-----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, Nct4FXDIQPuwanHSbXz8qUyWty1Z7qifSKzszrZzVl5pRsoEYQkJioFJWTTfRWM1 ITNuTgFw0RxejrGWtN/uPQ== 0000950130-97-003336.txt : 19970731 0000950130-97-003336.hdr.sgml : 19970731 ACCESSION NUMBER: 0000950130-97-003336 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970729 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL IMAGING MATERIALS INC /DE/ CENTRAL INDEX KEY: 0000904009 STANDARD INDUSTRIAL CLASSIFICATION: PENS, PENCILS & OTHER ARTISTS' MATERIALS [3950] IRS NUMBER: 133179629 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-21726 FILM NUMBER: 97647506 BUSINESS ADDRESS: STREET 1: 310 COMMERCE DR CITY: AMHERST STATE: NY ZIP: 14228 BUSINESS PHONE: 7166916333 MAIL ADDRESS: STREET 1: 310 COMMERCE DRIVE CITY: AMHERST STATE: NY ZIP: 14228 10-K405/A 1 FORM 10-K/A FOR THE FISCAL YEAR ENDED 3/31/1997 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K/A (AMENDMENT NO.2) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996] For the fiscal year ended March 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________ to __________ Commission File No. 0-21726 INTERNATIONAL IMAGING MATERIALS, INC. ------------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 13-3179629 -------- ---------- (State or Other Jurisdiction) (I.R.S. Employer of Incorporation or Organization Identification No.) 310 Commerce Drive, Amherst, New York 14228 ------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (716) 691-6333 -------------- (Registrant's Telephone Number, Including Area Code) 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 $.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 the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of June 30, 1997, the aggregate market value of the registrant's Common Stock held by non-affiliates was $119,378,561. the closing price of the Common Stock on June 30, 1997 as reported on the Nasdaq National Market, was $16.25. At June 30, 1997, 8,311,486 shares of common stock of the Registrant were outstanding. DOCUMENTS INCORPORATED BY REFERENCE NONE The undersigned registrant hereby amends its Annual Report on Form 10-K for the fiscal year ended March 31, 1997. To the extent this amended filing is inconsistent with the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997 (the "original filing"), the original filing is hereby superseded and amended. PART I ITEM 1. BUSINESS THE COMPANY International Imaging Materials, Inc. (the "Company") is the largest manufacturer in North America of thermal transfer ribbons for numerous diverse applications. These thermal transfer ribbons are used in bar code printers to print single-color and full-color tags and labels for use in manufacturing and factory automation systems, shipping and distribution systems, retail price tag and variable data applications and medical applications. Other thermal transfer ribbons produced by the Company are used in full-color printers to print high quality color graphics for business presentations, engineering and scientific drawings, graphic arts prepress layouts, proofs and comps, signage and other full color imaging applications. The Company also manufactures MICR ribbons for thermal transfer proof encoders used to encode checks for processing through the United States banking system, as well as ribbons used in plain-paper thermal transfer facsimile machines. The Company has been manufacturing thermal transfer ribbons since 1984 under a license agreement with Fujicopian Co., Ltd. of Osaka, Japan, a recognized leader in thermal transfer ribbon technology. Under the license agreement, the Company has the exclusive right (with certain exceptions) to manufacture in North America color thermal transfer ribbons covered by Fujicopian Co. Ltd.'s patents. As a result of the Company's operating experience and long-standing relationship with Fujicopian Co., Ltd., the Company has been able to develop significant proprietary product and manufacturing know- how relating to thermal transfer ribbons. Originally incorporated in New York in 1983, the Company was reorganized as a Delaware corporation in 1985. The principal executive offices of the Company are located at 310 Commerce Drive, Amherst, New York 14228 and its telephone number is (716) 691- 6333. PRODUCTS The Company's thermal transfer ribbons are an essential consumable in the thermal transfer printing process. In such a printing process, the image to be printed is transferred from the printer to the receptor material (generally paper, overhead transparency film or tag or label stock) through the application of an electronically heated printhead to a thermal transfer ribbon which releases ink onto the receptor. A basic thermal transfer ribbon is comprised of an ink coating on a film substrate. Single-color thermal transfer ribbons, typically used in bar code applications, are manufactured by coating the film substrate with a wax or resin-based ink coating containing black or other monochromatic pigments. Color images were traditionally printed with other ribbons containing multiple sets of three separate panels, with each panel containing one of the three primary subtractive colors: yellow, magenta and cyan. As a variation of this principle, some recently developed high-speed color printers use separate yellow, magenta, cyan and black ribbons, which the Company also manufactures. By overlaying various combinations of the subtractive colors (e.g., cyan over yellow to create green) with different intensities and dot placements, a process color image is created. The film substrate is also backcoated with various resin-based coatings which are designed to prevent distortion of the ribbon during the printing process, minimize static electricity and reduce abrasion of the thermal transfer printhead. The end-user applications for the Company's ribbons can be grouped into three fundamental categories: bar code, color and other. Bar Code Ribbons The Company's bar code thermal transfer ribbons include a wide range of products designed to maximize bar code thermal transfer printer performance for specific applications. Bar code thermal transfer ribbons are produced to printer manufacturer (OEM) and end-user specifications based on variables such as printer speed, electronic printhead design, heat management characteristics and printing pressure. The Company manufactures bar code thermal transfer ribbons which are designed to meet these specifications and to comply with industry bar code printing standards. The installed base of bar code printers has grown as "on-demand" printing of human and machine readable information has become more widely accepted for its efficiency and cost effectiveness in the retail, industrial, shipping and distribution, and medical sectors. A major factor in this growth has been the rise in the use of automatic identification and data collection systems in a variety of manufacturing, business and industrial applications, the most prevalent of which are on-demand printing systems. On-demand bar code printing systems permit users to print labels on-site that provide various types of information. For example, in the case of manufacturers, products may be labeled to provide information such as the date of manufacture, special serial, lot or purchase order numbers, accurate weights and measures, expiration dates and other similar information. Bar codes incorporating such information can be printed on a label which is affixed to the product at the time of production, even in high speed production line applications. In such bar code labeling systems, data is stored in a printed, computer-legible format (i.e., a bar code) which can be read with scanning devices, allowing the collection of the data contained in the bar code by a host computer. Such data may be used by the manufacturers, distributors and ultimate users of products who require bar code images that provide a very low failure rate for unscannable tags or labels. The Company expects that future growth in sales of bar code thermal transfer ribbons will result from an increase in the use of thermal transfer, as opposed to other printing technologies, a decrease in the cost of installing bar code systems, making them more affordable for end-users, and an increase in the use of mandated bar code standards in various industrial and retail applications. These standards are established by industry trade organizations for use by vendors doing business in a particular industry. Such standards have been adopted for use in the automotive, apparel, defense procurement, grocery, health care, retail and retail transportation, distribution, chemical and telecommunications industries. Another factor driving the increased use of bar coding is retail chain stores use of "compliance" shipping labels which are required for acceptance of deliveries. National retail chains such as K-Mart, Sears, J.C. Penney and Walmart have developed bar code label formats which must be used by vendors. Failure by vendors to do so may result in penalties or charge-backs. The Company expects this trend to continue and to spread to other industries. Although a number of different non-impact printing technologies may be used for bar code printing, the Company believes that thermal transfer printing is ideal for many bar code printing applications, particularly in harsh environments. Numerous retail, industrial, medical, food product, financial and other applications require dark, well-defined lines which are important for readily scannable bar codes as well as durable, high quality scratch and smudge resistant printed images. Thermal transfer printing meets these requirements and offers the ability to print on a variety of materials with very good reliability. Color Ribbons The Company is the sole North American manufacturer of process color thermal transfer ribbons comprised of separate panels of yellow, magenta, cyan and black on the same ribbon. Although color thermal transfer desktop printers imported into North America by OEMs based outside of North America initially use color thermal transfer ribbons produced by Fujicopian Co., Ltd., the Company's experience has been that most such OEMs eventually purchase compatible color thermal transfer ribbons from the Company to avoid the foreign exchange risk, longer lead times, additional shipping and distribution expenses and tariffs associated with imports of thermal transfer ribbons into the United States. The major applications for color desktop printers are business graphics and presentations, scientific and engineering drawings, medical imaging, graphic arts design, electronic publishing, and signage. Graphs and charts developed using currently available software can be either printed onto paper for inclusion in reports, presentations and other documents, or printed onto transparencies for use with overhead projectors. Substantial amounts of statistical, financial and other information can be summarized in easily readable and understandable color charts and graphs for business presentations. Engineering and scientific applications enable users to create more easily understandable color renderings of complex designs, drawings and images. In the graphic arts and electronic publishing industries, color printers are used to produce color advertising proofs, test designs for packaging, color layouts and computer-generated artistic renderings. Color thermal transfer ribbons are produced to printer OEM specifications based on variables such as printer speed, electronic printhead design, heat management characteristics and printing pressure. Film substrate characteristics and backcoat formulations may be adjusted to maximize the suitability of the ribbon for a particular application. Because of the highly specialized characteristics of color thermal transfer ribbons, such ribbons are not interchangeable among different desktop printers. Thus, the Company manufactures one or more different ribbons for each color printer model manufactured by each OEM customer. The Company typically sells color thermal transfer ribbons only to the printer manufacturer thereby giving each OEM a proprietary ribbon to sell in the aftermarket. The use of separate process color ribbons, and other recent advancements in thermal transfer printers, have increased color printing speeds by a factor of ten, compared to printers using a single ribbon composed of separate panels of yellow, magenta and cyan. In addition, the Company has developed a new family of Duracoat(TM) ribbons to address new market opportunities. Duracoat(TM) 100 general purpose color ribbons are ideal for use in printing novelty items, such as T-shirt transfers. Duracoat(TM) 200 ribbons have higher durability and print quality, and are used primarily for printing color tags and labels, and for printing variable data on flexible packages, such as date or lot codes on snack foods. Duracoat(TM) 300 ribbons combine ultra-violet resistance and durability with the ability to print on a variety of vinyl substrates, making this ribbon ideal for use in printing outdoor signage. The Company sells its Duracoat(TM) color ribbons through both the aftermarket channel and directly to OEMs. Other Products In addition to bar code and color thermal transfer ribbons, the Company manufactures other types of thermal transfer ribbons, primarily MICR and plain- paper facsimile ribbons. MICR ribbons are used to encode checks for processing through the United States banking system. Under the license agreement with Fujicopian Co., Ltd., the Company has the right to manufacture MICR ribbons protected by Fujicopian's patents and to use certain proprietary technology to manufacture such ribbons. Also included in other products are ribbons which are used in plain-paper thermal transfer facsimile machines due to the reliability, high quality and permanence of thermal transfer printing. SALES, MARKETING AND SUPPORT The Company sells its thermal transfer ribbons principally to printer OEMs which in turn sell ribbons under their own brand names to end-users, either directly or through distributors and value-added resellers. The Company markets, sells and provides support for its thermal transfer ribbons in North America through its own sales and marketing staff principally based at its Amherst, New York headquarters. Since thermal transfer ribbon formulations and performance are significantly influenced by printer design, the Company's joint product development efforts with printer OEMs have been important to the Company's success. By selling primarily to printer OEMs, the Company has minimized its need for a large sales support staff. The Company also markets its bar code thermal transfer ribbons through a number of alternate distribution channels in situations where the Company believes that such marketing will not adversely affect sales of the Company's products to printer OEM customers. Such alternate distribution channels include master distributors, value-added resellers and large dealers. Value-added resellers include bar code system integrators, bar code printer resellers, computer supplies resellers and label converters. Dealers include label manufacturers, printer resellers and business forms dealers. As the market for bar code thermal transfer ribbons increasingly matures, end-users are expected to purchase their ribbon requirements at lower cost through these highly- competitive alternate distribution channels. In September 1995, the Company acquired the thermal transfer supplies business from one of its OEM customers, QMS, Inc., and began selling ribbons and other thermal transfer supplies under the QMS brand name directly to distributors, dealers and end-users. As a result of this acquisition, the Company expanded its product offerings to include non-ribbon thermal transfer supplies and created a telemarketing capability to serve small distributors, dealers and end-user customers. The Company employs a total of 49 people in its sales and marketing organization, including executives, managers and a customer service and support staff. Because the Company sells its thermal transfer ribbons primarily to large OEM customers, the Company achieves what it considers to be high sales productivity per sales executive. CUSTOMERS The Company's basic channel of distribution for its thermal transfer ribbons is the printer manufacturer or OEM who in turn sell to thousands of other distributors and end-users of the ribbons. In addition, the Company sells its bar code thermal transfer ribbons to master distributors, value-added resellers and large dealers. The Company also began to sell QMS thermal transfer supplies to dealers, distributors and end-users following the acquisition of this business during fiscal 1996. BACKLOG The Company's backlog at March 31, 1997 was $4.3 million, up $114,000 from $4.2 million on March 31, 1996. MANUFACTURING The Company manufactures inks from pigments, waxes, resins and solvents, and then coats them onto large rolls of ultra-thin polyester film substrate. These coated "jumbo rolls" are then converted into finished ribbons by slitting and winding them onto cardboard or plastic cores before packaging and boxing. The manufacturing process operates 24 hours each day, seven days per week throughout the year, using four shifts of manufacturing employees. A typical manufacturing employee works 12 hours each day for four days, followed by four days off, then three days on and finally three days off. All manufacturing is performed at the Company's facilities located in Amherst, New York. The manufacturing function is supported by a plant and industrial engineering department which has implemented a detailed preventative maintenance program for the Company's manufacturing equipment. The Company's quality assurance department oversees required testing and audits both manufacturing processes and products. The production planning and control department