), each party hereto
shall pay their own (and their representative's) respective fees and
expenses incurred in connection with the negotiation, preparation,
execution and delivery of this letter agreement and of the definitive
Merger Agreement and any other agreements or documents contemplated
hereby or thereby, (ii) by reason of the termination of this letter
agreement pursuant to paragraph 9(b), 9(c), or 9(d), (x) the Company
shall reimburse Buyer for all of its reasonable out-of-pocket expenses
incurred in connection with or relating to the Acquisition, which
shall include the reasonable fees and expenses of Buyer's and CMCO's
legal counsel and accountants, and any environmental consultant (which
legal, accounting and environmental fees and expenses shall not exceed
$250,000), and the commitment fees related to the senior debt and
subordinated mezzanine financing actually paid or contractually
required to be paid to investment funds, banks or other financial
institutions providing the funds to finance the Acquisition, provided,
however that the Company shall not be responsible for such commitment
fees if the Merger Agreement is not executed and delivered by the
parties) (the "Acquisition Expenses") and (y) the Company shall pay to
--- Buyer or CMCO in cash the amount of $350,000 ("No-Shop Amount").
All payments pursuant to this paragraph 7 shall be paid in cash by
wire transfer of immediately available funds and shall be due and
payable within 5 days after termination of this letter agreement
pursuant to the applicable subsection of paragraph 9.
8. Brokers. Each of the parties agrees that no finder's fee or broker's
commission shall by reason of its actions be payable by any other
party in connection with the transactions contemplated hereby and no
party knows of any such fees payable to any party, except that any
fees and expenses payable to Xxxx Xxxxxxxx pursuant to a separate
agreement between the Company and Xxxx Xxxxxxxx shall be paid by the
Company concurrent with the closing of the Acquisition but not from
the purchase price for the Acquisition.
9. Termination. This letter agreement may be terminated:
(a) (i) at any time by mutual agreement of the Company, CMCO and
Buyer, or automatically if the Merger Agreement is not executed and
delivered by the parties by February 15, 1999, or (ii) by the Company,
CMCO or Buyer if the applicable condition in paragraph 2 above is not
met;
(b) by the Company upon notice to Buyer and CMCO if a Proposal
with respect to an Acquisition Transaction is received and approved by
the Company's Board of Directors, or a Special Committee thereof, from
any corporation, limited liability company, partnership, person or
other entity or group other than Buyer or an affiliate of Buyer which
the Company's Board of Directors determines to be more favorable to
the Company and its stockholders than the Acquisition;
(c) by Buyer and CMCO upon notice to the Company;
(i) if any corporation, limited liability company,
partnership or other entity or group, other than Buyer or
an affiliate of Buyer, commences a tender offer or
exchange
777188.2
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offer for shares of Common Stock, or any of them, and (A)
the Company through its Board of Directors takes any
position other than to recommend rejection of such offer
or (B) 15% or more of the outstanding shares of Common
Stock are purchased pursuant to such offer;
(ii) if any person, as defined for purposes of the
Securities Exchange Act of 1934, as amended, other than
Buyer or an affiliate of Buyer, (A) acquires 15% or more
of the outstanding shares of Common Stock or (B) files a
Schedule 13D or an Amendment to Schedule 13D which
reflects ownership of 15% or more of the outstanding
shares of Common Stock of the Company; or
(iii) if the Company's Board of Directors receives and
approves a Proposal with respect to an Acquisition
Transaction; and
(d) by Buyer and CMCO upon notice to the Company if an
Acquisition Transaction is consummated with a party other than
Buyer or an affiliate of Buyer.
10. Binding Effect. It is understood that this letter agreement merely
constitutes a statement of our mutual intentions with respect to the
proposed Acquisition, does not contain all matters upon which
agreement must be reached in order for the Merger Agreement to be
consummated and, therefore, does not constitute a binding agreement
with respect to the Merger Agreement itself. A binding Merger
Agreement with respect to the proposed Acquisition itself will
result only from the execution of the Merger Agreement, subject to
the conditions expressed therein. Notwithstanding the two preceding
sentences of this paragraph 10, the provisions of paragraphs 5, 6,
7, and 9, and this paragraph 10 and paragraph 11 below, are fully
binding on the Company and Buyer upon the execution of this letter
agreement and the provisions of paragraph 5 (as to confidentiality)
shall survive the termination of this letter agreement unless and
until it is superseded by a definitive Merger Agreement or other
agreement between Buyer and the Company.
11. Governing Law. The parties agree that this letter agreement and
respective rights and duties and obligations hereunder shall be
governed and construed in accordance with the laws of the State of
Delaware.
12. Prior Agreements. The agreements contained in this letter agreement
and that certain Confidentiality Agreement dated July 29, 1998
between the Company and CMCO supersede all prior agreements between
the parties relating to the subject written hereof.
777188.2
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If the foregoing accurately sets forth our understanding, we request
that the Board of Directors of the Company approve this letter agreement and
evidence such approval by causing the enclosed copy of this letter agreement to
be signed on behalf of the Company, dated and returned to the undersigned.
Very truly yours,
CMCO, INC.
By /s/ Xxxxxx Xxxxxxxx
------------------------
Xxxxxx Xxxxxxxx
Vice President
Accepted and agreed
as of the date first
written above:
UNIFLEX, INC.
By: /s/ Xxxxxx X. Xxxxx
-----------------------
Name: Xxxxxx X. Xxxxx
Title: President
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Schedule 1
Number of Shares To
Be Contributed or
Exchanged for
Name of Owner of Equity Capital
Shares of Common Stock of Buyer
-------------------------------- -------------------------------
Xxxxxxx Xxxxx 75,000
Xxxxxx X. Xxxxx 75,000
Xxxxxx Xxxxxx 75,000
[Balance to be provided by members of junior management of the Company
acceptable to CMCO]
777188.2
