-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AGTM0t2jUxJecHRyZ/ut5zHmZT3XV6U0F1+39c8qoj0QSU+xo4bPPvuvvrFWIAGp VJv6NmMBGyqOufBKmg+DVg== 0000950134-97-009583.txt : 19971231 0000950134-97-009583.hdr.sgml : 19971231 ACCESSION NUMBER: 0000950134-97-009583 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971229 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TUFCO TECHNOLOGIES INC CENTRAL INDEX KEY: 0000895329 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 391723477 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-21018 FILM NUMBER: 97745881 BUSINESS ADDRESS: STREET 1: 4750 SIMONTON STREET 2: P O BOX 23500 CITY: DALLAS STATE: TX ZIP: 75244 BUSINESS PHONE: 9727891079 MAIL ADDRESS: STREET 1: 4750 SIMONTON RD CITY: DALLAS STATE: TX ZIP: 75244 10-K405 1 FORM 10-K 405 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended September 30, 1997. Commission file number 0-21018. TUFCO TECHNOLOGIES, INC. -------------------------- (Exact name of registrant as specified in its charter) Delaware 39-1723477 - --------------------------------- ----------------------- (State of other jurisdiction (IRS Employer ID No.) of incorporation or organization) 4800 Simonton Road, Dallas, Texas 75244 ----------------------------------------- (Address of principal executive offices) (972) 789-1079 ---------------- (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: None ------ Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share ----------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. [XX] The aggregate market value of the Common Stock of Tufco Technologies, Inc. held by non-affiliates, as of December 22, 1997, was approximately $14,244,560. Such aggregate market value was computed by reference to the closing price of the Common Stock as reported on the NASDAQ National Market on December 22, 1997. For purposes of making this calculation only, the registrant has defined affiliates as including all directors and beneficial owners of more than ten percent of the Common Stock of the Company. The number of shares of the registrant's Common Stock outstanding as of December 22, 1997 was 3,709,495. The number of shares of the registrant's Non-Voting Common Stock outstanding at December 22, 1997 was 709,870. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for its Annual Meeting of Stockholders to be held in 1998 are incorporated by reference into Part III of this report. -1- 2 PART I ITEM 1 - BUSINESS GENERAL Tufco Technologies, Inc. ("Tufco" or the "Company") manufactures and distributes business imaging paper products and tissues, towels and wipes for public use facilities, provides diversified custom converting and specialty printing services, and distributes paint sundry products used in home improvement projects. Since 1992 and until its restructuring on February 7, 1997, the Company operated as three wholly owned subsidiaries, Tufco Industries, Inc., Executive Converting Corporation ("ECC") and Hamco Industries, Inc. On January 28, 1994, the Company completed an initial public offering in which the Company issued and sold 900,000 shares of its Common Stock, par value $.01 per share ("Common Stock"), and certain stockholders of the Company sold 50,000 shares of Common Stock. Contemporaneously with the closing of the Company's public offering, the Company acquired, through ECC, substantially all of the assets of Executive Roll Manufacturing, Inc., d/b/a Executive Converting Corporation for $7.5 million and 127,778 shares of Common Stock. On August 23, 1995, the Company acquired, through Hamco Industries, Inc., substantially all of the assets of Hamco, Inc. for approximately $12.9 million in cash. On February 7, 1997, the Company reorganized its corporate structure to better serve its business needs. Through this restructuring, the net assets of Tufco Industries, Inc., Executive Converting Corporation and Hamco Industries, Inc. were transferred to Tufco, L.P., a Nevada limited partnership, in which Tufco Tech, Inc., wholly owned by the Company, is the sole managing general partner. Tufco manufactures a wide range of printed and unprinted business imaging paper products for a variety of business needs and offers a wide array of custom converting services for industrial uses including thermal laminating, precision slitting and rewinding, folding, precision sheeting and packaging for delivery to the end user. Its specialty printing services provide wide web, multi-color flexographic and letterpress printing and adhesive laminations to industrial users and resale distributors. Tufco also manufactures a complete line of tissues, towels and wipes which are sold through its Away-From-Home sector, and the Company's Paint Sundries sector manufactures and distributes products used by professional painters and do-it-yourself home owners. The Company was incorporated in the state of Delaware in 1992 to acquire Tufco Industries, Inc. Although the Company was organized in 1992, the business conducted by Tufco Industries, Inc. has been in continuous operation since 1974. The Company has become a leading manufacturer of value-added custom paper products and specialty printing services, and it has the most complete line of paint sundry products in the industry. The Company's principal executive offices are located at 4800 Simonton Road, Dallas, Texas 75244, and its telephone number is (972) 789-1079. Subsequent to the Company's fiscal year end, Tufco purchased all of the outstanding stock of Foremost Manufacturing, Inc., a St. Louis based manufacturer and distributor of paint sundries. The acquisition was completed on November 13, and the specifics of the transaction were detailed in the Company's 8K filed on November 26, 1997. PRODUCTS AND SERVICES The Company markets its products and services through four market sectors: Business Imaging paper products, Custom Converting services, Away-From-Home products, and Paint Sundry products. Tufco conducts operations from five manufacturing and distribution locations in Green Bay, Wisconsin; Manning, South Carolina; Dallas, Texas; Newton, North Carolina and St. Louis, Missouri. Business Imaging Market Sector The Company produces and distributes a wide variety of printed and unprinted paper products used in business imaging equipment in market sectors including architectural and engineering design, high speed data processing, point of sale, automatic teller machines and a variety of office equipment. The Company's products include roll products ranging in length from 150 feet to 3500 feet and in widths from 1 inch to 54 inches. Additionally, the Company produces precision-sheeted products ranging in size from 11 by 17 inches to 65 by 65 inches. The Company's products are available in a wide range of paper grades including a variety of weights of bond paper, thermal imaging papers, fine vellums and films and multi-part forms. -2- 3 Custom Converting Market Sector Tufco Technologies has custom converting capability at three locations: Green Bay, Wisconsin; Dallas, Texas; and Newton, North Carolina. The Company's converting capabilities at its Green Bay facilities include thermal and adhesive laminating, slitting, rewinding, cutting, and folding. These facilities custom convert a wide array of materials, including polyethylene films, non-woven materials, paper, and tissue and toweling for the industrial converting market. Products include operating room towels, reinforced towels (towels with a polyethylene or polypropylene mesh to provide strength and durability), industrial wipes, medical drapes, feminine hygiene components, specialty roll and large roll tissue and toweling products, polyethylene and paper dropcloths, car wash and golf towels, and window insulation products. The Company's winders can convert rolls of material up to 132 inches wide and slit widths as narrow as 3 inches. The Company has also invested in equipment to perform thermal lamination to bond various material substrates up to 120 inches wide, such as multi-ply dropcloths, reinforced material and breathable moisture barrier wraps. Machinery and equipment at the Green Bay facility have the capability, developed by the Company's in-house engineers and technical personnel, to combine or modify various substrates through the use of precise temperature and pressure control. The Company's Green Bay facility offers value-added specialty printing and related graphic arts services, including pre-press work, sheeting, calendering, printing, finishing, and thermal and adhesive laminating. The Company provides multi-color printing that uses computerized control to maintain a high level of print quality. The Company focuses on specialty printing projects such as paper tablecovers, food and gift-wraps, feminine hygiene components, printed release liners, and novelty and holiday bathroom tissue. Green Bay's pre-press staff prepares projects for printing to customer specifications. The Company uses the customer's preliminary artwork and arranges or performs all preparatory processes for camera ready art, plate making, layout, plate mounting, and other related services. The Green Bay presses use flexographic and letterpress processes and can print on a wide range of media from lightweight tissue or non-wovens to heavyweight paperboard. The Company utilizes five wide-web presses of various sizes, three of which are capable of six-color printing. The Company uses water-based and oil-based inks. The presses can accommodate widths up to 82 inches for one-sided printing and are capable of simultaneous two-sided printing for widths up to 51 inches. The Company also uses a web press system that includes in-line operations to produce thermal and adhesive composite lamination or to apply specialty coatings. The presses have a variety of print cylinders that provide the Company with the flexibility to meet customer needs, utilizing lower cost rubber printing plates that allow the Company to maintain quality and achieve a competitive pricing advantage for low volume jobs relative to printers using engraved printing cylinders. The Company's Dallas facility has converting capabilities that include precision slitting, rewinding, sheeting, specialty packaging, folding, perforating, and trimming. These capabilities are directed toward converting fine paper materials including specialty and fine printing papers and paperboards, thermal papers, polyester films, and coated products. The Dallas facility's custom converting services include final packaging of products, including items on which the Company has performed other converting or specialty printing services. Packaging capabilities include high quality bulk skid wrapping, vacuum-sealed carton packed sheets, poly-paper and poly-film wrapping, and shrink-film packaging. The flexibility of the equipment at the Dallas facility and the packaging alternatives that the Company can provide its customers produce finished products that meet and exceed a varied range of customer specifications and requirements. The Company's Dallas custom converting services have grown due to the addition of a state-of-the-art Jagenberg sheeter with specialty paper and paperboard sheeting capabilities and the investment in a custom designed rewinder for thermal papers and films. The Company's Newton facility has converting capabilities which include precision slitting and rewinding of paper rolls in a large variety of sizes which include variables in width, diameter, core size, single or multi-ply, and occasionally color. All of the rolls can be printed on one side or both, providing the customer with advertising, promotional or security features. -3- 4 Custom Converting Market Sector (continued) The Company's Newton facility also produces a full range of papers for use in bank proof or teller machines, including fan-fold forms, cards and printed rolls of various sizes and types. Additionally, the Company produces an extensive selection of standard and customized guest checks for use in the restaurant industry, and the Company's Newton facility owns equipment which enables the Company to produce a wide variety of multi-part business forms. Away-From-Home Market Sector The Company's Away-From-Home market sector manufactures and distributes a complete line of tissues, towels and wipes used in washrooms and workstations in public facilities such as hotels, offices, restaurants, stadiums, manufacturing plants and home improvement centers. The Company does not intend to compete against the large national integrated paper companies. Instead, Tufco's strategy is to provide regional distributors with a high quality, reasonably priced line of products which can be sold to small local or regional customers who are currently serviced by regional converters. Because of its investment in winding and folding assets, the Company believes it is the only converter which can offer a complete array of away-from-home products to these customers, and by taking advantage of its greater national distribution capabilities, Tufco can offer improved levels of service and responsiveness. Paint Sundry Market Sector The Company's Manning and St. Louis facilities manufacture and distribute home improvement products that are sold to paint and hardware distributors, home centers, and retail paint stores. To provide its customers with the industry's most complete line of paint sundry products, the Company supplements the products it manufactures by distributing products manufactured for the Company by others. Consumer disposable products include polyethylene, paper and canvas dropcloths, latex and vinyl gloves, paint strainers, and other allied items. These products are often used by homeowners performing do-it-yourself home improvement projects, contractors and painting professionals. The Company also sells a line of masking paper products for the automotive aftermarket. The Company has increased sales of consumer disposables by continually broadening and improving its product line, thereby allowing customers to consolidate their orders with a single vendor. In addition, the Company has attracted large buying groups through various volume incentives. To further increase sales, the Company developed a proprietary point of sale display, the "TUFPRO Paint Management System" that places in one location all of the necessary supplies (other than paint and brushes) for a typical home painting project. MANUFACTURING AND OPERATIONS In producing and distributing its line of Business Imaging Products, the Company works closely with various Original Equipment Manufacturers (OEMs) to develop products which meet or exceed the requirements of the imaging equipment. The Company then produces and stocks a full line of paper products to meet the needs of the users of the imaging equipment. With regard to its Custom Converting operations, the Company either utilizes product specifications provided by its customers or teams with its customers to develop specifications which meet customer requirements. Generally, the product begins with a flexible substrate, which is a base material such as a non-woven material, paper, or polyethylene. The Company applies one or more of its custom converting or specialty printing services that it has developed over a period of years through its distinctive technical knowledge to add value to these materials. The Company's growth has been supported by its substantial capital investment in new facilities and machinery and equipment. During the past four years, the Company spent over $8 million on capital expenditures at its four locations and approximately $21 million to acquire the assets of ECC and Hamco. The Company has added two Perini winders, a Jagenberg sheeter, an Elsner folder, an Elsner rewinder and various printing equipment. Included in this total, the Company has spent over $2 million to enhance the capabilities of its state of the art thermal laminator. Through the Company's expenditures on new equipment, it has increased both its manufacturing capacity and the range of its capabilities. The Company believes it has sufficient capacity to meet its growth expectations. -4- 5 Manufacturing and Operations (continued) The Company's equipment can produce a wide range of sizes of production output to meet unique customer specifications. The custom converting equipment can accommodate web widths from 3 inches to 132 inches. Its folding equipment can fold from 6 inches to 120 inches by 240 inches, in one-inch increments. The Company's printing presses perform flexographic and letterpress processes and print from one to six colors on webs as wide as 82 inches. Its fine printing paper and paperboard converting equipment includes state-of-the-art rewinders, sheeters, folders, perforators, and equipment that performs extensive packaging functions. SALES AND MARKETING Tufco Technologies markets its products and services nationally through its 31 full-time sales and service employees and 114 manufacturer's representatives and distributors. The Company's sales and service personnel are compensated on a base salary plus incentive bonus. The Company generally utilizes referrals and its industry reputation and presence to attract customers, and advertises on a limited basis in industry periodicals and shelter media and through cooperative advertising arrangements with its consumer disposables and fine paper converting services and products suppliers and customers. Customers generally purchase the Company's goods and services under project-specific purchase orders rather than long-term contracts; however, long term contracts are customary when the Company is required to purchase special machinery or materials to complete an order. The Company's sales volume by quarter is subject to a limited amount of seasonal fluctuation. Generally, Tufco's sales volume and operating income are at their lowest levels in the first and second fiscal quarters and are generally higher in the third and fourth fiscal quarters. The customer base consists of approximately 1,000 companies, including large integrated paper companies, dealers and distributors of business imaging papers and away-from-home tissues and towels, and resellers of paint sundry products. There were no customers accounting for more than 10% of consolidated sales in fiscal 1997. Sales are generally made on a credit basis within limits set by the Company's executive management. The Company generally requires payment to be made within 30 days following shipment of goods. COMPETITION The Company believes the primary areas of competition for its goods and services are price, quality, production capacity and capability, capacity for prompt and consistent delivery, service, and continuing relationships. The Company believes that its key competitive advantages are product quality, quick response, rapid equipment set-up and turnaround time, long-standing customer relationships, broad customer base, highly engineered machinery and processes, production diversity and capacity, continuity of management, and experienced personnel. Management believes that there is no single competitor that offers the breadth and variety of products and services offered by the Company. In addition, customers benefit from the Company's ability to perform its multiple services and distribute from its national asset base, which reduces freight costs and increases product and service reliability through use of single source supplier on a national basis. Competitors for the Company's products and services vary based upon the products and services offered. In Business Imaging Products, Tufco competes with small regional suppliers and a few large national firms. Based on management's assessment of the market, no single firm offers the breadth of products offered by Tufco on a national basis. In the Company's industrial custom converting services, the Company believes that relatively few competitors offer a wider range of services or can provide them from a single source. With respect to the Company's specialty printing services and fine paper converting products, the competition consists primarily of numerous small regional companies. Management believes that the Company's capabilities in custom converting and specialty printing give it the flexibility, diversity, and capacity to compete effectively on a national basis with large companies and locally with smaller regional companies. The Company does not believe foreign competition is significant at this time in the custom converting and specialty printing lines. There is strong domestic competition and a modest amount of foreign competition in the manufacturing of Away-From-Home and paint sundry products. -5- 6 Competition (continued) Although the Company does not engage in a significant amount of direct competition with large integrated paper companies that are its customers, management believes that there are inherent business risks in the expansion of sales to these customers, given their significant in-house production capabilities. The Company typically serves as a product development accelerator to these customers because as sales of specific converting services to these customers have grown, the customer may discontinue purchases from the Company and move production in-house due to the economies of scale having been attained. The Company believes that it is able to evaluate and anticipate adequately the timing of such changes. Moreover, the Company's strategy has been to emphasize the development of its product market sectors (Business Imaging, Away-From-Home and Paint Sundry) and to establish longer term contractual relationships in its Custom Converting sector in order to reduce the future exposure to sudden revenue loss due to the development of customers' in-house production capacity. PRODUCT DEVELOPMENT AND QUALITY CONTROL The Company works with its customers to develop new products and applications. The Company believes that a key factor in its success has been its willingness and distinctive technical competency to help customers experiment with various flexible substrates to develop materials with different attributes such as strength, flexibility, absorbency, breathability, moisture-resistance, and appearance. As a result, the Company's capabilities enable it to develop certain laminated substrates at lower costs than if the customers developed these products themselves. For example, a customer may request certain physical tests during trial runs that are performed by the Company's quality control personnel, often with the customer on site. Customers are charged for machine time use, materials, and operator time in the new product development process. After completing the development process, the Company prices a new product or service and designs an ongoing program that provides information to the customer such as quality checks, inventory reports, materials data, and production reports. The Company maintains a quality control laboratory that constantly monitors its production using statistical process controls (SPC) to observe and measure quality effectiveness of its production processes, such as temperature, speed, tension, and pressure. The Company's rigid standards and use of SPC have allowed it to qualify for the GMP (Good Manufacturing Practices) designation from several customers, a quality control standard that these companies require before they will use a company for outsourcing. In addition, several of the Company's customers perform periodic audits at the Company's Green Bay facility to ensure that adequate quality control practices are in place at all times. The Company's Dallas quality control laboratory is part of a collaborative of 33 laboratories sponsored by a large original equipment manufacturer that utilizes the Dallas facility for its production. The collaborative is utilized by that company to help set quality standards and ensure that its suppliers, like the Dallas facility, have in places the process reviews and controls necessary to ensure that quality products are being manufactured consistently. RAW MATERIALS AND SUPPLIERS The Company is not dependent on any particular supplier or group of affiliated suppliers for raw materials or for equipment needs. The Company feels it has excellent relationships with its primary suppliers, and the Company has not experienced difficulties in obtaining raw materials in the past. The Company's raw materials fall into four general groups: various paper stocks, inks for specialty printing, non-woven materials, and polyethylene films. There are numerous suppliers of all of these materials. To ensure quality control and consistency of its raw material supply, the Company's Dallas and Newton facilities receive fine paper stock primarily from two major paper companies instead of a greater number of companies. The Company's primary raw material, base paper, is subject to periodic price fluctuations. In the past, the Company has been successful in passing most of the price increases on to its customers, but management cannot guarantee that the Company will be able to do this in the future. -6- 7 ENVIRONMENTAL MATTERS The Company is subject to federal, state, and local environmental laws and regulations concerning emissions into the air, discharges into waterways, and the generation, handling, and disposal of waste materials. These laws and regulations are constantly evolving, and it is impossible to predict accurately the effect they may have upon the capital expenditures, earnings, and competitive position of the Company in the future. The Company believes that it complies with these laws and regulations in all material respects. The Company does not maintain environmental impairment insurance. The Company's past expenditures relating to environmental compliance have not had a material effect on the Company, nor does the Company expect that such expenditures relating to the Company's recently completed addition to its manufacturing facility will be material. Further growth in the Company's production capacity with a resultant increase in discharges and emissions may require capital expenditures for environmental control facilities in the future. The Company does not expect such expenditures to be material. No assurance can be given that future changes to environmental laws or their application will not have a material adverse effect on the Company's business or results of operations. EMPLOYEES At September 30, 1997, the Company had approximately 413 employees, of whom 150 were employed at its Green Bay facility, 85 at its Manning facility, 78 at its Dallas facility, and 100 at its Newton facility. The Company has a non-union workforce and believes that its relationship with its employees is good. ITEM 2 - PROPERTIES The Company's main production and distribution facilities for industrial converting, specialty printing, and away-from-home products manufacturing are located in Green Bay, Wisconsin. The 188,000 square foot facility (of which approximately 10,000 square feet are used for offices) was built in stages from 1980 to 1996 and is owned by the Company. The Company has approximately seven additional acres on which to expand in the future. The Company leases 44,000 square feet of space in a facility contiguous to its Green Bay, Wisconsin, facility, which is currently used for certain warehouse, distribution, and packaging operations. This facility is leased from a partnership of whom Samuel Bero and Patrick Garland, both directors of the Company, are two of several partners. The lease for this facility expires March, 2003. The Company has an option to renew this lease for an additional three years. The Company's corporate headquarters are located in facilities which it leases in Dallas, Texas, in the same building in which the Company produces and distributes business imaging products and provides custom converting of various fine paper and board grade papers. The lease for the 173,000 square foot facility expires in February, 2003. The Company owns a 120,000 square foot facility in Newton, North Carolina, used in the production and distribution of business imaging products and in the printing of custom forms. In June 1996, the Company leased for five years and in October of 1996 occupied a new 62,000 square foot facility in Clarendon County, South Carolina, which was designed and constructed to house the production and distribution operations for the Company's paint sundry business. The Company has guaranteed to the lessor that, if the lease is not renewed, the residual market value of the building which was constructed at a cost of $1.5 million, will be at least $0.9 million. Management expects the building value will be at least $0.9 million; however, the Company cannot provide assurances as to the impact of future economic factors influencing the future value of the building. The Company also owns a 42,000 square foot facility in Manning, South Carolina that it is using for storage of bulk raw materials as well as the manufacturing of some away-from-home products. -7- 8 ITEM 2 - PROPERTIES (CONTINUED) The Company believes that all of its facilities are in good condition and suited for their present purpose. The Company believes that the property and equipment currently used and planned for acquisition is sufficient for its current and anticipated short-term needs, but that the expansion of the Company's business or the offering of new services could require the Company to obtain additional equipment or facilities. ITEM 3 - LEGAL PROCEEDINGS The Company is involved in various legal proceedings in the ordinary course of its business, which are not anticipated to have a material adverse effect on the Company's results of operations or financial condition. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. -8- 9 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Since the Company's initial public offering on January 28, 1994 at $9.00 per share, the Common Stock of Tufco has been traded on the NASDAQ National Market under the trading symbol "TFCO." The following table sets forth the range of high and low closing prices for the Common Stock, as reported on the NASDAQ National Market for the periods indicated:
High Low Close ---- --- ----- Fiscal 1994: Quarter ended March 31, 1994 $ 9.56 $ 7.50 $ 7.50 Quarter ended June 30, 1994 $ 8.25 $ 6.50 $ 7.00 Quarter ended September 30, 1994 $ 7.25 $ 3.00 $ 6.00 Fiscal 1995: Quarter ended December 31, 1994 $ 7.25 $ 5.00 $ 6.50 Quarter ended March 31, 1995 $ 6.50 $ 4.25 $ 4.75 Quarter ended June 30, 1995 $ 5.50 $ 4.00 $ 5.50 Quarter ended September 30, 1995 $ 5.50 $ 4.13 $ 4.75 Fiscal 1996: Quarter ended December 31, 1995 $ 8.25 $ 4.50 $ 7.00 Quarter ended March 31, 1996 $ 8.00 $ 6.25 $ 7.25 Quarter ended June 30, 1996 $ 7.25 $ 5.25 $ 6.75 Quarter ended September 30, 1996 $ 7.25 $ 6.00 $ 6.25 Fiscal 1997: Quarter ended December 31, 1996 $ 8.25 $ 6.25 $ 7.25 Quarter ended March 31, 1997 $ 7.63 $ 6.00 $ 6.88 Quarter ended June 30, 1997 $ 7.50 $ 5.75 $ 6.38 Quarter ended September 30, 1997 $ 10.75 $ 6.00 $ 10.38
As of December 22, 1997, there were approximately 164 holders of record of the Common Stock. On December 22, 1997, the last reported sale price of the Common Stock as reported on the NASDAQ National Market was $11.00 per share. The Company has never paid dividends on its Common Stock. All notes except the Industrial Development Revenue Bonds are supported by loan agreements which contain certain restrictive covenants, including requirements to maintain certain levels of cash flow and restriction on the payment of dividends. The Company does not intend to pay any cash dividends in the foreseeable future. -9- 10 ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended September 30, ---------------------------------------------------------------- 1997 1996 1995(1) 1994(2) 1993 -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Net sales ................................. $ 65,750 $ 68,374 $ 47,987 $ 36,204 $ 24,878 Cost of sales ............................. 53,835 56,042 39,796 29,724 20,439 -------- -------- -------- -------- -------- Gross profit .............................. 11,915 12,332 8,191 6,480 4,439 Selling, general, and administrative expenses .................. 6,396 6,753 4,906 3,797 2,332 Amortization and other post- acquisition expenses ..................... 706 724 437 454 301 -------- -------- -------- -------- -------- Operating income .......................... 4,813 4,855 2,848 2,229 1,806 Interest expense, net ..................... (849) (1,093) (885) (575) (392) Miscellaneous income ...................... 327 5 46 64 57 -------- -------- -------- -------- -------- Income before income taxes ................ 4,291 3,767 2,009 1,718 1,471 Income tax expense ........................ 1,638 1,507 808 690 695 -------- -------- -------- -------- -------- Net income ................................ $ 2,653 $ 2,260 $ 1,201 $ 1,028 $ 776 ======== ======== ======== ======== ======== Earnings per share ........................ $ .60 $ .51 $ .37 $ .37 $ .37 Weighted average common and common equivalent shares outstanding ............................... 4,448 4,438 3,248 2,790 2,103 OTHER DATA: Depreciation and amortization (3) ......................... $ 2,363 $ 2,279 $ 1,647 $ 1,337 $ 1,033 Capital expenditures ...................... 3,234 2,371 1,280 1,386 863 BALANCE SHEET DATA: (AT SEPTEMBER 30) Working capital ........................... $ 10,225 $ 10,553 $ 13,914 $ 6,577 $ 3,711 Total assets .............................. 49,045 50,038 51,060 34,004 20,976 Long-term debt ............................ 10,498 13,350 18,897 10,369 6,922 Stockholders' equity ...................... 31,368 28,719 26,445 19,164 10,207
- --------- FOOTNOTES (1) The results of operations of Hamco, Inc. are included since acquisition in August 1995. (2) The results of operations of ECC are included since acquisition in January 1994. (3) Depreciation and amortization include amortization of goodwill and organizational expenses. -10- 11 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS Management's discussion of the Company's 1997 year in comparison to 1996, contains forward-looking statements regarding current expectations, risks and uncertainties for 1998 and beyond. The actual results could differ materially from those discussed here. As well as those factors discussed in the section entitled Business in this report, other factors that could cause or contribute to such differences include, among other items, significant changes in the cost of base paper stock, competition in the Company's product areas, or an inability of management to successfully reduce operating expenses in relation to net sales without damaging the long-term direction of the Company. Therefore, the selected financial data for the periods presented may not be indicative of the Company's future financial condition or results of operations. GENERAL Tufco manufactures and distributes business imaging paper products, tissues, towels wipes and paint sundry products, and performs custom converting and specialty printing services. The Company's strategy is to manufacture and distribute products in niche markets relying on close customer contact and high levels of quality and service. The Company works closely with its custom converting clients to develop products or perform services which meet or exceed the customers' quality standards, and to then use the Company's operating efficiencies and technical expertise to supplement or replace its customers' own production and distribution functions. The Company's technical proficiencies include slitting and rewinding, sheeting, multi-color printing, laminating, folding and packaging. In January 1994, the Company completed an initial public offering of its stock and concurrently purchased substantially all of the assets of Executive Converting Corporation (ECC). The Company issued 900,000 shares of its common stock on the NASDAQ Market at $9.00 per share, resulting in net proceeds of $6.8 million. The total cost of the ECC acquisition was $8.7 million consisting of $7.5 million in cash and 127,778 shares of the Companies common stock. In August 1995, the Company purchased substantially all of the assets of Hamco Industries, Inc. for a total cost of $14.2 million funded by the issuance of $1.2 million shares of the Company's common stock and additional bank borrowings. RESULTS OF OPERATIONS The following discussion relates to the financial statements of the Company for the fiscal year ended September 30, 1997 (current year or fiscal 1997), in comparison to the fiscal year ended September 30, 1996 (prior year or fiscal 1996), as well as the fiscal year ended September 30, 1995 (fiscal 1995). -11- 12 RESULTS OF OPERATIONS (CONTINUED) The following table sets forth, for the years ended September 30 (i) the percentage relationship of certain items from the Company's statements of income to net sales and (ii) the year-to-year changes in these items:
PERCENTAGE OF NET SALES YEAR-TO-YEAR CHANGE --------------------------- ------------------- 1996 TO 1995 TO 1997 1996 1995 1997 1996 ----- ----- ----- ---- ---- Net sales ........................................ 100.0% 100.0% 100.0% -4% 42% Cost of sales .................................... 81.9 82.0 82.9 -4 41 ----- ----- ----- Gross margin ................................... 18.1 18.0 17.1 -3 51 Selling and administrative expenses .............. 9.7 9.9 10.2 -5 38 Amortization and postacquisition expenses ........ 1.1 1.1 0.9 -2 66 ----- ----- ----- Operating income ............................... 7.3 7.1 5.9 -1 70 Interest expense, net ............................ -1.3 -1.6 -1.8 -23 23 Miscellaneous income ............................. 0.5 0.0 0.1 -- -89 ----- ----- ----- Income before income taxes ..................... 6.5 5.5 4.2 14 88 Income tax expense ............................... 2.5 2.2 1.7 9 87 ----- ----- ----- Net income ..................................... 4.0% 3.3% 2.5% 17% 88% ----- ----- ----- ----- ----- -----
The components of net sales are summarized in the table below:
1997 1996 1995 -------------- -------------- ------------- % of % of % of Amount Total Amount Total Amount Total ------ ----- ------ ----- ------ ----- (Dollars in millions) Business imaging paper products $ 33.4 51% $ 34.9 51% $ 18.1 38% Custom converting and specialty printing 20.2 30 22.4 33 20.6 43 Away-from-home products 3.2 5 1.9 3 Paint sundry products 9.0 14 9.2 13 9.3 19 ------- --- ------- --- ------- --- Net sales $ 65.8 100% $ 68.4 100% $ 48.0 100% ======= === ======= === ======= ===
-12- 13 FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996 NET SALES for fiscal 1997 decreased $2.6 million, or 4%, primarily due to lower custom converting revenue from the manufacturing of tissue and towel products for large integrated paper companies. Historically, sales of the Company's tissue and towel converting services have produced a large part of the custom converting sector revenue, but in fiscal 1997, mergers involving four of the Company's largest customers created excess internal production capacity and reduced the need for those companies to out-source. As a result, sales of custom converting services declined $2.2 million in fiscal 1997. In addition to reduced custom converting revenue, reductions in the cost which the Company pays for certain grades of paper used in its business imaging sector were passed through to Tufco's customers in the form of lower selling prices. The lower selling prices had the effect of reducing revenue in that sector by 8% in fiscal 1997; however, unit sales volume of business imaging products increased 4% resulting in a net revenue reduction of 4% from prior year. Finally, sales in the Company's Away-From-Home sector (tissues, towels and wipes sold for use in facilities outside of the home) increased in the current year by $1.3 million (68%) over the prior year. Company management believes that growth in the Away-From-Home product sector represents an opportunity for the Company to replace the sales lost in the custom converting of tissue and towel products. GROSS MARGIN increased to 18.1% in fiscal 1997 from 18.0% in fiscal 1996. The reduction in sales of custom converting services had the effect of reducing the fiscal 1997 gross margin at the Company's Green Bay operating facility by $0.5 million from prior year. Additionally, the Company established a $0.3 million inventory reserve for excess stock, which reduced gross margin by 0.4 points, in fiscal 1997 primarily associated with certain products in the paint sundries sector. These two factors were offset by additional margin due to the portion of the lower paper cost retained by the Company in the Business Imaging sector, and due to increased margin from the Away-From-Home sector. Finally, during fiscal year 1996, approximately 36% of the Company's inventory was valued using the last in first out (LIFO) method, and sharp reductions in paper prices resulted in a reduction in the LIFO reserve and a corresponding increase in gross profit of $0.5 million (0.7 points of margin) for that year. The Company has planned for a nominal increase in paper prices in 1998, but management does not anticipate any significant increase in this chief raw material. In the first quarter of fiscal 1997, the Company's management elected to conform the valuation of all of the Company's inventories to the first in first out (FIFO) method which is used predominantly for its recently acquired subsidiaries. The FIFO method, in management's opinion, is preferable to facilitate inventory transfers and the integration of all locations, and to minimize the effects of temporary paper price integration of all locations, and to minimize the effects of temporary paper price fluctuations (which to date have been offsetting). This change has no material effect on the results of operations for fiscal 1997. SELLING AND ADMINISTRATIVE EXPENSES as a percentage of net sales, decreased to 9.7% in fiscal 1997 from 9.9% in fiscal 1996. Selling and administrative expenses decreased $0.4 million in fiscal 1997. In 1996, the Company accrued approximately $0.6 million in post employment costs associated with the resignation of its Chief Executive Officer and other management. After adjustment for this factor, selling and administrative costs increased $0.2 million (3%) from comparable operations for the prior fiscal year. The increase was the result of additional sales personnel in the Away-From-Home sector. GOODWILL AMORTIZATION AND POST-ACQUISITION EXPENSES did not change materially from the prior year. NET INTEREST EXPENSE decreased by $0.3 million to $0.8 million in fiscal 1997 from $1.1 million in fiscal 1996. The Company worked with its primary lender to revise its outstanding debt and its cash management in the second quarter of fiscal 1996. The debt revisions resulted in reducing the weighted average interest rate which the Company pays on its debt, the benefit of which was realized for the full year of fiscal 1997. The fiscal 1996 restructuring of cash management along with improved cash flow from operations in fiscal 1997 allowed the Company to lower its total borrowings under its working capital line of credit during the current year. MISCELLANEOUS INCOME increased by $0.3 million in fiscal 1997 due to a gain on the sale of converting assets ($0.1 million) and to a favorable settlement of litigation ($0.2 million). -13- 14 FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996 (CONTINUED) INCOME TAXES were 38% of pretax earnings for fiscal 1997 compared to 40% for the prior year. In the second quarter of fiscal 1997, the Company reorganized its corporate structure to better serve its business needs. As a result of this reorganization, the Company's effective tax rate for the current year was reduced to 38% due to reductions in income based state tax expense. While current state tax laws support this form of corporate structure, Company management cannot be assured that these laws will not change in the future. EARNINGS PER SHARE were 60 cents in fiscal 1997 compared to 51 cents for fiscal 1996. The establishment of the reserve for inventory overstock had the effect of reducing earnings per share by 4 cents in the current year. FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO SEPTEMBER 30, 1995 NET SALES for the fiscal 1996 increased $20.4 million, or 42%, primarily due to the $17.8 million additive impact of Hamco Industries, Inc. Hamco which was acquired on August 23, 1995, produces and distributes business imaging products. After adjustment for the impact of Hamco, the Company's revenue increased 5.4% ($2.6 million) in fiscal 1996. The Company lowered the prices it charges its customers for certain paper products by 7% to 9% during the second, third and fourth quarters of 1996 in response to sharp reductions in the costs of various base paper grades. This reduction in unit price resulted in a reduction in total annual revenue of approximately $0.9 million (1.8%) on comparable unit volumes. GROSS MARGIN increased to 18.0% in fiscal 1996 from 17.1% in fiscal 1995, primarily due to a combination of two factors. A decrease in the cost of base paper resulted in an increase in gross margin of 0.2 points due to the portion of the cost decrease which the Company was able to retain. Additionally, approximately 36% of the Company's inventory is valued using the Last In First Out (LIFO) method, and the sharp reduction in paper prices resulted in a reduction in the LIFO reserve and a corresponding increase in gross profit of $0.5 million (0.7 points of margin), of which $0.3 million was recorded in the fourth quarter of fiscal 1996. SELLING AND ADMINISTRATIVE EXPENSES as a percentage of net sales, decreased to 9.9% in fiscal 1996 from 10.2% in fiscal 1995. Selling and administrative expenses increased $1.9 million in fiscal 1996 due to the inclusion of Hamco's selling and administrative expenses. Also, the Company accrued approximately $0.6 million in post employment costs associated with the resignation of its Chief Executive Officer and other management personnel in September 1996. After adjustment for these two factors, selling and administrative costs decreased $0.8 million from comparable operations for the prior fiscal year. The decrease was the result of lower payroll and travel costs in 1996 due to sales and management positions which were either vacant for a portion of the year or eliminated as a result of organizational restructuring. GOODWILL AMORTIZATION AND POST-ACQUISITION EXPENSES increased to $0.7 million in fiscal 1996 due to the Hamco acquisition and consulting fees resulting from a consulting agreement between the Company and Bradford Ventures, Ltd. (BVP). In fiscal 1995, a portion of the management fees paid to BVP were capitalized as a result of the Hamco acquisition, such was not the case in 1996 as all fees paid to BVP were expensed. NET INTEREST EXPENSE increased by $0.2 million to $1.1 million in fiscal 1996 from $0.9 million in fiscal 1995. The increase was due to the fact that interest costs were incurred as a result of the Hamco acquisition. The acquisition of Hamco resulted in a net increase in total debt of $5 million at fiscal year end 1995. However, the Company worked with its primary lender to revise all of its outstanding debt and its cash management in the second quarter of fiscal 1996. The effect of the revision was a reduction of one (1) full point in the weighted average interest rate which the Company pays on its debt. Additionally, the restructuring of cash management along with strong cash flow from operations allowed the Company to lower its total borrowings under its working capital line of credit. The combination of these factors allowed the Company to significantly mitigate the impact of the additional long-term debt incurred as a result of the Hamco acquisition and resulted in an increase in interest expense of only 24%in fiscal 1996 versus fiscal 1995. INCOME TAXES were 40% of pretax earnings for fiscal 1996 and for the prior year. EARNINGS PER SHARE were 51 cents in fiscal 1996 compared to 37 cents for fiscal 1995 and 43 cents for the pro forma fiscal 1995 results (see Note 2 in Notes to Consolidated Financial Statements). -14- 15 SELECTED QUARTERLY FINANCIAL DATA The following table sets forth selected quarterly financial information. This information is derived from unaudited consolidated financial statements of the Company and includes, in the opinion of management, all normal and recurring adjustments that management considers necessary for a fair statement of results for such periods. The operating results for any quarter are not necessarily indicative of results for any future period. FISCAL 1997 (Dollars in thousands, except per share amounts)
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- Net sales.......................................................... $15,697 $15,032 $17,233 $17,788 Gross profit ...................................................... 3,002 2,792 3,369 2,752 Operating expenses ................................................ 1,813 1,908 1,906 1,475 Operating income .................................................. 1,189 884 1,463 1,277 Income before income taxes ........................................ 979 752 1,456 1,104 Income tax expense ................................................ 383 305 548 402 Net income ........................................................ 596 447 908 702 Earnings per share ................................................ .13 .10 .21 .16
FISCAL 1996 (Dollars in thousands, except per share amounts)
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- Net sales.......................................................... $16,367 $16,392 $17,000 $18,615 Gross profit ...................................................... 2,842 2,223 3,325 3,942 Operating expenses ................................................ 1,804 1,486 2,070 2,116 Operating income .................................................. 1,038 737 1,255 1,826 Income before income taxes ........................................ 749 476 969 1,573 Income tax expense ................................................ 298 199 358 652 Net income ........................................................ 451 277 611 921 Earnings per share ................................................ .10 .06 .14 .21
The Company's sales volume by quarter is subject to a limited amount of seasonal fluctuation. Generally, the Company's sales volume and operating income are at their lowest levels in the first and second fiscal quarters. Sales and operating income are generally at higher levels in the third and especially the fourth fiscal quarters. During the fourth quarter of fiscal 1996, the Company performed custom printing services for customers which market printed paper products with holiday or seasonal themes. The technical aspects of the printing and the time sensitive nature of the services enabled the Company to generate higher gross margins than at other times during the year. The surge of printing sales occurred in 1997 as well, but the decline in custom converting of tissue and towel products, which was traditionally at its highest level in the fourth quarter, served to offset the positive impact of seasonal printing sales. During the fourth quarter of fiscal 1997, sales in the Company's custom converting sector declined $1.3 million (17%) from the same period of fiscal 1996, as a result of the loss of outsourced tissue winding service revenue from large integrated paper companies, historically a major source of fourth quarter sales for the Company. This sharp decline resulted in reduced gross profit (down $0.5 million) and operating income (down $0.2 million) in the Company's Green Bay operating facility due to that division's dependence on custom converting sales. Additionally, the Company established a $0.3 million reserve for inventory overstock in its paint sundries product sector which had the effect of reducing net income by $0.2 million ($0.04 per share). These two factors were offset by lower selling and administrative costs which declined $0.6 million from the fourth quarter of 1996. As a result, earnings per share declined to $.16 for the quarter compared to $.21 for the same period of 1996. -15- 16 LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations increased $0.1 million to $5.8 million in fiscal 1997. Cash generated from net income plus non-cash expenses was $4.9 million in the current year compared to $4.7 million in the prior year. Additionally, the Company generated $2.5 million in cash flow during fiscal 1997 through effective management of inventory, accounts receivable, and accounts payable, compared to the prior year in which these working capital accounts accounted for a reduction in cash flow of $0.6 million. Offsetting these improvements in cash flow, the timing of year-end payroll accruals and the payment of $0.5 million in separation costs for the former CEO and other employees which had been accrued at the end of fiscal 1996 resulted in $1.4 million in cash used in fiscal 1997 compared to fiscal 1996 in which these items accounted for a $1.3 million cash flow benefit. Cash used in investing activities totaled $2.6 million in fiscal 1997 and resulted from capital additions, including approximately $1.3 million for hardware, software and related outside consulting services for the tailoring and implementation of a new centralized manufacturing and distribution Enterprise Resource Planning system which the Company is installing. The majority of the remaining capital costs were for converting assets to support the away-from-home sector and for printing assets. Cash used in financing activities totaled $3.3 million in fiscal 1997 due to the repayment of long term debt. The Company's primary need for capital resources is to finance inventories, accounts receivable, capital expenditures, and acquisitions. The Company requested and received a reduction in its available borrowings under its revolving credit agreement with its principle lender, Bank One, Wisconsin. The maximum available borrowings and the term under the restructured revolving credit agreement are now $6.8 million through March 31, 1999. At December 17, 1997, the Company had approximately $14.4 million in total borrowings outstanding, including $5.25 million borrowed to finance the acquisition of Foremost Manufacturing, Inc., with $3.2 million available under the revolving credit agreement. Management believes that the Company's operating cash flow is adequate to service its long-term obligations as of September 30, 1997, and any budgeted capital expenditures. The Company's credit facilities are with one bank with the exception of $1.8 million and are secured by substantially all of the Company's assets. The credit facilities with Bank One contain certain restrictive covenants, including minimum required cash flow, limits on capital additions and debt service coverage ratios. During fiscal 1997, the Company failed to achieve minimum cash flow as defined by the bank, resulting in a violation of its loan agreement, under which outstanding debt totaled $8,324,277 at September 30, 1997. The violation was waived by the bank as of September 30, 1997, and management believes the Company will meet these covenants during fiscal 1998. On November 13, 1997, the Company purchased all of the outstanding stock of Foremost Manufacturing, Inc. ("Foremost"), a St. Louis-based manufacturer and distributor of paint sundry products, for $5.25 million in cash and 25,907 shares of the Company's common stock valued at $0.25 million. The total cash purchase price of $5.25 million is subject to specified reductions to be finalized by January 1999, and to additional consideration of up to $900,000 based on specified net sales levels through October 1998. The cash portion of the purchase price was financed through a $5.25 million bank credit facility maturing on March 31, 1998. The Company has a commitment from its primary lender to refinance the acquisition debt on a long-term basis, and is currently reviewing the long term alternatives. Sharp increases in the costs of paper and polyethylene impacted the Company's inventory values and net income during fiscal 1995. In 1996 and 1997, the prices of these commodities dropped which again impacted inventories and net income. The Company is generally successful in passing these fluctuations in raw material prices to its customers through increases or decreases in the selling price of the Company's products. Prior to these periods, the impact of inflation has been minimal on the Company's inventory and net income. The Company intends to retain earnings to finance future operations and expansion and does not expect to pay any dividends within the foreseeable future. In addition, the Company's primary lender must approve the payment of any dividends. The Company's allowance for uncollectible accounts receivable was $150,000 at December 17, 1997. Management believes that this allowance is adequate to provide for losses inherent in its accounts receivable. -16- 17 RECENTLY ISSUED ACCOUNTING STANDARDS Statement of Financial Accounting Standards (SFAS) 128, "Earnings Per Share" will be effective for the Company's year ending September 30, 1998, and all prior-period EPS data will be restated to conform with this Statement. Management estimates that the impact of SFAS 128 will not be material. SFAS 131, "Disclosures About Segments of an Enterprise and Related Information" will be effective for the Company's year ending September 30, 1999. This Statement redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about the Company's reportable operating segments. The Company has not yet completed its analysis of which operating segments that it will report on. YEAR 2000 SYSTEMS ISSUES Many existing computer programs use only two digits to identify a year in the date field, and if not corrected, many computer applications could fail or create erroneous results by or at the year 2000. Left uncorrected, year 2000 systems issues could have a material negative impact on the Company's operations and its profitability. In response to ongoing business needs, Tufco has begun implementing a new Enterprise Resource Planning system, and the year 2000 issue was one of the design pre-requisites for this new system. As of September 30, 1997, the Company has spent $1.2 million for hardware, software and consulting services related to the project, and management estimates it will spend an additional $0.4 million for the actual conversion to the new system which is scheduled to begin in fiscal 1998 and to be completed in fiscal 1999. While the Company has taken every precaution to ensure that the new information system will operate properly in the year 2000, management has relied on assurances and warranties by its hardware and software vendors. As such, the Company cannot rule out the possibility of year 2000 issues. The Company will continue to test its new systems for year 2000 compliance throughout the implementation process. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements are attached as Appendix to this report. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. -17- 18 TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS - ITEM 8 OF FORM 10-K - --------------------------------------------------------------------------------
PAGE INDEPENDENT AUDITORS' REPORT..........................................................................................F-2 FINANCIAL STATEMENTS AND NOTES: Consolidated Balance Sheets as of September 30, 1997 and 1996......................................................F-3 Consolidated Statements of Income for the Years Ended September 30, 1997, 1996 and 1995...........................................................F-4 Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1997, 1996 and 1995...........................................................F-5 Consolidated Statements of Cash Flows for the Years Ended September 30, 1997, 1996 and 1995...........................................................F-6 Notes to Consolidated Financial Statements.........................................................................F-7
F-1 19 INDEPENDENT AUDITORS' REPORT To the Directors and Stockholders of Tufco Technologies, Inc.: We have audited the accompanying consolidated balance sheets of Tufco Technologies, Inc. and subsidiaries as of September 30, 1997 and 1996, and the related consolidated statements of income, stockholders' 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. The consolidated financial statements of Tufco Technologies, Inc. and subsidiaries for the year ended September 30, 1995, were audited by other auditors whose report, dated November 9, 1995, expressed an unqualified opinion on those statements. 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, such 1997 and 1996 consolidated financial statements present fairly, in all material respects, the financial position of Tufco Technologies, Inc. and subsidiaries at September 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. /s/ DELOITTE & TOUCHE LLP Dallas, Texas December 23, 1997 F-2 20 TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1997 AND 1996 - --------------------------------------------------------------------------------