utilizes a manufacturing resource planning system to plan and control material usage and shop schedules to satisfy customer orders. RAW MATERIALS The principal raw materials required by the Company are polyester film, pigments and coating solvents. Key supplies are generally purchased pursuant to contracts covering up to one year. Multiple sources exist for all raw materials. RESEARCH AND PRODUCT DEVELOPMENT The thermal transfer ribbon industry involves sophisticated technological and manufacturing processes. Historically, the Company's advanced technology had largely been provided by Fujicopian which invented, and is a leader in, thermal transfer printing technology. More recently, the Company significantly strengthened its own internal research and development staff and now employs 30 people dedicated to research and development. The Company works closely with Fujicopian and Armor, Fujicopian's European licensee, in the research and development of new products and manufacturing processes. The Company, Fujicopian and Armor conduct research and development strategy meetings to coordinate their efforts four times each year. During these meetings, each company presents its most recent research and development activities before selecting those programs to further develop independently. In this manner, each company is able to benefit from three separate research and development programs. The Company believes that this combined research and development provides the Company, Fujicopian and Armor with greater thermal transfer ribbon technology and research and development resources than many of their competitors. At times, the Company has retained selected universities to supplement its internal research and development efforts and to provide technical expertise with respect to a variety of research and development efforts. The Company's research and development expenses were $2.2 million, $3.1 million and $3.6 million during fiscal years 1995, 1996 and 1997, respectively. In view of the ongoing technological and proprietary developments which Fujicopian shares with the Company pursuant to the license agreement, the Company views its royalty payments under the license agreement (which amounted to $2.7 million during fiscal 1997) as an expense that, in part, yields an additional form of research and development benefit. LICENSE AND PATENTS The Company's license agreement with Fujicopian extends until 2008. Under the license agreement, Fujicopian has granted to the Company an exclusive license (with certain exceptions) to manufacture specified products in North America, including thermal transfer ribbons and improvements to such products developed by Fujicopian and the Company, and a non-exclusive right to sell and distribute such products in all countries other than those in Europe and Asia, using the technology and processes covered by the patents obtained and patent applications made and to be made by Fujicopian relating to such products and their manufacture. In exchange for such rights, the Company has agreed to pay annual royalties on sales of essentially all thermal transfer ribbons. The Company believes that the two most important patents which it has the right to use under the license agreement are U.S. Patent No. 4,503,095 and U.S. Patent No. 4,572,684, both of which expire in 2003. Such patents relate to certain color thermal transfer ribbons and their use. The Company believes that these patents have discouraged competitors from manufacturing certain color thermal transfer ribbons in the United States. COMPETITION Competition in the desktop color thermal transfer ribbon market has been limited as a result of Fujicopian's patents and the Company's right to use these patents under the license agreement. As a result of the exclusivity provided by the license agreement, the Company believes that its principal competition for sales of color thermal transfer ribbons to printer OEMs comes from competing technologies, such as ink jet and laser. In contrast, the bar code thermal transfer ribbon market is highly competitive as a number of manufacturers compete for market share. Unlike the color thermal transfer ribbon market, the Company does not enjoy the benefit of any patent protection with respect to the proprietary technology it utilizes (other than in the manufacture of MICR ribbons). Sony Chemical, Dai Nippon Printing and Ricoh Electronics are all Japan-based companies that compete in North America. Competition from Japanese competitors has, to some extent, been limited by the foreign exchange risk, longer lead times, additional transportation and distribution expenses and tariffs associated with imports into the United States. However, certain of the Company's Japan-based competitors have either announced their intentions or have begun to manufacture all or part of their thermal transfer products in the United States to reduce their manufacturing costs. North American-based companies which compete in the bar code thermal transfer ribbon market include Chemicraft and NCR Corporation. REGULATORY MATTERS The Company is subject to various federal, state and local environmental laws and regulations limiting or related to the use, emission, discharge, storage, treatment, handling and disposal of hazardous substances, particularly the federal Water Pollution Control Act, the Clean Air Act of 1970 (as amended in 1990), the Resource Conservation and Recovery Act (including amendments relating to underground tanks) and the special "Superfund" program. The Company has made significant investments in safety and environmental equipment, including solvent tank storage and thermal oxidizer systems, which have reduced solvent emissions by more than 95%. This emission amount, as reduced, is well within the current emission control standards and permit requirements as established by the New York Department of Environmental Conservation and the federal Environmental Protection Agency. The Company is also subject to federal, state and local laws and regulations relating to workplace safety and worker health, including those promulgated under the Occupational Safety and Health Act ("OSHA"). The Company believes that it currently is in compliance in all material respects with existing OSHA laws and regulations. EMPLOYEES As of March 31, 1997, the Company had 690 employees, of whom 47 were engaged in sales, 27 in research and development, 41 in finance and administration, 156 in manufacturing support, 363 in manufacturing operations and 56 in various part-time and temporary capacities. None of the Company's employees are represented by a collective bargaining organization and the Company considers its relationships with its employees to be good. CAUTIONARY STATEMENT PURSUANT TO "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Except for historical information, this report, the Company's quarterly reports to the Securities and Exchange Commission on Form 10-Q and periodic press releases, as well as other public documents and statements, contain "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the statements, including, among others: . Significant price reductions or improvements in competing imaging technologies. . The rate of growth of the installed base of thermal transfer printers and the timing of orders. . Dependence on a small number of large OEM customers. . Competitive product offerings and pricing actions. . The availability and pricing of key raw materials, in particular polyester film and ink-making materials. . Productivity improvements in manufacturing. . Dependence on key members of management. Readers are cautioned not to place undue reliance on forward-looking statements. The Company undertakes no obligation to republish revised forward- looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events. Subsequent Event - ---------------- On July 15, 1997, the Company, PAXAR Corporation, a New York corporation ("PAXAR"), and Ribbon Manufacturing, Inc., a Delaware corporation and a wholly owned subsidiary of PAXAR ("Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"), upon and subject to the terms and conditions of which Merger Sub will be merged (the "Merger") with and into the Company and the Company will become a wholly owned subsidiary of PAXAR. In the Merger, each issued and outstanding share of the common stock of the Company will be converted into the right to receive between 1.2 and 1.412 shares of common stock of PAXAR. A copy of the Merger Agreement was filed as Exhibit 2 to the Company's Current Report on Form 8-K, dated July 29, 1997. ITEM 2. PROPERTIES The Company's main facility is located in Amherst, New York, a suburb of Buffalo, and contains office space, two manufacturing plants and one warehouse totaling approximately 275,000 square feet. The Company's principal manufacturing equipment consists of ink-making machines, coating machines, backcoating machines, slitting machines and ribbon-packaging machines. The Company's equipment is subject to a detailed preventative maintenance program and is believed to be in generally good working order. ITEM 3. LEGAL PROCEEDINGS The Company is not presently involved in any legal proceedings which, if determined adversely to the Company, would have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS YEAR ENDED MARCH 31, 1996: - ---------------------------- Price ---------------- Quarter Ended High Low - ---------------------------- ------- ------- July 4, 1995 $29.250 $21.750 October 3, 1995 $27.375 $18.000 January 2, 1996 $28.500 $19.938 March 31, 1996 $26.000 $16.250 YEAR ENDED MARCH 31, 1997: - ---------------------------- Price ----------------- Quarter Ended High Low - ---------------------------- ------- ------- July 2, 1996 $24.000 $16.250 October 1, 1996 $24.500 $20.000 December 31, 1996 $26.000 $21.250 March 31, 1997 $24.000 $14.750 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data as of March 31, 1996 and 1997 and for the years ended March 31, 1995, 1996 and 1997 have been derived from the audited consolidated financial statements of the Company incorporated herein by reference. The selected financial data as of March 31, 1993, 1994 and 1995 and for the years ended March 31, 1993 and 1994 are derived from audited financial statements. The data set forth below should be read in conjunction with the consolidated financial statements and the notes thereto incorporated herein by reference:
March 31, --------------------------------------------- 1993 1994 1995 1996 1997 ------- ------- ------- -------- -------- (In thousands, except per share amounts) For the year ended: Revenues $48,438 $61,576 $85,477 $ 88,448 $106,894 Income from continuing operations 3,067 6,100 9,970 9,903 11,296 Net income from continuing operations per share 0.51 0.76 1.10 1.07 1.26 Cash dividends --- --- --- --- --- At year end: Total assets 57,483 76,876 97,944 115,461 118,474 Notes payable to banks and long-term debt $24,745 $ 7,349 $ 5,637 $ 20,225 $ 10,738
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- The Company's financial emphasis in fiscal 1997 was increasing value for its stockholders. The Company generated free cash of $11.8 million or $1.37 per share, and in conjunction with borrowings on its lines of credit, repurchased 878,400 shares of its common stock between the fourth quarter of fiscal 1996 and the first two months of fiscal 1998. In addition, 375,788 shares of common stock were surrendered between the third quarter of fiscal 1996 and the fourth quarter of fiscal 1997 by officers and a director in connection with the exercise of stock options and warrants. This 1,254,188 share or 14.0% decrease in the Company's outstanding common stock resulted in a $.07 contribution to earnings per share in fiscal 1997. Revenues in fiscal 1997 were $106.9 million, an increase of 20.9% from $88.4 million in fiscal 1996. Revenues in fiscal 1995 were $85.5 million and included $6.0 million of revenue, primarily jumbo rolls to Armor, Fujicopian's thermal transfer licensee for Europe, which did not recur in fiscal 1996. Therefore, recurring revenues grew 11.3% from fiscal 1995 to fiscal 1996. The Company sells its ribbons primarily to printer original equipment manufacturers, which in turn sell the ribbons under their own brand names to end-users, either directly or through distributors and value-added resellers. Revenues from OEM customers in fiscal 1997 were $77.6 million, comprised 72.6% of total revenues, and increased 15.7% from $67.1 million in fiscal 1996. This increase primarily reflects the transfer of ribbon production for a significant color ribbon program from Fujicopian during fiscal 1996, new products introduced to existing tag and label and fax customers in North America, and increased sales of existing and new products outside of North America. The Company also sells its ribbons directly to distributors and dealers where such sales do not adversely affect the Company's OEM customers. Domestic distributor revenues in fiscal 1997 were $26.4 million, comprised 24.7% of total revenues and increased 30.4% from $20.2 million in fiscal 1996. The addition of several new significant tag and label customers, new product lines introduced to existing tag and label customers, overall tag and label aftermarket growth, and the continuing end-user migration towards this distributor channel from the OEM channel as the market for tag and label ribbons matures were primarily responsible for this growth. The continued expansion of the market for tag and label printing in Central and South America, and the Company's marketing programs targeting these opportunities, were principally responsible for significant revenue growth for existing customers and the addition of a significant new customer in the international distributor channel. Revenues for this channel were $3.0 million in fiscal 1997, comprised 2.8% of total revenues, and increased 149.3% from $1.2 million in fiscal 1996. Recurring revenues for the OEM channel increased 10.1% from fiscal 1995 to fiscal 1996, principally due to the transfer of ribbon production for the significant color ribbon program from Fujicopian, new product lines introduced to existing tag and label customers, the addition of a significant new tag and label customer, and the overall growth of applications for tag and label printing. Domestic distributor revenues increased 13.6% from fiscal 1995 to fiscal 1996. In September 1995, the Company acquired the thermal transfer supplies business from one of its OEM customers, QMS Inc., and began selling ribbons and other thermal transfer supplies under the QMS brand name directly to distributors, dealers and end-users. The higher selling prices for ribbons and other items included in the QMS supplies business, the addition of several new significant tag and label customers, new product lines introduced to existing tag and label customers, overall tag and label aftermarket growth, and end-user migration towards this distributor channel from the OEM channel, all contributed to this growth. The Company's ribbon unit selling prices in total declined slightly in fiscal 1997 after remaining comparable from fiscal 1995 to fiscal 1996. Selling price decreases to tag and label ribbon OEM and distributor customers were partially offset by slight increases in selling prices to color ribbon OEM customers and significantly higher selling prices to dealers, distributors and end-users for QMS thermal transfer supplies. Gross margins were 29.1% of revenues in fiscal 1997 as compared to 29.6% in fiscal 1995. This decline primarily resulted from the incremental operating expenses from the new manufacturing facility opened during fiscal 1997, a change in sales mix and lower overall selling prices, partially offset by the increased leverage of fixed overhead costs and production efficiencies from higher sales volumes, lower raw material purchase prices, and higher margins on the QMS thermal transfer supplies business. The gross margin decline in fiscal 1996 from 29.8% of revenues in fiscal 1995 primarily reflects the fixed overhead costs not absorbed by temporarily declining revenues from customers reducing their inventory levels, partially offset by higher margins on the QMS thermal transfer business and no management bonuses in fiscal 1996. Total operating expenses were $13.2 million in fiscal 1997, an increase of 21.0% from $10.9 million in fiscal 1996. Research and development expenses increased $515,000 due to personnel additions to create new products for future revenue growth, partially offset by lower costs of samples produced in the new pilot manufacturing facility. Selling expenses increased $1.1 million due to the hiring of additional personnel for the Company's telemarketing and direct sales forces and to identify opportunities for future products and increased advertising to maximize revenue from new products. General and administrative expenses increased $638,000, primarily due to increased staffing in human resources, finance and management information systems to support the Company's growth. Total operating expenses in fiscal 1996 increased by 14.1% from $9.6 million in fiscal 1995. Research and development expenses increased $862,000 due to increased staffing and sampling of new products as investments in future revenue growth. Selling expenses increased $515,000 due to the creation of a telemarketing capability for QMS thermal transfer supplies, and the hiring of additional personnel to drive the Company's sales growth, partially offset by no management bonuses in fiscal 1996. Net interest expense was $562,000 in fiscal 1997, an increase of $527,000 from $35,000 in fiscal 1996. Total interest cost incurred in fiscal 1997 was $900,000, of which $238,000 was capitalized as part of the cost of construction of and equipment for the 100,000 square-foot manufacturing facility completed during the first quarter, and $617,000 was charged to income. Total interest cost incurred in fiscal 1996 was $748,000, including $612,000 capitalized in conjunction with the new facility and $136,000 charged to income. Net interest income in fiscal 1995 was $143,000 before the Company's cash and short-term investments were used together with borrowings on lines of credit in fiscal 1996 to fund the new facility, purchase the QMS thermal transfer supplies business, and repurchase 315,400 shares of the Company's common stock. Income taxes in fiscal 1997 were $6.1 million or 35.0% of income before income taxes. In fiscal 1996, income taxes were $5.3 million or 35.0% of income before income taxes. Income taxes in fiscal 1995 were $6.1 million or 38.0% of income before income taxes. Benefits from changes in the New York State alternative minimum tax calculation and the Company's foreign sales subsidiary established at the beginning of fiscal 1996 contributed to the rate reduction. The actual tax payments in all three years were significantly lower than the expense reflected in the Company's statements of income since a substantial portion of the tax provisions were deferred, primarily reflecting the temporary benefits of accelerated depreciation of plant and equipment on the Company's tax returns. Tax payments were also reduced by tax deductions from the exercises of non- qualified stock options and compensatory warrants. For financial reporting purposes, these tax benefits are recognized as increases in additional paid-in capital, rather than as reductions of income tax expense. Liquidity and Capital Resources - ------------------------------- The Company's financial condition remains strong, with long-term debt comprising only 1.2% of total capitalization at March 31, 1997. Cash provided by operating activities in fiscal 1997 of $25.6 million funded $13.8 million of capital expenditures, leaving free cash flow of $11.8 million or $1.37 per share, which was used to repay $9.5 million on the Company's lines of credit and long-term debt, and repurchase 142,200 shares of the Company's common stock for $2.5 million. The Company expects to spend approximately $7 million on capital expenditures in fiscal 1998, primarily to purchase equipment to increase manufacturing capacity and yield production efficiencies. The Company believes that its internally generated cash, supplemented as needed by its lines of credit, will be sufficient to fund its working capital, capital expenditure and debt service requirements over the next two years. Trade receivables increased $1.6 million in fiscal 1997, with the number of days of sales in trade receivables increasing from 48 days at March 31, 1996 to 50 days at March 31, 1997, but still within the Company's typical range of 45 to 50 days. Inventories decreased $2.0 million during fiscal 1997, as the Company worked with its key suppliers to reduce its raw material inventories. The $2.4 million decrease in other assets principally consists of the repayment of loans which funded personal income tax withholdings due upon the exercise of stock options by officers. The Company also repurchased 142,200 shares of its common stock during the fourth quarter of fiscal 1997, at an average purchase price of $17.47 per share. The Company repurchased an additional 420,800 shares of its common stock during the first two months of fiscal 1998 at an average purchase price of $17.33 per share. The Company terminated its common stock repurchase plan in July 1997. Cash provided by operating activities in fiscal 1996 of $9.9 million, short-term borrowings on the Company's lines of credit of $16.3 million and $7.0 million of cash and short-term investments at March 31, 1995 funded $17.5 million of capital expenditures, the purchase of the QMS thermal transfer supplies business for $5.6 million and the repurchase of 315,400 shares of the Company's common stock for another $5.6 million. Trade receivables increased $4.3 million in fiscal 1996, primarily due to disproportionately higher sales volume in February and March 1996. Inventories increased $2.3 million during fiscal 1996, as the Company used available manufacturing capacity to increase its finished goods inventories in anticipation of future revenue increases, as well as create the higher inventory levels required to service the growing proportion of dealer, distributor and end-user sales. The $4.7 million increase in other assets during fiscal 1996 principally consists of the purchase price for the QMS thermal transfer supplies business, of which $1.5 million was subsequently amortized in fiscal 1997. During fiscal 1996 and 1997, the Company loaned $3.4 million and $1.6 million to certain officers in conjunction with the exercise of non-qualified stock options. These exercises, in addition to the lapse of restrictions on restricted stock, generated tax deductions of $6.3 million and $5.4 million for the Company in fiscal 1996 and 1997, respectively. During fiscal 1996 and 1997, $4.2 million and $3.9 million of these loans were repaid through the surrender of shares of common stock to the Company. The portions of these loans which funded the officers' personal income tax withholdings are included in other assets since it is the intention of the Company to allow repayment beyond March 31, 1998. The portions of these loans that funded the exercise price of the options are included as a reduction of stockholder's equity. These demand notes are secured by the stock and personal assets of the officers. Inflation - --------- Inflationary factors have not had a significant effect on the Company's overall revenues or profitability during the past three years. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not applicable until after June 15, 1998. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Years Ended March 31, ---------------------------- 1995 1996 1997 ------- -------- --------- (In thousands, except per share amounts) Revenues $85,477 $88,448 $106,894 Cost of goods sold 59,968 62,253 75,737 ------- ------- -------- Gross profit 25,509 26,195 31,157 ------- ------- -------- Operating expenses: Research and development 2,217 3,079 3,594 Selling 3,635 4,150 5,289 General and administrative 3,720 3,695 4,333 ------- ------- -------- Total operating expenses 9,572 10,924 13,216 ------- ------- -------- Operating income 15,937 15,271 17,941 Interest income (expense), net 143 (35) (562) ------- ------- -------- Income before income taxes 16,080 15,236 17,379 Income taxes 6,110 5,333 6,083 ------- ------- -------- Net income $ 9,970 $ 9,903 $ 11,296 ======= ======= ======== Net income per share of common stock $1.10 $1.07 $1.26 ======= ======= ======== Weighted average common shares outstanding 9,093 9,224 8,967 ======= ======= ========
See accompanying notes to consolidated financial statements INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, ----------------------------------- 1996 1997 ---------------- ----------------- (In thousands, except share and ASSETS per share amounts) - ----- Current assets: Cash $ 570 $ 444 Trade receivables 16,157 17,726 Inventories: Raw materials 9,397 5,789 Work in process 3,627 4,602 Finished goods 4,839 5,478 -------- -------- Total inventories 17,863 15,869 -------- -------- Prepaid expenses 635 1,107 Deferred income taxes 1,467 1,176 -------- -------- Total current assets 36,692 36,322 -------- -------- Property, plant and equipment, at cost: Land 1,163 1,170 Building and improvements 10,924 21,265 Equipment 64,362 82,702 Construction in progress 17,194 814 -------- -------- 93,643 105,951 Less accumulated depreciation 21,826 28,320 -------- -------- Net property, plant and equipment 71,817 77,631 -------- -------- Other assets 6,952 4,521 -------- -------- $115,461 $118,474 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ---------------------------------------------------------------- Current liabilities: Notes payable to banks 16,292 8,484 Current installments of long-term debt 1,674 1,143 Trade accounts payable 8,126 7,858 Other accrued liabilities 2,654 3,622 -------- -------- Total current liabilities 28,746 21,107 Long-term debt, excluding current installments 2,259 1,111 Deferred income taxes 6,336 8,388 -------- -------- Total liabilities 37,341 30,606 -------- -------- Commitments (Note 8) Stockholders' equity: Preferred stock; $.01 par value; 5,000,000 shares authorized; none issued --- --- Common stock; $.01 par value; 30,000,000 shares authorized; 8,855,301 and 8,570,310 shares issued as of March 31, 1996 and 1997, respectively 89 86 Additional paid-in capital 53,037 44,514 Unearned compensation - restricted stock awards (692) (385) Notes receivable from exercise of stock options and warrants (1,219) (37) Retained earnings 32,394 43,690 Treasury stock, 310,400 shares, at cost (5,489) --- -------- -------- Total stockholders' equity 78,120 87,868 -------- -------- $115,461 $118,474 ======== ========
See accompanying notes to consolidated financial statements INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31, ------------------------------- 1995 1996 1997 --------- --------- --------- (in thousands) Cash flows from operating activities: Net income $ 9,970 $ 9,903 $ 11,296 -------- -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,520 6,251 8,216 Deferred income taxes and other noncash expenses 2,482 2,804 2,972 Reduction in income taxes payable from the exercise of options and warrants 1,969 1,464 1,477 Cash provided (used) by changes in: Trade receivables (675) (4,418) (1,560) Inventories (4,939) (2,256) 1,994 Prepaid expenses (236) 183 (472) Other assets (7) 50 (310) Trade accounts payable 2,956 (1,052) 1,018 Other accrued liabilities 2,845 (3,041) 968 -------- -------- -------- Total adjustments 8,915 (15) 14,303 -------- -------- -------- Net cash provided by operating activities 18,885 9,888 25,599 -------- -------- -------- Cash flows used in investing activities: Capital expenditures (14,235) (17,477) (13,777) Payments to acquire other assets --- (5,575) --- Purchases of securities (4,468) (22) --- Maturities of securities 1,000 3,490 --- -------- -------- -------- Net cash used in investing activities (17,703) (19,584) (13,777) -------- -------- -------- Cash flows from financing activities: Proceeds from employee stock purchase plan 83 102 79 Purchase of common stock --- (5,576) (2,484) Exercise of stock options and warrants: Proceeds 1,013 409 1,576 Notes received for related tax liabilities (1,996) (2,816) (1,632) Proceeds from (repayments of) notes payable to banks --- 16,292 (7,808) Repayments of long-term debt (1,712) (1,704) (1,679) -------- -------- -------- Net cash provided by (used in) financing activities (2,612) 6,707 (11,948) -------- -------- -------- Net decrease in cash (1,430) (2,989) (126) Cash at beginning of year 4,989 3,559 570 -------- -------- -------- Cash at end of year $ 3,559 $ 570 $ 444 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest, net of amount capitalized 218 151 663 Income taxes $ 311 $ 3,044 $ 2,269 ======== ======== ======== Supplemental disclosure of noncash investing and financing activities: Increase (decrease) in liabilities for capital expenditures 528 1,172 (1,286) Notes received for exercise price of stock options and warrants 1,880 548 --- Common stock surrendered: Payment of stock option exercise price --- 699 778 Repayments of notes by officers $ --- $ 4,210 $ 3,910 ======== ======== ========
See accompanying notes to consolidated financial statements INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Notes Receivable From Exercise Additional of Stock Total Common Paid-in Unearned Options Retained Treasury Stockholders' Stock Capital Compensation & Warrants Earnings Stock Equity ------ -------- ------------- ----------- --------- --------- -------------- (In thousands, except share amounts) Balance at March 31, 1994 $81 $47,442 $ (830) $ --- $12,521 $ (104) $59,110 Exercise of options and warrants: Shares issued, 630,566 6 2,887 2,893 Tax benefit 3,306 3,306 Notes received (1,880) (1,880) Net income 9,970 9,970 Restricted stock awards and other 271 (85) 104 290 ---------- -------- -------- ------------- Balance at March 31, 1995 87 53,906 (915) (1,880) 22,491 --- 73,689 Exercise of options and warrants: Shares issued, 319,081 3 1,648 87 1,738 Tax benefit 2,116 2,116 Shares surrendered, 197,345 (1) (4,908) 1,209 (3,700) Notes received (548) (548) Purchase of 315,400 treasury shares (5,576) (5,576) Net income 9,903 9,903 Restricted stock awards and other 275 223 498 ---------- -------- -------- Balance at March 31, 1996 89 53,037 (692) (1,219) 32,394 (5,489) 78,120 Exercise of options and warrants: Shares issued, 373,045 (3,178) 5,489 2,311 Tax benefit 1,800 1,800 Shares surrendered, 208,807 (2) (4,686) 1,182 (3,506) Purchase and retirement of 142,200 shares (1) (2,483) (2,484) Net income 11,296 11,296 Restricted stock awards and other 24 307 331 ---------- -------- -------- Balance at March 31, 1997 $86 $44,514 $ (385) $ (37) $43,690 $ --- $87,868 === ======= ======= ========== ======== ======== =============
See accompanying notes to consolidated financial statements INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 1995, 1996 AND 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES International Imaging Materials, Inc. and subsidiaries (the "Company") manufactures and sells thermal transfer ribbons used in non-impact thermal transfer printers. The Company's customers are primarily printer manufacturers and distributors in North America. A summary of significant accounting policies follows: (a) Principles of Consolidation The consolidated financial statements include the financial statements of International Imaging Materials, Inc. and its two wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. (b) Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. (c) Depreciation and Amortization Depreciation of plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets. Intangibles included in other assets are amortized over the period of expected benefit. (d) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on April 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement did not have any impact on the Company's financial position or results of operations. (e) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and restriction on the use of certain State investment tax credits in assessing the realizability of deferred tax assets. (f) Earnings Per Share Weighted average common shares outstanding include common stock equivalents which consist of the aggregate dilutive effect of unexercised stock options, warrants and restricted stock awards. INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (g) Stock-Based Compensation Stock options and other stock-based compensation awards are accounted for using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. (h) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (2) INDEBTEDNESS The Company maintains lines of credit with two banks totaling $40,000,000 which are due on demand and bear interest at either the LIBOR rate plus .20%, the bank's cost of funds rate plus .50%, or the prime rate, as selected by the Company. Advances under both lines of credit are at the sole discretion of the banks and can be made for various periods of time not extending beyond September 30, 1997 under one of the lines of credit. There was $16,292,000 and $8,484,000 outstanding under the facilities at 5.60% and 5.81% at March 31, 1996 and 1997, respectively. A summary of long-term debt follows: Interest Rate at March 31, March 31, -------------- 1997 1996 1997 ---------- ------ ------ (In thousands) Term loans, due in: 1997 7.75% $ 631 $ 49 1998 7.75 2,562 1,630 2001 8.25 647 520 Other 2.50 93 55 ------ ------ Total long-term debt 3,933 2,254 Less current installments 1,674 1,143 ------ ------ Long-term debt, excluding current installments $2,259 $1,111 ====== ====== The term loans, payable in monthly installments ranging from $11,000 to $78,000, bear interest at variable rates based on the prime rate, are secured by certain plant and equipment, require the maintenance of certain financial ratios, limit the amount of capital expenditures and prohibit the payment of cash dividends without the lenders' consent. The aggregate annual installments due on long-term debt for each of the next five years are: $1,143,000 in fiscal 1998, $846,000 in fiscal 1999, $127,000 in fiscal 2000, $127,000 in fiscal 2001 and $11,000 in fiscal 2002. In connection with the construction of new manufacturing facilities, the Company capitalized interest as a component of the cost of plant and equipment as follows: Years Ended March 31, --------------------- 1995 1996 1997 ------ ------ ----- (In thousands) Interest cost capitalized $ 235 $ 612 $ 283 Interest cost charged to income 284 136 617 ----- ----- ----- Total interest cost incurred $ 519 $ 748 $ 900 ===== ===== ===== INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The 2001 term loan and one of the lines of credit are with a bank that owns warrants to purchase 50,000 shares of the Company's common stock. The carrying amount of the Company's long-term debt instruments approximates the fair value of such instruments based upon management's best estimate of interest rates that would be available to the Company for similar debt obligations at March 31, 1997. (3) STOCKHOLDERS' EQUITY The Company has three stock plans under which non-qualified stock options and restricted stock have been granted to employees and directors. The plans authorize grants of up to 3,150,000 shares. All options were granted at the fair market value of the Company's common stock on the grant date, vest over five years, and expire ten years and one day after grant. The following table summarizes option activity under these plans: Weighted Average Options Exercise Price ---------- ---------------- Outstanding at March 31, 1994 1,663,270 $ 8.09 Granted 290,946 $26.26 Exercised (388,942) $ 4.31 Forfeited (4,000) $18.57 --------- ------ Outstanding at March 31, 1995 1,561,274 $12.39 Granted 589,610 $21.55 Exercised (301,881) $ 5.39 Forfeited (241,000) $26.51 --------- ------ Outstanding at March 31, 1996 1,608,003 $14.95 Granted 315,294 $20.35 Exercised (320,605) $ 6.11 Forfeited (116,750) $23.37 --------- ------ Outstanding at March 31, 1997 1,485,942 $17.34 ========= ====== Exercisable at March 31 1995 893,617 6.23 1996 708,501 8.42 1997 666,064 $13.70 Included in options granted and options forfeited in the table above are 236,000 options which were repriced from a weighted average exercise price of $26.53 per share to $17.75 per share in fiscal 1996 and 52,000 options repriced from an exercise price of $26.50 per share to $17.75 per share in fiscal 1997. In exchange for the repricing of these options, the recipients agreed to forego any payments at or below the target level under the Company's incentive bonus compensation program for fiscal 1997. The following table summarizes information about stock options outstanding at March 31, 1997:
Options Outstanding Options Exercisable ----------------------------------------- ------------------------ Range of Weighted Average Weighted Average Weighted Average Exercise Prices Options Remaining Life Exercise Price Options Exercise Price - ----------------- ------- ---------------- ---------------- ------- ---------------- $ 5 - $14 348,784 4.4 years $ 6.23 290,429 $ 5.74 $16 - $22 825,823 8.2 years $19.44 308,334 $18.92 $22 - $27 311,335 8.3 years $24.17 67,301 $24.19
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED In addition, the Company granted directors 2,400 shares of restricted stock at a grant-date fair value of $24.00 per share in fiscal 1996 and 2,100 shares at a grant-date fair value of $21.69 per share in fiscal 1997. Compensation cost of restricted stock awards charged to earnings was $281,000 in fiscal 1996 and $274,000 in fiscal 1997. The Company also has an employee stock purchase plan which allows employees to purchase up to 200,000 shares of the Company's common stock at 85% of the fair market value of the shares at the time of purchase. As of March 31, 1996 and 1997, 9,055 and 13,626 shares, respectively, had been issued under this plan. The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock plans, and accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company determined compensation cost for its stock options under the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net income and net income per share of common stock would have been reduced to the pro forma amounts indicated below: Years Ended March 31, ---------------------------------------- 1996 1997 ---------- ----------- (In thousands, except per share amounts) Net income As reported $9,903 $11,296 Pro forma 9,415 10,200 ====== ======= Net income per share As reported 1.07 1.26 Pro forma $ 1.03 $ 1.17 ====== ======= For purposes of this pro forma disclosure, the weighted average fair market value of options granted in fiscal 1996 and fiscal 1997 of $9.42 and $9.06, respectively, were calculated using the Black-Scholes option pricing model. The weighted average assumptions used in the model were: volatility of 48.1%, expected life of 6 years, no dividend yield, and risk-free interest rate of 6.0% and 6.4% for fiscal 1996 and fiscal 1997, respectively. Pro forma net income reflects only options granted in fiscal 1996 and 1997. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the option's vesting period and compensation cost for options granted prior to April 1, 1995 is not considered. Additionally, the Company has warrants outstanding as follows: Years Ended March 31, ------------------------------------- 1995 1996 1997 ------------- ------------- ------- Warrants outstanding 119,640 102,440 50,000 ============= ============= ======= Warrants exercisable 79,640 82,440 50,000 ============= ============= ======= Exercise price range $5.00 - 10.00 $5.00 - 10.00 $ 10.00 ============= ============= ======= During fiscal 1996, the Company loaned $548,000 to certain officers to fund the exercise price of stock options and $2,816,000 to pay their personal income tax liabilities related to the exercise. The Company also loaned $1,632,000 to officers for their stock option related income tax liabilities in fiscal 1997. In fiscal 1996 and 1997, $4,210,000 and $4,016,000, respectively, of such loans were repaid through the surrender of shares of the Company's common stock and cash. The Company intends to allow repayment of these demand notes, which are collateralized by all of the personal assets of the respective officers, beyond March 31, 1998. INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (4) INCOME TAXES Income tax expense consists of the following: Years Ended March 31, ---------------------- 1995 1996 1997 ------ ------ ------ (In thousands) Current: Federal $3,411 $2,662 $3,040 State 527 313 333 ------ ------ ------ 3,938 2,975 3,373 Deferred - Federal 2,172 2,358 2,710 ------ ------ ------ Total income tax expense $6,110 $5,333 $6,083 ====== ====== ====== Income tax expense differs from the expected amount (computed by applying the 34% statutory rate to income before income taxes) due principally to the effects of the Company's foreign sales corporation, state income taxes and increase in the valuation allowance for deferred tax assets. The tax effects of temporary differences that give rise to the deferred tax assets and liability were as follows: March 31, -------------------- 1996 1997 --------- --------- (In thousands) Deferred tax assets: Investment tax and other credit carryforwards $ 3,384 $ 4,706 Alternative minimum tax credit carryforwards 3,781 3,503 Capitalized inventory costs 581 493 Other 672 237 -------- -------- Total gross deferred tax asset 8,418 8,939 Valuation allowance (2,695) (3,648) -------- -------- Net deferred tax asset 5,723 5,291 Deferred tax liability - depreciation of plant and equipment (10,592) (12,503) -------- -------- Net deferred tax liability $ (4,869) $ (7,212) ======== ======== The above net deferred tax liability is reflected in the balance sheets as follows: March 31, ------------------ 1996 1997 -------- -------- (In thousands) Current deferred tax asset $ 1,467 $ 1,176 Noncurrent deferred tax liability (6,336) (8,388) ------- ------- Net deferred tax liability $(4,869) $(7,212) ======= ======= INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED In fiscal 1995, 1996 and 1997, 630,566, 319,081 and 373,045 shares of common stock, respectively, were issued through the exercise of non-qualified stock options and compensatory warrants. In addition, in fiscal 1996 and 1997, restrictions lapsed on 41,900 and 10,000 shares of common stock, respectively. The total tax benefit to the Company from these transactions, which is credited to additional paid-in capital, rather than recognized as a reduction of income tax expense, was $3,306,000, $2,313,000 and $1,844,000 in fiscal 1995, 1996 and 1997, respectively. Those benefits were recognized in the balance sheets as follows: Years Ended March 31, ---------------------- 1995 1996 1997 ------ ------ ------ (In thousands) Reduction in: Income taxes payable $1,969 $1,464 $1,477 Deferred income taxes 1,337 849 367 ------ ------ ------ Credit to additional paid-in capital $3,306 $2,313 $1,844 ====== ====== ====== At March 31, 1997, the Company's investment tax and other credits ($316,000 Federal and $6,651,000 State) expire from 2001 to 2013. The Company also has $3,349,000 of Federal and $233,000 of State alternative minimum tax credit carryforwards available with no expiration date. (5) OTHER ASSETS In fiscal 1996 $5,575,000 was paid to QMS, Inc. for the rights to sell thermal transfer supplies directly to the customers of QMS, Inc. under the QMS, Inc. brand name. The purchase price was allocated to the various service and consulting arrangements, customer records and other agreements acquired in this transaction. Amortization of the cost of the acquired assets was $655,000 and $1,539,000 in fiscal 1996 and 1997, respectively. (6) RELATIONSHIP WITH FUJICOPIAN CO., LTD. The Company manufactures thermal transfer ribbons pursuant to a license agreement with Fujicopian Co., Ltd. which expires in 2008. Royalty expenses under the agreement totaled $2,627,000, $2,681,000 and $2,680,000 in fiscal 1995, 1996 and 1997, respectively. The Company also purchased certain materials from Fujicopian which totaled $4,579,000, $3,040,000 and $2,586,000 in fiscal 1995, 1996 and 1997, respectively. The Company believes that the costs of such purchases are competitive with alternative sources of supply. Other accrued expenses includes $1,184,000 and $1,020,000 payable to Fujicopian Co., Ltd. as of March 31, 1996 and 1997, respectively. At March 31, 1997, Fujicopian owned 260,000 shares of the Company's common stock. (7) RETIREMENT SAVINGS PLAN The Company has a defined contribution retirement savings plan qualified under Section 401(k) of the Internal Revenue Code. Pursuant to the plan, employees make voluntary contributions which are partially matched by the Company. Expenses under the plan were $555,000, $639,000 and $852,000 in fiscal 1995, 1996 and 1997, respectively. (8) COMMITMENTS Rent expense under operating leases for certain buildings and equipment was $253,000, $270,000 and $304,000 in fiscal 1995, 1996 and 1997, respectively. Minimum annual payments due under these leases are $202,000 in fiscal 1998, $189,000 in fiscal 1999, $191,000 in fiscal 2000 and 2001, $142,000 in fiscal 2002 and a total of $427,000 thereafter. INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (9) SIGNIFICANT CUSTOMERS Sales to significant customers were: $10,282,000, $11,859,000 and $15,660,000 to one customer in fiscal 1995, 1996 and 1997, respectively and $9,599,000 and $14,842,000 to another customer in fiscal 1996 and 1997, respectively. In addition, export sales in the aggregate were $9,576,000, $9,753,000 and $19,452,000 in fiscal 1995, 1996 and 1997, respectively. (10) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for 1996 and 1997 are as follows:
Year Ended March 31, 1996 ---------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- -------- -------- (In thousands, except per share amounts) Revenues $19,001 $21,223 $24,018 $24,206 Gross profit 5,417 6,209 7,306 7,263 Net income $ 1,831 $ 2,213 $ 2,865 $ 2,994 ======= ======= ======= ======= Net income per share of common stock $ .20 $ .24 $ .31 $ .34 ======= ======= ======= ======= Year Ended March 31, 1997 ---------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter -------- ------- ------- -------- (In thousands, except per share amounts) Revenues $25,003 $26,851 $27,730 $27,310 Gross profit 7,524 7,838 8,231 7,564 Net income $ 2,831 $ 2,870 $ 3,040 $ 2,555 ======= ======= ======= ======= Net income per share of common stock $ .32 $ .32 $ .34 $ .29 ======= ======= ======= =======
(11) ACCOUNTING PRONOUNCEMENTS The Company is required to adopt Statement of Financial Accounting Standards No. 128 (Earnings per Share) in fiscal 1998. The Company does not believe that the adoption of this standard will have a material effect on the consolidated financial statements. INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders International Imaging Materials, Inc.: We have audited the accompanying consolidated balance sheets of International Imaging Materials, Inc. and subsidiaries as of March 31, 1996 and 1997, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended March 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of International Imaging Materials, Inc. and subsidiaries as of March 31, 1996 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 1997, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP - ----------------------------------------- KPMG PEAT MARWICK LLP Buffalo, New York April 23, 1997 Supplementary data are not required pursuant to Item 302 of Regulation S- K. The Company has elected, however, to present certain quarterly information in note 10 to its audited financial statements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth certain information with respect to the directors and executive officers of the Company. Directors - --------- Robert S. Anderson, age 55, has been a Director of the Company since 1983. Since 1988, Mr. Anderson has been a Senior Vice President of Brean Murray, Foster Securities Inc. Mr. Anderson also devotes a portion of his time to money management at BMI Capital, a registered investment advisor and affiliate of Brean Murray, Foster Securities Inc. Mr. Anderson is a member of the board of directors of Trident International. Richard A. Marshall, age 46, has been a Director of the Company since March 1995. Mr. Marshall joined the Company in 1992 and is currently Executive Vice President and Chief Operating Officer. William P. Montague, age 50, has been a Director of the Company since 1994. Mr. Montague is currently the President and Chief Operating Officer of Mark IV Industries, Inc. where he has been employed since 1972. Mr. Montague is a certified public accountant and serves on the boards of directors of Gibraltar Steel Corporation and Mark IV Industries, Inc. Dr. Albert J. Simone, age 61, has been a Director of the Company since 1994. Dr. Simone has been President of the Rochester Institute of Technology ("RIT") since September 1992. From 1984 to 1992, Dr. Simone was President of the University of Hawaii System and Chancellor of the University of Hawaii at Manoa. Dr. Simone is a member of the Conference Board, Joint Institute for Marine and Atmospheric Research, Pacific and Asian Affairs Counsel, Pacific International Center for High Technology Research and the University's Research Association. Dr. Simone is a member of the board of directors of Marine Midland Bank, Rochester Division. Alexander K. Daw, age 39, has been a Director of the Company since 1985. Mr. Daw is the Managing Director of Research Laboratories of Australia Pty. Ltd., an independent contract research organization founded in 1959 and devoted to research in a number of areas, including imaging and image toning sciences. John W. O'Leary, age 61, joined the Company in 1984 as President and Chief Executive Officer and a Director. Mr. O'Leary is a member of the board of directors of Marine Midland Bank, Rochester Division. Michael J. Downey, age 53, has been a Director of the Company since 1993. Mr. Downey, a private investor, was from 1989 to 1993 Chairman of the Board and Chief Executive Officer of Prudential Mutual Fund Management. Mr. Downey also served as an Executive Vice President and a member of the Operating Committee of Prudential Securities Inc. Mr. Downey is a member of the Boards of Directors of the Asia Pacific Fund, Inc., The Merger Fund, The Simba Fund, Ltd, and Value Asset Management. Donald D. Lennox, age 78, joined the Company in 1989 and is currently Chairman of the Board of Directors. Mr. Lennox serves on the boards of directors of Gleason Corporation, and various mutual funds affiliated with The Prudential Insurance Company of America and its wholly-owned subsidiary, Prudential Securities Inc. Ronald J. Kubovcik, who was a Class I Director, resigned effective March 31, 1997. The Company has a classified Board of Directors consisting of two Class I Directors (Messrs. Downey and Lennox), four Class II Directors (Messrs. Anderson, Marshall, Montague and Simone), and two Class III Directors (Messrs. Daw and O'Leary). The current terms of the Class II, Class III and Class I Directors continue until the Annual Meetings of Stockholders to be held in 1997, 1998 and 1999, respectively, and until their respective successors are elected and qualified. At each Annual Meeting of Stockholders, a class of Directors is elected for a full term of three years to succeed the class of Directors whose terms expire at such Annual Meeting. Executive Officers - ------------------ The Company's executive officers include John W. O'Leary, President and Chief Executive Officer, Richard A. Marshall, Executive Vice President and Chief Operating Officer, Vincent C. Dowell, Senior Vice President - Manufacturing, Michael J. Drennan, Vice President - Finance, Treasurer, Secretary and Chief Financial Officer, F. Lynn Hamb, Senior Vice President - Technical Operations and Chief Technical Officer, David B. Lupp, Vice President - Controller, Assistant Treasurer and Assistant Secretary, and Nick S. Mandrycky, Senior Vice President - Sales. Each of these executive officers was appointed by, and serves at the pleasure of, the Board of Directors. Information regarding John W. O'Leary and Richard A. Marshall is included under "Directors". Vincent C. Dowell, age 41, joined the Company in 1992 and is currently Senior Vice President-Manufacturing. Prior to joining the Company, Mr. Dowell was employed at Harris Corporation in its RF Communications Group, where his last position was Director of Manufacturing. Michael J. Drennan, age 42, joined the Company in 1984 and is currently Vice President-Finance, Treasurer, Secretary and Chief Financial Officer. Mr. Drennan is a certified public accountant. F. Lynn Hamb, age 59, joined the Company in 1995 and is currently Senior Vice President-Technical Operations and Chief Technical Officer. Prior to joining the Company, Dr. Hamb was employed for 31 years by the Eastman Kodak Company. During that time Dr. Hamb held various research, product development and operational positions, most recently as Vice President and Regional Business Manager for Eastman Kodak Asia-Pacific Limited. David B. Lupp, age 40, joined the Company in 1989 and is currently Vice President-Controller, Assistant Treasurer and Assistant Secretary. Mr. Lupp is a certified public accountant. Nick S. Mandrycky, age 39, joined the Company in 1988 and is currently Senior Vice President - Sales. The Merger Agreement, described in Item 1 of this Report, provides that after the Merger the directors of Merger Sub immediately prior to the effective time of the Merger (the "Effective Time") will be the initial directors of the Company and the officers of the Company immediately prior to the Effective Time will be the initial officers of the Company. Section 16(a) Beneficial Ownership Reporting Compliance - ------------------------------------------------------- Under Section 16(a) of the Exchange Act, the Company's Directors, executive officers and beneficial owners of more than 10% of the Common Stock are required to report, among other things, their initial ownership of the Company's equity securities and any subsequent changes in that ownership to the Securities and Exchange Commission. Section 16(a) also requires that copies be furnished to the Company. Based upon a review of such forms received, the Company is not aware of any late filings. ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table - -------------------------- The following table sets forth certain information for the Company's past three fiscal years ended March 31, 1997 concerning the cash and non-cash compensation earned by or awarded to the Chief Executive Officer of the Company and each of the other four most highly compensated executive officers of the Company whose combined salary and bonus exceeded $100,000. SUMMARY COMPENSATION TABLE