ASSETS 1997 1996 CURRENT ASSETS: Cash and cash equivalents $ 747,404 $ 844,615 Restricted cash (Note 9) 60,128 Accounts receivable - net (Notes 3 and 7) 7,637,121 8,360,911 Inventories (Notes 4 and 7) 8,550,888 9,556,023 Prepaid expenses and other current assets 320,109 212,072 Deferred income taxes (Note 8) 419,000 616,498 ------------ ------------ Total current assets 17,734,650 19,590,119 PROPERTY, PLANT AND EQUIPMENT - Net (Notes 5 and 7) 16,990,227 15,746,729 GOODWILL - Net (Note 1) 13,732,074 14,112,390 OTHER ASSETS - Net (Note 6) 588,414 588,995 ------------ ------------ TOTAL $ 49,045,365 $ 50,038,233 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt (Note 7) $ 1,910,357 $ 2,866,654 Accounts payable 3,137,177 2,356,305 Accrued payroll, vacation and payroll taxes 824,995 1,729,956 Other current liabilities 987,290 1,471,875 Income taxes payable (Note 8) 649,570 612,674 ------------ ------------ Total current liabilities 7,509,389 9,037,464 LONG-TERM DEBT - Less current portion (Note 7) 8,587,999 10,483,128 DEFERRED INCOME TAXES (Note 8) 1,580,000 1,798,246 COMMITMENTS AND CONTINGENCIES (Note 9) STOCKHOLDERS' EQUITY (Note 11): Voting common stock, $.01 par value; 9,000,000 shares authorized; 3,733,830 and 3,723,585 shares issued, respectively 37,338 37,236 Nonvoting common stock, $.01 par value; 2,000,000 shares authorized; 709,870 shares issued and outstanding 7,099 7,099 Additional paid-in capital 23,539,420 23,491,130 Retained earnings (Note 7) 8,548,543 5,895,257 Treasury stock at cost, 59,804 and 43,632 voting common shares, respectively (349,371) (236,074) Stock purchase plan notes (415,052) (475,253) ------------ ------------ Total stockholders' equity 31,367,977 28,719,395 ------------ ------------ TOTAL $ 49,045,365 $ 50,038,233 ============ ============
See notes to consolidated financial statements. F-3 21 TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - --------------------------------------------------------------------------------
1997 1996 1995 NET SALES $ 65,750,571 $ 68,373,654 $ 47,986,550 COST OF SALES 53,835,318 56,042,088 39,795,291 ------------ ------------ ------------ GROSS PROFIT 11,915,253 12,331,566 8,191,259 OPERATING EXPENSES: Selling, general and administrative 6,395,727 6,752,663 4,906,687 Amortization and other postacquisition expenses 706,180 723,966 436,575 ------------ ------------ ------------ Total 7,101,907 7,476,629 5,343,262 ------------ ------------ ------------ OPERATING INCOME 4,813,346 4,854,937 2,847,997 OTHER INCOME (EXPENSE): Interest expense (888,566) (1,134,489) (910,894) Interest income 38,928 41,628 26,275 Miscellaneous 327,181 4,671 45,845 ------------ ------------ ------------ Total (522,457) (1,088,190) (838,774) ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 4,290,889 3,766,747 2,009,223 INCOME TAX EXPENSE (Note 8) 1,637,603 1,507,230 808,000 ------------ ------------ ------------ NET INCOME $ 2,653,286 $ 2,259,517 $ 1,201,223 ============ ============ ============ EARNINGS PER SHARE $ .60 $ .51 $ .37 ============ ============ ============ WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 4,447,727 4,437,702 3,248,408 ============ ============ ============
See notes to consolidated financial statements. F-4 22 TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - --------------------------------------------------------------------------------
COMMON STOCK ----------------------------------------------------------- VOTING NONVOTING -------------------------- ----------------------- SHARES AMOUNT SHARES AMOUNT BALANCES AT OCTOBER 1, 1994 2,415,363 $ 24,154 709,870 $ 7,099 Issuance of common stock - acquisition of Hamco, Inc. 1,285,000 12,850 Repayment of stock purchase plan notes Purchase of treasury stock, 17,775 shares Net income --------- ----------- ------- ----------- BALANCES AT SEPTEMBER 30, 1995 3,700,363 37,004 709,870 7,099 Exercise of employee stock options 6,285 63 Issuance of common stock 16,937 169 Repayment of stock purchase plan notes Purchase of treasury stock, 23,057 shares Net income --------- ----------- ------- ----------- BALANCES AT SEPTEMBER 30, 1996 3,723,585 37,236 709,870 7,099 Exercise of employee stock options 10,245 102 Repayment of stock purchase plan notes Purchase of treasury stock, 16,172 shares Net income --------- ----------- ------- ----------- BALANCES AT SEPTEMBER 30, 1997 3,733,830 $ 37,338 709,870 $ 7,099 ========= =========== ======= ===========
ADDITIONAL STOCK TOTAL PAID-IN RETAINED TREASURY PURCHASE STOCKHOLDERS' CAPITAL EARNINGS STOCK PLAN NOTES EQUITY BALANCES AT OCTOBER 1, 1994 $17,028,219 $ 2,434,517 $ (16,725) $ (313,497) $19,163,767 Issuance of common stock - acquisition of Hamco, Inc. 6,346,957 (200,000) 6,159,807 Repayment of stock purchase plan notes 15,750 15,750 Purchase of treasury stock, 17,775 shares (95,843) (95,843) Net income 1,201,223 1,201,223 ----------- ----------- ----------- ----------- ----------- BALANCES AT SEPTEMBER 30, 1995 23,375,176 3,635,740 (112,568) (497,747) 26,444,704 Exercise of employee stock options 29,421 29,484 Issuance of common stock 86,533 (75,000) 11,702 Repayment of stock purchase plan notes 97,494 97,494 Purchase of treasury stock, 23,057 shares (123,506) (123,506) Net income 2,259,517 2,259,517 ----------- ----------- ----------- ----------- ----------- BALANCES AT SEPTEMBER 30, 1996 23,491,130 5,895,257 (236,074) (475,253) 28,719,395 Exercise of employee stock options 48,290 48,392 Repayment of stock purchase plan notes 60,201 60,201 Purchase of treasury stock, 16,172 shares (113,297) (113,297) Net income 2,653,286 2,653,286 ----------- ----------- ----------- ----------- ----------- BALANCES AT SEPTEMBER 30, 1997 $23,539,420 $ 8,548,543 $ (349,371) $ (415,052) $31,367,977 =========== =========== =========== =========== ===========
See notes to consolidated financial statements. F-5 23 TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - --------------------------------------------------------------------------------
1997 1996 1995 OPERATING ACTIVITIES: Net income $ 2,653,286 $ 2,259,517 $ 1,201,223 Noncash items in net income: Depreciation and amortization of property, plant and equipment 1,918,895 1,884,719 1,325,094 Amortization of goodwill and other assets 444,519 394,517 321,846 Deferred income taxes (20,748) 114,651 154,097 Increase in allowance for doubtful accounts 927 44,476 15,000 (Gain) loss on disposition of equipment (101,327) (4,671) 29,052 Changes in operating working capital: Accounts receivable 722,863 (32,322) (1,008,306) Inventories 1,005,135 (463,826) (748,791) Prepaid expenses and other assets (208,517) 71,650 (146,608) Accounts payable 780,872 (94,916) (548,375) Accrued and other current liabilities (1,389,546) 1,323,717 624,771 Income taxes payable 36,896 214,364 ------------ ------------ ------------ Net cash from operations 5,843,255 5,711,876 1,219,003 ------------ ------------ ------------ INVESTING ACTIVITIES: Acquisition of Hamco, Inc. - net of cash acquired (11,725) (12,894,783) Additions to property, plant and equipment (2,777,594) (2,371,334) (1,280,056) Proceeds from disposition of property, plant and equipment 169,466 106,799 37,700 Advances to directors and employees (29,121) (31,389) (28,421) Collection of advances to directors and employees 65,979 Decrease in certificates of deposit 843,218 Increase in restricted cash (60,128) ------------ ------------ ------------ Net cash used in investing activities (2,631,398) (1,464,431) (14,165,560) ------------ ------------ ------------ FINANCING ACTIVITIES: Issuance of long-term debt 10,016,535 Repayment of long-term debt (3,304,364) (5,547,386) (1,488,123) Issuance of common stock 48,392 41,186 6,159,807 Purchase of treasury stock (71,239) (123,506) (95,843) Repayment of stock purchase plan notes 18,143 97,494 15,750 ------------ ------------ ------------ Net cash from (used in) financing activities (3,309,068) (5,532,212) 14,608,126 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (97,211) (1,284,767) 1,661,569 CASH AND CASH EQUIVALENTS: Beginning of year 844,615 2,129,382 467,813 ------------ ------------ ------------ End of year $ 747,404 $ 844,615 $ 2,129,382 ============ ============ ============ SUPPLEMENTAL INFORMATION: Interest paid $ 873,366 $ 1,125,036 $ 871,730 ============ ============ ============ Income taxes paid $ 1,621,455 $ 1,178,215 $ 522,022 ============ ============ ============ Noncash investing and financing activities: Issuance of common stock for stock purchase plan notes $ - $ 75,000 $ 200,000 ============ ============ ============ Increase in goodwill for other assets and increase in other current liabilities $ - $ 453,251 $ - ============ ============ ============ Addition to property, plant and equipment and other assets for capital lease obligation $ 452,938 $ - $ - ============ ============ ============ Purchase of treasury stock by reduction in stock purchase plan notes $ 42,058 $ - $ - ============ ============ ============
See notes to consolidated financial statements. F-6 24 TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATED FINANCIAL STATEMENTS include the accounts of Tufco Technologies, Inc. and its wholly owned subsidiaries (the "Company"). Significant intercompany transactions and balances are eliminated in consolidation. The organizational structure of the Company's subsidiaries was changed in February 1997 by transferring to Tufco, L.P., a Nevada limited partnership, all of the assets and liabilities of Tufco Industries, Inc., Executive Converting Corporation and Hamco Industries, Inc., acquired in 1992, 1994 and 1995, respectively. Tufco Tech, Inc., wholly owned subsidiary of Tufco Technologies, Inc., is the sole managing general partner of Tufco, L.P. The Company markets its own line of business imaging paper products, tissues, towels and wipes for public-use facilities, and performs specialty printing, custom converting and packaging. The Company also manufactures and distributes a wide variety of consumer disposables that are sold in the home improvement and paint retailing industries. FINANCIAL STATEMENT PREPARATION requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of revenues and expenses for the period. Differences from those estimates are recognized in the period they become known. CASH EQUIVALENTS represent liquid investments with maturities at acquisition of three months or less. INVENTORIES are stated at the lower of cost or market. Cost of all inventories at September 30, 1997, is determined by the first-in, first-out ("FIFO") method. In prior years, cost of raw materials and finished goods inventories at Tufco's Wisconsin division was determined by the last-in, first-out ("LIFO") method. The effect of this change in fiscal 1997 was not material. PROPERTY, PLANT AND EQUIPMENT are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the following estimated useful lives: 20 to 40 years for buildings, 3 to 10 years for machinery and equipment and the shorter of the lease term or the asset's useful life for leasehold improvements. GOODWILL represents the excess of cost over fair value of net assets acquired in business combinations, is amortized on a straight-line basis over 40 years and is stated net of accumulated amortization of $1,505,356 and $1,125,040 at September 30, 1997 and 1996, respectively. FINANCIAL INSTRUMENTS consist of cash, receivables, payables, debt and letters of credit. Their carrying values or disclosed values are estimated to approximate their fair values due to their short maturities, variable interest rates, or fixed rates approximating current rates available for similar instruments. OTHER ASSETS include loan origination fees, which are amortized on a straight-line basis over the terms of the related long-term debt, and organization costs, which are amortized on a straight-line basis over five years. DEFERRED INCOME TAXES are provided under the asset and liability method for temporary differences in the recognition of certain revenues and expenses for tax and financial reporting purposes. REVENUES are recognized as sales when goods are shipped and title transfers to the customer. F-7 25 STOCK-BASED COMPENSATION arising from stock option grants is accounted for by the intrinsic value method under APB Opinion No. 25. Statement of Financial Accounting Standards No. 123 became effective for the Company beginning October 1, 1996, and encourages (but does not require) the cost of stock-based compensation arrangements with employees to be measured based on the fair value of the equity instrument awarded. As permitted by SFAS No. 123, the Company continues to apply APB Opinion No. 25 to its stock-based compensation awards to employees and discloses in Note 11 the required pro forma effect on net income and earnings per share. EARNINGS PER SHARE is based on the weighted average number of common voting and nonvoting shares and common equivalent shares from dilutive stock options outstanding during the year. 2. ACQUISITION Effective August 23, 1995, the Company acquired substantially all of the assets and assumed certain liabilities of Hamco, Inc. in Newton, North Carolina, which is engaged primarily in printing and converting fine grade paper products sold principally through distributorships. The assets were acquired by the Company's wholly owned subsidiary, Hamco Industries, Inc., using the proceeds from the sale of 1,200,000 shares of voting common stock and additional bank borrowings. The total cost of the acquisition, $14,190,591, including $11,725 paid and $453,251 accrued in 1996, exceeded the fair value of the net assets acquired by $3,439,720. This acquisition was accounted for under the purchase method. The results of the acquired operations are included in the consolidated financial statements from the acquisition date. The unaudited consolidated results of operations on a pro forma basis as though Hamco were acquired and the related common shares were issued as of the beginning of the Company's fiscal year 1995 is as follows:
1995 Net sales $62,906,732 =========== Net income $ 1,896,706 =========== Earnings per share $ 0.43 =========== Weighted average common shares outstanding 4,396,107 ===========
3. ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMER Accounts receivable are stated net of allowances for doubtful accounts of $150,403 and $149,476 at September 30, 1997 and 1996, respectively. Amounts due from a significant customer represent 8% and 10% of total accounts receivable at September 30, 1997 and 1996, respectively. F-8 26 4. INVENTORIES Inventories at September 30 consist of the following:
1997 1996 At the lower of FIFO cost or market: Raw materials $ 4,711,780 $ 5,656,189 Finished goods 3,839,108 3,924,834 ----------- ----------- 8,550,888 9,581,023 Excess of above FIFO cost over the LIFO cost used for inventories of $3,492,496 at September 30, 1996 (25,000) ----------- ----------- Total inventories $ 8,550,888 $ 9,556,023 =========== ===========
5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at September 30 consist of the following:
1997 1996 ----------- ----------- Land and land improvements $ 518,404 $ 495,656 Buildings 6,868,043 6,812,072 Leasehold improvements 708,366 575,365 Machinery and equipment 16,964,326 15,766,119 Furniture and fixtures 1,381,259 1,165,259 Vehicles 92,780 76,206 ----------- ----------- 26,533,178 24,890,677 Less accumulated depreciation and amortization 10,983,096 9,189,761 ----------- ----------- Net depreciated value 15,550,082 15,700,916 Construction in progress, including $420,360 of hardware and software under capital lease and $847,784 of other software costs totaling $957,314 which relate to a new centralized computer system being implemented 1,440,145 45,813 ----------- ----------- Property, plant and equipment - net $16,990,227 $15,746,729 =========== ===========
Costs of internal-use software are capitalized when the project is authorized for funding and evaluated as probable for completion and use for the functions intended. These costs consist of the external direct costs of acquisition and the related consulting services for implementation of the software. F-9 27 6. OTHER ASSETS Other assets at September 30 consist of the following:
1997 1996 Loan origination and other fees $189,254 $164,297 Less accumulated amortization 81,159 19,002 -------- -------- Subtotal 108,095 145,295 Note receivable bearing interest at 7%, due in variable monthly installments through 2001 43,399 108,860 Advances to certain directors and former employees 228,440 265,298 Cash value of life insurance 8,317 8,317 Deposits and other 200,163 61,225 -------- -------- Other assets - net $588,414 $588,995 ======== ========
7. LONG-TERM DEBT Long-term debt at September 30 consists of the following:
1997 1996 Note payable to bank, collateralized by substantially all assets of the Company, bearing interest at 7.03%; installments are due monthly at $104,166, increasing to $112,439 on August 31, 1998, $91,606 on February 29, 2000, and $95,833 on August 31, 2000, with final payment due on July 31, 2001 $ 4,766,667 $ 5,933,333 Notes payable to bank, under a revolving line-of-credit agreement (not to exceed maximum borrowings of $6,750,000, reduced by outstanding letters of credit - see Note 9), collateralized by accounts receivable and certain other elements of working capital, bearing interest at a combination of 138 basis points over LIBOR or .375% below the bank's reference rate (effective rate of 7.09% at September 30, 1997), payable monthly, due March 31, 1999 2,500,000 2,916,429 Variable rate (4.25% and 4.05% at September 30, 1997 and 1996, respectively) note payable underlying Industrial Development Revenue Bonds, collateralized by substantially all assets of the Company, due in annual installments of $250,000 beginning 2000 through 2006, interest payable monthly 1,750,000 1,750,000
F-10 28
1997 1996 Note payable to bank, collateralized by substantially all assets of the Company, due in monthly installments of $41,666 plus interest at 7.23%, with final payment due May 30, 1999 $ 1,057,610 $ 1,550,020 Note payable to bank, collateralized by equipment, due in one installment of $50,000 on June 1, 1997, plus interest at 6.75% payable monthly, with final payment due July 2, 1997 1,200,000 Capital lease obligation, payable in monthly installments of $13,109 through 2000, net of $28,859 discount based on interest at 3.88%, collateralized by computer hardware and software 424,079 -------------- -------------- Total 10,498,356 13,349,782 Less current portion 1,910,357 2,866,654 -------------- -------------- Long-term debt - less current portion $ 8,587,999 $ 10,483,128 ============== ==============
Long-term debt - less current portion matures as follows: 1999 $4,556,995 2000 1,572,670 2001 1,208,334 2002 250,000 Thereafter 1,000,000 ---------- Total $8,587,999 ==========
Loan agreements for all notes except those underlying the Industrial Development Revenue Bonds contain certain restrictive covenants, including requirements to maintain certain levels of cash flow and to restrict capital expenditures, stock purchases, mergers and payment of dividends. During fiscal 1997, the Company failed to achieve minimum cash flow as defined by the bank, resulting in a violation of its loan agreement, under which outstanding debt totaled $8,324,277 at September 30, 1997. In December 1997, the violation was waived by the bank as of September 30, 1997, and management believes the Company will meet these covenants during fiscal 1998. The loans are subject to prepayment penalty. The Company has a standby letter of credit for the outstanding balance associated with Industrial Development Revenue Bonds (see Note 9). F-11 29 8. INCOME TAXES The tax effects of significant items comprising the Company's net deferred tax liability as of September 30 are as follows:
1997 1996 Current deferred tax asset: Valuation allowances for accounts receivable and inventories, not currently deductible $ 163,000 $ 191,542 Uniform capitalization of inventory costs 87,000 35,229 Vacation and severance accruals, not currently deductible 94,000 260,647 Other accruals, not currently deductible 48,000 69,259 Other 27,000 59,821 ----------- ----------- Total 419,000 616,498 Noncurrent deferred tax liability: Accelerated tax depreciation on property and equipment (1,150,000) (1,434,626) Accelerated tax amortization of goodwill (452,000) (320,817) Other 22,000 (42,803) ----------- ----------- Total (1,580,000) (1,798,246) ----------- ----------- Net deferred tax liability $(1,161,000) $(1,181,748) =========== ===========
The resulting components of income tax expense are as follows:
1997 1996 1995 Current tax expense: Federal $ 1,512,810 $ 1,147,439 $ 505,903 State 145,541 245,140 148,000 ----------- ----------- ----------- Total 1,658,351 1,392,579 653,903 Deferred tax expense: Federal 75,717 98,463 132,500 State 12,946 16,188 21,597 Adjustment for tax rate changes due to corporate restructuring (Note 1) (109,411) ----------- ----------- ----------- Total (20,748) 114,651 154,097 ----------- ----------- ----------- Income tax expense $ 1,637,603 $ 1,507,230 $ 808,000 =========== =========== ===========
F-12 30 Income tax expense varies from the amount determined by applying the applicable statutory income tax rates to pretax income as follows:
1997 1996 1995 Federal income taxes computed at statutory rates $ 1,458,902 $ 1,280,694 $ 683,000 State income taxes, net of federal tax benefit 32,390 172,476 97,000 Certain goodwill amortization and other nondeductibles 81,789 77,659 53,000 Other 64,522 (23,599) (25,000) ----------- ----------- ----------- Income tax expense $ 1,637,603 $ 1,507,230 $ 808,000 =========== =========== ===========
9. COMMITMENTS AND CONTINGENCIES LEASES - Tufco Industries, Inc. leases warehouse facilities in Green Bay, Wisconsin, from a partnership composed of current and former stockholders. The lease expires in 2003, is classified as an operating lease and requires monthly rental payments of $9,255. The Company has the option of renewing the lease for a three-year period with rental amounts renegotiated. Rental expense for the lease totaled $111,060, $105,843 and $120,428 for fiscal 1997, 1996 and 1995, respectively. In June 1996, the Company entered into an agreement with a third party to construct and lease a 62,000-square-foot facility in Manning, South Carolina, which the Company occupied in October 1996. Under an amendment in fiscal 1997, the five-year agreement is an operating lease with rental payments of $11,489 per month. At the end of the fifth year, the Company has the option of purchasing the building for $1,100,000. If the purchase option is not exercised, the Company may be required to pay the lessor a residual amount of up to $900,000, depending upon the extent, if any, that the facility's value has diminished during the lease term. A portion of the scheduled lease payments are placed in escrow and are included in restricted cash of $60,128 at September 30, 1997. The Company also leases other facilities and equipment under operating leases. An office and warehouse lease expires on February 28, 2003. The equipment leases expire on varying dates over the next five years. Future minimum rental commitments under operating leases with initial or remaining terms in excess of one year at September 30, 1997, are as follows: 1998 $ 923,060 1999 909,718 2000 914,982 2001 894,118 2002 920,258 Thereafter 308,899 ------------ Total $ 4,871,035 ============
Net rental expense for all operating leases totaled $898,497, $692,765 and $633,501 for fiscal 1997, 1996 and 1995, respectively. The Company charges its customers for storage, which is netted against rental expense. F-13 31 LETTERS OF CREDIT - The Company has outstanding commercial import letters of credit of $30,080 and $106,863 as of September 30, 1997 and 1996, respectively. These letters of credit collateralize the Company's obligations to third parties for the purchase of inventory. The Company has unused letters of credit of $719,920 available at September 30, 1997. LITIGATION - The Company is subject to lawsuits, investigation and potential claims arising out of the ordinary conduct of its business. Management believes the outcome of these matters will not materially affect the financial position, results of operations or cash flows of the Company. 10. PROFIT SHARING PLANS The Company has a defined contribution profit sharing 401(k) plan covering substantially all employees. The Company makes annual contributions at the discretion of the board of directors. In addition, the Company matches certain amounts of employees' contributions. Profit sharing plan expense relating to the defined contribution profit sharing 401(k) plan totaled $132,788, $42,017 and $30,462 for fiscal 1997, 1996 and 1995, respectively. 11. STOCKHOLDERS' EQUITY NONVOTING COMMON STOCK AND PREFERRED STOCK - Each record holder of nonvoting common stock is entitled at any time to convert any or all of such shares into the same number of shares of voting common stock. The Company has 1,000,000 shares authorized and unissued $.01 par value preferred stock. STOCK COMPENSATION ARRANGEMENTS - The Non-Qualified Stock Option Plan currently reserves 200,000 shares of common stock for grants to selected employees through April 30, 2002, and provides that the price and exercise period be determined by the board of directors. Options vest primarily over three years and expire five years from date of grant. During fiscal 1997, 1996 and 1995, options to purchase 104,000, 77,635 and 20,200 shares, respectively, of voting common stock were granted. In addition, during fiscal 1995, options to purchase 125,000 shares of voting common stock were granted to a key employee under a non-qualified stock option agreement providing for immediate exercise and expiring five years from date of grant. The Non-Employee Director Stock Option Plan for nonemployee members of the board of directors reserves 50,000 shares of common stock for grant and provides that the purchase price be fair market value at the date of grant. Options are exercisable immediately and for a period of ten years. The plan terminates in 1999. During fiscal 1997, 1996 and 1995, options to purchase 14,000, 14,000 and 12,000 shares, respectively, of voting common stock were granted. F-14 32 The following information summarizes the shares subject to options:
WEIGHTED AVERAGE EXERCISE NUMBER OF SHARES PRICE PER SHARE ------------------------------------ ------------------------------ 1995 1996 1997 1995 1996 1997 Options outstanding, beginning of year 41,235 187,865 256,372 $ 8.08 $ 5.54 $ 5.61 Granted 157,200 91,635 118,000 4.93 5.88 6.82 Exercised (6,285 (10,245) 4.69 4.72 Terminated (10,570) (16,843) 6.31 6.65 ------- ------- ------- Options outstanding, end of year 187,865 256,372 364,127 5.54 5.61 6.01 ======= ======= ======= Options exercisable, end of year 173,815 188,315 225,136 5.47 5.59 5.68 ======= ======= ======= Reserved for future options at September 30, 1997 20,873 =======
The following table summarizes additional information about stock options outstanding and exercisable at September 30, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------ ----------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE $4.50 - 6.75 248,901 2.9 years $ 5.36 174,840 $ 5.06 7.00 - 9.00 115,226 4.4 7.36 50,296 7.82 ------- ------- 4.50 - 9.00 364,127 3.4 6.01 225,136 5.68 ======= =======
The Company applies the provisions of APB No. 25 and related Interpretations in accounting for its stock option plan. Accordingly, no compensation cost has been recognized for its stock option plan. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant dates for awards under the plan consistent with the method prescribed by SFAS No. 123, the Company's pro forma net income would have been $2.5 million in 1997 and $2.2 million in 1996. Pro forma earnings per share would have been $.57 per share in 1997 and $.49 per share in 1996. In the pro forma calculations, the weighted average fair value of options granted during 1997 and 1996 was estimated at $2.96 and $2.60 per share, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1997 and 1996: risk-free interest rates of 6.2% and 6.0%, respectively; dividend yield of 0.0% for both years; expected lives of four to five years; and expected volatility of 55% based on the historical weekly trading ranges of the Company's stock since its initial public offering in January 1994. The Company sold shares to management employees under various stock purchase agreements as follows: 85,000 shares at $5.00 per share in 1995 and 16,937 shares at $4.80 to $6.75 per share in 1996. F-15 33 The purchases are financed by the Company through notes with the employees at 5% interest payable annually and are due as follows: $89,862 in 1998, $10,000 in 1999, $250,190 in 2000 and $65,000 in 2001. The outstanding balances of $415,052 and $475,253 at September 30, 1997 and 1996, respectively, are presented as a reduction of stockholders' equity. 12. RELATED-PARTY TRANSACTIONS The Company has an agreement with Bradford Ventures, Ltd., an affiliate of the two largest stockholders of the Company, under which Bradford Ventures, Ltd. provides various financial and management consulting services until January 2004, when the agreement will be automatically renewed unless terminated by either party. The agreement calls for an annual fee of $210,000 with annual increases of 5% plus reimbursement of reasonable out-of-pocket expenses. The Company believes the terms of its consulting agreement are comparable to those available from unaffiliated third parties for similar services. Consulting expense was $226,931, $210,000 and $100,833 for fiscal 1997, 1996 and 1995, respectively. Also, in 1995, $105,000 was capitalized as part of the purchase price of Hamco, Inc. 13. SUBSEQUENT ACQUISITION On November 13, 1997, the Company purchased all of the outstanding stock of Foremost Manufacturing, Inc., a St. Louis-based manufacturer and distributor of paint sundry products, for $5,250,000 in cash and 25,907 shares of the Company's common stock, valued at $250,000. The total purchase price of $5,500,000 is subject to specified reductions to be finalized by February 1999, and to additional consideration of up to $900,000 based on specified net sales levels through October 1998. The cash portion of the purchase price was financed through a $5,250,000 bank credit facility maturing on March 31, 1998. ****** F-16 34 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers, directors, and key employees of the Company are:
Name Age Positions With the Company - ---- --- -------------------------- Louis LeCalsey, III 58 President and Chief Executive Officer Gregory L. Wilemon 37 Chief Financial Officer, Chief Operating Officer and Secretary/Treasurer Robert J. Simon (1)(2)(3) 39 Chairman of the Board of Directors Samuel J. Bero (1)(3) 62 Director Patrick J. Garland (1)(3) 66 Director Robert E. Coghan 69 Director C. Hamilton Davison, Jr. 38 Director Edward A. Leinss (2) 56 Director William J. Malooly (2) 55 Director
- -------------------------- (1) Member of the Executive Committee (2) Member of the Audit Committee (3) Member of the Compensation Committee Each director holds office until the next annual meeting of stockholders of the Company and until his successor has been elected and qualified. Each director with the exception of Mr. Bero and Mr. LeCalsey has served on the Board of Directors since Tufco's inception in February 1992. Mr. Bero was elected to the Board in 1994 and Mr. LeCalsey was elected in 1996. Executive officers of the Company are elected by the Board of Directors and serve at the discretion of the Board. There are no family relationships between any executive officers or directors of the Company. EXECUTIVE OFFICERS, DIRECTORS, AND KEY EMPLOYEES Louis LeCalsey, III--Mr. LeCalsey assumed the positions of President and Chief Executive Officer of Tufco in September 1996. Previously he was President of Tufco Industries, Inc. since April 1996 and prior to that he served as Vice President of Worldwide Logistics for Scott Paper Company, the culmination of a 20-year career with Scott in various leadership positions. Gregory L. Wilemon--Mr. Wilemon has been Chief Financial Officer since September 18, 1995 and was appointed Secretary/Treasury by the board effective November 12, 1995 and Chief Operating Officer in September 1996. Mr. Wilemon had been Chief Operating Officer at Executive Roll Manufacturing from 1991 until May of 1993. From 1993 until he rejoined the Company, Mr. Wilemon was Vice President of Finance at Great North American Companies. Prior to his earlier tenure with the Company, Mr. Wilemon was a Senior Business Planner with PepsiCo from 1987 to 1991. Robert J. Simon--Mr. Simon has been Chairman of the Board of Directors of Tufco since February 1992. Mr. Simon has been a senior managing director of Bradford Ventures, Ltd., a private investment firm, since 1992 and a general partner of Bradford Associates since 1989. Prior to that time, Mr. Simon held the following positions with Bradford Ventures Ltd.: Managing Director from 1990 to 1992; Senior Vice President from 1987 to 1990, and Vice President from 1985 to 1987. Mr. Simon is Chairman of the Board of HoloPak Technologies, Inc., Adco Technologies, Inc., and The Sunbelt Companies, Inc. and is also a director of the C.R. Gibson Company, all of which are publicly held companies. Mr. Simon is either Chairman of the Board or a director of Paramount Cards, Inc., Parmarco Technologies, Inc., VSC Corporation, Overseas Equity Investors Ltd., Overseas Private Investors Ltd., and several other privately held companies. -18- 35 EXECUTIVE OFFICERS, DIRECTORS, AND KEY EMPLOYEES (CONTINUED) Samuel J. Bero--Mr. Bero had been President and Chief Executive Officer from November 1993 until he retired in July 1995, Executive Vice President since November 1992, and General Manager of Tufco since 1974, when he co-founded the Predecessor with Mr. Garland and two other individuals. Mr. Bero has over 33 years of experience in the converting industry. Patrick J. Garland--Mr. Garland was the President of Tufco from 1974, when he co-founded the Predecessor with Mr. Bero and two other individuals, until November 1993. Mr. Garland retired from Tufco Industries in February 1994 when his employment agreement expired. He continues to serve as a director of Tufco Technologies, Inc. Mr. Garland has over 33 years of experience in the converting industry. Robert E. Coghan--Mr. Coghan was the President and a director of HoloPak Technologies, Inc., a manufacturer of holographic and hot stamp foils, from 1990 until his retirement in 1997. From 1979 to such time, Mr. Coghan was President of Transfer Print Foils, Inc., which was acquired by HoloPak Technologies, Inc. in January 1990. C. Hamilton Davison, Jr.--Mr. Davison has been the President and a director of Paramount Cards, Inc., a manufacturer of greeting cards, since 1988. Prior to that time, Mr. Davison was Vice President, International and Marketing of Paramount Cards, Inc. since 1986. Mr. Davison is also a director and serves on the executive committee of the greeting card industry trade association and is a Director on the Board of Valley Resources. Edward A. Leinss--Mr. Leinss has been President and Chief Executive Officer of Ahlstrom Filtration, Inc., a manufacturer of filtration media, since 1989 and of its predecessor, Filtration Sciences, Inc., from 1981 to 1989. William J. Malooly--Mr. Malooly has been the Chairman and Chief Executive Officer of Bank One, Green Bay since 1977. COMPLIANCE WITH SECTION 16 (A) OF THE SECURITIES EXCHANGE ACT The information called for by Item 10 with respect to compliance with Section 16 (a) of the Securities Exchange Act is incorporated by reference from the Proxy Statement relating to the Company's annual meeting to be held in 1998 (the "Proxy Statement"), which Proxy Statement is to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days of the end of the fiscal year covered by this report. ITEM 11 - EXECUTIVE COMPENSATION The information called for by Item 11 is incorporated by reference from the Proxy Statement. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by Item 12 is incorporated by reference from the Proxy Statement. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by Item 13 is incorporated by reference from the Proxy Statement. -19- 36 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements. Financial statements are attached as Appendix to this report. The index to the financial statements is found on F-1 of the Appendix. (a) 2. Financial Statement Schedules. All schedules are omitted since the required information is not present or is not present in amounts sufficient to require a submission of the schedules, or because the information required is included in the financial statements and notes thereto. (a) 3. Exhibits. See Exhibit Index in part ( c), below. (b) The Company did not file any reports on Form 8-K during the quarter ended September 30, 1997. (c) Exhibit Number Description 2.1 Stock Purchase Agreement dated as of November 12, 1997 by and among Tufco Technologies, Inc. Charles Cobaugh and James Barnes (filed as exhibit 2.1 to the Company's Form 8-K dated November 13, 1997) Filed with the commission on November 26, 1997 (file number 0-21018), incorporated by reference herein. 3.1 Restated Certificate of Incorporation (1) (Exhibit 3.1) 3.2 Bylaws (1) (Exhibit 3.2) 10.1 Stock Purchase and Contribution Agreement, dated as of February 25, 1992, among the Company, Tufco Industries, Inc. ("Tufco"), and the Stockholders of Tufco. (1) (Exhibit 10.1) 10.2 Amended and Restated Consulting Agreement with Bradford Investment Partners, L.P. (3) (Exhibit 10) 10.3 Loan Agreement, dated May 1, 1992, between the Village of Ashwaubenon, Wisconsin, and the Company. (1) (Exhibit 10.11) 10.4 1992 Non-Qualified Stock Option Plan (1) (Exhibit 10.12) 10.5 Form of Employee Stock Purchase Agreement between the Company and certain key employees of the Company. (1) (Exhibit 10.17) 10.6 1993 Non-Employee Director Stock Option Plan. (2) (Exhibit 10.19) 10.7 Amendment to Loan Agreement dated as of March 29, 1995 between Bank One, Green Bay; Tufco Industries, Inc.; and Executive Converting Corporation. (3) 10.8 Amendment to Loan Agreement dated as of May 18, 1995 between Bank One, Green Bay; Tufco Industries, Inc.; and Executive Converting Corporation. (4) (Exhibit 6(a)) 10.10 Loan Agreement, dated August 22, 1995, between Tufco Industries, Inc., Executive Converting Corporation, Hamco Industries, Inc., and Bank One, Green Bay. (5) (Exhibit 2.1) 10.11* ** Amended Employment Agreement with Greg Wilemon, dated September 18, 1995. 10.13 Lease Agreement, dated as of March 1, 1995, between Bero, Garland, Gebhardt and McClure, a Wisconsin partnership, and Tufco. 10.14 Stock Option Plan for Carl B. Francis dated April 21, 1995. (6) (Exhibit 10.14) 10.15* Lease Agreement dated as of April 1, 1996, between Bero, Garland, Gebhardt and McClure, a Wisconsin partnership, and Tufco. 10.16* Amendment to Loan Agreement dated August 22, 1995, between Tufco Industries, Inc., Executive Converting Corporation, Hamco Industries, Inc. and Bank One, Green Bay. 10.17* Separation Agreement dated October 1, 1996 between Carl B. Francis and Tufco Technologies, Inc. 10.18* ** Employment Agreement with Louis LeCalsey, III dated September 19, 1996. 10.19 Second Amended and Restated Loan Agreement dated as of November 13, 1997 by and between Bank One, Wisconsin and Tufco, L.P. (filed as Exhibit 99.1 to the Company's Form 8-K dated November 13, 1997) Filed with the Commission on November 26, 1997 (file number 0-21018), incorporated by reference herein. 10.20 Term Note dated November 13, 1997 in the original principal amount of $5,250,000 with Tufco, L.P. as Maker and Bank One, Wisconsin as payee (filed as Exhibit 99.2 to the Company's Form 8-K dated November 13, 1997) Filed with the Commission on November 26, 1997 (file number 0-21018), incorporated by reference herein. 21.1 Subsidiaries of the Company. 23.1* Independent Auditor's Report of Wipfli Ullrich Bertelson on the fiscal 1995 consolidated financial statements. 27.1* Financial Data Schedule -20- 37 ------------ * Filed Herewith ** Management Contract or Compensatory Plan (1) Incorporated by reference to the Company's Registration Statement on Form S-1 (Reg. No. 33-55828) (the "Registration Statement") as filed with the Commission on December 16, 1992. (2) Incorporated by reference to Amendment No. 1 to the Registration Statement as filed with the Commission on November 23, 1993. (3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1995. (4) As well as those factors discussed in the section entitled Business in this report, other factors. (5) Incorporated by reference to the Company's Current Report on Form 8-K dated August 23, 1995. (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the period ended September 30, 1995. (b) Form 8-K was filed by the registrant August 23, 1995. (c) See (a)(3) above for the list of exhibits required to be filed as part of the Annual Report on Form 10-K. -21- 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Green Bay, Wisconsin, on December 19, 1997. Tufco Technologies, Inc. By: /s/ Louis LeCalsey, III --------------------------------------- Louis LeCalsey, III President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Louis LeCalsey, III President, Chief Executive Officer December 19, 1997 - ------------------------------ and Director (Principal Executive Louis LeCalsey, III Officer) /s/ Robert J. Simon Chairman of the Board December 19, 1997 - ------------------------------ Robert J. Simon /s/ Gregory L. Wilemon Chief Financial Officer, Chief December 19, 1997 - ------------------------------ Operating Officer and Secretary Gregory L. Wilemon (Principal Financial and Accounting Officer) /s/ Samuel J. Bero Director December 19, 1997 - ------------------------------ Samuel J. Bero /s/ Patrick J. Garland Director December 19, 1997 - ------------------------------ Patrick J. Garland /s/ Robert E. Coghan Director December 19, 1997 - ------------------------------ Robert E. Coghan /s/ C. Hamilton Davison Jr. Director December 19, 1997 - ------------------------------ C. Hamilton Davison, Jr. /s/ Edward A. Leinss Director December 19, 1997 - ------------------------------ Edward A. Leinss /s/ William J. Malooly Director December 19, 1997 - ------------------------------ William J. Malooly
-22- 39 EXHIBIT INDEX
Exhibit Number Description ------ ----------- 2.1 Stock Purchase Agreement dated as of November 12, 1997 by and among Tufco Technologies, Inc. Charles Cobaugh and James Barnes (filed as exhibit 2.1 to the Company's Form 8-K dated November 13, 1997) Filed with the commission on November 26, 1997 (file number 0-21018), incorporated by reference herein. 3.1 Restated Certificate of Incorporation (1) (Exhibit 3.1) 3.2 Bylaws (1) (Exhibit 3.2) 10.1 Stock Purchase and Contribution Agreement, dated as of February 25, 1992, among the Company, Tufco Industries, Inc. ("Tufco"), and the Stockholders of Tufco. (1) (Exhibit 10.1) 10.2 Amended and Restated Consulting Agreement with Bradford Investment Partners, L.P. (3) (Exhibit 10) 10.3 Loan Agreement, dated May 1, 1992, between the Village of Ashwaubenon, Wisconsin, and the Company. (1) (Exhibit 10.11) 10.4 1992 Non-Qualified Stock Option Plan (1) (Exhibit 10.12) 10.5 Form of Employee Stock Purchase Agreement between the Company and certain key employees of the Company. (1) (Exhibit 10.17) 10.6 1993 Non-Employee Director Stock Option Plan. (2) (Exhibit 10.19) 10.7 Amendment to Loan Agreement dated as of March 29, 1995 between Bank One, Green Bay; Tufco Industries, Inc.; and Executive Converting Corporation. (3) 10.8 Amendment to Loan Agreement dated as of May 18, 1995 between Bank One, Green Bay; Tufco Industries, Inc.; and Executive Converting Corporation. (4) (Exhibit 6(a)) 10.10 Loan Agreement, dated August 22, 1995, between Tufco Industries, Inc., Executive Converting Corporation, Hamco Industries, Inc., and Bank One, Green Bay. (5) (Exhibit 2.1) 10.11* ** Amended Employment Agreement with Greg Wilemon, dated September 18, 1995. 10.13 Lease Agreement, dated as of March 1, 1995, between Bero, Garland, Gebhardt and McClure, a Wisconsin partnership, and Tufco. 10.14 Stock Option Plan for Carl B. Francis dated April 21, 1995. (6) (Exhibit 10.14) 10.15* Lease Agreement dated as of April 1, 1996, between Bero, Garland, Gebhardt and McClure, a Wisconsin partnership, and Tufco. 10.16* Amendment to Loan Agreement dated August 22, 1995, between Tufco Industries, Inc., Executive Converting Corporation, Hamco Industries, Inc. and Bank One, Green Bay. 10.17* Separation Agreement dated October 1, 1996 between Carl B. Francis and Tufco Technologies, Inc. 10.18* ** Employment Agreement with Louis LeCalsey, III dated September 19, 1996. 10.19 Second Amended and Restated Loan Agreement dated as of November 13, 1997 by and between Bank One, Wisconsin and Tufco, L.P. (filed as Exhibit 99.1 to the Company's Form 8-K dated November 13, 1997) Filed with the Commission on November 26, 1997 (file number 0-21018), incorporated by reference herein. 10.20 Term Note dated November 13, 1997 in the original principal amount of $5,250,000 with Tufco, L.P. as Maker and Bank One, Wisconsin as payee (filed as Exhibit 99.2 to the Company's Form 8-K dated November 13, 1997) Filed with the Commission on November 26, 1997 (file number 0-21018), incorporated by reference herein. 21.1* Subsidiaries of the Company. 23.1* Independent Auditor's Report of Wipfli Ullrich Bertelson on the fiscal 1995 consolidated financial statements. 27.1* Financial Data Schedule 27.2* 8-K filed November 26, 1997.
------------ * Filed Herewith ** Management Contract or Compensatory Plan (1) Incorporated by reference to the Company's Registration Statement on Form S-1 (Reg. No. 33-55828) (the "Registration Statement") as filed with the Commission on December 16, 1992. (2) Incorporated by reference to Amendment No. 1 to the Registration Statement as filed with the Commission on November 23, 1993. (3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1995. (4) As well as those factors discussed in the section entitled Business in this report, other factors. (5) Incorporated by reference to the Company's Current Report on Form 8-K dated August 23, 1995. (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the period ended September 30, 1995. EX-10.11 2 AMENDED EMPLOYMENT AGREEMENT WITH GREG WILEMON 1 EXHIBIT 10.11 EMPLOYMENT AGREEMENT This Agreement is made as of the 1st day of October, 1996 between Tufco Technologies, Inc., a Delaware corporation ("Tufco"), and Gregory L. Wilemon (The "Employee"). RECITALS Tufco desires to employ the Employee, and the Employee desires to become an employee of Tufco, upon the terms and conditions hereinafter set forth. Tufco Technologies, Inc., is a Delaware corporation ("Tufco"). WITNESSETH: NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. Employment. Tufco hereby employs the Employee as its Chief Operating Officer, and the Employee hereby accepts such employment. During the term of employment under this Agreement (the "Employment Term"), the Employee shall perform such duties as are required from time to time by the Chairman of the Board of Tufco Technologies, the Board of Directors of Tufco Technologies (the "Board") or any senior officer of Tufco Technologies, Inc. 2. Performance. During the Employment Term, the Employee shall devote his entire business efforts to the performance of his duties hereunder. 3. Term. Unless otherwise terminated in accordance with Sections 5 or 6, the Employment Term shall be for an initial term of two years commencing on October 1, 1996 and continuing thereafter for successive one-year renewal terms. 4. Compensation for Employment. (a) The basic annual compensation of the Employee for his employment services to Tufco and to all of its affiliated companies during the Employment Term shall be $150,000 (the "Salary"), which Tufco shall pay to the Employee in accordance with its normal payroll policy. Tufco may adjust the Salary upward on an annual basis as the Board may determine, but the Salary shall not be decreased. (b) Commencing as of October 1, 1996, (the "Bonus Starting Date") and continuing during the Employment Term, Tufco shall pay the Employee a bonus in accordance with this paragraph (b). For each fiscal year during the Employment Term, the Board, in its sole discretion, shall establish a budget for pre-tax income in accordance with generally accepted accounting principles consistently applied ("GAAP") and the Employee's bonus will vary as a percentage of Salary in relation to the percentage achievement of that budget as follows: 2
Percentage of Percentage of Salary Budget Attained Earned as Bonus --------------- --------------- Less than 90% 40% 100% 50% 110% 60% 120% 70% 130% 80% 140% 90% 150% 100%
For a percentage of budget achievement between the benchmarks, the percentage of Salary shall be linearly interpolated, provided that no bonus shall be paid for achievement less than 90% of budget and the maximum bonus shall be 100% of Salary in any event. In the case of a partial fiscal year, Tufco shall adjust the bonus to correspond to Tufco's budget and the salary for the portion of the applicable fiscal year that shall be included in the Employment Term. Notwithstanding the foregoing, the Employee's initial bonus period (the "Initial Bonus Period") shall be the period starting with October 1, 1996, and ending September 30, 1997, and Tufco shall use its budget for that period to determine the Employee's eligibility for a bonus, and then apply the applicable bonus percentage to that portion of the Employee's annual Salary that relates to the Initial Bonus Period. The Employee's second bonus period shall be the period beginning October 1, 1997 and ending with the last day of Tufco's fiscal year, and Tufco shall prepare a budget for that period and determine the Employee's eligibility for a bonus in the manner described for the Initial Bonus Period. (c) During the Employment Term, Tufco shall also provide the Employee with those fringe benefits that are specified on Exhibit "A" hereto (the "Fringe Benefits"). Tufco shall also reimburse the Employee for any reasonable business expenses incurred on Tufco's behalf in connection with the performance of his services during the Employment Term. (d) Stock Options. Options are granted periodically to selected executives at the sole discretion of the Chairman of the Board of Directors. The timing, the exercise price, as well as the vesting period and the number of options (if any) will be determined annually by the Chairman of the Board of Directors. 5. Termination Without Compensation. (a) Non-Renewal of Term. The Employment Term may be terminated by Employee hereto as of the end of the initial term or any renewal term then in effect by giving written notice of the intention to terminate the Employment Term at least 30 days prior to the proposed termination date. (b) Partial or Total Disability. If the Employee is unable to perform his duties and responsibilities hereunder to the full extent required hereunder by reason of illness, injury or incapacity for six months (during which time he shall continue to be compensated hereunder), Tufco may terminate the Employment Term, and Tufco shall not have any further liability or obligation to the Employee hereunder except for any unpaid Salary and Fringe Benefits accrued to the date of termination. In the event of any dispute under this Section 6(b), the Employee shall submit to a physical examination by a licensed physician mutually satisfactory to Tufco and the Employee, the cost of such examination to be paid by Tufco, and the determination of such physician shall be determinative. If, after termination due to disability as provided herein, the Employee obtains, at his sole expense, medical certification from a licensed physician reasonably satisfactory to Tufco that such disability has ended, Tufco shall offer to employ the Employee pursuant to the terms of this 2 3 Agreement for the remainder of the initial term or any renewal term in effect at the time of termination, except that Tufco shall not be required to reemploy the Employee at the same position if Tufco shall have elected another person to such position during the period of the Employee's disability and such other person continues in such position at the time of the Employee's return to employment. (c) Death. If the Employee dies, this Employment Agreement (except for the provisions of Sections 6, 10 and 11 hereof shall terminate, and thereafter Tufco shall not have any further liability or obligation to the Employee, his executors, administrators, heirs, assigns or any other person claiming under or through him except for unpaid Salary and Fringe Benefits accrued to the date of his death. (d) Cause. Tufco may terminate the Employment Term for "cause" by giving the Employee 30 days' notice of the termination date, and thereafter Tufco shall not have any further liability or obligation to the Employee. For purposes of this Agreement, "Cause" shall mean the failure of the Employee to observe or perform (other than by reason of illness, injury or incapacity) any of the material terms or provisions of this Agreement, dishonesty, willful misconduct, material neglect of Tufco's business, conviction of a felony or other crime involving moral turpitude, misappropriation of funds or habitual insobriety. Any such willful misconduct or material neglect shall constitute "cause" only if the action (or omission) at issue shall be continuing 30 days after Tufco gives the Employee notice of such willful misconduct or material neglect. 6. Termination With Compensation. (a) Non-Renewal of Term. The Employment Term may be terminated by either party hereto as of the end of the initial term or any renewal term then in effect by giving written notice of the intention to terminate the Employment Term at least 90 days prior to the proposed termination date. If Tufco terminated the Employment Term under such circumstances, Tufco shall provide the Employee with the Termination Compensation specified in Section 6(c). (b) Without Cause. Tufco shall have the right to terminate the employment Term without cause at any time by giving the Employee 30 days' notice of the termination date. Under such circumstances, Tufco shall provide the Employee with the Termination Compensation specified in Section 6(c). (c) Termination Compensation. The "Termination Compensation" shall consist of the following: (1) in the case of a termination by Tufco under Section 6(a), payment of the Employee's Salary under Section 4(a), at the level in effect at the date of termination, for the longer of (A) any remaining part of the initial two-year term of the Employment Term or (B) one year. The Employee shall not be entitled to any Termination Compensation under this Section 6 unless the Employee executes and delivers to the Company after a notice of termination a release in a form satisfactory to the Company in its sole discretion by which the Employee releases the Company from any obligations and liabilities of any type whatsoever, except for Tufco obligation to provide the Salary specified in this Section 6. The parties hereto acknowledge that the Salary to be provided under this Section 6 are to be provided in consideration for the above-specified release. (d) Exclusivity. Upon any termination by Tufco under Section 6(a), or Section 6(b), Tufco shall not have any obligation to the Employee, his executors, administrators, heirs, assigns or any other person claiming under or through him other than to provide the Termination Compensation under the terms and conditions of Section 6(c). Upon any termination by the Employee under Section 6(a), Tufco shall not have any further liability or obligation to the Employee, his executors, administrators, heirs, assigns or any other person claiming under or through him except to provide to the Employee any unpaid Salary and Fringe Benefits that shall have accrued through the date of termination. 3 4 7. Agreement Not to Compete. (a) During the non-Competition Period (defined below), the Employee shall not, within the Restricted Area (defined below), directly or indirectly, in any capacity, render his services, engage or have a financial interest in, any business that is competitive with any of those business activities in which Tufco, Tufco Industries, Inc. and Tufco Technologies, Inc. shall have been engaged during his employment by it, including paper converting, mill roll converting, paper sheeting, slitting and rewinding paper rolls, facsimile rolls, and buying and reselling paper products, nor shall the Employee assist any person or entity that is engaged in such business, including by making Tufco Information (defined below) available to any such person or entity. In addition, during the Non-Competition Period, the Employee shall not directly or indirectly solicit or otherwise encourage any of the employees of any Tufco Party (defined below) to terminate their employment with the applicable Tufco Party. As used herein, the "Restricted Area" means the United States of America. If a court determines that the foregoing restrictions are too broad or otherwise unreasonable under applicable law, including with respect to time or space, the court is hereby requested and authorized by the parties hereto to review the foregoing restriction to include the maximum restrictions allowable under applicable law. The "Non-Competition Period" means the period equal to the sum of (A) the period of the Employee's employment hereunder, (B) any period during which the Employee is paid any Termination Compensation (defined above) and (C) an additional one year after the end of the later of the period in clauses (A) and (B). (b) The terms of this Section 5 shall apply to Employee and any person, partnership, association, corporation or other entity (collectively, a "Person") controlled by the Employee, including any relative of the Employee, to the same extent as if they were parties hereto, and the Employee shall take whatever actions may be necessary to cause any such persons or entities to adhere to the terms of this Section 5. (c) In the event of the voluntary or involuntary bankruptcy of Employer or the filing of a plan for reorganization by Employer resulting in the termination of the contract of employment or a situation giving rise to circumstances by which Employer fails to make any payment of compensation set forth in the Employment Agreement, Employee shall be relieved of all obligations under the Employment Agreement relating to covenants against competition as set forth in Section 7 of the Agreement. 8. Inventions, Designs and Product Developments. All inventions, innovations, designs, ideas and product developments (collectively, the "Developments"), developed or conceived by the Employee, solely or jointly with others, whether or not patentable or copyrightable, at any time during the Employment Term and that relate to the actual or planned business activities of Tufco, Tufco or any person controlled by either or both of them (any such party is referred to herein as a "Tufco Party") and all of the Employee's right, title and interest therein, shall be the exclusive property of the applicable Tufco Party. The Employee hereby assigns, transfers and conveys to any applicable Tufco Party all of his right, title and interest in and to any and all such Developments. As requested from time to time by the Board, the Employee shall disclose fully, as soon as practicable and in writing, all Developments to the Board. At any time and from time to time, upon request of any of the Board, the Employee shall execute and deliver to Tufco any and all instruments, documents and papers, give evidence and do any and all other acts that, in the opinion of counsel for Tufco, are or any be necessary or desirable to document such transfer or to enable any applicable Tufco Party to file and prosecute applications for and to acquire, maintain and enforce any and all patients, trademark registrations or copyrights under United States or foreign law with respect to any such Developments or to obtain any extension, validation, reissue, continuance or renewal of any such patent, trademark or copyright. The applicable Tufco Party will be responsible for the preparation of any such instruments, documents and paper and for the prosecution of any such proceedings and will reimburse the Employee for all reasonable expenses incurred by him in compliance with the provisions of this Section. 