Long-Term --------- Annual Compensation Compensation Awards ------------------------------------------------------------------ ------------------------ Securities All Other Restricted Underlying All Other Name and Fiscal Compensation Stock Options/ Compensation Principal Position Year Salary ($) Bonus ($) $ (1) Awards ($)(3) SARs (#) ($)(2) - ------------------------------ ---------- ------------ ---------- -------- ------------ ------- ------- John W. O'Leary 1997 302,900 --- 94,233 --- 61,829 95,257 President & 1996 285,755 --- 174,842 --- 116,611 95,565 Chief Executive Officer 1995 285,755 180,924 --- --- 45,000 175,087 Richard A. Marshall 1997 194,884 --- --- --- 25,000 8,092 Executive Vice President 1996 169,680 --- --- --- 42,500 6,909 & Chief Operating Officer 1995 144,000 95,064 --- --- 25,000 7,784 F. Lynn Hamb 1997 148,327 --- --- --- 17,000 9,059 Senior Vice President- 1996 127,688 --- --- --- 62,000 1,971 Technical Operations & Chief Technical Officer Vincent C. Dowell 1997 135,000 --- --- --- 15,000 6,827 Senior Vice President - 1996 123,003 --- --- --- 32,500 7,171 Manufacturing 1995 105,550 54,013 --- --- 20,000 5,645 Nick S. Mandrycky 1997 126,557 --- --- --- 13,000 6,626 Senior Vice President - 1996 117,918 --- --- --- 25,000 7,033 Sales 1995 113,383 53,864 --- --- 15,000 2,270
(1) For the fiscal year ended March 31, 1997, amount for Mr. O'Leary consists of (i) imputed interest, on non-interest bearing option exercise loans from the Company, in the amount of $89,186, and (ii) amount for use of a Company car of $5,047. Excludes certain perquisites for Messrs. Marshall, Hamb, Dowell, and Mandrycky which do not exceed the lesser of $50,000 or 10% of the named individual's aggregate salary and bonus. (2) For the fiscal year ended March 31, 1997, amounts consist of (i) Company contributions to the Company's 401(k) retirement savings plan on behalf of Messrs. O'Leary, Marshall, Hamb, Dowell, and Mandrycky in the amounts of $6,192, $6,188, $5,884, $6,125 and $6,002, respectively, (ii) life insurance premiums paid by the Company on behalf of such persons in the amounts of $47,650, $1,904, $3,175, $702 and $624, respectively and (iii) income tax gross-up on the life insurance premium of $41,415 for Mr. O'Leary. (3) At March 31, 1997, Mr. O'Leary held 60,937 shares of restricted Common Stock with an aggregate market value of $1,127,335 (based on a market price of $18.50 per share). At March 31, 1996 and 1995, Mr. O'Leary held shares of restricted Common Stock of 68,837 and 108,337, respectively, with aggregate market values of $1,273,485 and $2,004,235, respectively (based on a market price of $18.50 per share). The 60,937 shares held by Mr. O'Leary at March 31, 1997 contain restrictions on disposition requiring continued employment which will lapse from 1997 through 2001. Mr. O'Leary is entitled to receive dividends with respect to such shares of restricted Common Stock. Options/SARs Grants in Last Fiscal Year - --------------------------------------- The following tables set forth certain information concerning the grant of options during the fiscal year ended March 31, 1997 to each of the executive officers named in the Summary Compensation Table and the number of stock options held by such executive officers at the end of such fiscal year, the value of such stock options and the potential value of such stock options at assumed rates of stock appreciation. OPTIONS/SARS GRANTS IN LAST FISCAL YEAR
Individual Grants -------------------------------------------- Number of Percent of Total Potential Realizable Value Securities Options/SARs At Assumed Annual Rates Underlying Granted Exercise or Of Stock Appreciation for Options/SARs To Employees Base Price Expiration Option Term (1) --------------- Name Granted (#)(2) In Fiscal Year ($/Share) Date 5% ()$10% ($) - --------------------- ------------ --------------- ---------- ---------- --------------- John W. O'Leary 30,000 (3) 9.7% 22.00 8/22/06 421,323 1,062,046 31,829 (4) 10.3% 16.125 3/27/07 394,186 931,869 Richard A. Marshall 25,000 (3) 8.1% 22.00 8/22/06 351,103 885,038 F. Lynn Hamb 17,000 (3) 5.5% 22.00 8/22/06 238,750 601,826 Vincent C. Dowell 15,000 (3) 4.9% 22.00 8/22/06 210,662 531,023 Nick S. Mandrycky 13,000 (3) 4.2% 22.00 8/22/06 182,573 460,220
(1) These values have been determined based upon assumed rates of appreciation and are not intended to forecast the possible future appreciation, if any, of the price or value of the Company's Common Stock. (2) The options entitle the holder to purchase shares of the Company's Common Stock at an exercise price which is equal to the fair market value per share on the date the stock option was granted. Payment of the exercise price may be made in cash, shares of Common Stock or a combination of cash and shares. Named executives who pay the exercise price by exchange of Common Stock previously owned are issued a new stock option to purchase additional shares of Common Stock equal to the number of shares of Common Stock so exchanged. No stock option may be exercised after the expiration of ten years and one day from the date of grant. In the event of a change in control of the Company (as defined in the 1990 Incentive Plan), the stock options become fully exercisable as of the date of the change in control. (3) These options vest in five equal annual installments commencing October 1, 1997. (4) These options were granted under the reload provision of the 1990 Incentive Plan upon Mr. O'Leary's surrender of 31,829 shares of Common Stock previously owned to pay the exercise price on his March 26, 1997 exercise of 102,640 stock options. Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values - -------------------------------------------------------------------------------- AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of Securities Value of Unexercised Underlying Unexercised In-The-Money Options/ Shares Options /SARs At FY-End (#) SARs at FY-End ($) (1) Acquired Value ----------------------------------------- ---------------------- Name On Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable - --------------------- --------------- ----------- ------------- ------------- ----------- ---------------------- John W. O'Leary 102,640 1,141,870 237,994 178,546 2,175,317 123,743 Richard A. Marshall 12,500 217,188 45,900 75,600 173,100 121,650 F. Lynn Hamb --- --- 27,400 51,600 15,000 --- Vincent C. Dowell 5,000 93,750 29,500 49,000 123,000 78,000 Nick S. Mandrycky 5,000 95,000 55,005 36,000 517,568 6,750
(1) Based on a market price of $18.50 per share at March 31, 1997. Compensation of Directors - ------------------------- The Directors who are employees of the Company are not compensated for serving as Directors. For the fiscal year ended March 31, 1997, Directors who were not employees of the Company received an annual retainer fee of $8,000, a committee retainer fee of $1,000 for each committee on which they served, plus a fee of $1,000 for each meeting of the Board of Directors and its committees which they attended. Non-employee Directors also participate in the 1993 Outside Director Stock Option Plan which provides for annual grants on April 1 of each year, to each such Director, of stock options to purchase 1,000 shares of Common Stock at the fair market value thereof. Additionally, each non-employee Director on October 1, 1994 received an award of 1,500 shares of Restricted Stock. The Plan provides for additional annual awards of 300 shares of Restricted Stock to each non-employee Director on each October 1 thereafter. Directors of the Company are also reimbursed for out-of-pocket expenses. Employment Contracts and Termination of Employment and Change in Control - ------------------------------------------------------------------------ Arrangements - ------------ Effective in 1996, the Company entered into Continuity Agreements with the executives named in the Summary Compensation Table. Such agreements for Messrs. O'Leary, Marshall, Hamb, Dowell, and Mandrycky provide for minimum salaries of $302,900, $189,861, $147,000, $135,000, and $128,224 respectively, bonuses as determined by the Compensation Committee and employee benefits pursuant to any plans and arrangements from time to time in effect. Each of such Continuity Agreements provides that, in the event of termination of employment for a reason other than cause or disability occurring within 36 months after a change in control of the Company, as defined in the agreement, the executive is entitled to the payment of: (i) an amount equal to three times his highest annualized base salary plus three times the highest bonus paid to such executive at any time during the five years preceding termination and (ii) employee benefits for 36 months following termination. The executive is also entitled to (i) and (ii) in the event he leaves within 36 months after a change in control for "good reason" including, among other things, changes in his duties or responsibilities, relocation of the Company's offices, or failure to continue a material compensation or benefit plan. Payments to Messrs. O'Leary and Marshall are to be made in a lump sum upon termination. Payments to the other executives are to be made in equal installments over the 36 months following termination, subject to offset for salary, bonus or benefit payments made by a subsequent employer within such 36 month period. In the event of termination without cause or in the event of termination subsequent to the 36-month period after change in control, the executive is entitled to receive, for a period of nine months, his base salary, benefits, any deferred salary, bonuses or other compensation subject to the terms of the applicable plan, and a pro rata portion of the bonus that would have been payable for that fiscal year if maximum discretionary bonuses had been paid. Amounts payable upon a change in control under any of the above Continuity Agreements, are subject to reduction by an amount necessary to avoid any "excise tax" under Section 4999 of the Internal Revenue Code of 1986, as amended. Compensation Committee Interlocks and Insider Participation - ----------------------------------------------------------- All of the members of the Compensation Committee are independent, non- employee Directors of the Company and are not former officers of the Company. Mr. Downey is Chairman and Messrs. Daw, Lennox and Montague are the other current members of the Compensation Committee. No executive officer of the Company serves as a member of the board of directors or on the compensation committee of a corporation of which any of the Company's Directors serving on the Compensation Committee or on the Board of Directors is an executive officer. Mr. Lennox, the Company's Chairman of the Board and a member of the Compensation Committee, was paid consulting fees of $80,000 by the Company during the Company's fiscal year ended March 31, 1997. The Company anticipates paying consulting fees to Mr. Lennox in the future. Mr. Kubovcik, a former Director and member of the Compensation Committee, is a partner in the law firm of Kubovcik & Kubovcik and a former partner in the law firm of Adduci, Mastriani & Schaumberg, LLP, resident in their Washington DC office, of both of which provide legal services to the Company. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information as to the number of shares of Common Stock beneficially owned, as of June 30, 1997, except as noted in notes (1) and (3) below, by (i) each person who is known by the Company to beneficially own more than 5% of the Common Stock, (ii) each Director and nominee for Director of the Company, (iii) each executive officer identified in the Summary Compensation Table and (iv) all executive officers and Directors of the Company as a group. A person is a beneficial owner if he or she has or shares voting power or investment power. At June 30, 1997, there were 8,311,486 shares of Common Stock outstanding. Except as noted below, the address of all stockholders identified in the table and accompanying footnotes below is in care of the Company at its principal executive offices. Percentage of Number Outstanding Of Shares Common Stock --------- -------------- FMR Corporation (1) 689,900 8.3% 82 Devonshire Street Boston, MA 02109 Frontier Capital Management (2) 507,090 6.1% 9a Summer Street Boston, MA 02110 John W. O'Leary (3) 486,513 5.8% Thomas W. Smith & Thomas N. Tryforos (4) 444,300 5.3% 323 Railroad Avenue Greenwich, CT 06830 Alexander K. Daw (5) 403,300 4.9% Nick S. Mandrycky (6) 60,005 * Richard A. Marshall (7) 50,829 * Robert S. Anderson (8) 48,143 * Donald D. Lennox (9) 36,646 * Vincent C. Dowell (10) 29,500 * F. Lynn Hamb (11) 28,400 * William P. Montague (12) 12,300 * Michael J. Downey (13) 4,700 * Albert J. Simone (12) 2,300 * All Directors and executive officers as a group (13 persons) 1,294,491 15.0% * Represents less than 1% of the issued and outstanding Common Stock. (1) Represents March 31, 1997 ownership as reported in FMR Corporation's 13(f) filing. FMR Corporation had sole investment power over the 664,100 shares and sole voting power over 96,800 of the shares of common stock of the Company reported in their Schedule 13G dated February 14, 1997. (2) Represents March 31, 1997 ownership as reported in Frontier Capital Managements 13(f) filing. (3) Includes 77,320 shares issuable pursuant to options exercisable within 60 days and 31,600 shares with restrictions on disposition requiring continued employment which will lapse from 1997 through 2001. (4) Represents March 31, 1997 ownership as reported in Thomas W. Smith's 13(f) filing. Thomas W. Smith and Thomas N. Tryforos have shared investment and voting power over 434,000 shares, based on information reported in Thomas W. Smith's and Thomas N. Tryforos' Schedule 13D dated November 6, 1996. (5) Includes 400,000 shares held by D.G. Daw Investments Pty. Ltd., with which Mr. Daw has shared voting and investment power, 1,500 shares held by Mr. Daw with restrictions on disposition which will lapse from 1997 to 2001, and 1,200 shares issuable pursuant to options exercisable within 60 days. (6) Includes 55,005 shares issuable pursuant to options exercisable within 60 days. (7) Includes 45,900 shares issuable pursuant to options exercisable within 60 days. (8) Includes 1,500 shares with restrictions on disposition which will lapse from 1997 to 2001, 1,200 shares issuable pursuant to options exercisable within 60 days, and excludes 22,500 shares held by Mr. Anderson's spouse as custodian for Mr. Anderson's minor children, as to which Mr. Anderson disclaims beneficial ownership. (9) Includes 1,500 shares with restrictions on disposition which will lapse from 1997 to 2001 and 1,200 shares issuable pursuant to options exercisable within 60 days. (10) Consists entirely of 29,500 shares issuable pursuant to options exercisable within 60 days. (11) Includes 27,400 shares issuable pursuant to options exercisable within 60 days. (12) Includes 1,500 shares with restrictions on disposition which will lapse from 1997 to 2001, and 200 shares issuable pursuant to options exercisable within 60 days. (13) Includes 1,500 shares with restrictions on disposition which will lapse from 1997 to 2001, and 600 shares issuable pursuant to options exercisable within 60 days. On July 15, 1997, the Company, PAXAR Corporation, a New York corporation ("PAXAR"), and Ribbon Manufacturing, Inc., a Delaware corporation and a wholly owned subsidiary of PAXAR ("Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"), upon and subject to the terms and conditions of which Merger Sub will be merged (the "Merger") with and into the Company and the Company will become a wholly owned subsidiary of PAXAR. In the Merger, each issued and outstanding share of the common stock of the Company will be converted into the right to receive between 1.2 and 1.412 shares of common stock of PAXAR. A copy of the Merger Agreement was filed as Exhibit 2 to the Company's current Report on Form 8-K, dated July 29, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain executive officers of the Company are indebted to the Company under non-interest bearing demand notes and term-loans, secured by personal assets, which were incurred to exercise stock options and in lieu of fiscal 1996 bonus, respectively. The amount of indebtedness as of June 30, 1997 of each Officer and Director, whose indebtedness exceeded $60,000 during the fiscal year follows. The maximum amount of indebtedness of each such person during the fiscal year ended March 31, 1997 is the amount indicated in notes (1) - (6) below.
Amount of Indebtedness ($) Name Title at June 30, 1997 ---- ----- --------------- John W. O'Leary (1) President and Chief 2,148,846 Executive Officer Richard A. Marshall (2) Executive Vice 25,452 President and Chief Operating Officer Michael J. Drennan (3) Vice President - Finance, 30,706 Secretary, Treasurer and Chief Financial Officer Vince C. Dowell (4) Senior Vice President - 14,351 Manufacturing Nick S. Mandrycky (5) Senior Vice President - 81,570 Sales David B. Lupp (6) Vice President - Controller, 98,550 Assistant Secretary and Assistant Treasurer
(1) Maximum amount of in debtedness during the fiscal year was $2,930,334. (2) Maximum amount of in debtedness during the fiscal year was $173,803. (3) Maximum amount of in debtedness during the fiscal year was $1,318,356. (4) Maximum amount of in debtedness during the fiscal year was $89,339. (5) Maximum amount of in debtedness during the fiscal year was $88,449. (6) Maximum amount of in debtedness during the fiscal year was $103,935. Mr. Lennox, the Company's Chairman of the Board and a member of the Compensation Committee, was paid consulting fees of $80,000 by the Company during the Company's fiscal year ended March 31, 1997. The Company anticipates paying consulting fees to Mr. Lennox in the future. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) (1) FINANCIAL STATEMENTS - THE FOLLOWING FINANCIAL STATEMENTS, ARE INCLUDED IN PART II, ITEM 8 OF THIS REPORT: Consolidated Statements of Income for the years ended March 31, 1995, 1996 and 1997 Consolidated Balance Sheets at March 31, 1996 and 1997 Consolidated Statements of Cash Flows for the years ended March 31, 1995, 1996 and 1997 Consolidated Statements of Stockholders' Equity for the years ended March 31, 1995, 1996 and 1997 Notes to Consolidated Financial Statements Independent Auditors' Report (2) FINANCIAL STATEMENT SCHEDULES: Independent Auditors' Report on Financial Statement Schedule Schedule II Valuation and qualifying accounts (Schedules other than those listed are omitted for the reason that they are not required, are not applicable or the required information is shown in the financial statements or notes thereto.) (3) EXHIBITS: Exhibits designated by an asterisk are management contracts and compensatory plans and arrangements required to be identified by Item 14(a)(3). Exhibit Number Description - ------- ----------- 3.1.1 Amended and Restated Certificate of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1 to the Registration Statement of the Registrant on Form S-1 (Registration No. 33-62290) (the "Registration Statement on Form S-1").) 3.1.2 Amended and Restated Certificate of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3 of Form 10-Q dated February 3, 1995.) 3.2 By-laws of the Registrant. (Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1.) 4.1 Form of Certificate for Common Stock of the Registrant. (Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1.) 10.1.1 License Agreement, dated September 18, 1996, between Fujicopian Co., Ltd. and the Registrant. (Incorporated by reference to Exhibit 10.1 of Form 10-Q dated October 1, 1996.) Exhibit Number Description - ------- ----------- 10.2 Indemnification Agreement, dated April 11, 1988, between Fujicopian and the Registrant. (Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1.) 10.4.1 Cross-License Agreement, dated as of December 14, 1984, between International Business Machines Corporation ("IBM") and the Registrant. (Incorporated by reference to Exhibit 10.4.1 to the Registration Statement on Form S-1.) 10.4.2 Letter Agreement, dated September 3, 1987, between Fujicopian and the Registrant and related to Cross-License Agreement, dated as of July 1, 1986, between IBM and Fujicopian. (Incorporated by reference to Exhibit 10.4.2 to the Registration Statement on Form S-1.) 10.10 Memorandum of Understanding Concerning Heat-Sensitive Color Transfer Ribbons, dated April 1989, between Fujicopian and Dai Nippon Printing Co., Ltd., for the benefit, in part, of the Registrant (including an English translation thereof). (Incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1.) 10.11 Letter Agreement, dated April 1, 1987, among Fujicopian, Toppan Printing Co., Ltd. and Toyo Ink Manufacturing Co., Ltd., for the benefit, in part, of the Registrant (including an English translation thereof). (Incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1.) 10.12.6 Registration Rights Agreement, dated May 6, 1988, between the Registrant and Norstar Bank. (Incorporated by reference to Exhibit 10.12.6 to the Registration Statement on Form S-1.) 10.12.7 Common Stock Subscription Warrant, dated May 6, 1988, between the Registrant and Norstar Bank. (Incorporated by reference to Exhibit 10.12.7 to the Registration Statement on Form S-1.) 10.13.1 Guarantee Agreement, dated March 30, 1989, made by the JDA to Norstar Bank for the benefit of and accepted by the Registrant. (Incorporated by reference to Exhibit 10.13.1 to the Registration Statement on Form S-1.) 10.13.2 Amendment, dated December 27, 1990, to Guarantee Agreement referenced in Exhibit 10.13.1. (Incorporated by reference to Exhibit 10.13.2 to the Registration Statement on Form S-1.) 10.13.3 Loan and Use Agreement, dated as of March 30, 1989, between Norstar Bank, the Town of Amherst Industrial Development Agency ("IDA") and the Registrant and agreed to by the JDA. (Incorporated by reference to Exhibit 10.13.3 to the Registration Statement on Form S-1.) 10.13.4 Mortgage, dated as of March 30, 1989, made by the Registrant and the IDA to Norstar Bank. (Incorporated by reference to Exhibit 10.13.4 to the Registration Statement on Form S-1.) 10.13.5 Indemnification and Guaranty Agreement, dated as of March 30, 1989, from the Registrant to the JDA. (Incorporated by reference to Exhibit 10.13.5 to the Registration Statement on Form S-1.) Exhibit Number Description - ------- ----------- 10.13.6 Subordination Agreement, dated as of March 30, 1989, by Norstar Bank for the benefit of the IDA, the JDA and the Registrant. (Incorporated by reference to Exhibit 10.13.6 to the Registration Statement on Form S-1.) 10.13.7 Mortgage Modification and Spreader Agreement, dated December 27, 1990, with respect to $1,400,000 Mortgage, among the JDA, Norstar Bank, the IDA and the Registrant. (Incorporated by reference to Exhibit 10.15.8 to the Registration Statement on Form S-1.) 10.14.1 Guarantee Agreement, dated as of March 30, 1989, made by the JDA to Norstar Bank for the benefit of and accepted by the Registrant. (Incorporated by reference to Exhibit 10.14.1 to the Registration Statement on Form S-1.) 10.14.2 Amendment, dated December 27, 1990, to Guarantee Agreement referenced in Exhibit 10.14.1. (Incorporated by reference to Exhibit 10.14.2 to the Registration Statement on Form S-1.) 10.14.3 Security Agreement (Machinery and Equipment), dated as of March 30, 1989, made by the Registrant for the benefit of Norstar Bank and accepted by the JDA. (Incorporated by reference to Exhibit 10.14.3 to the Registration Statement on Form S-1.) 10.14.4 Indemnification and Guaranty Agreement, dated as of March 30, 1989, made by the Registrant to the JDA. (Incorporated by reference to Exhibit 10.14.4 to the Registration Statement on Form S-1.) 10.14.5 Intercreditor Agreement, dated as of March 30, 1989, among Norstar Bank, The Buffalo and Erie County Regional Development Corporation ("RDC") and the JDA and acknowledged and accepted by the Registrant. (Incorporated by reference to Exhibit 10.14.5 to the Registration Statement on Form S-1.) 10.14.6 Letter Agreement, dated May 27, 1993 between the New York Job Development Authority and the Registrant assigning a loan to the New York Job Development Authority. (Incorporated by reference to Exhibit 10.14.6 of Form 10-K dated June 15, 1994.) 10.15.9 Security Agreement (Machinery and Equipment), dated December 27, 1990, from the Registrant to Norstar Bank and agreed to and accepted by the JDA and related to Machinery and Equipment Promissory Note. (Incorporated by reference to Exhibit 10.15.9 to the Registration Statement on Form S-1.) 10.15.10 Guarantee Agreement, dated December 27, 1990 from the JDA to Norstar Bank for the benefit of and acknowledged and accepted by the Registrant. (Incorporated by reference to Exhibit 10.15.10 to the Registration Statement on Form S-1.) 10.15.11 Indemnification and Guaranty Agreement, dated as of December 27, 1990, between the JDA and the Registrant. (Incorporated by reference to Exhibit 10.15.11 to the Registration Statement on Form S-1.) 10.15.12 Intercreditor Agreement, dated as of December 27, 1990, among Norstar Bank, the RDC and the JDA and acknowledged and agreed to by the Registrant. (Incorporated by reference to Exhibit 10.15.12 to the Registration Statement on Form S-1.) 10.15.14 Letter Agreement, dated June 3, 1993 between the New York Job Development Authority and the Registrant assigning a loan to the New York Job Development Authority. (Incorporated by reference to Exhibit 10.14.6 of Form 10-K dated June 15, 1994.) 10.16 Demand Note Agreement, dated March 31, 1995, between Fleet Bank and the Registrant. (Incorporated by reference to Exhibit 10.16 of Form 10-K dated June 15, 1995. 10.16.1 Amendment, dated June 17, 1996, to Demand Note Agreement referenced in Exhibit 10.16. 10.17.1 Assignment, dated March 26, 1992, of Security Agreement and Machinery and Equipment Promissory Note referenced in Exhibit 10.15.9, and of Guarantee Agreement referenced in Exhibit 10.15.10, from Norstar Bank to Marine Midland Bank and acknowledged and consented to by the JDA. (Incorporated by reference to Exhibit 10.17.1 to the Registration Statement on Form S-1.) 10.17.2 Modification and Reaffirmation Agreement, dated as of March 26, 1992, between Marine Midland Bank, the JDA and the Registrant. (Incorporated by reference to Exhibit 10.17.2 to the Registration Statement on Form S-1.) Exhibit Number Description - ------- ----------- 10.17.3 Letter Agreement, dated March 26, 1992, from Marine Midland Bank to Norstar Bank and agreed to by Norstar Bank and the JDA and related to Intercreditor Agreement referenced in Exhibit 10.15.12. (Incorporated by reference to Exhibit 10.17.3 to the Registration Statement on Form S-1.) 10.18 Demand Note Agreement, dated March 31, 1995, between Marine Midland Bank and the Registrant. (Incorporated by reference to Exhibit 10.18 of Form 10-K dated June 15, 1995.) 10.18.1 Demand Note Agreement, dated January 2, 1997, between Marine Midland Bank and the Registrant. (Incorporated by reference to Exhibit 10.1 of Form 10-Q dated December 31, 1996.) *10.19.1 1984 Stock Plan of the Registrant. (Incorporated by reference to Exhibit 10.19.1 to the Registration Statement on Fo rm S-1.) *10.19.2 Amendment No. 1, dated October 29, 1987, to 1984 Stock Plan of the Registrant referenced in Exhibit 10.19.1. (Incorporated by reference to Exhibit 10.19.2 to the Registration Statement on Form S-1.) *10.19.3 Amendment, dated July 27, 1989, to 1984 Stock Plan of the Registrant referenced in Exhibit 10.19.1. (Incorporated by reference to Exhibit 10.19.3 to the Registration Statement on Form S-1.) *10.19.4 Amendment, dated May 11, 1990, to 1984 Stock Plan of the Registrant referenced in Exhibit 10.19.1. (Incorporated by reference to Exhibit 10.19.4 to the Registration Statement on Form S-1.) *10.19.5 Amendment No. 2, dated July 26, 1990, to 1984 Stock Plan of the Registrant referenced in Exhibit 10.19.1. (Incorporated by reference to Exhibit 10.19.5 to the Registration Statement on Form S-1.) *10.19.6 Amendment, dated October 6, 1993, to 1984 Stock Plan of the Registrant referenced in Exhibit 10.19.1. (Incorporated by reference to Exhibit 4.3 to the Registration Statement of the Registrant on Form S-8 (Registration No. 33-71716) (the "Registration Statement on Form S-8").) *10.19.7 Amendment dated February 24, 1989, to 1984 Stock Plan of the Registrant referenced in Exhibit 10.19.1. (Incorporated by reference to Exhibit 10.20.4 to the Registration Statement on Form S-1.) *10.21.1 1990 Incentive Plan of the Registrant. (Incorporated by reference to Exhibit 10.21 to the Registration Statement on Form S-1.) *10.21.2 Amendment, dated October 6, 1993, to 1990 Incentive Plan of the Registrant referenced in Exhibit 10.21.1. (Incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S- 8.) *10.21.3 Amendment dated March 17, 1995, to 1990 Incentive Plan of the Registrant referenced in Exhibit 10.21.1. (Incorporated by reference to Exhibit 10.21.3 of Form 10-K dated June 15, 1995.) 10.23 Form of Demand Note executed by persons listed in item 404(c) of regulations S-K who are indebted to the Company as evidence of such indebtedness as set forth on the schedule attached to the form. 10.23.1 Form of Term Note executed by persons listed in item 404(c) of regulation S-K who are indebted to the Company as evidence of such indebtedness as set forth on the schedule attached to the form. *10.24.1 Executive Continuity Agreement, dated December 31, 1996, between John W. O'Leary and the Registrant. (Incorporated by reference to Exhibit 10.24.1 of Form 10-Q dated December 31, 1996.) *10.24.3 Executive Continuity Agreement, dated December 31, 1996, between Richard A. Marshall and the Registrant. (Incorporated by reference to Exhibit 10.24.2 of Form 10-Q dated December 31, 1996.) *10.24.4 Executive Continuity Agreement, dated December 31, 1996, between Michael J. Drennan and the Registrant. (Incorporated by reference to Exhibit 10.24.3 of Form 10-Q dated December 31, 1996.) *10.24.5 Executive Continuity Agreement, dated December 31, 1996, between Vincent C. Dowell and the Registrant. (Incorporated by reference to Exhibit 10.24.4 of Form 10-Q dated December 31, 1996.) *10.24.6 Executive Continuity Agreement, dated June 23, 1994, between Richard W. Dean and the Registrant. (Incorporated by reference to Exhibit 10.24.6 of Form 10-K dated June 15, 1994.) *10.24.7 Executive Continuity Agreement, dated December 31, 1996, between Nick S. Mandrycky and the Registrant. (Incorporated by reference to Exhibit 10.24.5 of Form 10-Q dated December 31, 1996.) *10.24.8 Executive Continuity Agreement, dated December 31, 1996, between Rickey W. Wallace and the Registrant. (Incorporated by reference to Exhibit 10.24.6 of Form 10-Q dated December 31, 1996.) *10.24.9 Executive Continuity Agreement, dated December 31, 1996, between F. Lynn Hamb and the Registrant. (Incorporated by reference to Exhibit 10.24.7 of Form 10-Q dated December 31, 1996.) Exhibit Number Description - ------- ----------- *10.24.10 Executive Continuity Agreement, dated December 31, 1996, between David B. Lupp and the Registrant. (Incorporated by reference to Exhibit 10.24.8 of Form 10-Q dated December 31, 1996.) *10.24.11 Executive Continuity Agreement dated December 31, 1996, between Susan R. Stamp and the Registrant. (Incorporated by reference to Exhibit 10.24.9 of Form 10-Q dated December 31, 1996.) *10.25 Key Man Life Insurance Policy, dated December 17, 1992, issued by The Mutual of New York on the life of John W. O'Leary, in the amount of $2,000,000, with the Registrant named as beneficiary. (Incorporated by reference to Exhibit 10.25.2 to the Registration Statement on Form S-1.) 