4 5 9. Confidential Information. (a) The Employee has had and will have possession of or access to confidential information relating to the business of one or more Tufco Parties, including writings, equipment, processes, drawings, reports, manuals, invention records, financial information, business plans, customer lists, the identity of or other facts relating to prospective customers, inventory lists, arrangements with suppliers and customer, computer programs, or other material embodying trade secrets, customer or product information or technical or business information of certain Tufco Parties. All such information, other than any information that is in the public domain through no act or omission of the Employee or which he is authorized to disclose, is referred to collectively as the "Tufco Information." During and after the Employment Term, the Employee shall not (1) use or exploit in any manner the Tufco Information for himself or any Person other than a Tufco Party, (ii) remove any Tufco Information, or any reproduction thereof, from the possession or control of any Tufco Party or (iii) treat Tufco Information otherwise than in a confidential manner. (b) All Tufco Information developed, created or maintained by the Employee, alone or with others while employed by Tufco, and all Tufco Information maintained by the Employee thereafter, shall remain at all times the exclusive property of the applicable Tufco Party. The Employee shall return to Tufco all Tufco Information, and reproductions thereof, whether prepared by him or others, that are in his possession immediately upon request and in any event upon the completion of his employment by Tufco. 10. Remedies. The Employee expressly acknowledges that the remedy at law for any breach of Sections 7, 8 or 9 will be inadequate and that upon any such breach or threatened breach, Tufco (or the applicable Tufco Party) shall be entitled as a matter of right to injunctive relief in any court of competent jurisdiction, in equity or otherwise, and to enforce the specific performance of the Employee's obligations under these provisions without the necessity of proving the actual damage or the inadequacy of a legal remedy. Subject to the remainder of this Section 10, the rights conferred upon Tufco (and any Tufco Party) by the preceding sentence shall not be exclusive of, but shall be in addition to, any other rights or remedies which Tufco may have at law, in equity or otherwise. 11. Survival. Notwithstanding the termination of the Employment Term pursuant to Section 5 or 6, the obligations of the Employee under Sections 7, 8 and 9 hereof shall survive and remain in full force and effect and Tufco shall be entitled to relief against the Employee pursuant to the provisions of Section 10 hereof. 12. General. (a) Governing Law. The terms of this Agreement shall be governed by the laws of the State of Wisconsin. (b) Interpretation. Unless the context of this Agreement clearly requires otherwise, (i) references to the plural include the singular, and to the singular include the plural, (ii) "or" has the inclusive meaning frequently identified with the phrase "and/or" and (iii) "Including" has the inclusive meaning frequently identified with the phrase "but not limited to." The section and other headings contained in this Agreement are for reference purposes only and shall not control or affect the construction or this Agreement or the interpretation thereof in any respect. Section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified. Each accounting term used herein that is not specifically defined herein shall have the meaning given to it under GAAP. 5 6 (c) Binding Effect. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit and be enforceable by the respective heirs, representatives, successors (including any successor as a result of a merger or similar reorganization) and assigns of the parties hereto, except that the duties and responsibilities of the Employee hereunder are of a personal nature and shall not be assignable in whole or in part by the Employee. Any Tufco Party other than Tufco is a third party beneficiary of this Agreement and may enforce the provisions of this Agreement that pertain to such Tufco Party, including Sections 7, 8 and 9, to the same extent as if a party hereto. (d) Notices. All notices required to be given under this Agreement shall be in writing and shall be deemed to have been given when personally delivered or when mailed by registered or certified mail, postage prepaid, return receipt requested, or when sent by Federal Express or other overnight delivery service, addressed as follows: TO EMPLOYEE: TO:TUFCO Mr. Gregory L. Wilemon Tufco Technologies One Shadowridge Court Attn: President/CEO Frisco, TX 75034 P.0. Box 23500 Green Bay WI 54305-3500 (e) Entire Agreement; Termination of Prior Agreement; Modification. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof. This Agreement may not be modified or amended in any way except in writing by the parties hereto. (f) Duration. Notwithstanding the termination of the Employment Term and of the Employee relationship with Tufco, this Agreement shall continue to bind the parties for so long as any obligations remain under this Agreement, and in particular, the Employee shall continue to be bound by the terms of Sections 7, 8 and 9. (g) Waiver. No waiver of any breach of this Agreement shall be construed to be a waiver as to succeeding breaches. (h) Severability. If any provision of this Agreement or application thereof to anyone under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such validity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision in any other jurisdiction. (i) Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures hereto were upon the same instrument. 6 7 IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto duly executed this Agreement the day and year first written above. TUFCO TECHNOLOGIES, INC. By: /s/ LOUIS LECALSEY ------------------------- LOUIS LeCALSEY /s/ GREGORY L. WILEMON ------------------------- GREGORY L. WILEMON 8 ADDENDUM TO EMPLOYMENT CONTRACT OF: Greg Wilemon Tufco Technologies agrees to provide the benefits listed below to Greg Wilemon, as a supplement to the employment contract dated 1 October 1996. - Company paid health insurance, dental insurance, and disability insurance. - Company paid life insurance policy in the amount of $1,000,000. - Company paid country club membership. - Immediate vesting of all stock option grants upon any significant change of ownership in Tufco Technologies. Agreed to by Tufco Technologies: PRINTED NAME OF EMPLOYEE: Greg Wilemon TUFCO TECHNOLOGIES: /s/ LOUIS LECALSEY ------------------- LOUIS LECALSEY EX-10.15 3 LEASE AGREEMENT APRIL 1, 1996 1 EXHIBIT 10.15 LEASE BETWEEN BERO, GARLAND, GEBHARDT AND McCLURE PARTNERSHIP AND TUFCO INDUSTRIES, INC. THIS LEASE, made as of this 1st day of April, 1996, by and between Bero, Garland, Gebhardt and McClure, a Wisconsin partnership, and Tufco Industries, Inc., a Wisconsin corporation, of Green Bay, Wisconsin, hereinafter called Lessee: WITNESSETH: 1. That the said Lessor does hereby lease to said Lessee and said Lessee agrees to lease the property described in attached Exhibit A, together with all improvements, furnishings, fixtures and equipment located on said premises, hereinafter called the leased property. Reference Exhibit B. 2. This Lease is for the term of 7 years, from April 1, 1996 to April 1, 2003, for the annual rental of $110,060.00, payable monthly in the sum of $9,255.00, commencing April 1, 1996, and on the first day of each month thereafter. Lessee shall have the option to renew this Lease for an additional term of three years upon the same terms and conditions as set forth herein except for rental as herein specified. Rental for the renewal three year term shall be negotiated by the parties. Lessee may exercise this option by giving written notice to Lessor at least 90 days before expiration of the original term set forth herein. 3. That the rent herein specified shall be net to the Lessor in each month during the term of this Lease; that all costs, expenses and obligations of every kind relating to the 2 leased property (except herein set forth) which may arise or become due during the term of this Lease shall be paid by the Lessee, and that the Lessor shall be indemnified by the Lessee against any costs, expenses and obligations. All costs, expenses and obligations assessed prior to but payable in whole or in installments after the effective date of the lease term, and all taxes assessed during the term, shall be adjusted and pro-rated, so that the Lessor shall pay their pro-rated share for the period prior to and for the period subsequent to the lease term and the Lessee shall pay its pro-rated share for the lease term. 4. That the Lessee shall pay all charges for utilities, including, but not limited to gas, electricity, light, heat, power and telephone used, rendered or supplied, upon or in connection with the leased property, and shall indemnify the Lessor against any liabilities or payments on such account. That the said Lessee shall pay all costs for janitorial services performed upon the leased premises and shall indemnify the Lessor against any liability or payments on such account. 5. That the Lessee shall keep the leased property adequately insured throughout the term of this Lease, including general liability insurance and fire and extended coverage insurance. If, at the option of the Lessor, the Lessor should apply for such insurance and pay the premiums therefor, the Lessee shall indemnify said Lessor for all insurance premiums paid by said Lessor for all insurance coverage on the leased property. That Lessee shall furnish copies of said policies to Lessor at the request of Lessor. -2- 3 The Lessor and Lessee hereby waive any right by way of subrogation that their insurers might otherwise have as against them or either of them arising out of transactions or occurrences which are the subject of payment of insurance proceeds by said insurers by reason of casualties insured pursuant to this Lease, to the extent that such subrogation rights are permitted to be waived by said policies, and said policies, to the extent permitted, shall recognize this waiver of subrogation. 6. That the Lessor shall be responsible for, and shall pay for all repairs and improvements to the leased property, both inside and outside, except that the Lessee shall be responsible for and shall pay for repair of any damages caused by the negligence of Lessee and its agents and employees. 7. That the said Lessee does promise and agree to pay said rent at the time and in the manner aforesaid, during the continuance of said term, and not to underlease or sublet said premises or any part thereof or assign this Lease, without the written consent of the Lessor, to quit and deliver up the same to the Lessor peaceably and quietly at the end of said term; and also to keep the same in as good repair as the same are in at the commencement of said term (reasonable use and wear thereof, and damage by fire or other unavoidable accidents not happening through the neglect of the Lessee, only excepted) and the Lessor may enter to view the premises at all reasonable times. If the Lessee shall fail to pay the rent aforesaid at the time expressed in this Lease, or shall underlease or sublet the said premises or assign the Lease without the written consent of the Lessor, the Lessor may enter on and expel the Lessee from said premises -3- 4 forthwith; and it is stipulated that in case the premises should be sold during the said term, then and in that case this Lease shall remain in full force and effect pursuant to the terms herein. Lessor grants Lessee the right of first refusal in the event of the sale of the building. Lessee shall have 30 days to exercise such option. 8. The Lessor agrees that it will tender and turn over the defense to the Lessee or to the Lessee's insurers, any claims, demands or suits instituted against the Lessor or the Lessor and Lessee jointly arising out of or on account of any damage or injuries, including wrongful death, to any person or persons or to property in or about the leased premises or arising out of activities conducted on the leased premises or in or about any building or other improvement thereon, and the Lessee agrees to indemnify and hold the Lessor harmless against and from any and all claims, demands, actions, suits, damages, judgments, orders, liabilities or expenses, including reasonable attorneys' fees and disbursements, arising out of or on account of any such damage or injuries, including wrongful death. 9. That the leased property shall be used by the Lessee for warehouse and manufacturing purposes and other purposes reasonably related to those uses. 10. Lessee agrees to comply with all reasonable rules and regulations Lessor may adopt from time to time for the protection and welfare of the building and its tenants and occupants. 11. If the building is damaged and made partially or wholly untenantable by fire or other casualty, and Lessor shall determine not to restore it, Lessor may by notice to Lessee given -4- 5 within 60 days after such damage, terminate this Lease. Such termination shall become effective as of the date of such damage, if the premises are damaged, otherwise as of a date 60 days following the service of such notice of lease termination. Unless the Lease is terminated as hereinabove provided, if the premises are made partially or wholly untenantable by fire or other casualty, Lessor shall restore the same with available insurance funds and at Lessor's expense with reasonable promptness. In the event of termination of this Lease, pursuant to this paragraph, rent shall be pro-rated on a per diem basis and paid to the date of the fire or other casualty, unless the premises shall be tenantable and reasonably accessible in which case rent shall be payable to the date of the Lease termination. If the premises are untenantable or are not readily accessible and this Lease is not terminated, rent shall abate on a per diem basis from the date of the fire or other casualty until the premises are ready for occupancy and reasonably accessible to Lessee. If part of the premises are untenantable, rent shall be pro-rated on a per diem basis and apportioned in accordance with the part of the premises usable by Lessee, until the damaged part is ready for Lessee's occupancy. In all cases, due allowance shall be made for reasonable delay caused by adjustment of insurance loss, strikes, labor difficulties or any cause beyond Lessor's reasonable control. 12. If, by any action of the public authorities, or any similar cause or reason not within the scope of the immediately preceding paragraph 11, the demised premises or any part thereof shall have become untenantable for Lessee's business as now -5- 6 conducted, the parties shall have the same options, rights and obligations as provided in the case of partial destruction by fire, in the immediately preceding paragraph 11. 13. This Lease shall replace a Lease between the Lessor and Lessee dated March l, 1995, and said March 1, 1995 Lease is terminated and null and void as of the commencement date of this Lease. 14. That the covenants herein contained shall bind the parties mutually and their respective heirs, personal representatives, successors and assigns. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as of the day and year first herein written. BERO, GARLAND, GEBHARDT & McCLURE, a Wisconsin Partnership (Lessor) -------------------------------- Samuel J. Bero - Partner -------------------------------- Patrick J. Garland - Partner -------------------------------- Robert N. McClure - Partner The Paul W. Gebhardt and Doris N. Gebhardt Revocable Trust Dated April 4, 1994 - Partner, By: -------------------------------- Paul W. Gebhardt as Co-Trustee -------------------------------- Doris N. Gebhardt as Co-Trustee -6- 7 TUFCO INDUSTRIES, INC. (Lessee) By: /s/ GREG WILEMON CFO ---------------------- By: ---------------------- -7- 8 EXHIBIT A Description of Leased Property The 43,750 square foot building located at 1055 Parkview Street, Village of Ashwaubenon, Brown County, Wisconsin, and access thereto. 9 EXHIBIT B Lessor agrees to make the following improvements prior to or within 60 days of move-in. Should Lessor choose to change specifications or contractor, Lessee reserves the right to review and approve such changes.
Estimated --------- Project Cost Contractor - ------- ---- ---------- Move and install existing air conditioning units (20 tons total capacity) from Tufco Industries, Ridge Road building to the leased premises. $ 2,295.00 Robinson Metal Inc. Construct a 150 foot demising wall. $11,243.00 Schuh Construction Construct a 12 foot by 12 foot office area. $ 4,469.00 Schuh Construction Provide 480 Amps (external electric). $ 2,800.00 WPS (Wisconsin Public Service) Install electrical service and wiring necessary to supply power to the HVAC system. $17,750.00 Team Services Contingency $ 2,000.00 TOTAL: $40,557.00
EX-10.16 4 AMENDMENT TO LOAN AGREEMENT AUGUST 22, 1996 1 EXHIBIT 10.16 [BANKONE LETTERHEAD] April 5, 1996 Mr. Greg Wilemon Secretary and Chief Financial Officer Tufco Technologies, Inc. 4650 Simonton Dallas, Texas 75244 RE: Amendment to Loan Agreement Dated August 22, 1995 Dear Greg: Enclosed is the amendment to the above referenced loan agreement to reflect the restructuring of Tufco's indebtedness with Bank One. The $9,750,000 revolving line of credit will no longer consist of three individual notes for each operating entity, but will now consist of a single $9,750,000.00 note under which all advances will be made. As such, each individual operating entity will need to track their advances and payments on the line. Upon the completion of the lock box study and implementation of a "Line of Credit Sweep" the advances and payments on the line can be automated. The revolving line of credit will continue to have a Reference rate pricing option but also a LIBOR pricing option. The terms and conditions under which the LIBOR advances will be made are detailed in the amendment to the Loan Agreement. All LIBOR advances need to be requested two days prior to the actual advance. Tufco win be required to notify the Bank of their intent to renew any maturing LIBOR advances, otherwise they will be converted to the Reference rate option at maturity. To request a LIBOR advance, please call me or my assistant Maureen Van Roy (x2644) with the request and we will fax to you the LIBOR rates and then a confirmation of your selected LIBOR advance. For your convenience I have enclosed a sample LIBOR rate sheet and confirmation sheet. The Hamco acquisition note which has a balance of $5,625,000.00 as of February 1, 1996 and a $1,000,000.00 term note will be combined into a $6,625,000.00 note (Facility Two) at an interest rate of 7.03% through Jan 31, 2000. As you know we are seeking to defer 2 Tufco Technologies, Inc. April 5, 1996 Page 2 four $250,000 principal payments under the industrial development revenue bond with the Village of Ashwaubenon, commencing with the May 1, 1996 payment. Since we are deferring payments under the IRB, there will be additional principal payments of $20,833.33 per month on Facility Two. If the deferral is obtained for the May 1, 1996 payment, an additional principal payment of $41,666.66 shall be due April 19, 1996 on Facility Two to recapture the $20,833.33 principal payments that normally would have been required in the months of February and March 1996. Please read the note for the complete payment schedule. Greg, please review the enclosed amendment and if acceptable please sign the amendment and the enclosed notes. If you have any questions please feel free to call me. Since this agreement is retroactive to February 1, 1996 your assistance in completing this restructuring as quickly as possible is appreciated. Sincerely, /s/ MARK J. FISCHER Mark J. Fischer Assistant Vice President 3 LIBOR BORROWING REQUEST TO/FROM: Mark Fischer, Bank One, Green Bay ("Bank One") Phone: 436-2506 Fax:436-2523 FROM/TO: Greg Wileman Tufco Technologies, Inc. Phone: 1-800-992-0947 Fax: (214) 387-0516 RE: Libor Rate Funding Quote Date: ________________________ As detailed in Section 2.2 of the Loan Agreement dated August 22, 1995 and Amended February 1, 1996, between Bank One and Tufco Industries, Inc., Executive Converting Corporation and Hamco Industries, Inc., the company would like to get Libor Rate Funding Quote for the following dollar amounts and time periods of 15, 30, 60 and 90 days:
Libor Contract Amount Days Duration Quote + 1.50% = Rate - ------ ---- -------- ------- ----- -------- ________ 15 ________ TO ________ ________ ________= ________ ________ 30 ________ TO ________ ________ ________= ________ ________ 60 ________ TO ________ ________ ________= ________ ________ 90 ________ TO ________ ________ ________= ________
A confirmation of all quotes which Tufco elects to lock in will be prepared by Bank One. 4 LIBOR BORROWING CONFIRMATION Shown below is a confirmation of a LIBOR request received by Bank One, Green Bay. If we can be of any further assistance please do not hesitate to call Mark J. Fischer (414-436-2506) or Maureen VanRoy (414-2644) at your convenience. Company: Tufco Technologies, Inc. Requester: Greg Wileman Effective Date: Amount: Term: Maturity: Rate: - -------------------------------------------------------------------------------- To: Greg Wileman From: Mark Fischer Company: Tufco Technologies, Inc. Company: Bank One, Green Bay Direct Dial: 1-800-992-0997 Direct Dial: (414) 436-2506 Fax #: (214) 387-0516 Fax #: (414) 436-2523 5 FIRST AMENDMENT TO LOAN AGREEMENT Dated August 22, 1995 Amendment effective as of February 1, 1996 BY AND BETWEEN Tufco Industries, Inc. Executive Converting Hamco Industries, Inc. Corporation Address: Address: Address: 3161 South Ridge Road 4750 Simonton 1205 Burris Road P.0. Box 23500 Dallas, TX 75244 Newton, NC 28658 Green Bay, WI 54305-3500 AND Bank One, Green Bay Address: 200 South Adams Street P.O. Box 19029 Green Bay, WI 54307-9029 6 FIRST AMENDMENT TO LOAN AGREEMENT This First Amendment to Loan Agreement is made and entered into as of this 1st day of February, 1996, by and between Bank One, Green Bay (hereinafter referred to as the "Bank"), and Tufco Industries, Inc., Executive Converting Corporation and Hamco Industries, Inc. (hereinafter referred to collectively as the "Borrowers"). RECITALS The Bank and the Borrowers entered into a Loan Agreement, dated as of August 22, 1995. The parties desire to amend the Loan Agreement with respect to the following provisions. NOW, THEREFORE, the parties hereby amend the Loan Agreement by inserting the following provisions in the Loan Agreement in place of the respective provision in the Loan Agreement as originally stated. 1. DEFINITIONS. 1.7 COMMITMENT FEE. A fee equal to 0.25%, per annum, of the unused amount of the revolving loan identified in Section 2.2 of this Agreement, determined on a daily basis and payable quarterly in arrears. 1.12 FACILITY FEE. A fee equal to 0.50% of the amount of Facility Two paid upon advance of the Facility Two loan proceeds under the Loan Agreement dated as of August 22, 1995. 1.16 LOAN AMOUNT. Loans (hereinafter sometimes so called) from the Bank to the Borrowers in the aggregate maximum amount of Nineteen Million Five Hundred Seventy-Five Thousand Eight Hundred Forty-Eight Dollars ($19,575,848.00) and evidenced by the Promissory Notes. The definition of the term "Loan Amount" shall also include any amounts which are loaned by the Bank to the Borrowers pursuant to Section 8.12 of the Loan Agreement. 1.17 PERMITTED LIENS. The mortgages, liens, conditional sales agreements, encumbrances or charges set forth on Exhibit "B" attached hereto and incorporated herein by this reference. 1.19 PREPAYMENT PENALTY. A prepayment premium payable in connection with any unscheduled payment of principal made by the Borrowers with respect to the Promissory Note, Exhibit A-2, prior to its scheduled maturity 7 shall be equivalent to the amount, if any, by which (a) the present value of a flow of interest on the unscheduled principal amount prepaid from the prepayment date to the scheduled maturity date of said note at the fixed rate then in effect exceeds (b) the present value of a flow of interest on the unscheduled principal amount prepaid from the prepayment date to the scheduled maturity date of the Promissory Note, Exhibit A-2, at the effective monthly equivalent of the average yield of United States Government Treasury Securities, on the date of such unscheduled prepayment, having maturities within forty-five (45) days of the scheduled maturity date of the Promissory Note, Exhibit A-2, as determined by the Bank. The Prepayment Premium shall be payable upon receipt of billing from Bank. 1.20 PROMISSORY NOTES. Promissory Notes refer to the Promissory Notes evidencing the Loan Amount payable to the Bank in the form as that attached hereto as Exhibits "A-1" through "A-5" inclusive, and incorporated hereby by this reference. The definition of the term "Promissory Notes" shall also include any Promissory Notes or agreements executed and delivered by the Borrowers to the Bank with respect to additional credit extended by the Bank to a Borrower or Borrowers pursuant to Section 8.12 of the Loan Agreement. 1.24 REFERENCE RATE LOANS. Reference Rate Loans are loans made where the applicable rate of interest is the Reference Rate. The Reference Rate shall be the rate announced and/or published by Bank One, Green Bay, Wisconsin as its Reference Rate adjusted daily and computed on the basis of a three hundred sixty (360) day year. 1.26 DEFINITIONS APPLICABLE TO LIBOR RATE LOANS. (a) ADJUSTED LIBOR RATE means, with respect to the Loan Period for a Libor Rate Loan, a rate per annum (rounded upward, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula: Libor Rate -------------------- Adjusted Libor Rate = 1 - Libor Reserve Requirement (b) BORROWING DATE means each date on which a loan is made by the Bank to the Borrowers. (c) BUSINESS DAY means (i) with respect to the making, payment or rate determination of a Libor Rate Loan, a day (other than a Saturday or Sunday) on which banks are open for business in Milwaukee, Wisconsin and on which dealings in Dollars are carried on in the London Interbank market and (ii) for all other purposes, a day (other than Saturday or Sunday) on which banks are open for business in Milwaukee, Wisconsin. -2- 8 (d) LIBOR RATE means, with respect to a Libor Rate Loan for the applicable Loan Period, the interest rate at which deposits in Dollars, in an amount approximately equal to the requested Libor Rate Loan and having a maturity approximately equal to the requested Loan Period, are offered to the Bank in the London Interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Loan Period. The Libor Rate determined by the Bank shall, in the absence of error, be conclusive. (e) LIBOR RATE LOAN means a loan hereunder bearing interest at or by reference to the Adjusted Libor Rate. (f) LIBOR RESERVE REQUIREMENT means, with respect to a Libor Rate Loan for the applicable Loan Period, the percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including, without limitation, any marginal, special, emergency and supplemental reserves) established by the Board of Governors of the Federal Reserve System for "eurocurrency liabilities" (as defined in Regulation D of such Board), or for other liabilities which include deposits of the type used in determining the Libor Rate, having a term approximately equal to the applicable Loan Period. (g) LOAN PERIOD means: (i) with respect to (a) each Libor Rate Loan, the period commencing on the applicable Borrowing date and ending 15 to 90 days thereafter as specified in the related notice of borrowing pursuant to section 2.2 and (b) each Reference Rate Loan converted to a Libor Rate Loan or in the case of a continuation of a Libor Rate Loan for an additional Loan Period, the period commencing on the date of such conversion or continuation and ending 15 to 90 days thereafter as specified in the related Conversion/Continuation Notice pursuant to section 2.2, provided that: (a) any Loan Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Loan Period shall end on the next preceding Business Day; (b) any Loan Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in a calendar month at the end of such Loan Period) shall, subject to clause (c) below, end on the last Business Day of a calendar month; and (c) any Loan Period which would otherwise end after the maturity date shall end on the maturity date. -3- 9 (ii) with respect to each Reference Rate Loan, the period commencing on the Borrowing Date of such Reference Rate Loan, or in the case of a Libor Rate Loan converted to a Reference Rate Loan, the period commencing on the date of such conversion, and ending on the maturity date. 2. LOANS, COLLATERAL-LOAN RATIO AND SECURITY DOCUMENTS. 