10.26.1 Lease Agreement, dated May 12, 1992, between Uniland Development Company and the Registrant with respect to 165 Creekside Drive, Tonawanda, New York. (Incorporated by reference to Exhibit 10.26.1 to the Registration Statement on Form S-1.) 10.26.2 First Amendment, dated April 23, 1993, to Lease Agreement referenced in Exhibit 10.26.1. (Incorporated by reference to Exhibit 10.26.2 to the Registration Statement on Form S-1.) 10.27.1 Lease Agreement, dated December 29, 1992, between Uniland Development Company and the Registrant with respect to 70 John Glenn, Amherst. (Incorporated by reference to Exhibit 10.27 to the Registration Statement on Form S-1.) 10.27.2 First Amendment, dated September 17, 1993, to Lease Agreement referenced in Exhibit 10.27.1. (Incorporated by reference to Exhibit 10.27.2 of Form 10-K dated June 15, 1994.) 10.28 Form of Registration Rights Agreement. (Incorporated by reference to Exhibit 10.28 to the Registration Statement on Form S-1.) *10.29 Form of Directors and Officers Indemnification Agreement. (Incorporated by reference to Exhibit 10.29 to the Registration Statement on Form S-1.) 10.30 1993 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit 4.5 to the Registration Statement on Form S-8.) *10.31 1993 Outside Director Stock Option and Restricted Stock Plan. (Incorporated by reference to Exhibit 10.31 of Form 10-K dated June 15, 1995.) 11 Statement re Computation of Per Share Earnings. 21 Subsidiaries of the Registrant 23 Consent of KPMG Peat Marwick 27 Financial Data Schedule (B) REPORTS ON FORM 8-K: None 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. INTERNATIONAL IMAGING MATERIALS, INC. By: /s/ John W. O'Leary ---------------------------------- John W. O'Leary President July 29, 1997 ---------------------------------- Date Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ John W. O'Leary President and Chief Executive July 29, 1997 - ------------------------------- Officer, Director John W. O'Leary (Chief Operating Officer) /s/ Michael J. Drennan Vice President - Finance, July 29, 1997 - ------------------------------- Treasurer, Secretary and Michael J. Drennan Chief Financial Officer /s/ Donald D. Lennox Chairman of the Board of Directors July 29, 1997 - ------------------------------- Donald D. Lennox /s/ Robert S. Anderson Director July 29, 1997 - ------------------------------- Robert S. Anderson Director - ------------------------------ Alexander K. Daw Director - ----------------------------- Michael J. Downey /s/ Richard A. Marshall Executive Vice President & July 29, 1997 - ---------------------------- Chief Operating Officer, Richard A. Marshall Director /s/ William P. Montague Director July 29, 1997 - ---------------------------- William P. Montague /s/ Albert J. Simone Director July 29, 1997 - ---------------------------- Albert J. Simone
Independent Auditors' Report ---------------------------- The Board of Directors International Imaging Materials, Inc.: Under date of April 23, 1997, we reported on the consolidated balance sheets of International Imaging Materials, Inc. and subsidiaries as of March 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended March 31, 1997, as contained in the 1997 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year ended March 31, 1997. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in item 14(a)2 of this annual report on Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statement taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP ------------------------------------ KPMG Peat Marwick LLP Buffalo, New York April 23, 1997 S-1 SCHEDULE II INTERNATIONAL IMAGING MATERIALS, INC. VALUATION AND QUALIFYING ACCOUNTS (In Thousands)
BALANCE AT AMOUNT CHARGE-OFFS BALANCE BEGINNING CHARGED TO AND AT END OF YEAR ENDED DESCRIPTION OF YEAR EXPENSES DISPOSALS YEAR - ------------------------ ------------- -------------- ---------- ----------- --------- March 31, 1995 Allowance for doubtful trade receivables 18 122 19 121 Inventories valuation 226 550 199 577 ---- ---- ------ ----- $244 $672 $218 $ 698 ==== ==== ==== ====== March 31, 1996 Allowance for doubtful trade receivables 121 169 6 284 Inventories valuation 577 226 403 400 ---- ---- ------ --- $698 $395 $409 $ 684 ==== ==== ==== ====== March 31, 1997 Allowance for doubtful trade receivables 284 41 50 275 Inventories valuation 400 680 255 825 ---- ---- ------ --- $684 $721 $305 $1,100 ==== ==== ==== ======
S-2 INDEX TO EXHIBITS -----------------
Exhibit Number Description Location - ------- ---------------------------------------- -------- 3.1.1 Amended and Restated Certificate of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1 to the Registration Statement of the Registrant on Form S-1 (Registration No. 33-62290) (the "Registration Statement on Form S-1").) 3.1.2 Amended and Restated Certificate of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3 of Form 10-Q dated February 3, 1995.) 3.2 By-laws of the Registrant. (Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1.) 4.1 Form of Certificate for Common Stock of the Registrant. (Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1.) 10.1.1 License Agreement, dated September 18, 1996, between Fujicopian Co., Ltd. and the Registrant. (Incorporated by reference to Exhibit 10.1 of Form 10-Q dated October 1, 1996.) 10.2 Indemnification Agreement, dated April 11, 1988, between Fujicopian and the Registrant. (Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1.) 10.4.1 Cross-License Agreement, dated as of December 14, 1984, between International Business Machines Corporation ("IBM") and the Registrant. (Incorporated by reference to Exhibit 10.4.1 to the Registration Statement on Form S-1.) 10.4.2 Letter Agreement, dated September 3, 1987, between Fujicopian and the Registrant and related to Cross-License Agreement, dated as of July 1, 1986, between IBM and Fujicopian. (Incorporated by reference to Exhibit 10.4.2 to the Registration Statement on Form S-1.) 10.10 Memorandum of Understanding Concerning Heat-Sensitive Color Transfer Ribbons, dated April 1989, between Fujicopian and Dai Nippon Printing Co., Ltd., for the benefit, in part, of the Registrant (including an English translation thereof). (Incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1.) 10.11 Letter Agreement, dated April 1, 1987, among Fujicopian, Toppan Printing Co., Ltd. and Toyo Ink Manufacturing Co., Ltd., for the benefit, in part, of the Registrant (including an English translation thereof). (Incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1.)
Exhibit Number Description Location - -------- ---------------------------------------- -------- 10.12.6 Registration Rights Agreement, dated May 6, 1988, between the Registrant and Norstar Bank. (Incorporated by reference to Exhibit 10.12.6 to the Registration Statement on Form S-1.) 10.12.7 Common Stock Subscription Warrant, dated May 6, 1988, between the Registrant and Norstar Bank. (Incorporated by reference to Exhibit 10.12.7 to the Registration Statement on Form S-1.) 10.13.1 Guarantee Agreement, dated March 30, 1989, made by the JDA to Norstar Bank for the benefit of and accepted by the Registrant. (Incorporated by reference to Exhibit 10.13.1 to the Registration Statement on Form S-1.) 10.13.2 Amendment, dated December 27, 1990, to Guarantee Agreement referenced in Exhibit 10.13.1. (Incorporated by reference to Exhibit 10.13.2 to the Registration Statement on Form S-1.) 10.13.3 Loan and Use Agreement, dated as of March 30, 1989, between Norstar Bank, the Town of Amherst Industrial Development Agency ("IDA") and the Registrant and agreed to by the JDA. (Incorporated by reference to Exhibit 10.13.3 to the Registration Statement on Form S-1.) 10.13.4 Mortgage, dated as of March 30, 1989, made by the Registrant and the IDA to Norstar Bank. (Incorporated by reference to Exhibit 10.13.4 to the Registration Statement on Form S-1.) 10.13.5 Indemnification and Guaranty Agreement, dated as of March 30, 1989, from the Registrant to the JDA. (Incorporated by reference to Exhibit 10.13.5 to the Registration Statement on Form S-1.) 10.13.6 Subordination Agreement, dated as of March 30, 1989, by Norstar Bank for the benefit of the IDA, the JDA and the Registrant. (Incorporated by reference to Exhibit 10.13.6 to the Registration Statement on Form S-1.) 10.13.7 Mortgage Modification and Spreader Agreement, dated December 27, 1990, with respect to $1,400,000 Mortgage, among the JDA, Norstar Bank, the IDA and the Registrant. (Incorporated by reference to Exhibit 10.15.8 to the Registration Statement on Form S-1.) 10.14.1 Guarantee Agreement, dated as of March 30, 1989, made by the JDA to Norstar Bank for the benefit of and accepted by the Registrant. (Incorporated by reference to Exhibit 10.14.1 to the Registration Statement on Form S-1.) 10.14.2 Amendment, dated December 27, 1990, to Guarantee Agreement referenced in Exhibit 10.14.1. (Incorporated by reference to Exhibit 10.14.2 to the Registration Statement on Form S-1.) 10.14.3 Security Agreement (Machinery and Equipment), dated as of March 30, 1989, made by the Registrant for the benefit of Norstar Bank and accepted by the JDA. (Incorporated by reference to Exhibit 10.14.3 to the Registration Statement on Form S-1.) 10.14.4 Indemnification and Guaranty Agreement, dated as of March 30, 1989, made by the Registrant to the JDA. (Incorporated by reference to Exhibit 10.14.4 to the Registration Statement on Form S-1.) 10.14.5 Intercreditor Agreement, dated as of March 30, 1989, among Norstar Bank, The Buffalo and Erie County Regional Development Corporation ("RDC") and the JDA and acknowledged and accepted by the Registrant. (Incorporated by reference to Exhibit 10.14.5 to the Registration Statement on Form S-1.) 10.14.6 Letter Agreement, dated May 27, 1993 between the New York Job Development Authority and the Registrant assigning a loan to the New York Job Development Authority. (Incorporated by reference to Exhibit 10.14.6 of Form 10-K dated June 15, 1994.) 10.15.9 Security Agreement (Machinery and Equipment), dated December 27, 1990, from the Registrant to Norstar Bank and agreed to and accepted by the JDA and related to Machinery and Equipment Promissory Note. (Incorporated by reference to Exhibit 10.15.9 to the Registration Statement on Form S-1.) 10.15.10 Guarantee Agreement, dated December 27, 1990 from the JDA to Norstar Bank for the benefit of and acknowledged and accepted by the Registrant. (Incorporated by reference to Exhibit 10.15.10 to the Registration Statement on Form S-1.) 10.15.11 Indemnification and Guaranty Agreement, dated as of December 27, 1990, between the JDA and the Registrant. (Incorporated by reference to Exhibit 10.15.11 to the Registration Statement on Form S-1.)
Exhibit Number Description Location - -------- ---------------------------------------- -------- 10.15.12 Intercreditor Agreement, dated as of December 27, 1990, among Norstar Bank, the RDC and the JDA and acknowledged and agreed to by the Registrant. (Incorporated by reference to Exhibit 10.15.12 to the Registration Statement on Form S-1.) 10.15.14 Letter Agreement, dated June 3, 1993 between the New York Job Development Authority and the Registrant assigning a loan to the New York Job Development Authority. (Incorporated by reference to Exhibit 10.14.6 of Form 10-K dated June 15, 1994.) 10.16 Demand Note Agreement, dated March 31, 1995, between Fleet Bank and the Registrant. (Incorporated by reference to Exhibit 10.16 of Form 10-K dated June 15, 1995.) 10.16.1 Amendment, dated June 17, 1996 to Demand Note Agreement referenced in Exhibit 10.16. 10.17.1 Assignment, dated March 26, 1992, of Security Agreement and Machinery and Equipment Promissory Note referenced in Exhibit 10.15.9, and of Guarantee Agreement referenced in Exhibit 10.15.10, from Norstar Bank to Marine Midland Bank and acknowledged and consented to by the JDA. (Incorporated by reference to Exhibit 10.17.1 to the Registration Statement on Form S-1.) 10.17.2 Modification and Reaffirmation Agreement, dated as of March 26, 1992, between Marine Midland Bank, the JDA and the Registrant. (Incorporated by reference to Exhibit 10.17.2 to the Registration Statement on Form S-1.) 10.17.3 Letter Agreement, dated March 26, 1992, from Marine Midland Bank to Norstar Bank and agreed to by Norstar Bank and the JDA and related to Intercreditor Agreement referenced in Exhibit 10.15.12. (Incorporated by reference to Exhibit 10.17.3 to the Registration Statement on Form S-1.) 10.18 Demand Note Agreement, dated March 31, 1995, between Marine Midland Bank and the Registrant. (Incorporated by reference to Exhibit 10.18 of Form 10-K dated June 15, 1995.) 10.18.1 Demand Note Agreement, dated January 2, 1997, between Marine Midland Bank and the Registrant. (Incorporated by reference to Exhibit 10.1 of Form 10-Q dated December 31, 1996.) 10.19.1 1984 Stock Plan of the Registrant. (Incorporated by reference to Exhibit 10.19.1 to the Registration Statement on Form S-1.) 10.19.2 Amendment No. 1, dated October 29, 1987, to 1984 Stock Plan of the Registrant referenced in Exhibit 10.19.1. (Incorporated by reference to Exhibit 10.19.2 to the Registration Statement on Form S-1.) 10.19.3 Amendment, dated July 27, 1989, to 1984 Stock Plan of the Registrant referenced in Exhibit 10.19.1. (Incorporated by reference to Exhibit 10.19.3 to the Registration Statement on Form S-1.) 10.19.4 Amendment, dated May 11, 1990, to 1984 Stock Plan of the Registrant referenced in Exhibit 10.19.1. (Incorporated by reference to Exhibit 10.19.4 to the Registration Statement on Form S-1.) 10.19.5 Amendment No. 2, dated July 26, 1990, to 1984 Stock Plan of the Registrant referenced in Exhibit 10.19.1. (Incorporated by reference to Exhibit 10.19.5 to the Registration Statement on Form S-1.) 10.19.6 Amendment, dated October 6, 1993, to 1984 Stock Plan of the Registrant referenced in Exhibit 10.19.1. (Incorporated by reference to Exhibit 4.3 to the Registration Statement of the Registrant on Form S-8 (Registration No. 33-71716) (the "Registration Statement on Form S-8").) 10.19.7 Amendment dated February 24, 1989, to 1984 Stock Plan of the Registrant referenced in Exhibit 10.19.1. (Incorporated by reference to Exhibit 10.20.4 to the Registration Statement on Form S-1.) 10.21.1 1990 Incentive Plan of the Registrant. (Incorporated by reference to Exhibit 10.21 to the Registration Statement on Form S-1.) 10.21.2 Amendment, dated October 6, 1993, to 1990 Incentive Plan of the Registrant referenced in Exhibit 10.21.1. (Incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-8.) 10.21.3 Amendment dated March 17, 1995, to 1990 Incentive Plan of the Registrant referenced in Exhibit 10.21.1. (Incorporated by reference to Exhibit 10.21.3 of Form 10-K dated June 15, 1995.) 10.23 Form of Demand Note executed by persons listed in item 404(c) of regulation S-K who are indebted to the Company as evidence of such indebtedness as set forth on the schedule to the form. 10.23.1 Form of Term Note executed by persons listed in item 404(c) of regulation S-K who are indebted to the Company as evidence of such indebtedness as set forth on the schedule attached to the form.