2.2 FACILITY ONE. The Bank shall extend to the Borrowers a revolving loan, up to an aggregate maximum amount of $9,750,000.00 at any time outstanding during the period from date hereof to March 31, 1998. The sum of $750,000.00 shall be allocated to issuance of commercial import letters of credit. Within such maximum amounts and subject to the allocated limitations, loans (advances) may be made, repaid and made again. The revolving loan shall be evidenced by the Borrowers' Promissory Note in the form of Exhibit "A-1," the terms of which are incorporated herein by reference. The revolving note shall mature on March 31, 1998. The loan proceeds with respect to Facility One shall be utilized for working capital needs and the issuance of commercial import letters of credit. Facility One loans shall be a Reference Rate Loan or a Libor Rate Loan. Unless the Borrowers request a Libor Rate Loan pursuant to the procedures herein stated, all Facility One loans shall be Reference Rate Loans. The Borrowers shall request Libor Rate Loans by written notice, or by telephonic notice confirmed in writing, to the Bank, not later than 11:00 a.m., Milwaukee time, on the date which is two Business Days prior to the requested Borrowing Date (which must be a Business Day). Each such request by the Borrowers must specify the amount of the requested Libor Rate Loan and the applicable Loan Period. Each Libor Rate Loan shall be in a minimum amount of $500,000.00. In the event of any inconsistency between the telephonic notice and the written confirmation thereof, the written confirmation shall control. Each such request for a Libor Rate Loan shall be irrevocable and shall constitute a certification by the Borrowers that the borrowing conditions specified in section 2.5 will be satisfied on the specified Borrowing Date. The Borrowers may elect from time to time, subject to the terms and conditions hereof, to convert all or a portion of the outstanding Reference Rate Loans to Libor Rate Loans (in each case, in a minimum amount of $500,000.00) or to convert all or a portion of a Libor Rate Loan to a Reference Rate Loan; provided that any conversion of a Libor Rate Loan shall occur on the last day of the applicable Loan Period. A Reference Rate Loan shall continue as a Reference Rate Loan unless and until converted to a Libor Rate Loan. At the end of the applicable Loan Period for a Libor Rate Loan, such Libor Rate Loan shall automatically be converted to a Reference -4- 10 Rate Loan unless the Borrowers shall have given the Bank notice in accordance with this section 2.2 requesting that, at the end of such Loan Period all or a portion of such Libor Rate Loan be continued as a Libor Rate Loan. The Borrowers shall give the Bank irrevocable notice (a "Conversion/Continuation Notice") of each conversion of a Reference Rate Loan or a continuation of a Libor Rate Loan not later than 11:00 a.m., Milwaukee time, on the date of the requested conversion, in the case of a conversion to a Reference Rate Loan, or, in the case of a conversion to or a continuation of a Libor Rate Loan, two Business Days prior to the date of the requested conversion or continuation, specifying (i) the requested date (which shall be a Business Day) of such conversion or continuation, (ii) the amount and type of loan to be converted or continued and (iii) the amount and type of loan into which such loan is to be converted or continued, and in the case of a conversion to or continuation of a Libor Rate Loan, the duration of the Loan Period applicable thereto. Each such request by the Borrowers for a conversion or continuation of a Libor Rate Loan or Reference Rate Loan shall be irrevocable and shall constitute a certification by the Borrowers that the borrowing conditions specified in section 2.5 will be satisfied on the specified conversion or continuation date. Notwithstanding anything to the contrary contained in this section, no loan may be converted into or continued as a Libor Rate Loan when any Event of Default has occurred and is continuing. Libor Rate Loans may not be pre-paid without the Bank's consent prior to the end of the applicable Loan Period. If the Bank determines that the making or maintaining of a Libor Rate Loan would violate any applicable law, rule, regulation or directive, whether or not having the force of law, then the obligation of the Bank to make, continue, maintain or convert any Libor Rate Loan shall be suspended until the Bank notifies the Borrowers that the circumstances causing such suspension no longer exist. During any such period, all Libor Rate Loans shall automatically convert into Reference Rate Loans at the end of the applicable Loan Period or sooner if required by law. If the Bank determines that the Bank is unable to determine the Libor Rate in respect of a requested Loan Period or that the Bank is unable to obtain deposits of Dollars in the London Interbank market in the applicable amounts and for the requested Loan Period, then, upon notice from the Bank to the Borrowers, the obligation of the Bank to make any Libor Rate Loan, or to convert any Reference Rate Loan into a Libor Rate -5- 11 Loan, shall be suspended until the Bank notifies the Borrowers that the circumstances causing such suspension no longer exist. If the Bank shall incur any loss or expense (including any loss or expense incurred by reason of a liquidation or redeployment of deposits or other funds acquired by the Bank to make, continue or maintain any portion of a Libor Rate Loan, or to convert any portion of a Reference Rate Loan into a Libor Rate Loan) as a result of: (i) any conversion or repayment or prepayment of the principal amount of a Libor Rate Loan on a date other than the last day of the Loan Period applicable thereto (whether as a result of acceleration, prepayment or otherwise); (ii) any loan not being made as a Libor Rate Loan in accordance with the request therefor; or (iii) any loan not being continued as, or converted to, a Libor Rate Loan in accordance with the Continuation/Conversion Notice therefor; then, upon written notice from the Bank to the Borrowers, the Borrowers shall, within 10 days of its receipt thereof, pay to the Bank such amount as will (in a reasonable determination of the Bank) reimburse the Bank for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of error, be conclusive and binding on the Borrowers. During such times as the Borrower achieves and maintains a National Association of Insurance Commissioners ("NAIC") II, senior, unsecured, long term debt rating or an equivalent investment grade senior, unsecured, long term debt rating from other rating agencies; and is in full compliance with all of the terms and conditions of this Loan Agreement, the Reference Rate pricing option shall be reduced to Reference Rate less 0.375% and the Libor pricing option shall be reduced to Libor plus 1.375%. 2.3 FACILITY TWO. The Bank shall extend to the Borrowers a term loan in the sum of $6,625,000.00. The term loan shall be evidenced by the Borrowers' Promissory Note in the form of Exhibit "A-2," the terms of which are incorporated herein by reference. 2.4 FACILITY THREE. The Bank has extended to Tufco Industries, Inc. and Executive Converting Corporation certain credit in the form of term loans having a current aggregate outstanding principal balance in the amount of $3,883,348.00, represented by the Promissory Notes annexed hereto in the form of Exhibits "A-3, A-4 and A-5," the terms of which are incorporated herein by reference. The Bank and the Borrowers agree that each Borrower shall be jointly and severally liable for all obligations to the Bank arising under the existing term loan notes represented by the Promissory Notes identified as Exhibits "A-3, A-4 and A-5." By their execution and delivery of this Agreement, each Borrower respectively assumes joint and several liability to the Bank with respect to the Promissory Notes identified as Exhibits "A-3, A-4 and A-5." -6- 12 5. NEGATIVE COVENANTS. 5.8 CAPITAL EXPENDITURES. The Borrowers and the Guarantor shall not make or commit to make, directly or indirectly, any expenditure for the purchase or other acquisition, including but not limited to capitalized leases, of fixed or capital assets, excluding normal replacements and maintenance which are properly charged to current operations; those assets acquired from Hamco, Inc.; and leases with Banc One Corporation or its subsidiaries or affiliates; if after giving effect thereto, the aggregate amount of all such capital expenditures by the Borrowers and the Guarantor would exceed the sum of the Borrowers' depreciation expense plus $100,000.00 during any fiscal year of the Borrowers. 5.9 INDEBTEDNESS. The Borrowers and the Guarantor will not incur, create, assume or permit to exist any indebtedness except: (a) the obligations arising hereunder; (b) trade indebtedness incurred in the ordinary course of business; (c) indebtedness secured by the Permitted Liens; (d) obligations incurred with Banc One Corporation or its subsidiaries or affiliates; (e) other indebtedness with the permission of the Bank; and (f) obligations incurred with respect to the acquisition of assets of Hamco, Inc. in accordance with the Agreement of Sale. Except as herein modified and amended, the parties ratify the terms of the Loan Agreement as originally stated. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written. BANK ONE, GREEN BAY 200 South Adams Street P.O. Box 19029 Green Bay, WI 54307-9029 By: /s/ MARK J. FISCHER --------------------------------------- Mark J. Fischer Title: Assistant Vice President TUFCO INDUSTRIES INC. 3161 South Ridge Road P.O. Box 23500 Green Bay, WI 54305-3500 By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer -7- 13 EXECUTIVE CONVERTING CORPORATION 4750 Simonton Dallas, TX 75244 By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer HAMCO INDUSTRIES, INC. 1205 Burris Road Newton, NC 28658 By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer TUFCO TECHNOLOGIES INC. 3161 South Ridge Road P.O. Box 23500 Green Bay, WI 54305-3500 By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer -8- 14 Tufco Industries, Inc., $9,750,000.00 Executive Converting Corporation and Hamco Industries, Inc. (Maker) February 1, 1996 MASTER DRAW NOTE The undersigned ("Maker," whether one or more) promises to pay to the order of Bank One, Green Bay ("Bank") at its office, the principal amount of Nine Million Seven Hundred Fifty Thousand Dollars ($9,750,000.00) or such lesser amount as may be outstanding hereunder, as shown on the records of the Bank, in one payment on March 31, 1998, PLUS interest as described below, payable monthly commencing February 29, 1996 and on the last day of each consecutive month thereafter and at maturity. This is a revolving master draw note under which amounts may be borrowed, repaid and borrowed again. The maximum aggregate availability under this Note shall not exceed the sum of Nine Million Seven Hundred Fifty Thousand Dollars ($9,750,000.00) reduced by the Letter of Credit sublimit availability in use from time to time as specified in the Loan Agreement. During the term of this Note, the Maker shall pay the Bank such sums as may be necessary from time to time to comply with the credit availability limits as specified in the Loan Agreement. The Maker agrees that the Bank's internal records shall be conclusive evidence of the amounts outstanding. This Note bears interest computed for the actual number of days principal is unpaid, on a 360-day year basis, until maturity. The unpaid balance and accrued interest shall bear interest after maturity at 1.00 percentage point in excess of the Reference Rate in effect from time to time or the rate of 15.00% per year, whichever is higher, until paid. A Reference Rate Loan shall bear interest on a 360-day year basis at the rate which is 0.25% less than the rate of interest EXHIBIT A-1 15 announced by the Bank from time to time as its Reference Rate for interest rate determinations ("Reference Rate") and the rate shall change as and when the Reference Rate changes. The Reference Rate may or may not be the lowest interest rate charged by the Bank. A Libor Rate Loan shall bear interest on a 360-day year basis, at the rate which is 1.50 percentage points in excess of the Adjusted Libor Rate for the selected Loan Period determined two business days prior to the making of the Libor Rate Loan. Libor Rate Loans shall be in a minimum amount of $500,000.00. The applicable interest rate shall be subject to adjustment as provided in subsection 2.2 of the Loan Agreement. There shall be no prepayment of Libor Rate Loans without the Bank's permission. Upon maturity of any Libor Rate Loan, the same shall be repaid or if availability permits, re-advanced by the Bank as a Reference Rate Loan unless the Borrower submits a Libor Rate Loan request pursuant to the Loan Agreement. If any payment is not paid when due, or upon the occurrence of an event of default under the Loan Agreement herein described, the unpaid balance shall, at the option of the holder and without notice, mature and immediately become due and payable. The unpaid balance shall mature automatically and immediately become due and payable in the event any Maker or guarantor becomes the subject of bankruptcy or other insolvency proceedings. This Note is issued and secured pursuant to a Loan Agreement dated as of August 22, 1995 between the Maker and the Bank, as amended. This Note is further secured by all existing and future Security Agreements, Assignments, Collateral Pledge Agreements and Mortgages between the Bank and any Maker, and/or the Bank and -2- 16 any guarantor of this Note, and payment may be accelerated upon default under any of them. The Maker grants the holder a security interest and lien in any credit balance or other money now or hereafter owed any Maker by holder, except for money held in qualified retirement accounts, and, in addition, agrees that holder may at any time after an occurrence of an event of default, without notice or demand, set off against such credit balance or other money any amount unpaid under the Note. Without affecting the liability of any Maker or guarantor, the holder may, without notice, renew or extend the time for payment, accept partial payments, release or impair any collateral security for the payment of this Note or agree not to sue any party liable on it. The Maker and guarantor agree to pay all costs of collection, including reasonable attorney fees, and waive presentment, protest, demand and notice of dishonor. The Bank has not made any representations or warranties with respect to, and does not assume any responsibility for, the collectibility or enforceability of this Note or any collateral securing this Note or the financial condition of any Maker. Each Maker and guarantor has independently determined the collectibility and enforceability of this Note and any collateral securing this Note and has made an independent appraisal of each Maker's credit worthiness. This Note shall be construed and enforced in accordance with the laws of the State of Wisconsin. TUFCO INDUSTRIES INC. (SEAL) By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer -3- 17 EXECUTIVE CONVERTING CORPORATION (SEAL) By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer HAMCO INDUSTRIES, INC. (SEAL) By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer -4- 18 Tufco Industries, Inc., $6,625,000.00 Executive Converting Corporation and Hamco Industries, Inc. (Maker) February 1, 1996 TERM NOTE The undersigned ("Maker," whether one or more) promises to pay to the order of Bank One, Green Bay ("Bank") at its office, the principal amount of Six Million Five Hundred Sixty-Two Thousand Five Hundred Dollars ($6,562,500.00), PLUS interest as described below. Principal and interest is payable monthly commencing February 29, 1996 and on the last day of each consecutive month thereafter and at maturity. Monthly principal payments shall be made in the following amounts: payments 1 through 6, $62,500.00 each; payments 7 through 18, $75,000.00 each; payments 19 through 30, $83,333.33 each; payments 31 through 54, $91,666.66 each; payments 55 through 65, $95,833.33 each; and payment 66, $95,833.57. The Maker is in the process of securing deferral of certain principal payments due May 1, 1996, May 1, 1997, May 1, 1998 and May 1, 1999 with respect to a certain industrial development revenue bond with the Village of Ashwaubenon, Brown County, Wisconsin, dated as of May 6, 1992, series 1992, known as the Tufco Project ("IDRB"). In the event no deferral is obtained with respect to the IDRB payments above specified, an additional principal payment shall be made on this Note in the sum of $1,000,000.00 on April 29, 1999. In the event a deferral of all of the above specified IDRB payments are obtained, an additional principal payment in the amount of $41,666.66 shall be payable April 19, 1996 and additional monthly principal payments in the amount of $20,833.33 each shall be payable monthly commencing April 30, 1996 and continuing on the last date of each consecutive month EXHIBIT A-2 19 thereafter for forty-five consecutive months, together with an additional principal payment of $20,833.50 due on January 31, 2000. In the event a deferral is not obtained with respect to the IDRB payment due May 1, 1996 and a deferral is obtained for the IDRB payments due May 1, 1997, May 1, 1998, May 1, 1999 and May 1, 2000, a principal payment in the amount of $62,500.00 shall be payable May 15, 1996, and additional monthly principal payments in the amount of $20,833.33 each shall be payable monthly commencing May 31, 1996 and continuing on the last day of each consecutive month thereafter for forty-four consecutive months, together with an additional principal payment of $20,833.50 due on January 31, 2000. This Note bears interest computed for the actual number of days principal is unpaid, on a 360-day year basis, until maturity, at the rate of 7.03% per year until January 31, 2000. On or before January 31, 2000, the Maker and the Bank shall in good faith agree to a rate of interest for the remaining term of this obligation. The unpaid balance and accrued interest shall bear interest after maturity at the rate of 15.00% per year. If any payment is not paid when due, or upon the occurrence of an event of default under the Loan Agreement herein described, the unpaid balance shall, at the option of the holder and without notice, mature and immediately become due and payable. The unpaid balance shall mature automatically and immediately become due and payable in the event any Maker or guarantor becomes the subject of bankruptcy or other insolvency proceedings. This Note is issued and secured pursuant to a Loan Agreement dated as of August 22, 1995 between the Maker and the Bank. This Note is further secured by all existing and future Security Agreements, Assignments, Collateral Pledge Agreements and -2- 20 Mortgages between the Bank and any Maker, and/or the Bank and any guarantor of this Note, and payment may be accelerated upon default under any of them. The Maker grants the holder a security interest and lien in any credit balance or other money now or hereafter owed any Maker by holder, except for money held in qualified retirement accounts, and, in addition, agrees that holder may at any time after an occurrence of an event of default, without notice or demand, set off against such credit balance or other money any amount unpaid under the Note. Without affecting the liability of any Maker or guarantor, the holder may, without notice, renew or extend the time for payment, accept partial payments, release or impair any collateral security for the payment of this Note or agree not to sue any party liable on it. The Maker and guarantor agree to pay all costs of collection, including reasonable attorney fees, and waive presentment, protest, demand and notice of dishonor. This Note may be prepaid in full or in part at any time. In the event of any prepayment, the Maker shall pay the holder a prepayment premium penalty in the amount specified in subsection 1.19 of the Loan Agreement. Holder may apply partial prepayments to any future installments it elects. The Bank has not made any representations or warranties with respect to, and does not assume any responsibility for, the collectibility or enforceability of this Note or any collateral securing this Note or the financial condition of any Maker. Each Maker and guarantor has independently determined the collectibility and enforceability of this Note and any collateral securing this Note and has made an independent appraisal of each Maker's -3- 21 credit worthiness. This Note shall be construed and enforced in accordance with the laws of the State of Wisconsin. TUFCO INDUSTRIES INC. (SEAL) By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer EXECUTIVE CONVERTING CORPORATION (SEAL) By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer HAMCO INDUSTRIES, INC. (SEAL) By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer -4- 22 [BANK ONE LOGO] NOTE - ------------------------------------------------------------------------------- (Use only for business purpose loans, or for consumer loans in excess of $25,000.) Tufco Industries, Inc. & Executive Converting Corporation March 30, 1994 $2,800,000.00 - ----------------------------------- ---------- -- ------------------ (MAKER) The undersigned ("Maker," whether one or more) promises to pay to the order of Bank One, Green Bay ("Bank") at its office, the principal amount of Two Million Eight Hundred Thousand and 00/100 Dollars: [check (a), (b), (c), or (d); only one shall apply] [ ] (a) in one payment on _________________________ PLUS interest as described below, payable on the following date(s): ________________________________________________________________________________ [ ] (b) in _________________ equal installments of $___________________ payable ________________________, 19___, and on the same day of each _____________ month thereafter. All payments include principal and interest as described below. [ ] (c) in _________________ equal installments of $___________________ payable ________________________, 19___, and on the same day of each _____________ month thereafter, PLUS a final installment consisting of the unpaid balance, due on _________________, 19___. All installments include principal and interest as described below. [x] (d) in 61 ** equal installments of principal of $41,666.00 payable April 30, 1994, and on the same day of each successive month thereafter, PLUS a final payment of unpaid principal due on May 30, 1999, PLUS interest as described below payable on the principal payment dates. The obligation evidenced by this Note bears interest computed for the actual number of days principal is unpaid, on a 360-day year basis, [check (e), (f), or (g); only one shall apply] [ ] (e) until maturity, at the rate which is _____ percentage points in excess of the rate of interest announced by the Bank from time to time as its reference rate for interest rate determinations (the "Reference Rate") and the rate shall change when and as the Reference Rate changes. The Reference Rate may or may not be the lowest interest rate charged by the Bank. The unpaid balance and accrued interest shall bear interest after maturity at ____ percentage points in excess of the Reference Rate in effect from time to time or the rate of ____% per year, whichever is higher, until paid. [ ] (f) until maturity, at the rate which is ____ percentage points in excess of the rate of interest announced by the Bank from time to time as its reference rate for interest rate determinations (the "Reference Rate") and the rate shall change on the ____day of every ____ month, beginning ______, 19____. The Reference Rate may or may not be the lowest interest rate charged by the Bank. The unpaid balance and accrued interest shall bear interest after maturity at ____ percentage points in excess of the Reference Rate in effect from time to time or the rate of ____% per year, whichever is higher, until paid. [X] (g) until maturity, at the rate of 7.23 % per year. The unpaid balance and accrued interest shall bear interest after maturity at the rate of 15.0 % per year, until paid. If any payment is not paid when due, or if holder deems itself insecure, the unpaid balance shall, at the option of the holder and without notice, mature and immediately become due and payable. The unpaid balance shall mature automatically and immediately become due and payable in the event any Maker, surety, indorser or guarantor becomes the subject of bankruptcy or other insolvency proceedings. Unless indicated below, this Note is secured by all existing and future security agreements, assignments and mortgages between the Bank and Maker, and/or the Bank and any indorser or guarantor of this Note, and payment may be accelerated upon default under any of them. The Maker grants the holder a security interest and lien in any credit balance or other money now or hereafter owned any Maker by holder, except for money held in qualified retirement accounts, and, in addition, agrees that holder may at any time after an occurrence or an event of default, without notice or demand, set off against such credit balance or other money any amount unpaid under this Note. [ ] Unless checked here, this Note is not secured by a first lien mortgage or equivalent security interest on a one-to-four family dwelling used as Maker's principal place of residence. Without affecting the liability of any Maker, indorser, surety or guarantor, the holder may without notice, renew or extend the time for payment, accept partial payments, release or impair any collateral security for the payment of this Note or agree not to sue any party liable on it. All Makers, indorsers, sureties and guarantors agree to pay all costs of collection, including reasonable attorneys' fees, and waive presentment, protest, demand, and notice of dishonor. This Note may be prepaid in full or in part [check one] [X] at any time without penalty or, [ ] upon the following conditions ______________________ ** Interest monthly beginning April 30, 1994 and each successive month thereafter - -------------------------------------------------------------------------------- Holder may apply partial prepayments to any future installments it elects. The Bank has not made any representations or warranties with respect to, and does not assume any responsibility for, the collectability or enforceability of this Note or any collateral securing this Note or the financial condition of any Maker. Each Maker has independently determined the collectability and enforceability of this Note and any collateral securing this Note and has made an independent appraisal of each Maker's creditworthiness. This Note shall be construed and enforced in accordance with the laws of the State of Wisconsin. Executive Converting Corporation /s/ SAMUEL J. BERO (SEAL) - ----------------------------------------- Samuel J. Bero - Chief Executive Officer /s/ THOMAS B. GILLING (SEAL) - ----------------------------------------- Thomas B. Gilling - Sec./Treas. 4750 Simonton, Dallas, TX 74224 - ----------------------------------------- (Address) MJF/bre - ------------------- (LOAN OFFICER) New Note Tufco Industries, Inc. - ----------------------------------------- (Name of Maker) /s/ SAMUEL J. BERO (SEAL) - ----------------------------------------- Samuel J. Bero - President /s/ THOMAS B. GILLING (SEAL) - ----------------------------------------- Thomas B. Gilling - Sec./Treas. - ----------------------------------------- (Address) 3161 S. Ridge Rd., Green Bay, WI 54304 - ----------------------------------------- Prepared and intended for use by commercial banks in transactions governed by Wisconsin law. Use with 360 day calculator or rate book. A consumer purpose loan secured by real property or by personal property used or expected to be used as a principal dwelling must be accompanied by a W.B.A. (TL) disclosure statement, and a W.B.A. (TL)3 rescission notice may be required. If credit life or accident and sickness insurance is requested, a WBA 450 may be required. If this Note is secured by Maker's principal place of residence, secs. 138.052 and 138.056, Wis. Stats may apply. EXHIBIT A-3 23 BUSINESS NOTE (Use only for business purpose loans or consumer loans in excess of $25,000.) Tufco Industries, Inc. JULY 1, 1993 $ 1,100,000.00 - -------------------------------------- ----------------------- ------------- (MAKER) (DATE) The undersigned ("Maker," whether one or more) promises to pay to the order of Bank One, Green Bay ("Lender") at 200 S. Adams Street, Green Bay, Wisconsin, the principal sum of $1,100,000.00 : [Check (a), (b), (c) or (d); only one shall apply.] [ ] (a) in one payment on n/a ----------------------. [ ] (b) in n/a equal installments of $ n/a due on n/a , and on [ ] the same day(s) of each n/a month thereafter [ ] every 7th day thereafter [ ] every 14th day thereafter, PLUS a final payment of the unpaid balance and accrued interest due on n/a , all subject to modification as set forth in (f) below, if applicable. All payments include principal and interest. [X] (c) in 12 equal installments of principal of $ 50,000.00 due on AUGUST 1, 1995, and on [X] the same day(s) of each succeeding month thereafter [ ] every 7th day thereafter [ ] every 14th day thereafter, PLUS a final payment of the unpaid principal due on JULY 2, 1996, PLUS interest payable as set forth below. [ ] (d) n/a ---------------------------------------------------------------------- . -------------------------------------------------------------------------- If the amount of interest is not shown on line 4 below, this Note bears interest on the unpaid principal balance before maturity: [Check (e) or (f) or complete line 4 below; only one shall apply.] [X] (e) At the rate of 6.430% per year. [ ] (f) At the annual rate which is equal to the following Index Rate, plus n/a percentage points ("Note Rate"), and the Note Rate shall be adjusted as provided below. The Index Rate is: [ ] The prime rate [ ] The reference rate [ ] The base rate adopted by [ ] the Lender [ ] n/a n/a from time to time as its base or reference rate for interest rate determinations. The Index Rate may or may not be the lowest rate charged by Lender. [ ] n/a ---------------------------------------------------------------------- . ---------------------------------------------------------------------- The Initial Note rate is n/a %. An adjustment in the Note Rate may cause a change in the amount of each payment of interest and a change in the amount due at maturity. In addition, Lender is authorized to change the amount of periodic payments if and to the extent necessary to pay in full all accrued interest owing on this Note. The Maker agrees to pay any resulting payments or amounts. The Note Rate shall be adjusted only on the following change dates: [ ] the first day of each month. [ ] each scheduled payment date. [ ] as and when the Index Rate changes. [ ] n/a . Interest is computed for the actual number of days principal is unpaid on the basis of [X] a 360 day year [ ] a 365 day year. Interest is payable on AUGUST 1, 1993, and on [X] the same day of each succeeding month thereafter, [ ] every 7th day thereafter, [ ] every 14th day thereafter, and at maturity, or, if box (b) or (d) is checked, at the times so indicated. If any payment (other than the final payment) is not made on or before the 15 day after its due date, Lender may collect a delinquency charge of 5.00% of the unpaid amount. Unpaid principal and interest bear interest after maturity until paid (whether by acceleration or lapse of time) at the rate [ ] which would otherwise be applicable plus n/a percentage points [X] of 15.000% per year, computed on the same basis. [ ] Unless checked here, this Note is NOT secured by a first lien mortgage or equivalent security interest on a one-to-four family dwelling used as a Maker's principal place of residence. Full or partial prepayment of this Note [X] is permitted at any time without penalty [ ]* n/a ================================================================================ Lender may apply prepayments, if permitted, to such future installments as it elects. The obligations under this Note of all Makers are joint and several. SEE IMPORTANT DISCLOSURES ON REVERSE SIDE. THIS NOTE INCLUDES ADDITIONAL PROVISIONS ON REVERSE SIDE. Inapplicable unless filled in (use for add-on loans only). 1. Loan Proceeds $ ---------- 2. Cr. Life Ins. Charge ---------- 3. Cr. A & S Ins. Charge ---------- 4. Interest (Add-on) ---------- 5. ---------- 6. Face Amount Of Note $ ========== Tufco Industries, Inc. (SEAL) - ------------------------------------- BY /s/ SAMUEL J. BERO (SEAL) ----------------------------------- Samuel J. Bero Exec. Vice President BY /s/ PATRICK J. GARLAND (SEAL) ----------------------------------- Patrick J. Garland President (SEAL) - ------------------------------------- (SEAL) - ------------------------------------- 3161 S. Ridge Rd. - ------------------------------------------- Green Bay, WI 54304 - ------------------------------------------- (ADDRESS) (PHONE) ================================================================================ FOR LENDER CLERICAL USE ONLY Prin. $ ----------- Int. ----------- ----------- Due at Maturity New Note MJF/bre /s/ [ILLEGIBLE] =========== ------------------------- LOAN OFFICER EXHIBIT A-4 *If checked, Insert applicable prepayment restrictions and penalties. If credit life or accident and sickness Insurance is requested, a WBA 450 may be required. If a consumer loan in excess of $25,000 is secured by real property or dwelling, Truth-in-Lending will be applicable. If this Note is secured by Maker's principle place of residence, secs. 138.052 and 138.056, Wis. Stats., may apply. 24 BUSINESS NOTE (Use only for business purpose loans or consumer loans in excess of $25,000.) Tufco Industries, Inc. JULY 1, 1993 $ 1,200,000.00 - -------------------------------------- ----------------------- ------------- (MAKER) (DATE) The undersigned ("Maker," whether one or more) promises to pay to the order of Bank One, Green Bay ("Lender") at 200 S. Adams Street, Green Bay , Wisconsin, the principal sum of $1,200,000.00: [Check (a), (b), (c) or (d); only one shall apply.] [ ] (a) in one payment on n/a ----------------------. [ ] (b) in n/a equal installments of $ n/a due on n/a , and on [ ] the same day(s) of each n/a month thereafter [ ] every 7th day thereafter [ ] every 14th day thereafter, PLUS a final payment of the unpaid balance and accrued interest due on n/a , all subject to modification as set forth in (f) below, if applicable. All payments include principal and interest. [X] (c) in 2 equal installments of principal of $ 50,000.00 due on JUNE 1, 1997 , and on [X] the same day(s) of each succeeding month thereafter [ ] every 7th day thereafter [ ] every 14th day thereafter, PLUS a final payment of the unpaid principal due on JULY 2, 1997, PLUS interest payable as set forth below. [X] (d) n/a -------------------------------------------------------------------------- . -------------------------------------------------------------------------- If the amount of interest is not shown on line 4 below, this Note bears interest on the unpaid principal balance before maturity: [Check (e) of (f) or complete line 4 below; only one shall apply.] [X] (e) At the rate of 6.750 % per year. [ ] (f) At the annual rate which is equal to the following Index Rate, plus n/a percentage points ("Note Rate"), and the Note Rate shall be adjusted as provided below. The Index Rate is: [ ] The prime rate [ ] The reference rate [ ] The base rate adopted by [ ] the Lender [ ] n/a n/a from time to time as its base or reference rate for interest rate determinations. The Index Rate may or may not be the lowest rate charged by Lender. [ ] n/a ---------------------------------------------------------------------- . ---------------------------------------------------------------------- The Initial Note rate is n/a %. An adjustment in the Note Rate may cause a change in the amount of each payment of interest and a change in the amount due at maturity. In addition, Lender is authorized to change the amount of periodic payments if and to the extent necessary to pay in full all accrued interest owing on this Note. The Maker agrees to pay any resulting payments or amounts. The Note Rate shall be adjusted only on the following change dates: [ ] the first day of each month. [ ] each scheduled payment date. [ ] as and when the Index Rate changes. [ ] n/a . Interest is computed for the actual number of days principal is unpaid on the basis of [X] a 360 day year [ ] a 365 day year. Interest is payable on AUGUST 1, 1993 , and on [X] the same day of each succeeding month thereafter, [ ] every 7th day thereafter, [ ] every 14th day thereafter, and at maturity, or, if box (b) or (d) is checked, at the times so indicated. If any payment (other than the final payment) is not made on or before the 15 day after its due date, Lender may collect a delinquency charge of 5.00 % of the unpaid amount. Unpaid principal and interest bear interest after maturity until paid (whether by acceleration or lapse of time) at the rate [ ] which would otherwise be applicable plus n/a percentage points [X] of 15.000 % per year, computed on the same basis. [ ] Unless checked here, this Note is NOT secured by a first lien mortgage or equivalent security interest on a one-to-four family dwelling used as a Maker's principal place of residence. Full or partial prepayment of this Note [X] is permitted at any time without penalty [ ]* n/a ================================================================================ Lender may apply prepayments, if permitted, to such future installments as it elects. The obligations under this Note of all Makers are joint and several. SEE IMPORTANT DISCLOSURES ON REVERSE SIDE. THIS NOTE INCLUDES ADDITIONAL PROVISIONS ON REVERSE SIDE. Inapplicable unless filled in (use for add-on loans only). 1. Loan Proceeds $ ---------- 2. Cr. Life Ins. Charge ---------- 3. Cr. A & S Ins. Charge ---------- 4. Interest (Add-on) ---------- 5. ---------- 6. Face Amount Of Note $ ========== Tufco Industries, Inc. (SEAL) - ------------------------------------- BY /s/ SAMUEL J. BERO (SEAL) ----------------------------------- Samuel J. Bero Exec. Vice President BY /s/ PATRICK J. GARLAND (SEAL) ----------------------------------- Patrick J. Garland President (SEAL) - ------------------------------------- (SEAL) - ------------------------------------- 3161 S. Ridge Rd. - ------------------------------------------- Green Bay, WI 54304 - ------------------------------------------- (ADDRESS) (PHONE) ================================================================================ FOR LENDER CLERICAL USE ONLY Prin. $ ----------- Int. ----------- ----------- Due at Maturity New Note MJF/bre /s/ [ILLEGIBLE] =========== ------------------------- LOAN OFFICER EXHIBIT A-5 *If checked, insert applicable prepayment restrictions and penalties. If credit life or accident and sickness Insurance is requested, a WBA 450 may be required. If a consumer loan in excess of $25,000 is secured by real property or dwelling, Truth-in-Lending will be applicable. If this Note is secured by Maker's principle place of residence, secs. 138.052 and 138.056, Wis. Stats., may apply. 25 PERMITTED LIENS Mortgage and Security Interests collateralizing obligations incurred with Banc One Corporation or its subsidiaries or affiliates. Mortgage and Security Agreement in favor of Bank One, Milwaukee National Association recorded in J18467 I34 Doc. #1288579, Brown County, Wisconsin. Financing Statement in favor of Bank One, Milwaukee National Association filed as Doc. #638128, Brown County, Wisconsin. Mortgages and Financing Statements in favor of Bank One, Green Bay. Mortgage in favor of The Bank of Clarendon recorded in Mortgage Book 165, page 293, Clarendon County, S.C. Mortgage in favor of The Bank of Clarendon recorded in Mortgage Book 177, page 273, Clarendon County, S.C. Financing Statements filed with Texas Secretary of State identified as:
Secured Party Dated Filed File No. - ------------- ----------- -------- Foothill Bank 6/29/92 92-129024 The Chase Manhattan Bank, NA 7/22/92 92-145465 Caterpillar Financial Services Corp. 4/9/93 93-069768 Caterpillar Financial Services Corp. 9/l/93 93-171044 Caterpillar Financial Services Corp. 10/18/93 93-201087 Caterpillar Financial Services Corp. 2/10/94 94-026341 Caterpillar Financial Services Corp. 3/30/94 94-060337 Caterpillar Financial Services Corp. 10/3/94 94-071760 Caterpillar Financial Services Corp. 10/3/94 94-094424 Caterpillar Financial Services Corp. 1/23/95 95-014874 Caterpillar Financial Services Corp. 1/23/95 95-014875 Caterpillar Financial Services Corp. 1/23/95 95-014876 Georgia Pacific Corporation 11/16/93 93-220010 Darr Equipment Company 4/4/94 94-062679 Darr Equipment Company 2/8/93 93-026333 International Paper Company 5/22/95 95-102410
EXHIBIT B 26 Financing Statements filed with Wisconsin Secretary of State identified as:
Secured Party Dated Filed File No. - ------------- ----------- -------- Bank One, Milwaukee NA 3/3/86 07500833416 Bank One, Milwaukee NA 5/7/92 07501277443 Bank One, Milwaukee NA 5/8/92 00500638128
Financing Statements filed with South Carolina Secretary of State identified as:
Secured Party Dated Filed File No. - ------------- ----------- -------- Bank One, Milwaukee, NA 5/11/92 92-022382
EXHIBIT B 27 LIBOR BORROWING CONFIRMATION Shown below is a confirmation of a LIBOR request received by Bank One, Green Bay. If we can be of any further assistance please do not hesitate to call Mark J. Fischer (414-436-2506) or Maureen VanRoy (414-2644) at your convenience. Company: Tufco Technologies, Inc. Requester: Greg Wileman Effective Date: 5/01/96 Amount: $2,750,000 Term: 90 days Maturity: 7/7/30/96 Rate: 6.98% - -------------------------------------------------------------------------------- To: Greg Wileman From: Mark Fischer Company: Tufco Technologies, Inc. Company: Bank One, Green Bay Direct Dial: 1-800-992-0997 Direct Dial: (414) 436-2506 Fax #: (214) 387-0516 Fax #: (414) 436-2523 28 Tufco Industries, Inc., $6,625,000.00 Executive Converting Corporation and Hamco Industries, Inc. (Maker) February 1, 1996 TERM NOTE The undersigned ("Maker," whether one or more) promises to pay to the order of Bank One, Green Bay ("Bank") at its office, the principal amount of Six Million Five Hundred Sixty-Two Thousand Five Hundred Dollars ($6,625,000.00), PLUS interest as described below. Principal and interest is payable monthly commencing February 29, 1996 and on the last day of each consecutive month thereafter and at maturity. Monthly principal payments shall be made in the following amounts: payments 1 through 6, $62,500.00 each; payments 7 through 18, $75,000.00 each; payments 19 through 30, $83,333.33 each; payments 31 through 54, $91,666.66 each; payments 55 through 65, $95,833.33 each; and payment 66, $95,833.57. The Maker is in the process of securing deferral of certain principal payments due May 1, 1996, May 1, 1997, May 1, 1998 and May 1, 1999 with respect to a certain industrial development revenue bond with the Village of Ashwaubenon, Brown County, Wisconsin, dated as of May 6, 1992, series 1992, known as the Tufco Project ("IDRB"). In the event no deferral is obtained with respect to the IDRB payments above-specified, an additional principal payment shall be made on this Note in the sum of $1,000,000.00 on April 29, 1999. In the event a deferral of all of the above specified IDRB payments are obtained, an additional principal payment in the amount of $41,666.66 shall be payable April 19, 1996 and additional monthly principal payments in the amount of $20,833.33 each shall be payable monthly commencing April 30, 1996 and continuing on the last date of each consecutive month 29 thereafter for forty-five consecutive months, together with an additional principal payment of $20,833.50 due on January 31, 2000. In the event a deferral is not obtained with respect to the IDRB payment due May 1, 1996 and a deferral is obtained for the IDRB payments due May 1, 1997, May 1, 1998, May 1, 1999 and May 1, 2000, a principal payment in the amount of $62,500.00 shall be payable May 15, 1996, and additional monthly principal payments in the amount of $20,833.33 each shall be payable monthly commencing May 31, 1996 and continuing on the last day of each consecutive month thereafter for forty-four consecutive months, together with an additional principal payment of $20,833.50 due on January 31, 2000. This Note bears interest computed for the actual number of days principal is unpaid, on a 360-day year basis, until maturity, at the rate of 7.03% per year until January 31, 2000. On or before January 31, 2000, the Maker and the Bank shall in good faith agree to a rate of interest for the remaining term of this obligation. The unpaid balance and accrued interest shall bear interest after maturity at the rate of 15.00% per year. If any payment is not paid when due, or upon the occurrence of an event of default under the Loan Agreement herein described, the unpaid balance shall, at the option of the holder and without notice, mature and immediately become due and payable. The unpaid balance shall mature automatically and immediately become due and payable in the event any Maker or guarantor becomes the subject of bankruptcy or other insolvency proceedings. This Note is issued and secured pursuant to a Loan Agreement dated as of August 22, 1995 between the Maker and the Bank. This Note is further secured by all existing and future Security Agreements, Assignments, Collateral Pledge Agreements and -2- 30 Mortgages between the Bank and any Maker, and/or the Bank and any guarantor of this Note, and payment may be accelerated upon default under any of them. The Maker grants the holder a security interest and lien in any credit balance or other money now or hereafter owed any Maker by holder, except for money held in qualified retirement accounts, and, in addition, agrees that holder may at any time after an occurrence of an event of default, without notice or demand, set off against such credit balance or other money any amount unpaid under the Note. Without affecting the liability of any Maker or guarantor, the holder may, without notice, renew or extend the time for payment, accept partial payments, release or impair any collateral security for the payment of this Note or agree not to sue any party liable on it. The Maker and guarantor agree to pay all costs of collection, including reasonable attorney fees, and waive presentment, protest, demand and notice of dishonor. This Note may be prepaid in full or in part at any time. In the event of any prepayment, the Maker shall pay the holder a prepayment premium penalty in the amount specified in subsection 1.19 of the Loan Agreement. Holder may apply partial prepayments to any future installments it elects. The Bank has not made any representations or warranties with respect to, and does not assume any responsibility for, the collectibility or enforceability of this Note or any collateral securing this Note or the financial condition of any Maker. Each Maker and guarantor has independently determined the collectibility and enforceability of this Note and any collateral securing this Note and has made an independent appraisal of each Maker's -3- 31 credit worthiness. This Note shall be construed and enforced in accordance with the laws of the State of Wisconsin. TUFCO INDUSTRIES INC. (SEAL) By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer EXECUTIVE CONVERTING CORPORATION (SEAL) By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer HAMCO INDUSTRIES, INC. (SEAL) By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer -4- 32 Tufco Industries, Inc., $9,750,000.00 Executive Converting Corporation and Hamco Industries, Inc. (Maker) February 1, 1996 MASTER DRAW NOTE The undersigned ("Maker," whether one or more) promises to pay to the order of Bank One, Green Bay ("Bank") at its office, the principal amount of Nine Million Seven Hundred Fifty Thousand Dollars ($9,750,000.00) or such lesser amount as may be outstanding hereunder, as shown on the records of the Bank, in one payment on March 31, 1998, PLUS interest as described below, payable monthly commencing February 29, 1996 and on the last day of each consecutive month thereafter and at maturity. This is a revolving master draw note under which amounts may be borrowed, repaid and borrowed again. The maximum aggregate availability under this Note shall not exceed the sum of Nine Million Seven Hundred Fifty Thousand Dollars ($9,750,000.00) reduced by the Letter of Credit sublimit availability in use from time to time as specified in the Loan Agreement. During the term of this Note, the Maker shall pay the Bank such sums as may be necessary from time to time to comply with the credit availability limits as specified in the Loan Agreement. The Maker agrees that the Bank's internal records shall be conclusive evidence of the amounts outstanding. This Note bears interest computed for the actual number of days principal is unpaid, on a 360-day year basis, until maturity. The unpaid balance and accrued interest shall bear interest after maturity at 1.00 percentage point in excess of the Reference Rate in effect from time to time or the rate of 15.00% per year, whichever is higher, until paid. A Reference Rate Loan shall bear interest on a 360-day year basis at the rate which is 0.25% less than the rate of interest 33 announced by the Bank from time to time as its Reference Rate for interest rate determinations ("Reference Rate") and the rate shall change as and when the Reference Rate changes. The Reference Rate may or may not be the lowest interest rate charged by the Bank. A Libor Rate Loan shall bear interest on a 360-day year basis, at the rate which is 1.50 percentage points in excess of the Adjusted Libor Rate for the selected Loan Period determined two business days prior to the making of the Libor Rate Loan. Libor Rate Loans shall be in a minimum amount of $500,000.00. The applicable interest rate shall be subject to adjustment as provided in subsection 2.2 of the Loan Agreement. There shall be no prepayment of Libor Rate Loans without the Bank's permission. Upon maturity of any Libor Rate Loan, the same shall be repaid or if availability permits, re-advanced by the Bank as a Reference Rate Loan unless the Borrower submits a Libor Rate Loan request pursuant to the Loan Agreement. If any payment is not paid when due, or upon the occurrence of an event of default under the Loan Agreement herein described, the unpaid balance shall, at the option of the holder and without notice, mature and immediately become due and payable. The unpaid balance shall mature automatically and immediately become due and payable in the event any Maker or guarantor becomes the subject of bankruptcy or other insolvency proceedings. This Note is issued and secured pursuant to a Loan Agreement dated as of August 22, 1995 between the Maker and the Bank, as amended. This Note is further secured by all existing and future Security Agreements, Assignments, Collateral Pledge Agreements and Mortgages between the Bank and any Maker, and/or the Bank and -2- 34 any guarantor of this Note, and payment may be accelerated upon default under any of them. The Maker grants the holder a security interest and lien in any credit balance or other money now or hereafter owed any Maker by holder, except for money held in qualified retirement accounts, and, in addition, agrees that holder may at any time after an occurrence of an event of default, without notice or demand, set off against such credit balance or other money any amount unpaid under the Note. Without affecting the liability of any Maker or guarantor, the holder may, without notice, renew or extend the time for payment, accept partial payments, release or impair any collateral security for the payment of this Note or agree not to sue any party liable on it. The Maker and guarantor agree to pay all costs of collection, including reasonable attorney fees, and waive presentment, protest, demand and notice of dishonor. The Bank has not made any representations or warranties with respect to, and does not assume any responsibility for, the collectibility or enforceability of this Note or any collateral securing this Note or the financial condition of any Maker. Each Maker and guarantor has independently determined the collectibility and enforceability of this Note and any collateral securing this Note and has made an independent appraisal of each Maker's credit worthiness. This Note shall be construed and enforced in accordance with the laws of the State of Wisconsin. TUFCO INDUSTRIES INC. (SEAL) By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer -3- 35 EXECUTIVE CONVERTING CORPORATION (SEAL) By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer HAMCO INDUSTRIES, INC. (SEAL) By: /s/ CARL B. FRANCIS --------------------------------------- Carl B. Francis Title: President and Chief Executive Officer By: /s/ GREG WILEMAN --------------------------------------- Greg Wileman Title: Secretary and Chief Financial Officer -4- EX-10.17 5 SEPARATION AGREEMENT - OCTOBER 1, 1996 1 EXHIBIT 10.17 SEPARATION AGREEMENT AND GENERAL RELEASE AND CONSULTING AGREEMENT This Separation Agreement and General Release and Consulting Agreement ("Agreement") is made and entered into this 1st day of October, 1996, by and between CARL B. FRANCIS ("Francis") and TUFCO TECHNOLOGIES, INC. ("Tufco"); WHEREAS, Francis has been employed by Tufco as President and Chief Executive Officer; and WHEREAS, Francis and Tufco mutually desire to conclude Francis' employment on an amicable basis; and WHEREAS, Francis and Tufco mutually desire to enter into a Consulting Agreement pursuant to which Francis will provide consulting services; IT IS HEREBY AGREED by and between Francis and Tufco as follows: 1. Francis' employment with Tufco and all of its affiliated companies (collectively, "the Tufco Companies"), is terminated effective September 19, 1996 and, upon execution of this Agreement, and Francis will resign from any and all related positions with any Tufco Companies, including, without limitation, as a member of the Board of Directors of any Tufco Companies. The press release attached hereto as Exhibit "A" will announce Francis' departure. 2. In full consideration of Francis' execution of this Agreement and his agreement to be legally bound by its terms, Tufco will: 2 a. Pay Francis $200,000.00, less applicable deductions, as a bonus for performance in 1996; b. Enter into a consulting agreement with Francis whereby Francis shall perform consulting services for Tufco beginning on September 20, 1996 and ending on April 20, 1998 (the "Consulting Term"); c. During the Consulting Term, Francis shall perform such consulting services as the Board or the then President of Tufco reasonably requests, at the times and on the occasions requested by Tufco. Tufco shall also reimburse Francis for any reasonable business expenses incurred on Tufco's behalf in connection with the performance of his services under this Paragraph. Francis shall perform such services as an independent contractor, not as an employee of Tufco and shall not have any authority to bind Tufco to any contracts or other obligations during the Consulting Tenn. During the Consulting Term, Francis shall at all times comply with all reasonable policies and procedures adopted by Tufco, including, without limitation, the procedures and policies adopted by Tufco regarding conflicts of interest and confidentiality of Tufco's business information; d. For all services rendered by Francis as a consultant to Tufco during the Consulting Term, Tufco shall pay Francis on the 19th of each month beginning October 19, 1996, the monthly compensation of $16,666.66, and $850 per month as a car allowance; e. During the Consulting Term, Francis shall be solely responsible for the payment of all federal, state and local taxes or contributions imposed or required by law that pertain to the compensation paid to Francis for the performance of consulting services. To the extent there are any tax consequences arising from the payments made by Tufco pursuant to this -2- 3 Paragraph, Francis shall be exclusively responsible for any payment of federal, state and local taxes. Francis will indemnify and hold harmless and defend Tufco against any and all claims or liabilities that may be asserted by any governmental taxing authority, including payment of attorney's fees, charges, assessments, interest, penalties or liabilities arising out of or with respect to any tax liabilities relating to payment to Francis pursuant to this Paragraph. f. Nothing in this Agreement shall be construed to prevent the termination of the Consulting Term by Tufco prior to April 20, 1998. In the event of such a termination, Tufco shall pay to Francis all of the compensation set forth in Paragraph 2.d for the remainder of the Consulting Term, in installments as set out in Paragraph 2.d and thereafter Tufco shall have no further liability or obligation to Francis for compensation hereunder. Such termination shall be effective by notice thereof delivered by Tufco to Francis and provided in Paragraph 19.b. 3. Francis, for and in consideration of the undertakings set forth in herein, and intending to be legally bound, does hereby REMISE, RELEASE AND FOREVER DISCHARGE Tufco and any and all other Tufco Companies individually and collectively, its and their respective officers, directors, employees and agents, and its and their predecessors, successors and assigns, heirs, executors and administrators, of and from any and all manner of actions and causes of actions, suits, debts, claims and demands whatsoever in law or in equity, which Francis ever had, now has, or hereafter may have, or which his heirs, executors or administrators hereafter may have by reason of any matter, cause or thing whatsoever from the beginning of the world to the date of this Agreement and, particularly, but without limitation of the foregoing terms, any claims concerning or relating in any way to Francis' employment -3- 4 relationship and/or the termination of his employment relationship with Tufco and/or its component and/or affiliated corporate entities including, but not limited to, any claims which have been or could have been asserted, or could be asserted now or in the future against Tufco and/or its officers, directors, employees and agents including any claims arising under any and all federal, state or local statutory or common laws including, but not limited to, any claims arising under the Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section 2000e, Age Discrimination in Employment Act 29 U.S.C. Section 621 et seq., the Americans with Disabilities Act, 42 U.S.C. Section 12101, et seq., the Employee Retirement Income Security Act ("ERISA") and any and all other claims arising out of Francis' employment at Tufco, including any claims relating in any way to the Employment Agreement dated April 21, 1995 that was entered into between Francis and Tufco, and any claims for counsel fees and costs. Except as provided herein, it is expressly understood and agreed that this Agreement shall operate as a clear and unequivocal waiver by Francis of any claim for accrued or future wages, benefits or any other type of payment. 4. Francis hereby acknowledges the following: a. That his position with Tufco placed him in a position of confidence and trust with the prospective customers, customers and employees of Tufco and allowed him access to confidential or proprietary information of Tufco; b. That the type and periods of restrictions imposed by the covenants by this Separation Agreement and General Release are fair and reasonable and such restrictions will not prevent him from earning a livelihood; c. That the business of Tufco is, in general, a highly competitive business; and -4- 5 d. Having acknowledged the foregoing matters, (1) Francis, from the date this Agreement is executed until April 20, 2001, (the "Non-Competition Period"), shall not within the United States of America, Canada and Mexico, directly or indirectly, in any capacity, render his services, engage or have a financial interest in, any business that is competitive with any of those business activities in which Tufco shall have been engaged during his employment by it, including paper converting, mill roll converting, paper sheeting, slitting and rewinding paper rolls, facsimile rolls, and buying and reselling paper products, nor shall Francis assist any person or entity that is engaged in such business, including by making Tufco Information (defined below in Paragraph 3 d.