Exhibit Number Description Location - -------- --------------------------------------------------------------------- -------- 10.24.1 Executive Continuity Agreement, dated December 31, 1996, between John W. O'Leary and the Registrant. (Incorporated by reference to Exhibit 10.24.1 of Form 10-Q dated December 31, 1996.) 10.24.3 Executive Continuity Agreement, dated December 31, 1996, between Richard A. Marshall and the Registrant. (Incorporated by reference to Exhibit 10.24.2 of Form 10-Q dated December 31, 1996.) 10.24.4 Executive Continuity Agreement, dated December 31, 1996, between Michael J. Drennan and the Registrant. (Incorporated by reference to Exhibit 10.24.3 of Form 10-Q dated December 31, 1996.) 10.24.5 Executive Continuity Agreement, dated December 31, 1996, between Vincent C. Dowell and the Registrant. (Incorporated by reference to Exhibit 10.24.4 of Form 10-Q dated December 31, 1996.) 10.24.6 Executive Continuity Agreement, dated June 23, 1994, between Richard W. Dean and the Registrant. (Incorporated by reference to Exhibit 10.24.6 of Form 10-K dated June 15, 1994.) 10.24.7 Executive Continuity Agreement, dated December 31, 1996, between Nick S. Mandrycky and the Registrant. (Incorporated by reference to Exhibit 10.24.5 of Form 10-Q dated December 31, 1996.) 10.24.8 Executive Continuity Agreement, dated December 31, 1996, between Rickey W. Wallace and the Registrant. (Incorporated by reference to Exhibit 10.24.6 of Form 10-Q dated December 31, 1996.) 10.24.9 Executive Continuity Agreement, dated December 31, 1996, between F. Lynn Hamb and the Registrant. (Incorporated by reference to Exhibit 10.24.7 of Form 10-Q dated December 31, 1996.) 10.24.10 Executive Continuity Agreement dated December 31, 1996, between David B. Lupp and the Registrant. (Incorporated by reference to Exhibit 10.24.8 of Form 10-Q dated December 31, 1996.) 10.24.11 Executive Continuity Agreement dated December 31, 1996, between Susan R. Stamp and the Registrant. (Incorporated by reference to Exhibit 10.24.9 of Form 10-Q dated December 31, 1996.) 10.25 Key Man Life Insurance Policy, dated December 17, 1992, issued by The Mutual of New York on the life of John W. O'Leary, in the amount of $2,000,000, with the Registrant named as beneficiary. (Incorporated by reference to Exhibit 10.25.2 to the Registration Statement on Form S-1.) 10.26.1 Lease Agreement, dated May 12, 1992, between Uniland Development Company and the Registrant with respect to 165 Creekside Drive, Tonawanda, New York. (Incorporated by reference to Exhibit 10.26.1 to the Registration Statement on Form S-1.) 10.26.2 First Amendment, dated April 23, 1993, to Lease Agreement referenced in Exhibit 10.26.1. (Incorporated by reference to Exhibit 10.26.2 to the Registration Statement on Form S-1.) 10.27.1 Lease Agreement, dated December 29, 1992, between Uniland Development Company and the Registrant with respect to 70 John Glenn, Amherst. (Incorporated by reference to Exhibit 10.27 to the Registration Statement on Form S-1.) 10.27.2 First Amendment, dated September 17, 1993, to Lease Agreement referenced in Exhibit 10.27.1. (Incorporated by reference to Exhibit 10.27.2 of Form 10-K dated June 15, 1994.) 10.28 Form of Registration Rights Agreement. (Incorporated by reference to Exhibit 10.28 to the Registration Statement on Form S-1.) 10.29 Form of Directors and Officers Indemnification Agreement. (Incorporated by reference to Exhibit 10.29 to the Registration Statement on Form S-1.) 10.30 1993 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit 4.5 to the Registration Statement on Form S-8.) 10.31 1993 Outside Director Stock Option and Restricted Stock Plan. (Incorporated by reference to Exhibit 10.31 of Form 10-K dated June 15, 1995.) 11 Statement re Computation of Per Share Earnings. 21 Subsidiaries of the Registrant 23 Consent of KPMG Peat Marwick 27 Financial Data Schedule
EX-10.23 2 FORM OF DEMAND NOTE EXHIBIT 10.23 FORM OF DEMAND NOTE (REFERENCE ATTACHED SCHEDULE) -------------------------------------------------- AMOUNT: AMHERST, NEW YORK DATE: FOR VALUE RECEIVED, the undersigned promises to pay to the order of INTERNATIONAL IMAGING MATERIALS, INC. ("IIMAK") at its offices at 310 Commerce Drive, Amherst, New York 14228, the sum of ---------------------- and /100 dollars ($ ), payable on demand. This Note shall not bear interest until maturity. After maturity (whether on acceleration or otherwise), this Note shall bear interest on the unpaid principal balance at a rate of twelve percent (12%) per annum. Interest shall be calculated on the basis of one three hundred sixty-fifth (1/365th) of the above specified rate in effect for each calendar day such principal balance is unpaid. This Note shall be immediately due and payable upon the termination of the undersigned's employment with IIMAK for any reason. The holder of the Note has full recourse against all of the undersigned's assets for collection of the unpaid principal balance on the Note. The undersigned shall have the right to prepay at any time without premium or penalty, any or all of the principal indebtedness under this Note. Any holder of the Note may declare all indebtedness evidenced by this Note to be immediately due and payable upon: (1) the filing by or against the undersigned of a request or petition for reorganization, arrangement, adjustment of debts, adjudication as a bankrupt, relief as a debtor or other relief under the bankruptcy, insolvency or similar laws of the United States or any state or territory thereof or any foreign jurisdiction, now or hereafter in effect; or (2) the making of any general assignment by the undersigned for the benefit of creditors. No failure by the holder of this Note to exercise, and no delay in exercising, any right or power hereunder shall operate as waiver thereof, nor shall any single or partial exercise by such holder of any right or power hereunder preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the holder hereof as herein specified are cumulative and not exclusive of any other rights or remedies which such holder may otherwise have. No modification, rescission, waiver, forbearance, release of amendment of any provisions of this Note shall be made, except by a written agreement duly executed by the undersigned and the holder hereof. The undersigned hereby waives diligence, presentment, protest and demand, and also notice of protest, demand, dishonor and nonpayment of this Note. The Note shall be governed by the laws of the State of New York. The undersigned agrees to pay all costs and expenses incurred by the holder hereof in enforcing this Note, including, without limitation, actual attorneys' fees. - -------------------------- --------------------------------------------- Date Name EX-10.231 3 FORM OF TERM NOTE EXHIBIT 10.23.1 FORM OF TERM NOTE (REFERENCE ATTACHED SCHEDULE) ----------------- AMOUNT: AMHERST, NEW YORK PAYOR: DATE: FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay to the order of INTERNATIONAL IMAGING MATERIALS, INC. ("IIMAK") at its offices at 310 Commerce Drive, Amherst, New York 14228, the sum of ---------------------- and /100 ($ ) or, if less, the aggregate unpaid principal amount of all advances made by IIMAK to the Borrower pursuant to the terms of this Note. Borrower may obtain advances under this Note up to the principal sum hereof by making requests of IIMAK from time to time either orally or in writing (herein called "Loan Requests"). If IIMAK, in its sole discretion, decides to honor a Loan Request, then IIMAK shall advance the amount of the Loan Request to Borrower. In addition, IIMAK and the Borrower shall endorse the grid attached hereto, which is a part of this Note, accordingly. All payments made on account of principal hereof shall be endorsed by both IIMAK and Borrower on the attached grid. One-third of the principal sum hereof, or if less, the entire remaining unpaid principal balance, is due and payable on each of May 1, 1997, 1998 and 1999. Irrespective of these scheduled repayments, this Note shall be immediately due and payable upon the termination of the Borrower's employment with IIMAK for any reason. The holder of the Note has full recourse against all of the Borrower's assets for collection of the unpaid principal balance on the Note. The Borrower shall have the right to prepay at any time, without premium or penalty, any or all of the principal indebtedness under this Note. Any holder of the Note may declare all indebtedness evidenced by this Note to be immediately due and payable upon: (1) the filing by or against the Borrower of a request or petition for reorganization, arrangement, adjustment of debts, adjudication as a bankrupt, relief as a debtor or other relief under the bankruptcy, insolvency or similar laws of the United States or any state or territory thereof or any foreign jurisdiction, now or hereafter in effect; or (2) the making of any general assignment by the Borrower for the benefit of creditors. This Note shall not bear interest until maturity. After maturity (whether on acceleration or otherwise), this Note shall bear interest on the unpaid principal balance at a rate of twelve percent (12%) per annum. Interest shall be calculated on the basis of one three hundred sixty-fifth (1/365th) of the above specified rate in effect for each calendar day such principal balance is unpaid. No failure by the holder of this Note to exercise, and no delay in exercising, any right or power hereunder shall operate as waiver thereof, nor shall any single or partial exercise by such holder of any right or power hereunder preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the holder hereof as herein specified are cumulative and not exclusive of any other rights or remedies which such holder may otherwise have. No modification, rescission, waiver, forbearance, release or amendment of any provisions of this Note shall be made, except by a written agreement duly executed by the Borrower and the holder hereof. The Borrower hereby waives diligence, presentment, protest and demand, and also notice of protest, demand, dishonor and nonpayment of this Note. The Note shall be governed by the laws of the State of New York. The Borrower agrees to pay all costs and expenses incurred by the holder hereof in enforcing this Note, including, without limitation, actual attorneys' fees. - ---------------------------- --------------------------------------------- Date Borrower SCHEDULE OF DEMAND AND TERM NOTES OF PERSONS INDEBTED TO INTERNATIONAL IMAGING MATERIALS, INC. IN AN AGGREGATE AMOUNT IN EXCESS OF $60,000
Date of Payor of Type of Amount of Note Note Note Note - -------------------- ----------------- ------- ----------- April 10, 1996 John W. O'Leary Term $ 47,626.00 February 24, 1997 John W. O'Leary Demand 63,725.33 March 26, 1997 John W. O'Leary Demand 421,878.34 June 16, 1997 John W. O'Leary Demand 184,280.37 June 30, 1997 John W. O'Leary Demand 1,431,336 ------------- $2,148,846.04 ============= April 10, 1996 Nick S. Mandrycky Term $ 13,757.33 May 8, 1995 Nick S. Mandrycky Demand 56,959.53 November 26, 1996 Nick S. Mandrycky Demand 10,852.97 ----------- $ 81,569.83 =========== April 10, 1996 David B. Lupp Term $ 10,769.33 September 19, 1995 David B. Lupp Demand 29,627.62 March 25, 1996 David B. Lupp Demand 3,860.00 March 29, 1996 David B. Lupp Demand 24,495.12 December 4, 1996 David B. Lupp Demand 7,330.00 March 26, 1997 David B. Lupp Demand 22,467.94 ----------- $ 98,550.01 ===========
EX-11 4 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 INTERNATIONAL IMAGING MATERIALS, INC. CALCULATION OF NET INCOME PER SHARE OF COMMON STOCK (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Fiscal Year Ended March 31 -------------------------- 1995 1996 1997 ------- ------- -------- Net income $9,970 $9,903 $11,296 Weighted average shares outstanding 8,326 8,750 8,571 Common stock equivalents for restricted stock, stock options and warrants 767 474 396 ------ ------ ------- Weighted average common shares outstanding as adjusted 9,093 9,224 8,967 ====== ====== ======= Net income per share of common stock $ 1.10 $ 1.07 $ 1.26 ====== ====== =======
EX-21 5 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 INTERNATIONAL IMAGING MATERIALS, INC. SUBSIDIARIES Name: International Imaging Materials FSC Ltd. Jurisdiction of Incorporation: U.S. Virgin Islands Name: IIMAK DRM, Inc. Jurisdiction of Incorporation: Delaware EX-23 6 CONSENT OF KPMG PEAT MARWICK Exhibit 23 Independent Auditors' Consent ----------------------------- The Board of Directors International Imaging Materials, Inc.: We consent to incorporation by reference in the registration statement (No. 33- 71716) on Form S-8 of International Imaging Materials, Inc. of our reports dated April 23, 1997, relating to the consolidated balance sheets of International Imaging Materials, Inc. and subsidiaries as of March 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended March 31, 1997, and related schedule, which reports appear in or are incorporated by reference in the March 31, 1997 annual report on Form 10-K of International Imaging Materials, Inc. /s/ KPMG Peat Marwick LLP ----------------------------------------- KPMG Peat Marwick LLP Buffalo, New York July 28, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR MAR-31-1997 APR-01-1996 MAR-31-1997 444 0 17,726 (275) 15,869 36,322 105,951 28,320 118,474 21,107 1,111 0 0 86 87,782 118,474 106,894 106,894 75,737 75,737 13,216 0 562 17,379 6,083 11,296 0 0 0 11,296 1.26 1.26
-----END PRIVACY-ENHANCED MESSAGE-----