(4)) available to any such person or entity. In addition, during the Non-Competition Period, Francis shall not directly or indirectly solicit or otherwise encourage any of Tufco's employees to terminate their employment with Tufco or Tufco Companies. If a court determines that the foregoing restrictions are too broad or otherwise unreasonable under applicable law, including with respect to time or space, the court is hereby requested and authorized by the parties hereto to review the foregoing restrictions to include the maximum restrictions allowable under applicable law. (2) The terms of this Section shall apply to Francis and any persons or entities controlled by Francis, including any relative of Francis, corporation or other entity of which he is an officer, director or shareholder, or any other affiliate of Francis, to the same extent as if they were parties hereto, and Francis shall take whatever actions may be necessary to cause any such persons or entities to adhere to the terms of this Section. (3) All inventions, innovations, designs, ideas and product developments (collectively, the "Developments"), developed or conceived by Francis, solely or -5- 6 jointly with others, whether or not patentable or copyright table, at any time during his employment at Tufco or Tufco Companies, either as an employee or consultant, and that relate to the actual or planned business activities of Tufco or the Tufco Companies and all of Francis' right, title and interest therein, are, shall be, and shall remain, the exclusive property of Tufco or the Tufco Companies, as the case may be. Francis hereby assigns, transfers and conveys to Tufco all of his right, title and interest in and to any and all such Developments. As requested from time to time by the Board, Francis shall disclose fully, as soon as practicable and in writing, all Developments to the Board. At any time and from time to time, upon the request of any of the Board, Francis shall execute and deliver to Tufco any and all instruments, documents and papers, give evidence and do any and all other acts that, in the opinion of counsel for Tufco, are or may be necessary or desirable to document such transfer or to enable Tufco to file and prosecute applications for and to acquire, maintain and enforce any and all patents, trademark registrations or copyrights under United States or foreign law with respect to any such Developments or to obtain any extension, validation, reissue, continuance or renewal of any such patent, trademark or copyright. Tufco will be responsible for the preparation of any such instruments, documents and papers and for the prosecution of any such proceedings and will reimburse Francis for all reasonable expenses incurred by him in compliance with the provisions of this Section. (4) Francis has had and may have possession of or access to confidential information relating to the business of Tufco or the Tufco Companies, including writings, equipment, processes, drawings, reports, manuals, invention records, financial information, business plans, customer lists, the identity of or other facts relating to prospective -6- 7 customers, inventory lists, arrangements with suppliers and customers, computer programs, or other material embodying trade secrets, customer or product information or technical or business information of Tufco or the Tufco Companies. All such information, other than any information that is in the public domain through no act or omission of Francis or which he is authorized to disclose, is referred to collectively as the "Tufco Information." During and after the Non- Competition Period, Francis shall not (i) use or exploit in any manner the Tufco Information for himself or any person, partnership, association, corporation or other entity other than Tufco, (ii) remove any Tufco Information, or any reproduction thereof, from the possession or control of Tufco or (iii) treat Tufco Information otherwise than in a confidential manner. (5) All Tufco Information developed, created or maintained by Francis, alone or with others while employed by Tufco or the Tufco Companies, and all Tufco Information maintained by Francis hereafter, shall remain at all times the exclusive property of Tufco. Francis shall return to Tufco all Tufco Information, and reproductions thereof, whether prepared by him or others, that are in his possession upon execution of this Agreement. (6) If Francis is requested or required by law or judicial order to disclose any confidential or proprietary information, he shall provide Tufco with prompt notice of any such request for such information or requirement so that Tufco may seek an appropriate protective order or waiver of his compliance with the provisions of this clause. Francis will not oppose action by, and will cooperate with Tufco to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the confidential or proprietary information. -7- 8 (7) Francis expressly acknowledges that the remedy at law for any breach of this Section will be inadequate and that upon any such breach or threatened breach, Tufco shall be entitled as a matter of right to injunctive relief in any court of competent jurisdiction, in equity or otherwise, and to enforce the specific performance of Francis' obligations under these provisions without the necessity of proving the actual damage to Tufco or the inadequacy of a legal remedy. The rights conferred upon Tufco by the preceding sentence shall not be exclusive of, but shall be in addition to, any other rights or remedies which Tufco may have at law, in equity or otherwise. 5. This Agreement does not affect, alter, amend or modify the terms of the Option Agreement dated June 1, 1995, between Tufco and Oasis Holding Trust; 6. None of the payments to be made under this Agreement will become due until after the expiration of the seven (7) day revocation period set forth in Paragraph 18 of this Agreement and will never become due should Francis exercise his right to revoke this Agreement. 7. Francis shall vacate his office in Tufco's Dallas location upon execution of this Agreement. Francis' office furniture will be stored in a vacant office in Tufco's Dallas location until November 22, 1996. Francis acknowledges and agrees that Tufco will be held harmless for any damage or loss to the furniture during this storage period. 8. Upon execution of this Agreement, Tufco will permit Francis to remove his personal property items listed on Exhibit "B" attached hereto that are located in Tufco's Dallas office. Furthermore, Tufco will permit Francis to remove his personal papers contained in -8- 9 the file cabinet of his former Dallas office after a Tufco representative confirms that these are not Tufco-related items. 9. Upon execution of this Agreement, Tufco shall sell to Francis at book value, those items listed on Exhibit "C" attached hereto. 10. Within ten (10) business days of the execution of this Agreement Francis will either return to Tufco all of the items listed in Exhibit "D" to this Agreement or will remit to Tufco the original purchase price for these items, as indicated on Exhibit "D". 11. Neither Tufco nor any of the Tufco Companies has, or will have, any obligation to provide Francis at any time in the future with any payments, benefits or considerations other than those recited in Paragraph 2 above, and the Employment Agreement between the parties, entered into April 21, 1995, is null and void. 12. Neither Francis, nor any person, organization or other entity on his behalf, will file, charge, claim, sue or cause or permit to be filed, charged or claimed any action for legal or equitable relief (including damages, injunctive, declaratory, monetary or other relief) involving any matter related in any way whatsoever to his employment relationship or the termination of his employment relationship with Tufco or the Tufco Companies, or involving any continuing effects of any acts or practices which may have arisen or occurred during Francis' employment relationship or thereafter in connection with the termination of his employment relationship with Tufco or the Tufco Companies. 13. Francis recognizes that his employment relationship with Tufco and the Tufco Companies has been permanently and irrevocably severed, and that neither Tufco nor the -9- 10 Tufco Companies has any obligation, contractual or otherwise, to hire, rehire, or reemploy him in the future. 14. The parties' professional and personal reputations are important and should not be impaired by any party after this Agreement is executed. Francis will not publish any communications to any other person or entity that comments negatively on the professional reputation of Tufco or the Tufco Companies, or the professional or personal reputation of its officers, directors or management, and Tufco will not publish any communication to any person or entity outside of Tufco that comments negatively upon Francis' professional or personal reputation. 15. Francis hereby certifies that he has read the terms of this Separation Agreement and General Release and Consulting Agreement, that he has discussed it with his attorney, and that he understands its terms and effects. Francis further acknowledges that he is executing this Separation Agreement and General Release and Consulting Agreement of his own volition, with a full understanding of its terms and effects, and with the intention of releasing all claims recited herein and complying with the terms of Paragraph 3, in exchange for the consideration described herein, which he acknowledges is adequate and satisfactory to him. Neither Tufco nor its agents, representatives, employees or attorneys have made any representations to Francis concerning the terms or effects of this Separation Agreement and General Release and Consulting Agreement other than those contained herein. 16. Francis will not communicate or disclose the terms of this Separation Agreement and General Release and Consulting Agreement or the circumstances leading up to -10- 11 this Agreement as described herein, to any persons other than members of his immediate family, his attorney, accountant and/or tax consultant, state and federal tax authorities or other persons as may be required by law. 17. If Francis dies during the term of this Agreement, Tufco shall continue to pay his executors, legal representatives or administrators the unpaid installments of his compensation set forth in Paragraph 2.d hereof, payable to the appropriate legal representatives. The provision of Paragraph 4 shall expressly survive in the event of Francis' death. 18. Francis acknowledges that he has been informed that he has the right to consider this Agreement for a period of at least twenty-one (21) days prior to entering the Agreement. He also understands that he has the right to revoke this Agreement for a period of seven (7) days following his execution of the Agreement by giving written notice to Tufco. Such notice shall be effective upon receipt by Tufco. 19. General provisions. a. Governing Law. The terms of this Agreement shall be governed by the laws of the State of Texas; b. Notices. All notices required to be given under this Agreement shall be in writing and shall be deemed to have been given when personally delivered or when mailed by registered or certified mail, postage prepaid, return receipt requested, or when sent by Federal Express or other overnight delivery service, addressed as follows: -11- 12 TO EMPLOYEE: Mr. Carl B. Francis c/o Roy J. True, Esquire True & Sewell, LLP 88 Central, Ninth Floor Dallas, TX 75206 TO TUFCO: Tufco Technologies, Inc. c/o Mr. Greg Wilemon, Chief Financial Officer 4800 Simonton Road Dallas, TX 75244 and Tufco Technologies, Inc. c/o Mr. Robert J. Simon, Chairman Bradford Ventures, Ltd. 1212 Avenue of the Americas Suite 1802 New York, NY 10036 c. Entire Agreement; Modification. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof. This Agreement may not be modified or amended in any way except in writing by the parties hereto. d. Waiver. No waiver of any breach of this Agreement shall be construed to be a waiver as to succeeding breaches. e. Severability. If any provision of this Agreement or application thereof to anyone under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable -12- 13 provision or application and shall not invalidate or render unenforceable such provision in any other jurisdiction. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto duly executed this Agreement the date and year first written above. ATTEST: TUFCO TECHNOLOGIES, INC. /s/ KATHY MANOS By: /s/ [ILLEGIBLE] - --------------- -------------------------- TITLE CEO/Corporate Secretary WITNESS: /s/ [ILLEGIBLE] /s/ CARL B. FRANCIS - --------------- -------------------------- CARL B. FRANCIS -13- EX-10.18 6 EMPLOYMENT AGREEMENT WITH LOUIS LECALSEY, III 1 EXHIBIT 10.18 EMPLOYMENT AGREEMENT This Employment Agreement is made and entered into between Tufco Technologies, Inc., a Delaware corporation ("Tufco"), Louis LeCalsey, III (the "Employee"). WHEREAS, Tufco desires to employ the Employee, and the Employee desires to become an employee of Tufco, upon the terms and conditions hereinafter set forth. WITNESSETH: NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. Employment. Tufco hereby employs the Employee as President and Chief Executive Officer of Tufco and the Employee hereby accepts such employment, effective September 19, 1996. During the term of employment under this Agreement (the "Employment Term"), the Employee shall perform Employee's duties and responsibilities hereunder in accordance with the terms and conditions hereinafter set forth. 2. Performance. During the Employment Term, the Employee shall perform all duties and accept all responsibilities as may be assigned from time to time by the Board of Directors of Tufco (the "Board") and that are consistent with the duties and responsibilities of a President and Chief Executive Officer. During the Employment Term, the Employee will diligently devote his entire business skill, time and effort to the performance of his duties hereunder and will not alone or as a member of a partnership or as an officer, director, employee or agent of any other person, firm or business organization, engage in any other business activities or pursuits requiring his personal services that might conflict with his duties hereunder. 3. Term. Unless otherwise terminated in accordance with Sections 6 or 7, the Employment Term shall be for an initial term of three years commencing on September 19, 1996 and continuing thereafter for successive one-year renewal terms. 4. Compensation for Employment. (a) The basic annual compensation of the Employee for his employment services to Tufco and to all of Tufco's subsidiaries and affiliated companies during the Employment Term shall be $200,000 (the "Salary"), which Tufco shall pay to the Employee in equal monthly installments. Tufco may adjust the salary upward on an annual basis as the Board may determine, but the Salary shall not be decreased. 2 (b) Commencing as of October 1, 1996 and continuing during the Employment Term, Tufco shall pay the Employee a bonus in accordance with this paragraph (b). For each fiscal year during the Employment Term, the Board, in its sole discretion, shall establish a budget for pre-tax income in accordance with generally accepted accounting principles consistently applied and the Employee's bonus will vary as a percentage of Salary in relation to the percentage achievement of that budget as follows:
Percentage of Percentage of Salary Budget Attained Earned as Bonus ------------------------------------------- <85% 0% 85% 35% 90% 40% 100% 50% 110% 60% 120% 70% 130% 80% 140% 90% 150% 100%
For a percentage of budget achievement between the benchmarks, the percentage of Salary shall be linearly interpolated, provided that no bonus shall be paid for achievement that constitutes less than 85% of the budget and the maximum bonus shall be 100% of Salary in any event. In the case of a partial fiscal year, Tufco shall adjust the bonus to correspond to Tufco's budget and the salary for the portion of the applicable fiscal year that shall be included in the Employment Term. (c) During the Employment Term, Tufco shall also provide the Employee with a $600 car allowance and health benefits consistent with those provided to other senior executives of Tufco. The Employee will be entitled to five (5) weeks of vacation for each year of the Employment Term. Tufco shall also reimburse the Employee for any reasonable business expenses incurred on Tufco's behalf in connection with the performance of his services during the Employment Term. (d) During the Employment Term and thereafter until the Employee attains age 65, the Company will include the Employee, his wife and his children under the age of twenty-five in whatever health care benefit plans that the Company generally provides to its senior executive officers from time to time, but only to the extent that the terms of such plans permit doing so. Tufco will cease covering the Employee's children upon the earlier of the child's attainment of the age 25 or graduation from college. (e) During the Employment Term, the Company will provide the Employee with term life insurance in the amount of $250,000. Upon termination of the Employment Term, the Company will provide the Employee with term life insurance in the amount of $125,000, until the Employee attains age 65. -2- 3 5. Agreement Not To Compete. (a) During the Non-Competition Period (defined below), the Employee shall not, within the United States of America, Canada and Mexico, directly or indirectly, in any capacity, render his services, engage or have a financial interest (other than an investor-only financial interest) in, any business that is competitive with any of those business activities in which Tufco shall have been engaged during his employment by it, including paper converting, mill roll converting, paper sheeting, slitting and rewinding paper rolls, facsimile rolls, and buying and reselling paper products, nor shall the Employee assist any person or entity that is engaged in such business, including by making Tufco Information (defined below) available to any such person or entity. In addition, during the Non-Competition Period, the Employee shall not directly or indirectly solicit or otherwise encourage any of Tufco's employees to terminate their employment with Tufco. If a court determines that the foregoing restrictions are too broad or otherwise unreasonable under applicable law, including with respect to time or space, the court is hereby requested and authorized by the parties hereto to review the foregoing restriction to include the maximum restrictions allowable under applicable law. The "Non-Competition Period" means the period equal to the Employment Term plus an additional period of one year after the termination of the Employee's employment with Tufco. (b) The terms of this Section 5 shall apply to the Employee and any persons or entities controlled by the Employee, including any member of the Employee's household, corporation or other entity of which he is an officer, director or shareholder, or any other affiliate of the Employee, to the same extent as if they were parties hereto, and the Employee shall take whatever actions may be necessary to cause any such persons or entities to adhere to the terms of this Section 5. 6. Termination Without Compensation. (a) Non-Renewal of Term. The Employment Term may be terminated by either party hereto as of the end of the initial term or any renewal term then in effect by giving notice of the intention to terminate the Employment Term at least 30 days prior to the termination date. Upon any such termination, Tufco shall not have any further liability or obligation to the Employee hereunder except for any unpaid Salary and Fringe Benefits accrued to the date of termination. (b) Partial or Total Disability. If the Employee is unable to perform his duties and responsibilities hereunder to the full extent required hereunder by reason of illness, injury or incapacity for six months (during which time he shall continue to be compensated hereunder), Tufco may terminate the Employment Term by notice to the Employee of the termination date, and Tufco shall not have any further liability or obligation to the Employee hereunder except for any unpaid Salary and Fringe Benefits accrued to the date of termination. In the event of any dispute under this Section 6(b), the Employee shall submit to a physical examination by a licensed physician mutually satisfactory to Tufco and the Employee, the cost of such examination to be paid by Tufco, and the determination of such physician shall be determinative. If, after termination due to disability as provided herein, the Employee obtains, at his sole expense, medical certification from a licensed physician reasonably satisfactory to Tufco that such disability has ended, Tufco shall offer to employ -3- 4 the Employee pursuant to the terms of this Agreement for the remainder of the initial term or any renewal term in effect at the time of termination, except that Tufco shall not be required to reemploy the Employee at the same officer position if Tufco shall have elected another person to such position during the period of the Employee's disability and such other person continues in such position at the time of the Employee's return to employment. (c) Death. If the Employee dies, this Employment Agreement (except for the provisions of Sections 5, 8 and 9 hereof) shall terminate, and thereafter Tufco shall not have any further liability or obligation to the Employee, his executors, administrators, heirs, assigns or any other person claiming under or through him except for unpaid Salary and Fringe Benefits accrued to the date of his death. (d) Cause. Tufco may terminate the Employment Term for "cause" by giving the Employee 30 days' notice of the termination date, and thereafter Tufco shall not have any further liability or obligation to the Employee. For purposes of this Agreement, "cause" shall mean the failure of the Employee to observe or perform (other than by reason of illness, injury or incapacity) any of the material terms or provisions of this Agreement, dishonesty, willful misconduct, material neglect of Tufco's business, conviction of a felony or other crime involving moral turpitude, misappropriation of funds or habitual insobriety. 7. Termination With Compensation. Tufco shall have the right to terminate the Employment Term without cause at any time by giving the Employee 30 days' notice of the termination date. Under such circumstances, Tufco shall continue to pay to the Employee the Salary then in effect for the remainder of the initial term or any renewal term then in effect; provided however, that the Employee shall not be entitled to any compensation under this Section 7 unless the Employee executes and delivers to Tufco after a notice of termination a release in a form satisfactory to Tufco by which the Employee releases Tufco from any obligations and liabilities of any type whatsoever, except for Tufco's obligation to provide the Salary specified in this Section 7. The parties hereto acknowledge that the Salary to be provided under this Section 7 is to be provided in consideration for the above-specified release. Upon any termination under this Section 7, Tufco shall not have any obligation to the Employee, his executors, administrators, heirs, assigns or any other person claiming under or through him other than to pay to the Employee the Salary specified in this Section 7 in exchange for the above-mentioned release. 8. Inventions, Designs and Product Developments. All inventions, innovations, designs, ideas and product developments (collectively, the "Developments"), developed or conceived by the Employee, solely or jointly with others, whether or not patentable or copyrightable, at any time during the Employment Term and that relate to the actual or planned business activities of Tufco and all of the Employee's right, title and interest therein, shall be the exclusive property of Tufco or such subsidiary, as the case may be. The Employee hereby assigns, transfers and conveys to Tufco all of his right, title and interest in and to any and all such Developments. As requested from time to time by the Board, the Employee shall -4- 5 disclose fully, as soon as practicable and in writing, all Developments to the Board. At any time and from time to time, upon the request of any of the Board, the Employee shall execute and deliver to Tufco any and all instruments, documents and papers, give evidence and do any and all other acts that, in the opinion of counsel for Tufco, are or may be necessary or desirable to document such transfer or to enable Tufco to file and prosecute applications for and to acquire, maintain and enforce any and all patents, trademark registrations or copyrights under United States or foreign law with respect to any such Developments or to obtain any extension, validation, reissue, continuance or renewal of any such patent, trademark or copyright. Tufco will be responsible for the preparation of any such instruments, documents and papers and for the prosecution of any such proceedings and will reimburse the Employee for all reasonable expenses incurred by him in compliance with the provisions of this Section. 9. Confidential Information. (a) The Employee has had and will have possession of or access to confidential information relating to the business of Tufco, including writings, equipment, processes, drawings, reports, manuals, invention records, financial information, business plans, customer lists, the identity of or other facts relating to prospective customers, inventory lists, arrangements with suppliers and customers, computer programs, or other material embodying trade secrets, customer or product information or technical or business information of Tufco. All such information, other than any information that is in the public domain through no act or omission of the Employee or which he is authorized to disclose, is referred to collectively as the "Tufco Information." During and after the Employment Term, the Employee shall not (i) use or exploit in any manner the Tufco Information for himself or any person, partnership, association, corporation or other entity other than Tufco, (ii) remove any Tufco Information, or any reproduction thereof, from the possession or control of Tufco or (iii) treat Tufco Information otherwise than in a confidential manner. (b) All Tufco Information developed, created or maintained by the Employee, alone or with others while employed by Tufco, and all Tufco Information maintained by the Employee thereafter, shall remain at all times the exclusive property of Tufco. The Employee shall return to Tufco all Tufco Information, and reproductions thereof, whether prepared by him or others, that are in his possession immediately upon request and in any event upon the completion of his employment by Tufco. 10. Remedies. The Employee expressly acknowledges that the remedy at law for any breach of Sections 5, 8 or 9 will be inadequate and that upon any such breach or threatened breach, Tufco shall be entitled as a matter of right to injunctive relief in any court of competent jurisdiction, in equity or otherwise, and to enforce the specific performance of the Employee's obligations under these provisions without the necessity of proving the actual damage to Tufco or the inadequacy of a legal remedy. The rights conferred upon Tufco by the preceding sentence shall not be exclusive of, but shall be in addition to, any other rights or remedies which Tufco may have at law, in equity or otherwise. -5- 6 11. Survival. Notwithstanding the termination of the Employment Term pursuant to Section 6 or 7, the obligations of the Employee under Sections 5, 8 and 9 hereof shall survive and remain in full force and effect and Tufco shall be entitled to relief against the Employee pursuant to the provisions of Section 10 hereof. 12. General. (a) Governing Law. The terms of this Agreement shall be governed by the laws of the State of Wisconsin. (b) Tufco. For purposes of Sections 5, 7, 8, 9 and 10, the term "Tufco" shall be deemed to include any incorporated or unincorporated subsidiaries or affiliates of Tufco. (c) Binding Effect. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit and be enforceable by the respective heirs, representatives, successors (including any successor as a result of a merger or similar reorganization) and assigns of the parties hereto, except that the duties and responsibilities of the Employee hereunder are of a personal nature and shall not be assignable in whole or in part by the Employee. (d) Notices. All notices required to be given under this Agreement shall be in writing and shall be deemed to have been given when personally delivered or when mailed by registered or certified mail, postage prepaid, return receipt requested, or when sent by Federal Express or other overnight delivery service, addressed as follows: TO EMPLOYEE: Mr. Louis LeCalsey, III 4125 Dollar Lane DePere, WI 54115 TO TUFCO: Tufco Technologies, Inc. c/o Mr. Greg Wilemon, Chief Financial Officer 4800 Simonton Road Dallas, TX 75244 and -6- 7 Tufco Technologies, Inc. c/o Mr. Robert J. Simon, Chairman Bradford Ventures, Ltd. 1212 Avenue of the Americas Suite 1802 New York, NY 10036 (e) Entire Agreement; Termination of Prior Agreement Modification. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof. This Agreement may not be modified or amended in any way except in writing by the parties hereto. (f) Duration. Notwithstanding the termination of the Employment Term and of the Employee's relationship with Tufco, this Agreement shall continue to bind the parties for so long as any obligations remain under this Agreement, and in particular, the Employee shall continue to be bound by the terms of Sections 5, 8, 9 and 10. (g) Waiver. No waiver of any breach of this Agreement shall be construed to be a waiver as to succeeding breaches. (h) Severability. If any provision of this Agreement or application thereof to anyone under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision in any other jurisdiction. (i) Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures hereto were upon the same instrument. -7- 8 IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto duly executed this Agreement this 8th day of October, 1996. TUFCO TECHNOLOGIES, INC. ATTEST: /s/ KATHY MANOS By: /s/ GREG WILEMON - -------------------- -------------------- Title: CFO/COO ---------------- WITNESS: /s/ KATHY MANOS /s/ LOUIS LECALSEY,III - -------------------- ----------------------- LOUIS LeCALSEY, III -8- EX-21.1 7 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 Exhibit 21 Tufco Technologies, Inc. Subsidiaries of the Registrant As of September 30, 1997 Tufco Tech, Inc., a Delaware corporation Tufco, Inc., a Delaware corporation Technologies, I, Inc., a Delaware corporation TFCO, Inc., a Delaware corporation Tufco, L.P., A Delaware limited partnership EX-23.1 8 INDEPENDENT AUDITOR'S REPORT 1 EXHIBIT 23.1 [WIPFLI ULLRICH BERTELSON LLP LETTERHEAD] INDEPENDENT AUDITOR'S REPORT Board of Directors and Stockholders Tufco Technologies, Inc. Green Bay, Wisconsin We have audited the consolidated statements of income, stockholders' equity, and cash flows of Tufco Technologies, Inc. and Subsidiaries for the year ended September 30, 1995. 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Tufco Technologies, Inc. and Subsidiaries for the year ended September 30, 1995 in conformity with generally accepted accounting principles. /s/ WIPFLI ULLRICH BERTELSON LLP ----------------------------------- Wipfli Ullrich Bertelson LLP November 9, 1995 Green Bay, Wisconsin EX-27.1 9 FINANCIAL DATA SCHEDULE
5 YEAR SEP-30-1997 OCT-01-1996 SEP-30-1997 807,532 0 7,637,121 0 8,550,888 17,734,650 16,990,227 0 49,045,365 7,509,389 0 0 0 44,437 31,323,540 49,045,365 65,750,571 65,750,571 53,835,318 53,835,318 7,101,907 0 888,566 4,290,889 1,637,603 2,653,286 0 0 0 2,653,286 0 .60
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